The Monday Report

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By Greg Peel

Clean Out

I noted on Friday morning that the overnight futures had “boldly” called the ASX200 up 28 points from the open after two days of rampant selling. The index did manage a 16 point gain but struggled thereafter. By early afternoon we were down 34 points.

Only then did the cavalry make an appearance. Resources stocks were hot property prior to two sessions of Sell Australia and they were picked up at lower prices ahead of the weekend. The top ten up-movers list for the day was almost all resource stocks. The banks managed to find a bid late afternoon but the financials sector still managed a 0.6% drop after AMP ((AMP)) wrote down its insurance business and triggered a 9% share price plunge.

Having already been sold down heavily for some time before last week’s rout, yield stocks were still being sold on Friday.

The ASX200 closed down 2.7% for the week. By comparison, the US S&P500 closed down 0.7%. Aside from some individual stocks suffering as a result of AGM revelations or other matters, someone had decided to exit the allocation to Australia in their portfolio, it would appear, and caught the market feeling a bit flighty.

We now have a new pivot level from which to assess this week’s proceedings. The week will be dominated by central banks, with all of the RBA, Bank of Japan, Fed and Bank of England holding policy meetings. And there is one more week until the US election.

Tomorrow is Cup Day, which aside from assuring thin afternoon trade, ushers in the Silly Season. Yes, Christmas is in sight.

Bring it on

By the time the release of the first estimate of US September quarter GDP was due, consensus forecasts had pushed expectation up to 2.9% growth. And that’s exactly what was reported. It’s a far cry from the 1.4% managed in the June quarter, and the strongest quarter in two years.

Wall Street wasn’t entirely sure how to respond to an in-line result. If nothing else, it only serves to further strengthen expectations of a Fed rate hike in December. The latest poll on that expectation sits at 83%. This week’s Fed meeting is only afforded a very slim chance of producing a rate hike given next week’s election.

Eventually Wall Street decided stronger economic growth is actually a good thing, and of course the quarterly earnings results continued to flow thick and fast.

Shares in Amazon fell 5% after it disappointed on the bottom line but the company has been priced to perfection and beyond of late. Alphabet (Google) managed to eke out a small gain. The big oil & gas companies traded off results, with Chevron gaining 4% and Exxon falling 2.5%.

But just when it looked like the Dow might be set for a triple-digit gain, news hit the wires at lunchtime that the FBI was reopening the investigation into the Clinton emails. If there was any doubt as to which result Wall Street wants to see at the election, if reluctantly, that bit of news had the Dow turning down 160 points very swiftly. Only a late comeback prevented another weak session.

The Dow closed down 8 points and the S&P lost 0.3% to 2126 as the Nasdaq fell 0.5%, dominated by Amazon.

The general feeling is that anyone who had an issue with the whole Clinton email debacle has already made up their mind as to whether this influences their vote or not. Hence reopening the FBI investigation should not make a lot of difference and there’s only a week to go. But Trump is clawing back in key states. The problem is, there are so many polls and their results are often so very different.

I’m yet to hear anyone say “There’s only one poll that matters…”. Maybe that’s just us.

Commodities

OPEC members held marathon meetings in Vienna over the weekend, ahead of the official meeting scheduled for November 30. And blow me down, they were unable to reach an agreement.

The sticking point remains the exemptions expected by both Iran and Iraq. They want total exemptions, while the Saudis expect at least some production discipline, if not a cut to the extent of others. So, we’ll have to see what happens in oil markets tonight. But 1.7% gain for the Australian energy sector on Friday is looking shaky.

On Friday night, ahead of the meeting, West Texas crude fell US85c to US$48.75/bbl.

Base metal prices all rose 0.5-1.5% in London, on the back of the strong US GDP result.

The US dollar, however, dropped 0.6% to 98.32, which looks a bit like a sell-the-fact if it’s not a response to the Clinton news. Gold thus rose US$5.90 to US$1274.90/oz.

Iron ore rose US80c to US$63.10/t.

The Aussie is up 0.1% at US$0.7597.

The SPI Overnight closed down 3 points on Saturday morning.

The Week Ahead

The RBA meets tomorrow. There are some who believe a rate cut will be forthcoming, but most believe it unlikely.

The BoJ meets tomorrow. Having introduced qualitative quantitative easing at the last meeting, the BoJ is unlikely to do much at this one.

The Fed releases its policy statement on Wednesday night. The market is pricing in only the slightest chance of a rate hike.

The Bank of England meets on Thursday night. Given the eerie lull between the Brexit vote and whatever is to come, little is expected.

The eurozone will release its September quarter GDP result tonight.

Tomorrow is the first of the month, which means the usual round of manufacturing PMIs, and tomorrow is the first Tuesday in November, and we know what that means. Yes – an RBA meeting. Services PMIs flow on Thursday.

The first week of the month means jobs week in the US. Unless something is wildly remiss, Friday’s non-farm payrolls will probably be a fizzer.

The week will also feature personal income & spending and the PCE inflation measure tonight, along with the Chicago PMI, construction spending and vehicle sales on Tuesday, along with the manufacturing PMI, and the private sector jobs report on Wednesday, along with the Fed meeting.

Thursday it’s the services PMI, factory orders, chain store sales and third quarter productivity, and Friday it’s the trade balance and jobs.

Locally we’ll see private sector credit today, the PMIs tomorrow and Thursday, building approvals on Wednesday, the trade balance on Thursday and the RBA’s quarterly Statement on Monetary Policy on Friday.

Victoria will be closed for business tomorrow. Everywhere else will be open, but distracted in the afternoon.

Rudi will appear on Sky Business on Tuesday, via Skype, to discuss broker calls at 11.15am. He'll appear in the studio on Wednesday (instead of the regular Thursday slot) from 12.30-2.30pm. Then on Thursday he'll be interviewed by Peter Switzer between 7-8pm. He'll repeat the Skype link at around 11.05am on Friday.
 

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