Tag Archives: Bonds/Interest Rates

article 3 months old

Australian Corporate Bond Price Tables

PDF file attached.

Corporate bonds offer an alternative to equity investment in providing a fixed “coupon”, or interest payment, unlike equities which pay (or not) non-fixed dividend payments, and a maturity date, unlike equities which are open-ended.

Listed corporate bonds can be traded just as listed shares can be traded. Bonds bought at issue and held to maturity do not offer capital appreciation as an equity can, but assuming no default do not offer downside capital risk either. Pricing is based on market perception of default risk, or “credit risk”, throughout the life of the bond.

Bonds do offer capital risk/reward if traded on the secondary market within the bounds of issue and maturity. Coupon rates are fixed but bond prices fluctuate on perceived changes in credit risk and on changes in prevailing market interest rates.

Note that the attached tables offer three “yield” figures for each issue, being “coupon”, “yield” and “running yield”.

If a bond is purchased at $100 face value and a 5% coupon, and face value is returned at maturity, the running yield is 5% and the yield, or “yield to maturity” is 5%.

If a bond is purchased in the secondary market at greater than $100, the running yield, which is the per annum yield for each year the bond is held, is less than 5% because the coupon is paid on face value. The yield to maturity is also less than the coupon as more than $100 is paid to receive $100 back at maturity.

If a bond is purchased in the secondary market at less than $100, the running yield, which is the per annum yield for each year the bond is held, is more than 5% because the coupon is paid on face value. The yield to maturity is also more than the coupon as less than $100 is paid to receive $100 back at maturity.

Note that if a bond is trading on the secondary market at a price greater than face value the implication is the market believes the bond is less risky than at issue, and if at a lesser price it has become more risky. Bonds trading on yields substantially higher than their coupons thus do not offer a bargain per se, just a higher risk/reward investment. In all cases, bond supply and demand balances will also impact on secondary pricing.

Note also that while most coupons are fixed, the attached table also provides prices for capital indexed bonds (CIB) and indexed annuity bonds (IAB).

This service is provided for informative purposes only. It is not, and should not be treated as, a solicitation or recommendation to buy corporate bonds. Investors should always consult their financial adviser before acting on any information gleaned from this service. FNArena does not guarantee the accuracy of information provided. Note that while FNArena publishes this table weekly, prices are fluid and potentially changing throughout each trading day. Hence prices tabled may not reflect actual market prices at the time of reading.

FNArena disclaimer

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article 3 months old

The Overnight Report: Limbo Land

By Greg Peel

The Dow closed down one point while the S&P fell 0.1% and the Nasdaq jumped 0.6%.

Two Speed Inflation

If you look at yesterday’s Australian June quarter CPI numbers at face value it’s hard to see why the RBA wouldn’t have already decided to cut in August. Headline inflation rebounded 0.4% from the March quarter shock -0.2% fall but annual inflation is still lower, and at 1.0% is the lowest since 1999.

Core inflation rose 0.5% for an annual rate of 1.5%, which while better than 1.0%, is still below the RBA’s 2% target and a record low.

So why was there uncertainty in the market yesterday? Why did the Aussie go up first – seemingly the wrong way – then straight back down again to be little changed?

Well for once, it’s all about the breakdown of CPI components. As the CBA economists, for one, suggested yesterday, not all deflation is bad. The major drag on the headline were lower costs for groceries (down, down), lower costs for telco services (consolidation and competition in the industry) and lower rents (apartment oversupply). All of these are beneficial for consumers suffering from record low wages growth.

And indeed, while inflation might be low, the numbers were no lower than the RBA’s updated forecasts following the March numbers. March caught the central bank by surprise, but these June numbers are as expected.

The RBA, via APRA, may have successfully headed off a housing bubble for now, but whereas overstretched mortgages were a prior concern, the new concern is too many apartments. Cut the cash rate again, and there is a risk of further fuelling that particular fire. And will a rate cut have any impact whatsoever on grocery price inflation, for example? No. So once again the RBA finds itself between a rock and a hard place.

A quick straw poll of bank economists has them split this morning between cut and no cut next week, with CBA possibly summing up the mood by suggesting the RBA will indeed cut, “through gritted teeth”.

The stock market was already heading down from a spike opening yesterday and traded lower after the CPI release, then higher, then flat. No one’s quite sure what to make of it.

Among the sectors, the two stand-out moves were materials, up 1.8% on the iron ore price jump, and – yes it had to happen eventually – utilities, down 1.3%.

Clarity Diminished

We knew yesterday morning that Apple (Dow) had posted a strong result after the bell and last night the stock led indices to a strong opening with a 6.5% gain. Apple held its ground but the wider market then sold off to be flat, as per usual, ahead of the Fed statement.

Balancing out Apple to some extent in the Dow was Coca-Cola, who disappointed and suffered a 3% fall. After the bell this morning, a good result from Facebook has its shares up 5.5%.

There was one sentence in the Fed statement that has been at the centre of the debate since the release: “Near term risks to the economic outlook have been diminished”.

That word, “diminished”, has been enough to have business TV commentators locking in a September hike and at least one investment bank immediately issuing a note to that effect. But one TV economist did point out that while “diminished” is new, previously “balanced” has been used in the language. Is diminished more hawkish than balanced, or not?

Well look at it this way. This morning we obserfve the US dollar index down 0.4% at 96.76, the US ten-year yield down 5 basis points to 1.51% and gold up US$20.00 at US$1339.70/oz. Those moves scream no September rate cut. To top it off, the Fed funds futures market has reduced its implied chance of a September rate hike to 18% from 30% before the statement release.

Is it any wonder Wall Street closed flat (notwithstanding Apple’s skewed impact on the Nasdaq)? No one is any the wiser.

Given the Fed meets every six weeks, not calendar monthly, there is no meeting in August. But every August, central bankers meet at the place of QE infamy, Jackson Hole. It was here Ben Bernanke tipped the market off to upcoming QE1, QE2 and so on all those years ago. Janet Yellen didn’t go to Jackson Hole last year (she’s under no obligation), but she is going this year.

Before then we’ll have another jobs number. Incidentally, I have been highlighting a solid run of US data recently but last night’s durable goods orders result disappointed with a -4.0% fall when a -1.7% fall was expected. Perhaps the main reason why Wall Street does not see September as a goer.

Commodities

LME traders certainly did not like the weak US durable goods number. Despite the weaker greenback, copper, lead and zinc all fell 2% in last night’s trade.

Oil is also down another 2%, with West Texas crude falling US73c to US$41.91/bbl. While the resumption of lower oil prices is impacting on US energy sector stocks, it is having nothing like the sort of impact on Wall Street psyche it did earlier this year.

That’s probably because there was surprise WTI made it all the way back to 50, and a lot of analyst talk oil would need to go lower again before it could go higher, in order to squeeze out marginal supply. But we’re not talking 25 again. Maybe 35, but perhaps 40 is enough to bring the buyers back in. There’s no real panic.

Iron ore is up US60c at US$58.00/t.

The Aussie is down 0.2% at US$0.7487.

Today

The SPI Overnight closed up 11 points or 0.2%.

Today we see a bit of a support act doing its thing ahead of the main event next month. We have a burst of early-season earnings results, including those from CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)), OceanaGold ((OGC)) and (tonight) ResMed ((RMD)).

Macquarie Group ((MQG)) holds its AGM today and invariably provides a trading update.

Rudi will appear twice on Sky Business today. First from 12.30-2.30pm and then again on Switzer TV, between 7-8pm.


All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Poised

By Greg Peel

The Dow closed down 19 points or 0.1% while the S&P was flat at 2169 and the Nasdaq rose 0.2%.

Resilient

It was back to a familiar pattern on the local market yesterday as the ASX200 plunged 35 points on the opening rotation before bouncing sharply to ultimately stumble its way back into the positive. Any attempts to send this market into reverse appear ill-fated at present.

The sector to watch yesterday was always going to be energy, given the oil price fell out of its technical range overnight. In the end a 1.5% drop on the day was a modest response compared to the sort of volatility we were seeing earlier in the year.

With the short-coverers licking their wounds, Woolworths ((WOW)) was able to fall back 3% yesterday to a more sensible level after Monday’s 8% pop. Analysts have applauded the tough stance being taken by the embattled supermarket, but do not foresee any great turnaround for some time yet.

Consumer staples thus closed down 0.8% in what was otherwise a mixed session across the sectors. Investors were no doubt positioning ahead of today’s local CPI release, and RBA implications, and tonight’s Fed statement release. The banks had a good day, healthcare didn’t, the telcos are being dominated by a down-playing of expectations from Telstra ((TLS)) and would you know it, utilities was up again.

Materials was flat yesterday but may not be today following a big jump in the iron ore price overnight.

Today’s June quarter CPI numbers could be interesting. The March numbers shocked with a 0.2% drop in quarterly headline inflation and despite a 0.2% rise in the RBA’s core inflation measure, the central bank wasted no time in acting.

Economists are forecasting a turnaround in June to 0.4% headline growth but for annual headline inflation to fall to 1.1% from 1.3%. If the RBA acted at 1.3%, why would it not act again at 1.1%? Except for the fact economists expect core inflation to rise to 1.7% from 1.5%.

That’s still outside the RBA’s 2-3% comfort zone, but is it enough to ensure an August rate cut?

Looks like we’ll have to wait for the actual results.

Hamburgled

McDonalds (Dow) posted a shocker last night. The 4.5% fall for this otherwise defensive consumer staple (Yes – in America fast food is considered staple) was its biggest one day drop since the GFC, and worth 40 Dow points.

It was enough to sour the early mood on Wall Street, along with another dip in the oil price, and the Dow was consequently down over a hundred points in early trade. But as was the case on the local market yesterday, Wall Street fought its way back to a flat close.

In other Dow earnings news, new Yahoo owner Verizon posted a beat but its share price fell, while share price gains were booked for DuPont and United Technologies following positive reports.

After the bell this morning, Twitter disappointed and its shares are down 10% as I write, while Apple (Dow) did the opposite and its shares are up 7%. This bodes well for the Dow tonight, although we will likely see the usual quiet market ahead of the Fed.

The Fed keeps telling us it’s data dependent. Last night saw US new home sales up 3.5% in June to the highest level in seven years. Case-Shiller house prices were slightly higher in May, while the latest Conference Board monthly consumer survey showed confidence steady this month from the last.

Overall the data continue to improve, prompting many on Wall Street to point out that in any other era, the Fed would be hiking steadily. Brexit is now past us in terms of an immediate threat but no one expects the Fed to raise tonight, and there are still plenty of pundits believing the Fed will not move ahead of the election.

Any excuse, it seems. While history shows the Fed is not always kept at bay by an election, the long-running and often hysterical sitcom that is the US election process has arguably “jumped the shark” this year in terms of sheer ludicrousness.

Commodities

West Texas crude is down US41c at US$42.64/bbl.

The US dollar index is steady at 97.16 and all base metals moved 0.5-1% last night in London – copper up and the others down.

Iron ore jumped US$1.60 to US$57.40/t.

Gold is US$4.40 higher at US$1319.70/oz.

The Aussie is up 0.5% over 24 hours at US$0.7504 despite the flat greenback. This occurred in the local session yesterday and suggests there may be some concern amongst those short the currency that today’s CPI numbers won’t be as weak as many assume.

Today

The SPI Overnight closed up 12 points. We can probably attribute most of that to the iron ore price.

The CPI numbers will be out late this morning.

Tonight sees the UK post its first estimate of June quarter GDP, but being pre-Brexit it won’t mean much.

The US sees durable goods ahead of the 2pm release of the Fed statement.

On the local stock front, Fortescue Metals ((FMG)), Independence Group ((IGO)), Sandfire Resources ((SFR)) and Senex Energy ((SXY)) will post production reports today, although Independence has already pre-released some numbers.

Rudi will host Your Money, Your Call Equities tonight on Sky Business, 8-9.30pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Oil Jitters Return

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P lost 0.3% to 2168 and the Nasdaq fell 0.1%.

Pride Cometh

Once the undisputed and complacent king, Woolworths ((WOW)) will now close stores and cut back staff in order to reverse course after a lengthy fall from grace. As a Top 20 company, Woolies has offered nothing but disappointment for several years now for those still hanging on to a mega-cap, must-have principle. Yesterday was a different story.

The market saw the news as positive, and the short-coverers did the rest as Woolies jumped 8% yesterday, sending the consumer staples index up a stand-out 3.3%. At near 8%, Woolies was far and away the most shorted Top 20 stock in the market until the scramble began.

It was a less exciting session for other sectors. Consumer staples and healthcare resumed their rallies following some profit-taking on Friday, and utilities just keeps on keeping on. Outside of info tech, the resources sectors offered the only drag on a market that clearly remains in positive mode.

As to whether we can go again today is unsure nevertheless. Energy may prove a drag without another Woolies, although metals prices were relatively steady overnight and the ever-confident SPI Overnight closed up one point. Yesterday saw the ASX200 rally 35 points after the SPI had closed up 4.

Oil Concerns

The oil price was almost the singular driver of Wall Street earlier this year but once the WTI price recovered and settled into a range of US$44-50/bbl, the market turned its attention elsewhere. Last night oil traded down to US$43 and settled at its lowest level since April. Representing a break-down through the bottom of the range, oil now poses a renewed threat.

On the topside, the issue was one of a price of 50 bringing idled production back on line. This set 50 clearly as an upside barrier. On the downside, the issue is not crude but refined products.  There is a glut in the US of gasoline, diesel and other products, squeezing refiner margins and forcing refining cutbacks. These cutbacks lead to less crude demand, unwanted crude ends up in storage, and so down goes the price.

With the annual refinery maintenance season soon to begin, oil traders fear the level of crude in storage will only rise.

But it could have been worse. Sharp movements in the oil price earlier in the year had Wall Street panicking in either direction. The earnings season rolls on, and Wall Street still awaits the Fed’s decision and commentary on Wednesday night. The technicals remain to the upside, and pullbacks on the way are always considered healthy.

With regard the Fed, it is interesting to note last night’s auction of US two-year Treasuries saw the weakest demand in seven years. Dealers were left holding some 60% of notes on offer. Clearly investors are reluctant to buy short-term bonds ahead of the Fed and BoJ meetings this week.

The benchmark US ten-year yield remained unchanged at 1.57%, bearing in mind it was over 20 basis points lower at the Brexit nadir.

Commodities

West Texas crude is down US$1.20 at US$43.05/bbl.

With the US dollar index slipping 0.1% to 97.24, base metal price moves were minimal in London.

Iron ore rose US10c to US$55.80/t.

Gold is down another US$6.80 at US$1315.30/oz and is starting to look a little vulnerable ahead of the Fed meeting. If the FOMC comes out with a hawkish statement, and the market starts to bake in a September hike, gold will struggle to hold 1300.

The Aussie is up 0.2% at US$0.7468.

Today

The SPI Overnight closed up one point.

It’s a quiet day for data across the globe until the US reopens tonight, when home sales, house prices and consumer confidence will be in the frame.

Locally, ALS Ltd ((ALQ)) will hold its AGM today and Alacer Gold ((AQG)) will reportedly issue an earnings report.

This would be a good time to remind readers that all the upcoming reporting dates of major companies are listed in the FNArena calendar, on a best endeavours basis. In Australia, companies are not obliged to set a reporting date nor stick to one if they do, and for many a company, three different brokers will suggest three different dates for the same report.

Rudi will Skype-link with Sky Business today to discuss broker calls at around 11.15am.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Monday Report

By Greg Peel

Predictable

The dip overnight on Wall Street provided an excuse but realistically it was an all too predictable session on the ASX on Friday assuming no unexpected news. We had a solid run-up during the week, profits are often locked in ahead of a weekend, and next week sees critical central bank meetings that offer reason to move back to the sidelines to see what transpires.

The consumer sectors had been leaders in the rally over the week, so no great surprise they were the underperformers on Friday. Telcos also came in for some more selling, but otherwise downward moves across sectors were minimal and materials posted a sole gain with a 0.2% increase.

The pullback put the ASX200 pretty much on the 5500 level, which is rather neat, and suggests a pivot point for what happens next. The technicals remain generally bullish at this stage but we’ll still need some sort of fundamental justification to move into the next up-leg.

While markets across the globe may go quiet early this week ahead of the Fed meeting and statement release on Wednesday night, in Australia we will also see the release of June quarter CPI numbers on the Wednesday ahead of the Fed. The RBA has left the door open for an August rate cut were the June numbers to again be weak. Economists are forecasting weak numbers.

We also saw falls in commodity prices on Friday night, which should weigh on the ASX200 this morning.

Poised

The focus on Wall Street this week is clearly on the Fed, although US indices did manage slight gains on Friday night. The Dow closed up 53 points or 0.3%, the S&P gained 0.5% to 2175 and the Nasdaq rose 0.5%. The Dow and S&P both posted new highs.

On the US earnings front, the trend continues to be positive, or at least “less bad”. General Electric’s (Dow) result disappointed somewhat on Friday but with 100 of the 500 S&P stocks now having reported, the running change in earnings per share is minus 4.2% compared to a consensus forecast ahead of the season of minus 5.3%.

There are still 400 stocks to report over the next couple of weeks.

Meanwhile, the early earnings trend may be positive, thus justifying Wall Street strength, but the indices were again led by telcos and utilities on Friday night. The hunt for yield continues to override any notion of economic improvement.

US economic data have nevertheless been positive this month, and the trend continued on Friday night. A flash estimate suggested the US manufacturing PMI for July would come in at 52.9, up from 51.3 in June and well ahead of 51.5 forecasts.

It is this sudden turnaround in US data that has Wall Street assuming the Fed must now be seriously looking at a rate hike sooner rather than later, given the feared Brexit disaster did not transpire. Up until this month US data had been a bit too mixed to assure a hike, and the shockingly weak May jobs number was the cruncher. But since the June jobs number came screaming back, a string of very positive releases including retail sales, industrial production and various housing numbers has followed.

There is no hike expected on Wednesday night. But markets will be looking to see just what sort of hint the FOMC may be prepared to provide of a September move.

The Fed is under no pressure to hike this week, which is handy given Friday brings a Bank of Japan policy meeting. Strictly the Fed should not be in any way beholden to what Japan does, but given some form of shock & awe is being assumed out of Tokyo, the FOMC will no doubt be keen to see what that is before having to make its own decision.

Commodities

The issue of a Fed rate hike is one commodity markets will be concerned about. While the justification for a hike – stronger US economy – is positive for commodity prices, a consequentially stronger US dollar is not. The US dollar index rose 0.5% to 97.35 on Friday night.

An outage of a commodity trading platform during the Asian session meant many traders were cut off from base metal markets as trading shifted over to London, ensuring very light volumes were then traded on the LME. This didn’t stop nickel falling 3%, although nickel has been the outperformer of late, while other metals fell by small amounts except aluminium. It’s been the underperformer of late, and rose slightly.

Iron ore fell US40c to US$55.70/t.

West Texas crude fell US29c to US$44.25/bbl.

Gold doesn’t quite know whether it’s Arthur or Martha at the moment, as it shifts back and forward inside a 1320-40 range. Friday night’s jump in the greenback prompted a fall of US$8.60 to US$1322.10/oz.

The strong greenback ensured the Aussie was down half a percent at US$0.7455 on Saturday morning.

The SPI Overnight closed up 4 points on Saturday morning.

The Week Ahead

Fed on Wednesday night, BoJ on Friday.

Ahead of the Fed meeting, the US will see new home sales, Case-Shiller house prices, consumer confidence and the Richmond Fed index on Tuesday, and pending home sales and durable goods on Wednesday. Thereafter, Friday will bring the first estimate of US June quarter GDP.

The UK will report its GDP on Wednesday, and the eurozone on Friday, although both reflect a pre-Brexit Europe.

Along with the BoJ meeting on Friday, Japan will see a raft of June data, including inflation, retail sales, industrial production and unemployment.

On the local stock front, the last of the resource sector quarterly production reports merge this week with early movers in what is otherwise the August result season.

Among the production reporters we’ll see Newcrest Mining ((NCM)) today, Fortescue Metals ((FMG)) and Independence Group ((IGO)) on Wednesday, and Origin Energy ((ORG)) on Friday.

Thursday will bring earnings reports from CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)) and ResMed ((RMD)).

Thursday also sees the Macquarie Group ((MQG)) AGM, at which guidance will be updated.

Rudi will appear on Sky Business via Skype-link on Tuesday to discuss broker calls, 11.15am. Then on Wednesday he'll host Your Money, Your Call, 8-9.30pm. On Thursday he'll re-appear in the studio, 12.30-2.30pm and later that day he'll join Switzer TV on the channel. On Friday he'll repeat the Skype-link up at around 11.05am.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: Consolidation

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P lost 0.4% to 2165 and the Nasdaq fell 0.3%.

Stall

The ASX200 posted its tenth gain in eleven sessions yesterday but conviction waned as the day wore on. After such a solid run, not only recovering the Brexit plunge but far overshooting it, it is inevitable that a pullback of some extent should occur as profits are booked.

Having opened up over 40 points, the index closed only up 24. With Wall Street also finally seeing some consolidation last night, the futures are suggesting an open of down 32 points this morning.

Healthcare was again the star yesterday, having previously been a bit of a laggard in the rally. It rose 1.5%, outperforming more modest and relatively even gains in other sectors. The exceptions were materials, which fell another 0.4% having led out the rally from the start, and telcos, finally seeing a dip of 0.1%. Utilities were still in favour nonetheless, rising 0.6%.

The materials sector should continue to play more of an “alpha” (stock-specific) game through to next week as more quarterly production reports roll in, and as they wrap up we’ll be into the reporting season proper.

Technically, the ASX200 has done all the right things in rising to 5500. The next target should be 5800 but first we need to get past a couple of significant central bank meetings and then we need to see a successful reporting season.

Banking It

A market can’t make new highs forever, which is why nobody much minded that Wall Street pulled back last night. There were some good and not so good earnings reports on the day, but Wall Street is now looking ahead to next week’s central bank meetings and deciding to move to the sidelines.

The Fed will release its policy statement on Wednesday. A rate hike is not expected at this meeting but in the constant ebb and flow of Fed speculation, September is now firming as a good chance. Brexit has been a storm in a tea cup and recent US data, including jobs, housing industrial production and retail sales have all been solid – solid enough to put the onus on the Fed to explain why it would not raise.

The US ten-year yield has moved back up from its Brexit low of 1.36% to now sit at 1.56%. Gold has stopped rising, although it’s interesting to note that having fallen around US$15 on Wednesday night understandably, gold last night rallied back US$15.40 to US$1330.70/oz on only a 0.3% retreat for the dollar index to 96.88.

Next Friday the Bank of Japan will meet. No one knows for sure what it has in mind, but ever since the Abe government won a sweeping majority in the recent upper house election the market has assumed that whatever it is, it won’t be pop gun stuff. Mind you, I have noted before that whenever the world assumes big things from the BoJ it does nothing, and vice versa.

And on that subject, nothing is exactly what the ECB did last night, unsurprisingly. Mario Draghi pledged low rates for longer and a continuation of QE into 2017, and perhaps beyond, but saw no reason to introduce any new measures. The ECB’s status quo decision follows the Brexit rebound and a similar decision by the Bank of England last week.

Had any combination of the BoE, ECB and BoJ been forced to act swiftly to stave off post-Brexit disaster, the Fed would have an argument that staying put is the sensible option. We still await the BoJ.

And just to underscore the argument for a Fed rate hike, US existing home sales rose 1.1% in June to the strongest rate since February 2007.

Commodities

There is talk of Libya being able to recommence export from an oil terminal and that had a negative impact on oil prices last night. However, the West Texas contract rolled over into September front month delivery and often we see some selling at expiries. It’s down US$1.21 to US$44.54/bbl.

Aluminium continues to suffer from building inventories and it was down another 1.5% last night in London. The Philippines story continues to drive nickel, which rose 1.5%, while the other metals were quiet.

Iron ore rose US$1.00 to US$56.10/t.

On the dip in the greenback, the Aussie is up 0.4% at US$0.7495.

Today

The SPI Overnight closed down 32 points or 0.6%. And it’s Friday.

Japan, the eurozone and US will all post flash estimates of July manufacturing PMIs today/night.

Santos ((STO)) and OZ Minerals ((OZL)) will post production reports today.

Rudi will Skype-link with Sky Business this morning at around 11.05am to discuss broker calls.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

Australian Corporate Bond Price Tables

PDF file attached.

Corporate bonds offer an alternative to equity investment in providing a fixed “coupon”, or interest payment, unlike equities which pay (or not) non-fixed dividend payments, and a maturity date, unlike equities which are open-ended.

Listed corporate bonds can be traded just as listed shares can be traded. Bonds bought at issue and held to maturity do not offer capital appreciation as an equity can, but assuming no default do not offer downside capital risk either. Pricing is based on market perception of default risk, or “credit risk”, throughout the life of the bond.

Bonds do offer capital risk/reward if traded on the secondary market within the bounds of issue and maturity. Coupon rates are fixed but bond prices fluctuate on perceived changes in credit risk and on changes in prevailing market interest rates.

Note that the attached tables offer three “yield” figures for each issue, being “coupon”, “yield” and “running yield”.

If a bond is purchased at $100 face value and a 5% coupon, and face value is returned at maturity, the running yield is 5% and the yield, or “yield to maturity” is 5%.

If a bond is purchased in the secondary market at greater than $100, the running yield, which is the per annum yield for each year the bond is held, is less than 5% because the coupon is paid on face value. The yield to maturity is also less than the coupon as more than $100 is paid to receive $100 back at maturity.

If a bond is purchased in the secondary market at less than $100, the running yield, which is the per annum yield for each year the bond is held, is more than 5% because the coupon is paid on face value. The yield to maturity is also more than the coupon as less than $100 is paid to receive $100 back at maturity.

Note that if a bond is trading on the secondary market at a price greater than face value the implication is the market believes the bond is less risky than at issue, and if at a lesser price it has become more risky. Bonds trading on yields substantially higher than their coupons thus do not offer a bargain per se, just a higher risk/reward investment. In all cases, bond supply and demand balances will also impact on secondary pricing.

Note also that while most coupons are fixed, the attached table also provides prices for capital indexed bonds (CIB) and indexed annuity bonds (IAB).

This service is provided for informative purposes only. It is not, and should not be treated as, a solicitation or recommendation to buy corporate bonds. Investors should always consult their financial adviser before acting on any information gleaned from this service. FNArena does not guarantee the accuracy of information provided. Note that while FNArena publishes this table weekly, prices are fluid and potentially changing throughout each trading day. Hence prices tabled may not reflect actual market prices at the time of reading.

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article 3 months old

The Overnight Report: Conviction Lite

By Greg Peel

The Dow closed up 36 points or 0.2% while the S&P gained 0.4% to 2173 as the Nasdaq rose 1.1%.

Healthy

Healthcare led the local market up yesterday with a 1.7% rise thanks to a 2% gain for mega-cap CSL ((CSL)) in response to a broker upgrade. Meanwhile, the consumer sectors continue to be the consistent players in the run above 5400 for the index, with both staples and discretionary gaining 1.4%.

One might argue whether staples is truly a “defensive” sector these days amidst the supermarket wars and the sheer size of the major players in the sector, but it seems Woolies is a stock investors find difficult not to hold in a portfolio.

The same could be said for BHP Billiton ((BHP)), which yesterday posted a mixed production report and helped materials down 1.4%, to post the only sector loss. The move down in the big miners was countered by a 1% gain for the banks, for which the story is much the same in terms of “must-haves” of the bygone era.

Were this recent rally to be a cyclical one, we would be seeing a rotation out of some of the defensives many an analyst sees as overbought. But yesterday telcos and utilities continued to rise along with the market.

What we’re likely seeing here is a combination of TINA and FOMO – there is no alternative and fear of missing out. With a central bank safety net under global stocks – and that will likely include another RBA rate cut -- there doesn’t seem much risk in holding stocks and there’s no point in suggesting the rally lacks fundamental basis if it’s just going to keep moving higher.

Yesterday’s session represented the ninth gain for the ASX200 in ten.

The Aussie is continuing to go the right way as well, down another 0.6% this morning at US$7463.

Spectators

There may not be too much FOMO going on on Wall Street at the moment given the ongoing graft into new blue sky territory is occurring on very low volumes, even for summer. Commentators make constant reference to historically high levels of US cash on the sidelines but new all-time highs, and bullish talk, has not yet been enough to shift that cash back into play.

Which is interesting considering you basically get no return on your cash in the US.

Microsoft (Dow) was the talk of the Street last night after having posted an earnings beat in Tuesday night’s aftermarket and a 5% gain in last night’s session. Traders were most excited about one particular element of Microsoft’s result, being its suddenly popular cloud business. A successful move into the cloud shifts the tech stalwart more into “new tech” territory from its “old tech” status.

Microsoft’s result spurred a fresh round of tech stock buying on Wall Street last night, as evidenced by Nasdaq outperformance.

Morgan Stanley rounded out the bank sector results with a solid beat, just as each US bank has largely done. MS shares rose 2%.

After the bell this morning, we note Dow stocks Intel and American Express are seeing post-result selling, down 3% and 1.5% respectively as I write. EBay, on the other hand, is up 6%.

We’re still only now getting into the meaty part of the US results season but so far the beats are clearly outweighing the misses. It must be taken into consideration nevertheless – and here the banks are a case in point – that most of the “beats” reflect not-as-bad-as-expected profit declines rather than profit growth.

Yet Wall Street is creating new highs every day.

There is also a growing concern that the VIX volatility index on the S&P500 has fallen to 11, which is typically the bottom of the range and often the contrarian signal for volatility to come. In theory, 11 suggests over-complacency. In practice, it means fewer investors feeling the need to buy downside protection for their portfolios.

While 11 is about as low as it goes, the VIX can hang around the lows for long periods of time. I’d also wager that the current low level is a result of so many investors being burnt on protection they took against a Brexit disaster that lasted all of five minutes, they are wary of making the same mistake twice.

One doesn’t need one’s own put options. The central banks have that covered.

Commodities

It was weekly US oil inventory night last night and for the ninth week in a row, crude inventories fell. Last week’s drop was greater than expected so West Texas is up US37c at US$44.94/bbl.

The US dollar index continues to tick higher, and is up another 0.1% at 97.14 this morning. While the strong dollar is acting as a headwind for commodity prices it’s not yet causing any major dramas. Base metal prices were once again mixed on small moves last night in London, other than a 1.5% fall for aluminium.

Iron ore is unchanged at US$55.10/t.

It’s a different story for gold. Are those assuming EU turmoil, BoJ shock & awe and a timid Fed starting to lose their conviction? Gold is down US$16.40 at US$1315.30/oz.

Today

The SPI Overnight closed up 20 points or 0.4%, matching the S&P500. That would take the ASX200 past the 5500 level.

The ECB holds a policy meeting tonight. There should not be any great surprise if the central bank does nothing, given the world has shaken off Brexit altogether and the euro is lower, which is exactly what the doctor ordered.

It’s a busy night for US data tonight, including existing home sales, house prices, the Philly Fed index, the Chicago Fed national index and leading economic indicators.

NAB will publish a June quarter summary of its business confidence survey today.

Woodside Petroleum ((WPL)), South32 ((S32)) and Evolution Mining ((EVN)) will post production reports today.

Rudi will appear on Sky Business from 12.30pm until 2.30pm today.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

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article 3 months old

If Stocks Are Doing So Well, Why Am I Worried?

By Peter Switzer, Switzer Super Report

One of the greatest worries I have at the moment is the bond market. I have had this fear for some time and it’s because it has been screaming that something is wrong with the economic world we live in and it’s why yields on government bonds have been going lower and lower.

And while a low bond rate or yield should be good for stocks, especially dividend paying stocks, the lowness of these rates have been sounding out an alarm which says “beware!”

All of this concern, just as the S&P 500 and the Dow Jones indexes have hit all-time highs this week makes more sense when you are privy to what bond market experts have always told me. To sum it up in a sentence it goes like this: “The bond market is usually right.” Some real bond market lovers have told me that “the bond market is always right” but that is hyperbole from biased bond guys.

The following chart shows you what has done well over the past year for someone in US stocks or US bonds.

Techie expert Carter Worth from Cornerstone Macro in the US has shown CNBC that while stocks, which are relatively risky, were up 2.72% since May 2015, the very safe bond play netted a 21.43% return!

How did that happen when bond interest rates and yields are so low and have been going lower? Well, for those bond funds that have bought bonds at 3% which we would say is low and then they go to 1.5%, then those 3% bonds are now worth a hell of a lot more!

The simple rule of the bond market, which I learnt and taught at the University of New South Wales many years ago was if interest rates are expected to fall then current bonds at relatively higher rates than what will be around in the future become more valuable and demandable.

Those who demand these bonds will raise the price they are prepared to pay for the bonds in trying to seize a bond with a higher coupon rate, which becomes more valuable when newer bonds have a lower coupon rate on them. It gives rise to the simple rule of thumb that when bond prices rise yields fall or when rates fall bond prices rise.

But why do bond prices rise? Well as I said it’s because there is a view that current bond interest rates look relatively good. If the majority of influential investors are scared about the future then they will get out of stocks and rush to the safe haven of bonds. The new demand for bonds pushes up the price of existing bonds and because you are paying more for a bond with a set interest rate on it, is effectively pushes down the yield.

And for about ten years and especially since the GFC of 2008 bonds have performed as well as stocks but with a lot less risk! And what shocked me with Carter’s charts was that bonds beat stocks over 20 years but importantly with less risk.

Over the years I have used this chart to show why I liked stocks and it always annoys Paul Rickard because it’s not updated but it always shows the same story that says stocks are great but if you look closer at it, it also shows that bonds are pretty damn good, given their lower risk.
 

This chart shows that $10,000 invested in 1970 and checked out in 2009, one year after the stock market slumped 50% and then saw a 30% plus bounce back, meant stocks delivered $453,165 or 10.3% per annum, which is really good. Meanwhile bonds returned $285,039 but this is still a 9% per annum return. And considering the less risk, it makes a strong case for a reliable bond fund being in your portfolio of assets.

This all well and good but why is the bond market worrying me? It’s simple — the bond market is very often right and for years it has been bringing down yields as the scaredy-cats of the world have chased bonds and raising bond prices.

But last week bond yields started to rise and it was because the run of good news from Japan to China to the US economy to Wall Street all said, if you can discount to possible threat of a President Donald Trump, then the world economy looks like it’s getting better. My Saturday Switzer Super Report showed the long list of what I liked and here they are again:

  • Our stock market hit an 11-month high by the end of the week.
  • That was seven days in a row of rises.
  • We broke the important psychological level of 5400 to finish at 5429.6 on the S&P/ASX 200 index.
  • The banks were back in favour.
  • Chinese economic data gave it to those China-haters out there, with GDP up 6.7% (with the consenus forecast at 6.6%) but there were doubters with lower guesses.
  • The landslide win for Japanese PM Shinzo Abe’s party in the Upper House and the assumption that a big spending program would ensue because of the strength of the victory.
  • The S&P/ASX 200 ended trade 0.3% higher (or 18 points) to 5429.6 on Friday (up 3.8% for the week), its strongest gain in three months. The All Ordinaries ended 0.3% higher to 5510.1.
  • The US stock market indexes – the Dow and S&P 500 – both beat their all-time highs.
  • The Russell 2000 index, which is a key broad, small cap index, is trading above important technical levels creating a strong bullish technical pattern. It’s all-time high is 1290 and it’s now at 1205.31. If this record is broken, the techies see it going to a huge 1400!
  • US bank earnings have beaten market expectations and banks’ share prices there were up 5% for the week.
  • US retail was up 0.6% in June, versus the economists’ collective guess of 0.2%.
  • And it’s not just the American consumer looking good but along came a 0.6% increase in industrial production for June, which is the best gain since July 2015 and the consensus forecast was a low 0.2%.
  • Finally, US bond yields have headed up this week and that’s something you have to cheer about because this bond market’s behavior has been warning all of us to be very, very careful. I have been asking a lot of my bond market experts about how often the bond market gets it wrong. Now they are biased, being current or ex-bond people but their answer was what I expected: “Not very often!” Looking at the story I’ve bullet-pointed above, this could be one of those times.

This list was great news but along came the Turkey putsch and bond yields fell instantly, which shows how scared the world of investors are right now. That said, the short-term nature of this coup will probably see the higher yield position of bonds reassert itself.

The bottom line is when the world economy and the associated stock markets prove that we are heading in the right economic direction, when companies are growing healthier profits and balance sheets, and we don’t need to rely on central banks, well the bond market will have a bad day at the office.

There has been talk of a bond market implosion when economies respond to quantitative easing but they have taken a damn long time to do so. Even the success of the US economy has been discounted by the troubles in the EU and the UK post-Brexit, worries over China and even Grexit spooked the Fed, so interest rates are still on hold.

I reckon the bond market reigns supreme until the Fed can raise interest rates and the stock market actually likes it.

I hope it happens by December this year but a lot of bond market experts are betting against this and that worries me a little. I will remain long stocks but as you all know I have continuously argued that I am cautiously positive and the bond market has been the reason for that.
 

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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article 3 months old

The Overnight Report: Greenback Worries

By Greg Peel

The Dow closed up 25 points or 0.1% while the S&P lost 0.1% to 2163 as the Nasdaq fell 0.4%.

Not the Whole Nine

The minutes of the July RBA board meeting revealed the board’s opinion that “the transition of economic activity to the non-resources sector was now well advanced and recent data suggested that growth had continued at a moderate pace in the June quarter”. However, recent data has also suggested that the labour market has been “more mixed of late”, inflation is expected to remain “quite low for some time”, the housing market has become “somewhat mixed” and the stronger Aussie continues to “complicate” policy.

The board now awaits upcoming data on inflation, labour and housing due before the August meeting. “This information would allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate”.

In other words, economists are still expecting an August rate cut.

It was around the time of the release of the minutes yesterday the ASX200 began to slide into the negative, not that they likely had any influence, killing off hopes of a ninth straight day of gains. At the index level, a fall of 7 points is hardly momentous nonetheless. The higher markets rise in a single run the bigger the inevitable pullback is going to be.

A minimal move for the index nevertheless belied some largish sector moves. The loser on the day was materials, down 1.8% on a lower iron ore price and otherwise profit-taking after a solid run. Materials was the negative that cancelled out decent moves up for energy and the consumer sectors but the star on the day was utilities, up 1.7%.

How crowded can the yield trade become?

Having broken up through 5400 resistance, the index is now looking a little hesitant at 5450. Once again there has been no lead from Wall Street overnight, and the futures are again up just the one point this morning.

The good news is the Aussie has dropped a percent to US$0.7504 on a combination of yesterday’s RBA minutes and a further surge in the greenback overnight. Attention is now firmly back on the Fed, which meets next week. The US dollar is adjusting for Brexit-related pound and euro weakness and assumed policy action from the BoJ to cap the yen on the one hand, and improving US data on the other.

In other words, rate hike talk is back. It would be interesting if the Fed were to hike next week as that might act as a proxy for an RBA cut, at least in terms of the currency. But September is considered more likely for the Fed, if at all, hence the RBA will have to make its decision first.

Stalled

Wall Street continued to go nowhere last night although the Dow did manage to notch up a sixth straight gain into further blue sky. The offset for the broad market S&P500 can be seen in the Nasdaq, which was dragged down by a 14% fall for Netflix following its disappointing result and a subsequent market reassessment of streaming businesses.

On the other side of the coin, plodding old consumer staple Johnson & Johnson (Dow) posted an earnings beat and provided upbeat September quarter guidance. Goldman Sachs (Dow) matched its bank peers with an earnings beat but its shares were off on the day, likely because the market repriced the banks last week following JP Morgan’s strong result.

On the data front, US housing starts rose a better than expected 4.8% in June. It was this release that helped the US dollar index rise to a four-month high, up half a percent to 97.03.

The greenback was the big talking point of the day on Wall Street. Much was made last year of the currency drag on US multinational earnings as the dollar surged in the December quarter ahead of the Fed rate hike. At that time the index just pipped 100, before the early 2016 commodity slide brought it back to earth once more and killed off further Fed rate hike expectations.

When the index crossed back over 97 last night it was a trigger for renewed concern. The age-old Catch-22 for any market is that a strengthening economy is good, but a strengthening currency is not so good if you are an exporter.

Commodities

Materials and energy were among the sectors in the red on Wall Street last night as a result of the stronger greenback. West Texas crude fell US63c to US$44.57 to drop below the low end of the recent range at 45.

For base metals it was not necessarily a case of blindly responding to the US dollar, nonetheless. Trading was relatively quiet on the LME ahead of Thursday night’s ECB meeting but there was a nod to the strong US housing starts number, which was the cause of dollar strength. Copper and zinc rose 1%, aluminium fell 0.5% and the others were flat.

Iron ore fell by another US$1.10 to US$55.10/t.

Gold is not blindly responding to the dollar either, but if the dollar continues to rise the headwinds will blow stronger. Immediate Brexit fears may now have passed but there is no reason to assume there will be no fallout whatsoever, which is likely what’s keeping investors in the safe haven for the time being. Gold is up US$3.20 to US$1331.70/oz.

Today

The SPI Overnight closed up one point.

Yesterday’s production report from Rio Tinto ((RIO)) was more “okay” than great but on a weaker iron ore price, profit-taking in the sector was always on the cards. The iron ore price is down again, and BHP Billiton ((BHP)) has just reported today.

Woodside Petroleum ((WPL)) also posts its production report today, Cimic ((CIM)) already jumped the gun with a pre-season earnings result yesterday, and yield lovers will be glued to Sydney Airports’ ((SYD)) June traffic stats.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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