Tag Archives: Bonds/Interest Rates

article 3 months old

The Overnight Report: Global Markets Vote Stay

By Greg Peel

The Dow closed up 230 points or 1.3% while the S&P rose 1.3% to 2113 and the Nasdaq gained 1.6%.

Brexit

As I write, the polling stations are not long closed in Britain. I have no idea what the official result will be, but by the time you read this the first regional numbers may well be filtering through.

What I do know is that public exit polling was banned until polling stations were closed. The first exit poll since published suggested 52/48 to stay. Private exit polls were apparently being conducted over the day nonetheless, giving those prepared to pay for the privilege the inside running. Whatever the case, it appears the world decided last night that the “stay” vote would win, and wasn’t about to wait around for confirmation.

Such confidence was not the case in the southern hemisphere yesterday, thus the local market put in another “on hold” session. A 1.6% gain for the materials sector, thanks to a pop in the iron ore price, was about the only reason the index didn’t close completely flat.

Since the release this morning of that first public exit poll, the pound has jumped again, to US$1.49. When Brexit fear was at its peak a couple of weeks ago, the pound traded as low as 1.40.

Prior to the release of any public information, and with polling stations in full swing, the London stock market closed up 1.2%, Germany 1.9% and France 2.0%.

Wall Street then step-jumped higher on the open and largely held its ground for the session before kicking again at the death. The Dow closed above psychological resistance at 18,000. The S&P thundered through psychological resistance at 2100 to close at 2113 – only one percent below the all-time high.

The US dollar index is off another 0.5% at 93.15, on a combination of pound strength but also an unwinding of the safe haven trade. Brexit volatility is playing havoc with the Aussie, which is 1.5% higher at US$0.7632.

With commodity prices relatively stable of late and a belief the RBA may well cut its cash rate again in August still prevalent, the Aussie has managed to rise to 76 from 72 during this whole Brexit episode. Yet if Britain stays, nothing has changed.

And therein lies the rub. Assuming the “stay” vote wins, nothing will have changed. Yet Wall Street, for one, is now higher than it was before anxiety set in a couple of weeks ago. All agree that if by some miracle “go” gets over the line at the last minute, global markets would have apoplexy. But the prevailing view now is that “stay” is more than priced in, thus upside is limited. By tonight we may well be in for a “sell the fact” pullback.

But not on the local market today. The SPI Overnight closed up 60 points. That would take us to 5340 on the ASX200 and put 5400 resistance back in the sights. What could get us there? Global markets only started worrying about Brexit two weeks ago. There was plenty to keep us away from 5400 before then.

With Brexit out of the way, assuming “stay” indeed wins, one obstacle is removed for the Fed. If the June US jobs number is solid, we’ll be back talking Fed rate hikes again. This morning the results of the latest US bank stress tests will be released. Tonight will see the annual rebalancing of the small cap Russell index, which is expected to produce significant volumes and potential volatility.

Spain will hold a general election this weekend. If the UK vote is close, despite a “stay” victory, will this steel the resolve of other EU nations into pushing for an exit of their own? Euro-scepticism is growing across the continent and anti-EU parties are gaining traction.

And there’s that small matter of the presidential election in the US. And someone tells me Australia is also set to have an election in a couple of weeks.

There’s still plenty of fun to be had over the rest of 2016.

Commodities

West Texas crude is up US$1.13 or 2.13% at US$50.13/bbl.

Copper rose 1.7% in London, lead 1% and aluminium 0.5%. Nickel and zinc stood still.

Iron ore is unchanged at US$51.70/t.

Gold is down US$9.60 at US$1256.30/oz. Given the exuberance of other markets one might have expected the safe haven to have seen a lot more selling, but gold does tend to wait until the day after to make its move.

We do note the other safe haven benchmark – the US ten-year bond yield – is up 5 basis points at 1.74% (implying selling).

Today

As noted, the SPI Overnight closed up 60 points or 1.2%. I suspect this morning we will probably step-jump from the open and then hover at that new level at least until an official result is clear. As to whether we’ll then see some profit taking is not clear, but it is a Friday. Riding out the cold and wet with a steak and a good red after an anxious week does seem tempting.

Wall Street can go back to focusing on tonight’s durable goods orders number.

CSR ((CSR)) holds its AGM today.

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

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.

FNArena disclaimer

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.

article 3 months old

The Overnight Report: Waiting

By Greg Peel

The Dow closed down 48 points or 0.3% while the S&P fell 0.2% to 2085 and the Nasdaq lost 0.2%.

Waiting

What can I say?

The local market was up and down yesterday before closing flat. Volumes were minimal.

Sector moves were also evenly spread across ups and downs and all were relatively benign. The biggest move was in consumer staples, which fell 0.9% following Wesfarmers' ((WES)) investor day.

And still we wait.

The most notable move on the day was in the Aussie, which is up 0.9% at US$0.7523. No doubt the RBA is frustrated. But currency moves across the globe this week have little to do with anything other than Brexit posturing. Safe havens are the popular parking spaces.

It is assumed a “go” vote in Britain would send the pound crashing, and the US dollar rising not just on the cross-rate, but as a global safe haven. The Aussie is also a popular safe haven at times of anxiety as long as commodity prices aren’t also crashing. A Brexit would send the AUD-GBP flying but the “Aussie”, being the AUD-USD, would likely fall on USD strength.

Conversely, were the Brexit to be defeated, the pound would not crash, nor probably rise too much given it is already leaning to the “stay” side. Presumably the Aussie would go back to pricing in the local economy, vis a vis the US.

But I could talk about this all day, and neither you nor I would be any the wiser.

Waiting

The US dollar index is down this morning, by 0.5% to 93.57, helping the Aussie higher. It was up by the same amount yesterday, and down by the same amount the day before.

The US dollar index is really not telling us anything, other than the polls are fluctuating. European stock markets closed modestly higher again last night, but after the close in Europe a new poll was released showing “go” ahead by a point. The bookies are still favouring “stay” nonetheless.

All we can reliably conclude is that the vote will go down to the wire, and will be determined by the one consistent cohort in every poll to date – the 10% undecided.

The Dow opened higher on the session last night before drifting to a lesser close. Volumes were minimal.

Janet Yellen testified before the House financial committee last night. Her Tuesday night testimony before the Senate banking committee focused on global risks, with Brexit being front and centre, whereas last night she concentrated on domestic issues, suggesting she was hopeful the US economy will have picked up in the June quarter.

No one paid much attention.

US existing home sales rose 1.8% in May to the highest level in almost ten years.

No one paid much attention.

The first regional results of the Brexit referendum are expected around 12.30am London time, which is 9.30am tomorrow morning Sydney time. If the outcome is a coin toss as the polls are suggesting, it may be several hours before a result is known.

Commodities

Weekly US inventory data had West Texas crude down US85c last night to US$49.00/bbl on the new August delivery front month.

The weaker greenback helped sustain base metal prices, but all gains were less than one percent.

Iron ore rose US$1.00 to US$51.70/t.

Gold is steady at US$1265.90/oz.

Today

The SPI Overnight closed down 16 points.

Japan, the eurozone and US will all provide flash estimates of June manufacturing PMIs over the next 24 hours.

Locally, June stock options expire on the ASX but little volatility is expected at this time.

One more sleep.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm.
 

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.

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: The World Stalls

By Greg Peel

The Dow closed up 24 points or 0.1% while the S&P rose 0.3% to 2088 and the Nasdaq added 0.1%.

Take Your Positions

Spot the difference:

“Taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.”

“Given these developments, and following the reduction in the cash rate in May, the Board judged that leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.”

Yep, you got it. The first quote, from the June RBA monetary policy statement, says “holding the stance unchanged” while the second quote, from the minutes of that meeting, says “leaving the stance unchanged”.

Is there a difference? Maybe it’s just semantics, but “holding” has more of an implication of “on hold” while “leaving” has more of an implication of “for the moment”. Or maybe I’m trying to read too much into it. Whatever the case, an RBA rate cut in August cannot, at this stage, be either ruled out or ruled in.

The Aussie barely moved at the time of yesterday’s minutes release, but did start rising late in the session to reach a peak over 75 after hours. It then proceeded to come back down again in the US session as the US dollar index rallied back 0.5% to 94.07, leaving the Aussie unchanged over 24 hours at US$0.7459.

Speculating about RBA policy is nevertheless something we’ll have to put off until next week. The local market pretty much stalled yesterday, beyond a bit of position shuffling ahead of Thursday night’s vote. The index rose early, fell back mid-session and then rose again at the close, but nothing was remarkable.

The energy sector dropped back, having posted the biggest gain the day before, and materials also retreated. The banks found further support and healthcare rallied, having missed out on Monday.

There are two more sessions to go.

Not Yellen, Yawnin’

The problem with trying to gauge the Brexit result at this late stage is that there are conflicting indicators. Three polls over the weekend indicated “stay” was in the ascendancy. A poll last night suggested “go” was coming back. Market commentators are ignoring the polls and looking to the betting market, in which bookies have “stay” as a firm favourite.

Global markets have factored in “stay”, with a dash of caution. Last night gold, which has an amazing track record of moving a day later than every other market, decided to fall US$22.30 to US$1267.70/oz. We recall that while all other markets were moving back towards a “stay” setting on Monday night, gold ended the session little changed.

Volumes on US stock markets last night were paltry. This is not something one usually associates with a session that includes a testimony from the Fed chair. Clearly Wall Street, too, is leaving central bank speculation for next week, but the reality is Janet Yellen was sufficiently vague in her testimony last night to the Senate banking committee as to provide no further insight on policy. Rate hikes are still in the offing, she suggested, before grains of salt were handed out.

We might note that the US ten-year bond yield rose 3 basis points last night to 1.70%. The yield fell from 1.70% prior to the Brexit scare to 1.60% at its height, only to now have returned back to 1.70% over a couple of sessions as the scare eases.

The fact that the scare has eased is a worry in itself. When markets were in full panic mode, the downside of a “go” vote was to some extent priced in. The upside was substantial. Now that “stay” appears to be winning, markets have returned to a more positive position. There is thus a risk the Brexit result could spark selling on either outcome – “stay” would be a relief, but to some extent is priced in, while “go” would be catastrophic.

Janet Yellen will testify before the House financial committee tonight. While lower house members are typically more aggressive than their upper house colleagues, no one is expecting any fresh revelations.

Commodities

Gold notwithstanding, given it’s not not really a commodity, commodity markets also went into quiet mode last night. The rise in the greenback had no specific impact.

The West Texas crude July contract expired down US35c at US$48.85/bbl but the August contract, which will be the new front month tomorrow, rose US44c to US$50.26/bbl.

Base metal moves were mixed in London and no move exceeded one percent.

Having fallen US10c on Monday night, iron or was up US10c last night at US$50.70/t.

Today

The SPI Overnight closed up 15 points or 0.3%.

Wesfarmers ((WES)) will hold a strategy day today.

Two more sleeps.
 

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

Why The St Louis Fed Changed Its View

"The Federal Reserve Bank of St. Louis is changing its characterization of the U.S. macroeconomic and monetary policy outlook. An older narrative that the Bank has been using since the financial crisis ended has now likely outlived its usefulness, and so it is being replaced by a new narrative."

That "new narrative" led one time dedicated hawk among FOMC members, St Louis Fed president James Bullard, to surprise Wall Street in an apparent complete change of monetary policy view last week. At the beginning of 2016 the Fed was suggesting four more incremental rate hikes in the year following the December 2015 hike, although the market was not fully convinced. As late as last month the market had at least positioned itself for an expected hike come June or July, but then suddenly the Fed has changed its tune.

Only one rate hike is now expected, although the market is still not convinced. James Bullard believes there will be a rate hike but he has also suggested that will be all -- all the way through to 2018.

In the attached document, Bullard explains why the Fed now needs to see the world differently.
 

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.

article 3 months old

The Overnight Report: Poll Dancing

By Greg Peel

The Dow closed up 129 points or 0.7% while the S&P gained 0.6% to 2083 and the Nasdaq rose 0.8%.

What Goes Down

The scene was set for a positive session on the local market yesterday morning following the weekend’s Brexit polls, and perhaps more tellingly a clearer shift in the bookie odds towards a “stay” outcome. In particular, the 4% rebound in the oil price was set to have an impact.

The energy sector duly closed the day up 5.4%. The index had shot up from the open and wavered only slightly through lunch before finishing with positive momentum, up 1.8%. Not all sectors, however, participated.

But then we recall that not all sectors participated on the downside a week ago when it looked like the “go” vote was in the lead. Selling up to now has been concentrated in the big caps, the biggest of which are the banks, which are also supposedly the most vulnerable to a Brexit. Then there’s the big miners and oil names, supermarkets and the telco.

Energy may have jumped 5% but a 2.3% rebound for the banks was most influential. Materials rose 2.3% and the supermarkets rose 1.4% despite a significant drag from a 12% drop in Metcash ((MTS)), which posted its earnings result yesterday. Telcos rose 1%.

Thereafter the sector moves were less impressive. The mixed bag that is industrials rose only 0.5% and healthcare actually closed down 0.4%.

It was an “as you were” session, returning the ASX200 to the middle ground of the recent range at 5250. This could be a pivot point from which to move once the Brexit result is actually known, but for the fact we still have at least three more sessions to go and possibly more if the result is not immediately clear on Friday morning.

To that end, commodity prices were all stronger overnight, with oil up another 2%. Gold is off, but not by a lot. European stock markets surged and Wall Street closed higher. The SPI Overnight is up 24 points.

It all points to more of the same today, depending on to what extent the market sees yesterday’s session as pricing in last night’s offshore moves in anticipation. Australia’s was one of the first markets to respond to the Brexit polls yesterday. Do we go again today or will that suggest double-counting?

There are something like five more polls to be published between now and Thursday night. Presumably the global rebound can continue if those polls continue to suggest a win for the “stay” vote.

Calm Down

Wall Street is not yet ready to count its chickens.

The London stock market surged 3.0% last night, France rose 3.5% and Germany 3.4%. While the European markets have always been volatility-prone, it’s rare to see a move of such magnitude in the FTSE. The pound also surged further ahead, having risen to 1.47 against the US dollar from 1.40 late last week. Again – something you don’t see very often.

The US dollar index tumbled as a result, but that didn’t stop the safe haven of gold crashing to under US$1280 in the London session. The Dow opened up over 250 points from the bell. The S&P500 hit 2100.

But then calmer heads prevailed.

The 2100 level is significant resistance for the S&P. From that point the US indices began to drift back. Gold began to recover. By the close, US indices had given back half their initial gains. Gold is back at US$1290/oz, down US$8.10 from Saturday morning.

Wall Street isn’t quite ready to assume Britain stays in the EU when there’s a week of trading yet to go. Last night saw a shift towards a “stay” outcome, but not definitively so.

There’s also the small matter of Janet Yellen’s testimony to the Senate Banking Committee tonight. The way the Fed has been flip-flopping of late, heaven knows what might come out of the Fed chair’s mouth.

Commodities

Having surged on Friday night, last night the oils kicked on with another 2% gain. West Texas crude is up US94c at US$49.20/bbl. Brent is back over 50.

Commodity prices are mostly being supported via the currency, with the US dollar index down 0.5% at 93.64. Base metals were all 1-2% stronger on the LME.

Iron ore fell US10c to US$50.60/t. China is a world away from Britain.

Today

The SPI Overnight closed up 24 points or 0.5%.

The strong close on the ASX yesterday smacked of some late FOMO – fear of missing out. If the index opens up strongly again this morning there may be a few more initially hesitant investors coming out of the woodwork. Or we may take the lead from Wall Street in not yet getting too carried away.

The minutes of the June RBA meeting are out today. The question is one of whether “one and done” is the case, meaning the May rate cut will be it for the time being.

Yellen will speak tonight, but for the rest of the week global markets will be held captive by Brexit.

As I said yesterday, it’s going to be a long week.

Rudi will Skype-link with Sky Business at around 11.15am 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

The Monday Report

By Greg Peel

Uncertainty

The local market began strongly on Friday, spurred on by the sudden turnaround in offshore markets as a result of an apparent swing back to the “stay” vote in Britain. But the rally was short-lived, to the point the index was slapped back down almost to square again by midday.

While “stay” may have been looking more likely on Thursday night, the reality is one poll does not a conclusion make. There is talk that the suspension of campaigning until Monday in deference to murdered MP Jo Cox will most likely hurt the “go” camp, which had previously been gaining some momentum. There is also a suggestion the murder may swing voters towards “stay” given Cox was a “stay” campaigner.

The bottom line is it’s still too close for anyone to call. Unless the polls between now and Thursday all line up to predict a definitive result one way or the other, it is likely global markets will swing back and forth on every apparent shift. But if nothing is at all clear, it is most likely investors will remain on the sidelines, having set their hedges, counting down the hours.

It could be a long four days.

Sector moves were mixed on the local market on Friday. The sector most damaged to date by Brexit fears – the banks – managed a 0.7% rebound to mark the biggest sector move of the session. Otherwise it was small moves up or down, with a rare quiet day for the resource sectors.

Fed Shock

It was only a month ago the Fed was talking up its rate hike expectations, surprising Wall Street by hanging onto the concept of perhaps three hikes in the remainder of 2016. Then last week the mood changed, with only one rate now the apparent expectation. On Friday night, St Louis Fed president James Bullard went one surprising step further.

Yes, Bullard said, there will be one rate hike in 2016. But that will be it until 2018, he added.

Come again?

Once upon a time such a comment may have sent Wall Street reeling, in one direction or another – up if the response is “Thank God, the Fed will continue to support the market” or down if the mood is “Omigod, the US economy must be in worse shape than we thought”. But in actual fact, Bullard’s comments had very little impact whatsoever, for two reasons.

One is Brexit – that is dominating all thinking at present. The other is sheer exasperation. The Fed’s credibility has already been brought to question thanks to its apparent flip-flopping all through the year, and what makes Bullard’s comments even more outlandish is the fact he was previously among the most hawkish of FOMC members.

To that end, Bullard managed only to cause a lot of bemusement. And eye rolling.

Indeed, the US ten-year bond rate went up 5 basis points to 1.62% when one would have expected the opposite on such a dovish suggestion. The US dollar index did duly fall 0.5% to 94.15 but both moves are a reflection of faith growing in a “stay” vote in Britain and not anything that happened to come out of a Fedhead’s mouth.

The same was true with oil, which having fallen back from the 50 mark through the week due to rising “go” fears, rebounded 5% on Friday night.

Once upon a time a 5% jump in the oil price would have had US stock indices surging. Not anymore. A period of relative stability for the oil price has meant the close correlation that existed earlier in the year is no longer evident. And no one was going to go on a buying spree before next Thursday.

To that end, Wall Street was quiet on Friday. Closing volumes were enormous due to the quadruple witching expiry and quarterly stock index rebalancing but volatility was lacking. The Dow closed down 57 points or 0.3%, the S&P lost 0.3% to 2071 and the Nasdaq fell 0.9%.

Commodities

West Texas crude rose US$2.21 to US$48.26/bbl.

The weaker greenback may have helped a little but that was not at all apparent on the LME. Nickel decided to have a 2% jump but the other base metals closed mixed on insubstantial moves.

Iron ore rose US50c to US$50.70/t.

Gold dropped back on Thursday night when a UK poll showed a swing towards “stay” but on Friday night the lack of any predictable result was evident in gold rallying back US$20.10 to US$1298.0/oz.

The fall in the greenback means the Aussie was 0.4% higher on Saturday morning at US$0.7394.

The SPI Overnight closed flat.

The Week Ahead

While there’s a lot more going on than just the Brexit vote next week, unfortunately nothing else will matter until Friday morning when, presumably, we’ll know the result.

Please God let it not be so close as to take days to confirm.

Three polls over the weekend all suggest “stay”, but still as a close call.

Janet Yellen will provide a scheduled testimony to the US Senate Banking Committee on Tuesday night. The world will be very interested in what she has to say, particularly following Bullard’s comments on Friday night.

With regard data, the US will see existing home sales and house prices on Wednesday, new home sales, the Chicago Fed national activity index and a flash estimate of the June manufacturing PMI on Thursday, and durable goods and fortnightly consumer sentiment on Friday.

Japan and the eurozone will also flash PMI estimates on Thursday.

Normally the eurozone’s ZEW investor sentiment survey, due Tuesday, and Germany’s IFO business sentiment survey, due Friday, would be closely watched, but given the world might change on Thursday the results are irrelevant.

In Australia, March quarter house prices are due tomorrow along with the minutes of this month’s RBA meeting. Is the RBA really “on hold” or could we yet see further rate cuts? Maybe the minutes might hold some clues.

On the local stock front, Metcash ((MTS)) will release its earnings result today, BHP Billiton ((BHP)) will host an investor day in London tomorrow night and Wesfarmers will hold a strategy day on Wednesday.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls around 11.15am. On Thursday he'll appear for his weekly slot between 12.30-2.30pm and on Friday he'll repeat the Skype-linkup 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: Swing Factor

By Greg Peel

The Dow closed up 93 points or 0.5% while the S&P gained 0.3% to 2077 and the Nasdaq rose 0.2%.

Ups and Downs

There were several factors at play in the local market yesterday, belied by a flat close. Brexit, central bank policy and the derivatives expiry were all potentially influential.

The index shot up from the opening bell to be 50 points higher at around 11am, peaking just under 5200. Thereafter the session played out as a slow sell, all the way to be as good as unchanged by the closing bell.

The decision by the Fed overnight not to raise its cash rate came as no surprise, but what did surprise is the apparent capitulation form the central bank after having talked up rates rather hawkishly since April. Janet Yellen has decided, about five years after everyone else, that low interest rates may now be “the new normal”. Was it one bad jobs number? Was it zero rates in Germany? Whatever the case, the FOMC has swung from suggesting three rate cuts to come this year to suggesting one, maybe.

If Fed dovishness is now actually entrenched, the pressure is back on the RBA to cut. US rate hikes would drive the US dollar higher and thus the Aussie lower, but now the Aussie is potentially under threat of rising again in its role as a safe haven, high-yield currency.

Thoughts of another cut may have been derailed by the better than expected addition of 17.900 new jobs in Australia last month, if it not for the fact they were all part-time. Not a soul was given a new full-time job last month, according to the ABS. The unemployment rate remains steady at 5.7% but means little, given the year to May has seen net jobs growth of 1.9% made up of 0.8% full-time and 4.4% part-time.

Employment is supposed to put money in consumers’ pockets. Part-time employment puts in far less. If we were able to add together the part-time hours to make a full-time job, how many new “jobs” would the numbers really show?

Thus it was no surprise the Aussie actually fell yesterday on the release of the employment report, rather than rising as a “beat” might otherwise have suggested. The drill-down is supportive of further rate cuts.

And while on the subject of central banks, the Bank of Japan surprised yesterday by doing nothing. The BoJ’s experimental drop into negative rates has had the opposite effect of that the central bank would have hoped for, actually sending the yen higher. Markets anticipated at least a bump-up of QE yesterday, if not a further foray into the negative. But nothing transpired, so the yen shot up again.

It has become apparent, over time, that the BoJ only acts when no one is expecting it and not when everyone is.

Whatever impact central bank shenanigans had on the local market yesterday, the Brexit cloud still hung, and market protection in the form of ASX index options, SPI futures and futures options all expired. Assuming investors are keen to remain protected, positions had to be rolled over by the close yesterday, if they hadn’t been already, putting downward pressure on the market.

The wash-up at the closing bell was a very mixed bag of sector moves. The defensives of telcos and utilities found support but the biggest move up came in consumer discretionary, thanks to the announced Crown Resorts ((CWN)) restructure and subsequent 13% pop. A bounce in base metal prices had materials in the green but a fall in the oil price had energy in the red, and the banks were lower again.

But today is a new day, with expiry now over and overnight developments to consider on a Friday.

Big Ups and Downs

Europe went back into selling mode last night as stock markets and the euro fell, supposedly on ongoing Brexit fear, a lack of any BoJ action and let’s face it – the sort of confusion that tends to keep investors out. The mood carried over onto Wall Street where the Dow fell 170 points from the open.

Euro and pound weakness allowed the US dollar index to surge despite the stronger yen, and as every man and his dog talks up gold, the safe haven traded up to US$1315/oz despite dollar strength. Oil tanked 4%.

There was further confusion on the news a British pro-stay MP had been shot and killed while campaigning, prompting Prime Minister Cameron to call a halt to all Brexit campaigning. Did this mean the vote itself would be delayed? It appears not.

But then another poll was released. It was not quite a week ago the world went into a tailspin on a poll showing 55% of Britons intended to vote “go”. Last night’s poll suggested 65% now want to stay. There’s only one poll that matters of course, as any polly will tell you if they’re behind, but at the very least it now appears a Brexit is a long way from a done deal.

The Dow rallied back to be up a hundred just before the close. The US dollar index came right back to flat at 94.63. Gold crashed back down to be down US$13.50 over 24 hours at US$1278.00/oz. Oil rebounded, but is still down 3%.

Throughout all the confusion, the German ten-year yield is now officially negative at minus 0.02% and the US ten-year has fallen to 1.56%.

And to top things off, tonight is quadruple witching in the US, with June representing the biggest derivative expiry volumes of the year.

The Brexit vote is five more trading sessions away.

Commodities

West Texas crude is down US$1.44 at US$46.05/bbl.

The LME closed with the US dollar at its peak, thus all base metals bar lead are 1-2% lower.

Iron ore is unchanged at US$50.20/t.

The Aussie is down 0.6% at US$0.7362.

Today

The new September expiry SPI Overnight closed up 35 points or 0.7%. Those wondering why the actual price of the futures has suddenly dropped sharply from the June contract must appreciate the futures now need to discount a full three months of carry.

There is very little of note on the global calendar over the next 24 hours, with quadruple witching on Wall Street the highlight at this time of heightened concern.

Rudi will Skype-link with Sky Business at around 11.05am today 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.

FNArena disclaimer

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.

article 3 months old

The Overnight Report: Hawkish Yesterday, Dovish Today

By Greg Peel

The Dow closed down 34 points or 0.2% while the S&P lost 0.2% to 2071 and the Nasdaq lost 0.2%.

More of the Same

The change of mood was still evident yesterday morning in the wake of Tuesday’s hundred point capitulation as the index opened lower once more. Last week Brexit was a date on the calendar, this week it’s a looming potential catastrophe.

The market did nevertheless decide mid-morning that perhaps enough is enough. Brexit is by no means a given at this stage, and if the result is to stay, one presumes an almighty rebound. If it is to go, well a lot of that risk has already been priced in.

But after managing to hold its ground into the afternoon, the index conceded to selling late in the session to ensure the market closed on its lows. That selling may not, however, be specifically Brexit related. Today sees the expiry of June quarter ASX index options, SPI futures and futures options. If investors are rolling over protection, as is sensible to do before the potentially volatile expiry day, protection sellers are selling stocks to hedge.

The same thing happened on Wall Street last night. More on that in a moment.

While all sectors again finished in the red yesterday, this times the banks (-1.4%) were a particular stand-out. The biggest impact of a Brexit will be felt by the global banking industry, as reflected in the ongoing shift down in global interest rates.

Materials also fell 1.4% on the lower iron ore price and on hedge selling of large caps, which also ensured telcos were down another 1.1%, Thereafter, the magnitude of sector drops tailed off.

As was the case with Tuesday’s NAB business confidence survey, yesterday’s Westpac consumer confidence survey was never going to have much of an impact on a market worried about other things. As it was, it was a pretty solid result.

The confidence index fell 1.0% in June to 102.2. But given it jumped 8.5% in May following the RBA rate cut, economists suggest that to only slip back a percent is a sign of lingering confidence. And numbers over a hundred represent optimism. It’s also not a bad result given election uncertainty. The result pre-dates the sudden rearing of Brexit’s ugly head, but one wonders just how long the average consumer lays awake at night worrying about such matters.

Loss of Credibility

Before last night’s Fed statement release and Janet Yellen’s press conference in the afternoon, there were a couple of significant data releases in the morning.

The US producer price index rose 0.4% in May, beating 0.3% expectations, but it was all about oil prices. Take out oil and food, and the core PPI actually fell 0.1%. Nothing to suggest a rush to hike rates there.

Industrial production fell 0.4% to market the seventh decline in nine months. See above.

Yet according to the afternoon’s Fed statement, and despite a very low March quarter GDP result, the US economy is actually looking better now than it was in April when the last FOMC meeting was held. Back in April, it was the strong US labour market that was driving Fed thinking, and expectation of rising inflation. But now, the Fed sees the labour market slowing.

One bad apple don’t spoil the whole bunch girl. Maybe Donny Osmond should be Fed chairman. The Fed may be data dependent, but the FOMC will be a bit red-faced if the weak May jobs number does prove to be a one-off as many expect.

Whatever the case, the FOMC chose not to raise its cash rate last night. It was a unanimous decision, meaning prior hawks on the committee have now pulled their heads in. More importantly, the infamous “dot plots” showed the FOMC members have all reduced their rate expectations through to 2018. The Brexit vote may have held the Fed up this month, but it would seem a July hike just flew out the window.

Indeed, it appears the Fed may now only be looking at one rate hike this year, down from four after hiking in December. The market thinks even one is becoming unlikely. What has everyone frustrated is that in April the Fed suddenly swung to be quite hawkish, leading markets to prepare for a June rate hike that seemed inevitable. Then came one bad jobs number. Now the Fed is back to being dovish again.

The market had always been dovish. The Fed has come back to meet the market. Who is influencing who?

There is also general feeling, Brexit fears aside, that the Fed simply cannot risk a rate hike when Japan is negative, half of Europe is negative and Germany is on the cusp of negative. The gap may be too much for global markets to handle. Not that global markets are supposed to be the US Federal Reserve’s responsibility.

The fact that the Fed has come back to meet the market was reflected in stock index movements over the session. Indices were a little higher in the morning thanks to rebounds in Europe, and typically quiet ahead of the statement release. On the statement release they did very little at all, which is most unusual. The Dow sat at around 50 points up all through Yellen’s press conference and beyond.

The fact the Dow closed down 34 points, representing a sharp late sell-off, has been attributed to Friday night’s “quadruple witching” equity derivatives expiry – the equivalent of what the Australian market will see today only of a much greater magnitude. The June quarter always represents the biggest expiry volumes, and typically the market starts to roll over positions a couple of days ahead. With protection still being sought at this time of uncertainty, rollovers translate into stock selling.

Commodities

West Texas crude is down another US41c at US$47.49/bbl.

Whatever’s going on in base metals at present, no one’s quite sure. The LME always closes just as the Fed statement is being released, which usually means little movement until the night after. But last night copper jumped 2.7%, following a couple of weak sessions. Aluminium rose 0.5% and nickel and zinc both around 1%, while lead stood still. Short covering was cited.

Iron ore fell US60c to US$50.20/t.

The US dollar index is down 0.4% to 94.59, but that’s all post-Fed. Gold is up US$6.00 at US$1291.50/oz, having briefly kissed 1300 post-Fed.

The Aussie is up 0.8% at US$0.7408 but that is not a Fed-related spike. The Aussie has steadily been climbing over the past 24 hours, possibly as the world comes to realise Australia’s is one of the few developed economies left offering reasonably positive rates. Even at 1.75%.

Today

The SPI Overnight closed up one point. Have we seen the end of the pre-Brexit vote selling? Today, as noted, is expiry day, so anything might happen.

And to that end we note the Bank of Japan will hold a policy meeting today, no doubt very relieved the Fed has backed off.

Locally we also see the May jobs numbers today.

Goodman Group ((GMG)) and Graincorp ((GNC)) will host investor days.

Rudi will make his weekly appearance on Sky Business, 12.30-2.30pm, only to return again between 7-8pm for an interview on Switzer TV.


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