Tag Archives: Bonds/Interest Rates

article 3 months old

The Overnight Report: Double Fizzer

By Greg Peel

The Dow closed up 163 points or 0.9% while the S&P gained 1.1% to 2163 and the Nasdaq rose 1.0%.

QQE?

If it’s not bad enough that half of media reporters and commentators, including on business television, cannot pronounce the word “quantitative” (here’s a clue guys, it’s not “quantative”), the Bank of Japan yesterday introduced a new monetary policy tool called quantitative qualitative easing, or QQE.

That’ll get some tongues twisting.

QQE will form part of a new package from the BoJ, which is really not a lot different to the previous package but for a bit of tweaking. Importantly, the BoJ did not cut its cash rate further into the negative. Aside from the current -0.1% not having worked, negative rates represent a tax on banks and entry in the great unknown that has investors very concerned.

The BoJ will retain its level of bond buying, or QE, but will drop the 7-12 year duration range so it can fiddle with the yield curve – QQE. By buying shorter durations the central bank will lower short term rates and thus steepen the yield curve out to longer term rates, which is positive for banks and wealth managers, and somewhat akin to the Fed’s “Operation Twist” of a few years ago. Purchases of stock market ETFs will also continue.

How was this received? Well, with a sigh of relief that there was nothing scary in there, and with a general shrug of fair enough, they’re at least trying to do what they can. The Nikkei closed up 1.9%, underscoring the belief this is a pro-equity policy move (in the form of TINA, of course).

The Australian stock market was already positive ahead of the BoJ’s announcement mid-afternoon, and kicked higher on the news to a solid close. Sector moves were relatively consistent, although it’s been a long time since we’ve seen industrials (1.3%) and consumer staples (1.0%) providing leadership. The banks (0.8%) provided the market cap clout.

The only loser on the day was telcos, given TPG Telecom’s ((TPM)) shock guidance has sparked a rethink for the sector. Selling continued in TPG yesterday, and peer Vocus Communications ((VOC)) is also being caught in the downdraft.

At the end of the day it was a strong session one might not normally expect ahead of a critical Fed meeting, but in retrospect the right move. For the time being the ASX200 has put 5300 behind it and will begin to eye off 5400 once again.

Mixed Messages

The Fed didn’t hike. Given a hike was only being ascribed a 15% chance ahead of the meeting this hardly comes as a surprise, but there would have been some nervous traders holding their breath given talk of the central bank trying to retake control with a surprise announcement.

Clearly Janet Yellen is not into surprises.

She is into repetition, nonetheless. Yes, she still expects there will be a rate rise in 2016. The November meeting is “live”, as is every meeting, but nobody expects a hike ahead of the election. So, it’s December. Lock it in.

Except that as ever, the Fed remains data-dependent. In this point the Fed’s focus has changed somewhat. No longer does the FOMC see the headline unemployment rate as a viable target, given the hidden rate of underemployment in that which is providing the clue as to just how much slack remains in the US labour market. So ignore the 4.9%.

Focus instead on the underemployment rate, participation rate and level of wage growth, which are all as important as that base number of jobs added the world focuses so heavily on each month.

So on the one hand Yellen remains hawkish – a rate hike is expected – but on the other dovish – employment is not yet where we want it to be. Then there are the “dot plots”, which this quarter suggest a sizeable cut to prior rate expectations for 2017-18, and also a cut to GDP growth expectations to benign levels of around 1.8%. From these we can deduce the Fed will deliver one rate hike this year, and then perhaps the next one will also take a year.

There were three dissenters among FOMC members, who wanted to hike now.

So it was a meeting of mixed messages, but in the end enough to provide a sigh of relief for equity markets. The thought of a December rate hike is not going to scare anyone given not so long ago the markets feared four rate hikes in 2016. And the lowering of rate and GDP expectations going forward means Fed tightening will likely be so gradual as to be almost imperceptible.

Might as well buy stocks.

Other markets reacted as would be expected. The US dollar index is down 0.5% to 95.48. Gold is up US$20. The ten-year bond yield is down 2 basis points to 1.67. The VIX volatility index fell 16% as fear subsided. The oil price is up 3%.

We can now spend the next two and bit months getting on with things, and if the world prices in a December hike and doesn’t fret about it, then we should not have to go through this tedious speculative process again this year. But of course, anything could change.

We could have a Trump presidency.

Commodities
As always, the shutters are coming down on the LME just as the Fed statement is being released, and ahead of the press conference. Thus we’ll need to wait until tonight to see just how base metal traders respond.

In the meantime, a mixed session had aluminium and nickel rising 0.7%, copper and zinc falling 0.7%, and lead dropping 2%.

Iron ore rose US10c to US$55.40/t.

West Texas crude has rolled over to the new November delivery contract which has probably played a part in a US$1.57 or 3.6% jump to US$45.62/bbl, otherwise due to the Fed, with November Brent only rising 2.1%.

Gold is up US$20.30 at US$1334.90/oz.

Alas, while the Fed outcome will be positive for the local stock market today, that “complication” is back in the form of a 1% jump for the Aussie to US$0.7632.

Glenn Stevens will be smiling wryly as he polishes his putter – not my problem anymore.

Today

The SPI Overnight closed up 32 points or 0.6%.

On the subject of the RBA, the new governor will today make his first testimony to the House of Reps economic committee.

There’s some data out in the US tonight, but December is a long way off.

Brickworks ((BKW)), Premier Investments ((PMV)) and OrotonGroup ((ORL)) will release earnings results today, there are a few more ex-divs, Scentre Group ((SCG)) will host an investor day and Suncorp ((SUN)) will hold its AGM.

Rudi will travel to Macquarie Park to appear on Sky Business twice today. First from 12.30-2.pm and later between 7-8pm for an interview on Switzer TV.
 

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article 3 months old

The Overnight Report: Double Header

By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2139 and the Nasdaq rose 0.1%.

Poised

It was a wild old opening on the local market yesterday as the ASX computers worked through the process of matching out orders left over from Monday’s abbreviated session. When the dust settled the ASX200 came out relatively flat but for one rather notable move in the telcos sector.

One consistent theme of the August results season was some big drops among those “new world” and often smaller names that had been bought up into overvalued territory, thus risking a stampede to the exits on even the slightest hint of disappointment. Yesterday TPG Telecom ((TPM)) underscored that theme with its out-of-cycle report.

TPG has been among the popular stocks of 2016, rising over 30%. Yesterday’s result was largely in line with forecasts but weaker guidance came as somewhat of a shock, and the stock plunged 21% to basically wipe out the year’s gains. Subsequently, the telcos sector was the worst performer on the day with a 2.6% drop.

Despite no one expecting any shocks from the minutes of the September RBA meeting, released late morning, the stock market still fell in response. Perhaps some were hoping that while the September statement provided no suggestion of an imminent rate cut, the minutes might. They didn’t.

The board reiterated that “the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time”. This conclusion does not rule out another rate cut, but provides no reason to believe there’s one around the corner.

The index nevertheless climbed back in the afternoon to a slight positive close. The only other sector to finish in the red on the day was energy, down 0.9% despite a flat oil price. Materials rose 0.7% on better metals prices. These two sectors have been playing topsy-turvy for the past few days.

From a technical perspective, the index struggled back to close just over 5300 – a nice springboard position to contemplate the impact of whatever happens over the next 24 hours.

The Bank of Japan will deliver its policy statement at some time today. The BoJ is not into standard release times, and if you go to its website the scheduled time of release is “undecided”. With Tokyo a couple of hours behind Sydney, we may still be in the dark on the close.

In a tale of two central banks, it’s a case of whether the BoJ eases or remains on hold and whether the Fed tighten or remains on hold. While markets are mostly convinced the Fed will do nothing, the BoJ’s track record of surprising and the fact it is known the board members are split down the middle means nobody really has a clue what today might bring.

One More Sleep

It is really quite tedious the way these quarterly Fed meetings have become major market “events” but unfortunately that’s the world we now live in. Wall Street was expected to be quiet last night and it stuck to the script.

There was some surprise when data showed US housing starts dropped 5.8% in August, when only the night before the housing sentiment index surprised to the upside. But the drag came from the south, which suffered extensive flooding in the month.

The Fed funds futures are pricing in around a 15% chance of a rate hike. On the other hand, there are still those sticking to their guns that the Fed is set to spring a surprise, notably Barclays, Bank Paribas and US bond guru Bill Gross, formerly of Pimco.

What is agreed upon is that were the Fed to indeed surprise, the market would not like it. Were it not to hike, the market will probably just bungle along again towards the election.

There is no more that can be said at this point.

Commodities

It was zinc’s turn to have a pop on the LME last night, rising 2.3%. Nickel kicked on its recovery with a 1.4% gain while copper rose 0.6%.

Iron ore was unchanged at US$55.30/t.

West Texas crude is up US12c to US$43.30/bbl.

Gold is again little changed at US$1314.60/oz.

The US dollar index is up 0.1% at 95.98 and with no sign of an RBA rate hike, the Aussie is up 0.2% at US$0.7553.

Today

The SPI Overnight closed down 9 points.

I think we’re all aware there are a couple of central bank meetings coming up.

Kathmandu ((KMD)) and Nufarm ((NUF)) will release earnings results today and Newcrest ((NCM)) is among a small group going ex.
 

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article 3 months old

The Overnight Report: Jittery

By Greg Peel

The Dow closed down 3 points while the S&P closed flat and the Nasdaq lost 0.2%.

No Hack

Futures traders had called for a flat opening on the local market yesterday and they were bang on – the market didn’t open at all. When it did eventually open at 11.30 the ASX200 immediately fell 23 points, probably driven by sellers who still haven’t been able to fill out the census and feared something sinister.

Just a technical glitch, the ASX declared, and quickly the index was back to flat again, before once again the exchange crashed at 2pm. No amount of scrambling from the geeks could prevent the umpires eventually abandoning play for the day.

The futures are showing down 5 points this morning, but the focus will be not on whether this proves accurate but on whether the exchange opens at all. The ASX has insisted this was not a hack, so presumably the geeks have put in an all-nighter and things should be up and running as normal.

Yesterday was not normal nonetheless, and there were likely a lot of players who elected to stand aside. There was a weakish lead from Wall Street to contend with but just as well this didn’t occur on a day promising elevated volatility. In the wash-up, the flat close was made up of a gain for materials balancing out a fall for energy, and falls in the consumer sectors of discretionary, staples and healthcare balanced by a small gain for the banks.

Beyond that, we can pretty much write yesterday off. We can assume a lack of volatility in the lead-up to the BoJ and Fed meetings on Wednesday and with Wall Street dead flat last night, not a great deal is expected today.

The Great Unknown

The flat close on Wall Street gave the impression the market did absolutely nothing last night as it awaits the central bank meetings but in fact the Dow was up a hundred points early, then down 50 and up 50 before finally going nowhere.

The initial rally was linked to the oil price. Venezuela declared last night a deal among OPEC members to freeze production is imminent, with OPEC set to hold an extraordinary meeting in Algiers this weekend. Those who are prepared to believe, or who just don’t want to be caught out, sent oil prices higher early in the session and the stocks indices followed.

Those who don’t believe there will be a wolf this time either then sent oil prices back down again, to flat, and dutifully the stock indices followed suit.

The only other news of influence on Wall Street last night was the monthly housing sentiment index, which showed a jump to 65 from 59 when assumptions were for no change. This 50-neutral index now suggests home builders are feeling more confident than they have so far this year.

Otherwise, it’s all about central bank speculation. Commentators agree that while the Fed’s decision is of vital importance, perhaps more important is what the Bank of Japan decides several hours earlier. The BoJ is known to be split down the middle on policy direction, leading to speculation it could either cut further into the negative or, given easing simply has not worked for Japan to date, surprise by going completely the other way, perhaps winding back QE.

It’s a great unknown, as is what the Fed might do. While few believe the Fed will hike based on the data, there are those who believe the FOMC will hike anyway just to save face and restore some credibility. What is agreed is that Wall Street has not priced in a September rate hike, and if there is one, the initial response could be ugly.

But then it may come down to what the BoJ does first.

Commodities

West Texas crude is up a cent at US$43.18/bbl.

There was suddenly a bit of action on the LME last night, with nickel jumping 4%. Zinc and lead rose 1% while copper slipped a little.

With China back on board, iron ore fell US20c to US$55.30/t.

Gold is relatively steady at US$1312.80/oz.

The US dollar index has dropped 0.2% to 95.86 but the Aussie has shot up 0.6% to US$0.7535, probably on vision of Malcom Turnbull strutting around the NYSE last night chatting to all and sundry.

Today

The SPI Overnight closed down 5 points.

It is hoped that at 10am, the ASX will open.

The minutes of the September RBA meeting will be released today, chronicling Glenn Stevens’ last meeting in the chair, with nothing of any great consequence expected.

TPG Telecom ((TPM)) will release its earnings results today.

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

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article 3 months old

The Monday Report

By Greg Peel

Oversold

The local market decided on Friday that the Fed was not going to hike this week or, if it does, relevant stocks have been sold down far enough to take that into account. With the FOMC meeting now only three days away, no US data releases with the power to make a difference in the meantime, and Fedheads “blacked out” from making comments, nothing will change from here.

But that doesn’t mean we know what the Fed is going to do. The odds still favour no hike, however there’s a lot of “But I wouldn’t be surprised if…” going around. Anyway, soon we’ll know.

We may not get much action between now and Wednesday, when the Bank of Japan meets, and Wednesday night, when the Fed statement is delivered, and to underscore that likelihood, the SPI futures closed unchanged on Saturday morning. Japan is closed today and there are no local data releases of note.

The RBA will release the minutes of the September meeting tomorrow but they are unlikely to tell us anything new.

It was a strong session on the local bourse on Friday nonetheless. Having been the biggest loser over the last couple of weeks, utilities finally bounced back with a market-leading 2.3% gain. Telcos (+1.6%) and the banks (+1.1%) joined in the yield stock recovery but the rally was market-wide. Materials did little and staples struggled to 0.5% but otherwise other sectors posted around 1-1.5% gains.

Energy posted a 1.2% gain but that could change today. The oil price was up on Thursday night and down on Friday night and energy stocks have returned to their earlier bad habit of flying up and down on every little swing in oil prices, usually to go nowhere much.

Otherwise we’re in for another week of central bank watching.

Apple’s Week

The US CPI rose 0.2% in August when 0.1% was expected, taking annual headline inflation to 1.1%. The core CPI, which in particular excludes weak oil prices, rose 0.3% to 2.3%.

Once upon a time, Ben Bernanke’s targets to trigger the normalisation of US rates were 5% unemployment and 2% inflation. Unemployment is at 4.9% and inflation is at 2.3%. By rights, we should be having a rate hike.

But it’s not that simple. For starters, the Fed prefers the PCE measure of inflation over the CPI and that’s still under 2%. And does it make sense to ignore oil prices as if they have no impact? On the labour front, the 4.9% unemployment rate masks a record low participation rate and a high percentage of Americans without a job who don’t even bother trying, suggesting there remains plenty of slack in the labour market.

This is why there is no cut and dry expectation on Fed policy.

Wall Street has adjusted just in case. Two Fridays ago Wall Street tumbled as Fedheads made the case for a rate hike in September. From that new base, last week saw the S&P500 climb back ten points. Seven of those ten points are entirely attributable to the 12% rally in Apple shares. So ex-Apple, Wall Street has still very much adjusted for the elevated chance of a rate hike.

Does this mean, therefore, that if the Fed doesn’t hike this week, and Janet Yellen does not say anything definite enough that would lock in a December hike, that Wall Street will rally hard?

Maybe, but again, we’ll just have to wait and see. And the BoJ meets first.

Friday night’s session on Wall Street may have been a little better but for another dip in oil prices, courtesy of another increase in the US rig count, and a US$14bn fine slapped on Deutsche Bank which dates back to mortgage lending pre-GFC. Deutsche shares plunged 9%.

Banks in general were sold down in sympathy, largely because of regulatory fears and not because of Fed speculation.

Thus the Dow closed down 88 points or 0.5%, the S&P lost 0.4% to 2139 and the Nasdaq dropped 0.1%. On Friday night Apple shares finally gave back 0.5%, just as the iPhone7 actually hit the stores.

Commodities

West Texas crude fell US54c to US$43.17/bbl.

Base metal moves in London were mixed, with no price moving more than 1%.

With China on a holiday, iron ore remained unchanged at US$55.50/t.

The interesting thing about these smallish moves in commodity prices is that the US dollar index was up a solid 0.8% on Friday night at 96.04. This was attributed to the bigger than expected gain in the CPI, which in theory strengthens the odds of a Fed rate hike.

It was enough to see gold down US$4.10 to US$1310.00/oz but the US ten-year bond rate remained unmoved at 1.70%.

The Aussie is down 0.3% at US$0.7489.

The SPI Overnight, as noted closed unchanged.

The Week Ahead

The Fed statement will be released on Wednesday night, Janet Yellen will hold a press conference thereafter, and updated FOMC forecasts will be published.

The Bank of Japan will meet on Wednesday. Japanese markets are closed today and Thursday.

US data this week include housing sentiment tonight, housing starts on Tuesday, house prices, existing home sales, leading economic indicators and the Chicago Fed national activity index on Thursday, and a flash estimate of September manufacturing PMI on Friday.

The eurozone and Japan will also flash PMIs on Friday.

In Australia we’ll see June quarter house prices tomorrow along with the RBA minutes. On Thursday RBA governor Phillip Lowe will make his inaugural testimony before the House of Reps economic committee.

On the local stock front, Orocobre ((ORE)) will report earnings today, TPG Telecom ((TPM)) tomorrow, Kathmandu ((KMD)) and Nufarm ((NUF)) on Wednesday and Brickworks ((BKW)) and Premier Investments ((PMV)) on Thursday.

There are still a few ex-divs to work through, particularly on Thursday.

Rudi will appear on Sky Business on Tuesday, through Skype-link, to discuss broker calls at 11.15am. On Thursday he'll return in the studio from 12.30-2.30pm and again between 7-8pm for the Switzer Report. On Friday, he'll repeat the Skype-link up 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)

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

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

There’s only one event that matters next week – by Thursday morning our time the Fed will finally have put us out of our misery.

Briefly, at least. Assuming no rate rise, and we can’t be absolutely sure, attention will then turn to three months of debating a December rate rise. Along with the September policy statement, Thursday morning will feature a press conference from Janet Yellen, including a Q&A, and also the infamous “dot points”, which outline each FOMC member’s forecast of interest rate trajectory over the next couple of years.

But the day before the night of the Fed meeting, the Bank of Japan will also hold a policy meeting. Word is that the BoJ board is split down the middle between those believing a move further into the negative for the cash rate is the right thing to do and those who don’t.

So once again markets will find themselves completely beholden to central bank policy.

And the minutes of the September RBA meeting will be released next week.

Back in the real world of actual data (if data is ever actually real) the US will see housing sentiment and starts, house prices and existing home sales next week along with leading economic indicators, the Chicago Fed national activity index and a flash estimate of September manufacturing PMI.

It’s a quiet week for Australian data, with June quarter house prices the only real highlight.

On the local stock front, next week will feature earnings results from Kathmandu ((KMD)), Nufarm ((NUF)), Orocobre ((ORE)), Brickworks ((BKW)) and Premier Investments ((PMV)).

The ex-divs are starting to thin out now but there are quite a few on Thursday in particular.


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article 3 months old

The Overnight Report: Love That Bad News

By Greg Peel

The Dow closed up 177 points or 1.0% while the S&P gained 1.0% to 2147 and the Nasdaq rose 1.5%.

Seeking the Bottom

If you were a typical sports commentator, you’d say yesterday’s session on the local market was a game played in three halves.

It was expiry day for September quarter futures and index options, which can be blamed for early volatility that saw the ASX200 down 25 points very briefly before recovering to be only slightly down. That was the first half.

The second half saw the release of the jobs numbers late morning.

If we’re going to talk good news and bad news, yesterday’s local employment data for August provided a feast.

The good news is the unemployment rate fell to 5.6% from 5.7%. The bad news is 3,900 jobs were lost when economists had forecast a 15,000 gain. The decrease in the unemployment rate came courtesy of a decrease in participation, implying more people have given up finding work.

The good news is the loss of 3,900 jobs breaks down to a decrease of 15,400 part-time jobs and an increase of 11,500 full-time jobs. This mix bucks the trend of past months in which net job gains have all been about increases in part-time positions as full-time positions fell. But the bad news is this switch did nothing to improve the “underemployment” rate – the number of people who have jobs but would like more hours – which rose to a record 8.7%. As a consequence, hours worked fell by 0.2% to be up only 0.7% year on year.

The good news is these data justify an RBA rate cut.

It looked like the algos were in full swing on the data release given an initial plunge in the index (lower unemployment equals RBA rate cut less likely) followed by an equally sharp snap-back (fewer jobs, lower participation, higher underemployment, fewer hours worked equals rate cut more likely).

It pays to read the fine print before barging in, but no one’s told that to the computers yet.

From that point the dust settled, and the index proceeded to track a straight-line rally toward a close of up 12 to end the third and final half.

The low of the day was 5204, which is very close to technical support at 5200, but also an index option strike price and thus a magnet on expiry day. But if we’re trying to determine at what point the market has sold down yield stocks on Fed rate hike fears, we have perhaps found it in the banks, which rose 0.6% on the day to provide the bulk of the upside, but not in utilities and telcos, which continued to fall by 1.1% and 0.9% respectively.

The biggest winner on the day was materials, up 0.9% on the bounce in base metal prices, and the biggest loser was energy, down 1.2% on the lower oil price. While commodity prices are also under the spell of Fed policy, the metal price bounce was attributed to stronger Chinese data and the oil price drop was attributed to US inventory moves. Thus in both cases the fundamentals of demand-supply outweighed the esoterics of central bank intervention.

Today is another day, and after last night it looks like a September Fed rate rise is off the table once more. The futures are suggesting up 33 points. Will we finally see some support come in for beaten down yield stocks, or has that ship simply sailed?

The Growth Cycle

US retail sales fell by a greater than expected 0.3% in August to mark the first decline in five months. As the US economy is consumer-driven, retail sales are an important growth indicator.

But to add to the woes, industrial production fell 0.4% having risen in the past two months, the producer price index moved 0.0%, the Empire State activity index remained in contraction and expansion slowed for the Philly Fed activity index.

As has often been suggested by Wall Street commentators, if interest rates had already returned to normal by now the Fed would be talking rate cuts, not rate hikes. But all talk is of rate hikes and their timing, and on last night’s data it is assumed (until it isn’t again) September is off the table.

And maybe December too. Pass the champagne.

So the US stock indices rallied on the bad news is good news theme. However, the extent of the excitement over no rate hike is clouded yet again by another 3.4% jump in Apple shares – the third consecutive daily gain of around 3%.

The first two gains were courtesy of unexpected record sales for the new iPhone7. Last night’s gain came on news the iPhone7 Plus – same as the iPhone7 but with power steering and seven air bags – has sold out.

So Apple yet again led all three major stock indices higher, and yet again dragged other Big Tech names along with it. The sudden interest in Big Tech is not about the Fed not hiking, but about the Fed hiking eventually one way or the other. One by one equity strategists across the globe are suggesting it’s time to exit the search for yield and re-enter the search for cyclical growth. Record sales of iPhones (in contrast to the overall US August retail sales result) suggest Big Tech is a solid and, given these companies are now long established, safe place to be.

So just how much of last night’s rally can we really attribute to bad news is good news? Consider that the US dollar index fell, as one would expect, but only by 0.1%. Consider that gold dropped US$8.50/oz when it should have gone the other way, and that the US ten-year bond yield is up one basis point at 1.70% when it should have fallen.

While the stock market will remain its volatile self, particularly at this time of the year, other markets appear to be suggesting there can’t be much more to gain even if the next Fed rate hike is pushed further out in time. Might as well pack the bags now.

Commodities

And then we can look at commodities. West Texas crude duly recovered, but is only up all of US3c at US$43.71/bbl.

Having jumped up on Wednesday night thanks to China, base metal prices were all down 0.5-2%, except copper which held its ground, when no rate hike suggests the opposite. But again, it’s a fundamental issue – weak US sales, industrial production, regional activity…why would this inspire stronger base metal prices?

Iron ore is unchanged at US$55.50/t.

Gold is down US$8.50 at US$1314.10/oz.

The US dollar index is down only 0.1% at 95.25 but the Aussie has leapt back 0.6% to US$0.7516.

Today

The new December SPI Overnight closed up 33 points or 0.6%.

The changes to the S&P/ASX index components come into effect today so the index trackers will be busy. Following from yesterday’s local expiry it’s the quadruple witching expiry on Wall Street tonight, the August CPI will be released.

Rudi will make contact with Sky Business at around 11.05am, probably, via Skype-link, 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.

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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: Oil In The Mix

By Greg Peel

The Dow closed down 258 points or 1.4% while the S&P lost 1.5% to 2127 and the Nasdaq fell 1.1%.

Lined Up

The Dow had rebounded 250 points, the futures were suggesting up 79 and as the opening rotation was completed at 10.30am yesterday on the local market, the ASX200 was up 56 points. And that was the end of it.

The sellers were lined up waiting and wasted no time in sending the index back down on a steady path towards the red. Perhaps these were sellers who were caught in the headlights on Monday and had failed to respond. Or perhaps there is sufficient belief the Australian yield trade no longer deserves a premium.

When we break down the sector action we see only four sectors actually finished in the red yesterday: energy, banks, telcos and utilities. Other than acknowledging Woodside’s dividend, energy is the odd one out. The other three are yield sectors. Oil prices began to slip in Asian trade late afternoon on the release of an IEA report – more on that later – putting pressure on energy stocks.

There was a short-lived blip in the downward trajectory yesterday when China released a monthly data dump showing positive, if not runaway, signs.

Chinese industrial production rose 6.3% year on year in August, above July’s 6.0% and ahead of 6.2% expectation. Retail sales rose 10.6%, above 10.2% in July and beating 10.3% expectation. Fixed asset investment rose 8.1% year to date, ahead of 7.9% to July and beating 8.0% expectation.

But as I have noted before, the local market is not paying that much attention to China at the moment, so down we went again.

It is also notable that the Dow futures had begun to drop in the afternoon as well, likely picking up on the oil theme, suggesting a weak start for Wall Street last night. And indeed, the Dow closed down 258 points, cancelling out Monday night’s rebound. The good news is the Dow was down almost 300 at one stage, so Wall Street did not close on its lows.

Many Factors

The bad news is that given stats released showing record initial sales for the new iPhone, Apple shares rose 2.5% on the day, being the only Dow component to finish in the green. Had America’s biggest company fallen along with the market in general, it would have been quite a bit worse.

Oil was the major talking point on Wall Street last night. The International Energy Agency yesterday cut its 2016 demand growth forecast by 100,000 barrels per day to 1.3mbpd, and 2017 to 1.2mbpd, citing weaker economic growth in China and India.

Oil prices subsequently fell 2.5% which is not that dramatic, probably because there is still an assumption there may be some sort of deal struck at the upcoming OPEC meeting. But all along the weak oil story has been one of a supply glut, while steady demand growth has been assumed. Now that demand is being questioned, it’s another story again.

Other than oil, lingering fears of a Fed rate hike in September are still weighing on Wall Street. This is evident in that fact the US dollar index is up 0.5% at 95.56, gold is down US$9.00 and the US ten-year yield, which did not fall back on Monday night, closed up 6 basis points at 1.73%.

And then there is the Donald Trump factor. Yet again last night a trader suggested on US business TV that the market is concerned about a Trump presidency, particularly now he is closing the gap in the polls to Clinton, and because he publicly lambasted the Fed and Janet Yellen and that is simply not something a president does.

America is back from holidays. It is the month of September. Volatility has returned.

Commodities

West Texas crude is down US$1.09 or 2.4% at US$44.97/bbl.

Nickel was again the big loser on the LME, falling a further 2%. Zinc fell 1%, lead rose 1% and aluminium and copper were slightly weaker.

Iron ore fell US$1.30 to US$56.20/t.

Gold is down US$9.00 at US$1318.40/oz.

The stronger greenback has the Aussie down 1.3% at US$0.7464.

Today

The SPI Overnight closed down 11 points or 0.2%. This muted response to the much bigger fall on Wall Street suggests Australia was leading yesterday’s action and thus we don’t need to double up and follow.

But given current skittish sentiment, anything could happen.

What will happen is Westpac will release its monthly consumer confidence survey today.

July industrial production numbers out of the eurozone will be closely watched.

There is another handful of stocks going ex today.

Rudi will be presenting in front of AIA members (and others) at the Chatswood Club tonight, 11 Help Street. Starts at 7.15pm.
 

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: Fedheads Or Fedtails

By Greg Peel

The Dow closed up 239 points or 1.3% while the S&P gained 1.5% to 2159 and the Nasdaq rose 1.7%.

Lemmings

I took an each way bet this time yesterday in suggesting maybe local investors would assume the Australian market had already seen a Fed rate hike-related sell-off and as such look to pick up some bargains, or perhaps we’d simply see “one of those panic 100 point drops we suffer every now and then”. Clearly, panic set in.

At yesterday’s close, fears of a Fed rate hike, surfacing late August, had manifested as 6.1% plunge for the ASX200. That’s 6% wiped off the Australian stock market for the sake of US rates going from 0.50% to 0.75%. At Friday night’s close, the S&P500 had fallen 2.9% for the same reason. Talk about coughs and colds.

But clearly it was a capitulation session yesterday on the local market as the resources sectors, industrials and utilities were sold down by 3%, the banks, healthcare, info tech and consumer discretionary by 2% and the staples and telcos by 1.5%. On such “outperformance”, clearly Woolies and Telstra had already suffered enough.

Yet last night we saw a rebound on Wall Street. And given the futures are up 79 points this morning which, funnily enough, is exactly what they were down yesterday morning, presumably we’ll see a rebound on the local market today as well.

However if we do rebound today, it won’t be because local investors have decided yesterday’s sell-off was indeed overdone given the selling that preceded it and nor will it be because investors have decided 25 bips on the Fed rate is really no big deal in the scheme of things. It will be because another Fedhead came out last night and this time spoke dovishly.

So if we rebound today, it will be because maybe there won’t be a Fed rate hike next week. If there is, one can only assume we’ll go down again, maybe all the way back to our old friend 5000.

And if there isn’t, who’s going to be game enough to buy the market back up ahead of the December Fed meeting, which would solidly firm as a rate hike chance?

But on the other hand…

Last night Fed governor Lael Brainard (sorry, who?) suggested “prudence” is required with regard rate hikes. The Fed governor is an official with a permanent vote on the FOMC unlike the Fed presidents of the various regions who form part of the FOMC on rotation.

Another little-known Fedhead also piped up on the dovish side while better-known Atlanta Fed president Dennis Lockhart suggested a hike would require “serious discussion”.

The good news is we have now entered a Fedspeak blackout period ahead of the Fed meeting. They will all now have to shut the hell up. The bad news is we still have over a week to wait. It has been suggested Brainard was sent out last night to “calm” the markets, following Wall Street’s big plunge on Friday night. If only these idiots could just keep their bloody mouths shut in the first place.

There is quite a lot of US data to be delivered between now and the Fed meeting so no doubt they will have the ferry swaying from side to side. Interestingly the Bank of Japan will also hold a policy meeting next week – on the day before the Fed statement is released that night.

On another interesting note, it was suggested by a Wall Street trader on US business TV this morning that Friday night’s sell-off was not just about the Fed, but also about the latest North Korean nuclear missile test vis a vis the thought of Donald Trump being the man with the US launch codes.

And on a final interesting note, Eric Rosengren’s comments on Friday night sparked the sell-off in US stock markets, a rise in the US dollar, a plunge in gold and a rally in US bond yields. Last night Brainard’s comments caused a rebound in US stocks and a dip in the US dollar, but gold and the US ten-year yield are unmoved.

Commodities

West Texas crude fell 3% on Friday night and last night rose US33c or 0.7% to US$46.06.

Base metal prices all fell bar nickel but last night only copper managed a slight bounce, while aluminium fell another 0.5% and lead and zinc fell 1.5%, and nickel copped a 2.5% hiding.

Iron ore is unchanged at US$57.50/t.

Gold is as good as unchanged at US$1327.40/oz.

The US dollar index is down 0.2% at 95.13 and following its big plunge on Friday night, the Aussie is up 0.3% at US$0.7565.

Today

The SPI Overnight closed up 79 points or 1.5%.

China will release its monthly industrial production, retail sales and fixed asset investment numbers today.

NAB will release its local business confidence survey.

A handful of stocks go ex today, including CSL ((CSL)) and Healthscope ((HSO)).

Rudi will link up with Sky Business around 11.15am, through Skype, 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

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Following on from this week’s lack of action from the ECB, the Bank of England will have its chance to do nothing when it holds a policy meeting next week. It will be justified however, given last month saw a surprisingly extensive stimulus package from the BoE and UK economic data have looked nothing but solid of late.

There will be plenty to fuel further Fed debate towards the end of next week when a raft of US data hit the wires, including industrial production, retail sales, inflation, inventories, consumer sentiment and the Philly Fed and Empire State activity indices.

Friday on Wall Street sees the quadruple witching derivatives expiry.

After posting better than expected trade data this week, next week China will release its monthly round of industrial production, retail sales and fixed asset investment numbers.

Australian data releases this week include the NAB business and Westpac consumer confidence surveys, and on Thursday, the jobs numbers.

On Friday the changes to the components of the S&P/ASX indices, announced last week, become effective.

There’s another round of ex-divs set to handicap the local market next week and Myer ((MYR)) will post its earnings result.


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