Tag Archives: Bonds/Interest Rates

article 3 months old

The Overnight Report: Central Bank Tango

By Greg Peel

The Dow closed down 46 points or 0.3% while the S&P lost 0.2% to 2181 and the Nasdaq fell 0.5%.

Sell Australia

There were a lot of stockbrokers and traders running around yesterday morning shouting “What the hell just happened?” As the opening rotation concluded on the ASX, the index was down 66 points.

Initial selling took the ASX200 down through the 5400 support level so at that point technical selling was triggered. And of course, as has been the case all week and will continue to be the case, albeit on a diminishing basis throughout the month, the index started with an ex-dividend handicap.

But it appears the selling began in the futures, thus triggering selling in the physical market. A big Sell Australia order hit the boards, most likely from offshore. As it was, this order provided a re-basing of the index from which point we could say the session featured a 28 point rally.

Australia’s July trade data were released yesterday and they looked good at first glance. Exports were up 3% on better commodity prices and imports were down 0.4% on the stronger Aussie. But it was notable that one small and typically volatile component of exports – gold sales – had made a difference in leaping 21%.

Take out gold and exports were still up 2%, and that number should continue to be supported in coming months given big moves up in coal prices and the ramp-up of production and sales of LNG. Bear in mind there’s always a lag effect as contract prices are set before actual sales are completed.

China also released its trade data yesterday, in this case for August, as it only takes Beijing a week to tally up the trade activity of 1.4bn people or whatever the count is these days. Surprisingly, imports rose by 1.5% year on year having fallen 12.5% in July, when economists had expected a 4.9% fall. It was the first monthly rise in imports in almost two years.

Within that imports number was plenty of coal and iron ore. Exports fell 2.8% year on year, but again this was a better result than the 4.0% decline anticipated.

The interesting point about the Chinese trade data, or any Chinese data for that matter, of the last few months is that they’ve generally been pretty bad but haven’t caused any sort of angst for the Australian market. That’s because the assumption is bad numbers simply imply further stimulus from the PBoC and/or Chinese government. So how do we interpret good numbers?

Well if bad numbers evoke a benign response then presumably good numbers do too – it’s just a balance of how much stimulus is required. And as I suggested, we could argue the ASX200 rallied over the course of yesterday as both the local and Chinese trade numbers were published, just from a lower starting point.

All sectors took a beating yesterday, as one would expect from index selling, with the exception of healthcare, thanks to a solid result and 11% share price jump for Sigma Pharmaceuticals ((SIP)). The biggest losses were reserved for the resource sectors which of course contain some of the bigger market cap names. Iron ore and gold prices were also weaker, but a jump in the oil price could not save energy. Consumer staples also took a beating but Woolies went ex.

Another 13 point drop in the futures this morning suggests this bout of weakness is not yet over. On the back of an increased chance of a Fed rate rise in September (if Fedspeak is anything at all to go by), a decreased chance of another RBA rate cut (if we assume the GDP to be too strong), nothing yet out of Japan, perhaps not so much out of China, and as was apparent last night, nothing out of the ECB, the net central bank influence on the Australian market is presently negative, or at least potentially negative.

Not Even Discussed

A rate cut wasn’t expected from the ECB last night but there was an assumption something would be suggested, particularly an extension to the QE program which is scheduled to end in March. The eurozone economy is not exactly firing and Brexit remains a threat.

As it was, Mario Draghi said in his press conference that a QE extension “wasn’t even discussed”. That was enough to send the euro flying.

And enough to foster weakness on Wall Street. The major indices were further hit by a slump in Apple shares prompted by early reviews of the new iPhone7 failing to excite.

The counterpoint was a solid rally in energy stocks on the back of another 2.5% jump in oil prices. If we consider that the inventory data released on Wednesday night hit the wires after Wall Street’s close, oil prices were up over 5%.

There are two organisations which each week publish US oil inventory data – the American Petroleum Institute and the Energy Information Administration -- a day apart. Half the time the two sets of data don’t even come close to matching. But there was no doubting the correlation last night as the EIA numbers suggested the biggest weekly drawdown of crude since 1999.

This result left the oil market pondering whether there is a cyclical indicator here – have we finally reached the point where the supply glut is easing? The problem is, there was a hurricane in the Gulf, which cut off supply. So it’s difficult to tell. Now that Gulf supply is running again, next week’s data will be closely watched.

Commodities

Over 24 hours West Texas crude is up US$1.17 or 2.5% to US$47.31/bbl.

Once again there was not a lot of action in base metals and moves were again mixed. Nickel rose 1% and zinc fell 0.5%.

Iron ore fell US90c to US$57.40/t.

While the US dollar index was up only slightly at 95.04, the ECB’s lack of action was enough to send gold down US$6.80 to US$1338.20/oz.

The Aussie is down 0.4% at US$0.7639.

Today

The SPI Overnight closed down 13 points or 0.2%. The next level to watch for the ASX200 is 5350.

Australian housing finance data are out today and China will release inflation numbers.

There are only a handful of small ex-divs today and Premier Investments ((PMV)) will release its earnings report.

Rudi's link-up with Sky Business via Skype has been delayed this morning and should occur around 11.45am.
 

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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: Modestly Moderate

By Greg Peel

The Dow closed down 11 points while the S&P was flat at 2186 and the Nasdaq rose 0.2%.

Happy Anniversary

At 0.5% quarter on quarter and 3.3% year on year, Australia’s June quarter GDP growth was as good as in line with expectations and marked 25 years of uninterrupted growth. Bearing in mind the last recession was one we had to have.

It was an unusual start to trading on the local bourse yesterday given the futures said down 10 points and the ASX200 shot up almost 30 points from the open. Then the GDP numbers came out.

You’d think we’d all be thrilled with the sort of growth number any major developed economy would swoon over but no, like the strong Aussie, it’s a complication. Can the RBA justify cutting the cash rate further on this growth number? Low inflation justifies a cut, but the GDP would suggest otherwise.

The Commonwealth Bank economists, for one, are still tipping a November cut to 1.25% but they do make a couple of points from the breakdown of yesterday’s numbers. One is that government infrastructure spending is picking up, which despite Labor’s sad attempt to negatively politicise is just what the RBA wants to see – fiscal support to take the pressure off monetary policy.

Another is that weak wages growth, which is keeping the lid on inflation, is concentrated in the mining states. This suggests the issue is cyclical and not structural, such that as the decline in mining investment abates, so too should wages in the industry stop weakening any further.

Either way, the market didn’t like the strong result, even though it came in pretty much on the money. The index closed the session up only ten points. Funnily enough, the consumer sectors did like numbers as they were the stand-out performers on the day. Retailers like rate cuts, but then they also like economic growth. The offset was energy.

Oil prices were a little lower but the 5% fall in Santos ((STO)) was the main drag on the sector. According to the AFR, the Shanghai Stock Exchange is questioning why a Chinese company took an 11.7% equity stake this year in an Australian company booking huge losses.

Moves in other sectors were benign.

Oh Please

It was another dull old session on Wall Street last night. Supposedly everyone is now back to work after their summer vacations but while volumes have picked up from the previous week, they remain tepid at best.

The highlight, supposedly, of the day was the release of the Fed Beige Book, an anecdotal assessment of the state of the economies of each of the Fed regions. Growth in each region was deemed to be either “modest” or “moderate”, not that anybody much knows what that means or what the difference is. And growth has been M&M in every Beige Book pretty much since about the time QE started.

As I’ve said before, never has a book been so aptly named.

Wall Street scoffed at the Beige Book and scoffed again when a couple of Fedheads came out to tout the usual “it’s time for a rate hike” spiel. No one expects a September rate hike unless it has come to the point the Fed decides to man-up and actually lead the market rather than meekly follow it.

Testament to a slow news day on the Street is that all anyone could seem to talk about was the new iPhone, which everyone agrees is little different to the old one. Still, Apple shares closed higher on the day and hence the Nasdaq once again snuck quietly to a new record high.

Commodities

What Wall Street missed was the late release of a weekly oil inventory report that showed a bigger drawdown than was expected (we play this game every week), hence in electronic trading West Texas has shot up US$1.26 or 2.8% to US$46.14/bbl.

A strike in Chile provided a bit of a boost for the copper price last night but the sellers were lined up for any sign of life and thus copper closed up only 0.7% in London. Nickel rose 1% and lead fell 1.5% in yet another mixed session.

Iron ore fell US30c to US$58.30/t.

After Tuesday night’s pop, gold has fallen back US$4.40 to US$1345.00/oz as the US dollar index bounced off technical support and is up 0.1% at 94.96.

The Aussie is subsequently off 0.1% at US$0.7673, with the in-line GDP result failing to make any impression.

Today

The SPI Overnight closed down 18 points or 0.3%. Not sure why, unless traders expect a response to last night’s hawkish Fedspeak. If accurate we may once again test support for the ASX200 at 5400.

Otherwise we’ll see trade numbers today both locally (July) and from China (August).

Tonight the ECB will hold a policy meeting.

Quite a few ex-divs today, including Woolworths ((WOW)), while Sigma Pharmaceuticals ((SIP)) will release its earnings report.

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

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

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

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

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article 3 months old

The Overnight Report: Out Of Service

By Greg Peel

The Dow closed up 46 points or 0.3% while the S&P gained 0.3% to 2186 and the Nasdaq rose 0.5%.

Not with a Bang

Glenn Stevens' last monetary policy statement as RBA governor, released yesterday, was benign, and little different to the July statement. After the May rate cut economists were rapidly pencilling in August as the next cut ahead of more in 2017, but by yesterday morning no one was expecting an August cut anymore.

Inflation, or lack thereof, had been the big issue back in May but as we await the release of the June quarter GDP result this morning, the fact it could be as high as 3.4% growth rather puts the need for further stimulus into question, low inflation or not.

Yesterday saw the release of the last component of GDP, being the current account. The current account deficit surprised economists by dropping down to $15.5bn from the March quarter’s $20.8bn when $20.0bn was expected for June, but then the March quarter result was revised down to $14.9bn so what’s the point in being surprised? In fact the deficit widened.

I use the word “fact” advisedly.

The terms of trade in theory rose 2.3% in the June quarter thanks to stronger commodity prices but it’s still down 5.7% from a year ago. Yesterday’s data did not alter economists’ expectations that the pace of growth will have slowed to around 0.5% in June from a shock 1.1% reading in March, but that annual growth will remain an envy-of-the-developed-world 3.4% or thereabouts.

It was a lacklustre session on Bridge Street following no lead-in from Wall Street but clearly there was some give-back after Monday’s surprising surge. Yield stocks that were hot property on Monday eased back. The banks dropped 0.5% for example.

Monday’s rally was all about the US jobs report which apparently killed off, many had decided, the chance of a September Fed rate hike. Yesterday we saw local rate considerations at work. When the current account numbers came out, the ASX200 slipped, likely because they did not alter strong GDP expectations and therefore provided no reason for an RBA rate cut.

After recovering thereafter, the ASX200 slipped again in the afternoon when the RBA statement offered no hint there may have to be another rate cut sometime soon.

The Aussie didn’t do much, given no one had expected anything from the RBA. But that all changed overnight. Glenn Stevens is probably relieved he’s getting out.

No Chance

The Dow initially dropped 40 points from the opening bell last night on the release of the US services sector PMI for August, which showed a sharp drop to 51.4 from 55.5 in July. It’s the lowest reading since February 2010.

But the weakness was short-lived as those investors relieved by weak data, which suggest the Fed will not be hiking in September, moved in and started buying.

The US dollar index plunged 1.0% to 94.84. No doubt to Phil Lowe’s frustration, the Aussie has shot up 1.3% to US$0.7683. The US ten-year bond yield dropped 5 basis points to 1.54% and gold leapt US$22.70 to US$1349.40/oz.

Forget September, we can now all spend three months debating the possibility of a Fed rate rise in December.

We’re back in TINA mode – one might as well buy stocks as there is no other alternative. The Nasdaq hit a new record high last night. It’s hard to find a Wall Street commentator who doesn’t like the high-growth tech sector at present. It’s also hard to find anyone who likes the high-yield sectors such as utilities and telcos, other than the people who keep buying them. Where else can one source income? TINA.

The story in Australia is very similar.

Commodities

A big drop in the US dollar should be good news for commodity prices, but there was little evidence of it last night. Other than in gold of course, but that’s not a commodity.

Oil prices continued to drift lower after the disappointment of the Saudi-Russia announcement of, effectively, no production freezes probably ever. West Texas crude is down US21c at US$44.88/bbl.

Trading on the LME continued to be mixed and largely sedate, although zinc did drop 2% and lead rose 1% while the others did nothing much. Base metals continue to be influenced by individual demand/supply equations.

Iron ore fell US20c to US$58.60/t.

Today

The SPI Overnight closed down 10 points or 0.2%.

The local GDP result will be out late morning.

The Fed will publish its Beige Book tonight which will no doubt be stuck on the usual assessment of modest or moderate growth across Fed regions.

Among another handful of ex-divs today on the local market, Brambles ((BX)), Cochlear ((COH)) and Qantas ((QAN)) stand out.

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

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(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: Labor Day Lull

By Greg Peel

Odd Jobs

The difference between 151,000 jobs added in the US in August and the 185,000 predicted led to a 1% rally for the Australian stock market yesterday. Go figure.

The point is Australian stocks sensitive to US interest rates – resource companies producing US dollar-denominated commodities and yield payers attractive to US investors – had been sold down last week on building speculation, post Jackson Hole, that the Fed was moving to raise its cash rate at the September FOMC meeting. The shortfall in jobs had many, but not everyone, in the market now assuming September is off the table.

So, as you were. Everything that was sold down came roaring back yesterday – the resource sectors, the banks, the telcos – to ensure the ASX200 made it comfortably back above critical support at 5400. Now we wait for the actual Fed meeting.

It was not, however, a good day for all sectors.

We’ve seen it in medical services, we’ve seen it in childcare, we’ve seen it in vehicle leasing and now we’ve seen it in residential aged care. Adding insult to the injury of disappointing earnings results last month, yesterday the three listed residential aged care stocks were absolutely trashed on the implication of likely new government regulations. At one point Estia Health ((EHE)) was down 30%, having already fallen a long way from its pre-result peak, and peers Japara Healthcare ((JHC)) and Regis Healthcare ((REG)) were not faring much better.

At the final bell each closed down 12%, 15% and 17% respectively. It was a capitulation. Not helping either recently was news the founder of Estia had sold his entire stake post-result.

In economic news yesterday, Australia’s service sector PMI went the same way as manufacturing PMI and collapsed, to 45.0 in August from 53.9 in July. Given tomorrow will see a GDP print in the order of 3% growth, we’ll also ignore this one.

Meanwhile, company profits rose over the June quarter by a greater than expected 6.9%, to be flat year on year. Manufacturing was the star performer with a 23% leap (See: PMI joke?) while mining chimed in with 14% thanks to the commodity price recovery. Construction fell 28% because the ongoing decline in resource sector construction out-weighed the residential construction boom.

The June quarter GDP remains on track to be over 3% (annual).

ANZ’s job ads series showed a solid 1.8% rebound in August after a weak July, to be up 8% year on year.

The RBA will meet today and do nothing, for the various reasons I outlined yesterday, and because Glenn Stevens is unlikely to do anything unexpected in his last statement.

Brexit Worries?

Caixin’s take on China’s service sector PMI showed a rise to 52.1 in August from 51.7 in July, in contrast to the official number. Japan still can’t take a trick – its equivalent fell into contraction at 49.6 from 50.4.

The eurozone saw a dip to 52.9 from 53.2 but the star of the show was the UK, which saw a jump back into expansion at 52.9 from 47.4. Once again we say Brexit Schmexit.

The US PMI is out tonight.

Commodities

Oil prices shot up by 5% at one point last night, in a thin market in the absence of the US, as it was reported the Saudis were set to make a “significant statement” at the G20 meeting. The assumption was an agreement between the Saudis and Russia to freeze production.

Prices soon retreated nonetheless when the announcement turned out to be one of agreeing to set up a working group to monitor the oil market. Led, one presumes, by Sir Humphrey Appleby. But West Texas crude is still up a net US87c or 2% at US$45.09/bbl.

Elsewhere, commodity markets were largely quiet in the absence of the US. In London, aluminium fell 1% and lead rose 1% but the other base metals moved little.

Iron ore fell US20c to US$58.80/t.

Gold is roughly steady at US$1326.70/oz.

The US dollar index is off 0.1% at 95.77 and the Aussie is up 0.2% at US$0.7584.

Today

The SPI Overnight closed down 20 points or 0.4%, probably suggesting yesterday’s bounce-back was a bit over-enthusiastic.

The last of the local GDP component releases is due today in the form of the June quarter current account, which includes the terms of trade.

As noted, the RBA statement will be released at 2.30pm today and the board will shoot off to the pub to toast Stevo.

There are a few more stocks going ex locally today.

Rudi will appear on Sky Business, via Skype-link, 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.

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article 3 months old

The Monday Report

By Greg Peel

Running in Fear

Fear of a September Fed rate rise had been building in the local market as we moved towards Friday, evident in selling in yield stocks. Things came to a head on Friday with forecasts of 185,000 jobs to have been added in the US in August which, it was assumed, would be enough to force the FOMC’s hand.

Nor did it help that the ASX200 broke strong technical support at 5400 from the opening bell, ensuring a weak session. A brief attempt by the buyers to push the index back was destined to fail and when it was all said and done it was a Friday – always a good day to sell, and this time more so given the US long weekend.

The banks led the selling on a cap-weight basis with a 1.0% fall while telcos and healthcare each fell 2.1% to be joint losers among the sectors. Utilities backed up with 0.9% and industrials, which includes some faithful dividend payers, lost 1.1%. Only the resource sectors finished in the green, slightly, thanks to supportive commodity prices and the fact they’d already had a bad week.

But all is forgiven. The US jobs number fell short, and the futures are suggesting an opening gain of 31 points, which would take the ASX200 back over 5400 and potentially stave off more substantial weakness.

Couldn’t have been worse

As far as US monthly jobs results go, August’s result on Friday night was nothing short of frustrating. At 151,000, the number fell short of 185,000 estimates.

But not that short. The bottom line is, 151,000 is not a number to end Fed speculation one way or the other. Indeed it is a number that has divided economists and ensured we’ll be arguing the case back and forward for another two weeks.

Had the number been in excess of 250,000, as was the case in both June and July, the assumption would be yes, the Fed will raise this month, and now we can all get on with it. Had the number been something like 120,000 we could have said no, clearly the Fed won’t raise this month, and now we can all get on with it, at least until it’s time to start discussing December.

But at 151,000, and an unchanged unemployment rate of 4.9%, half the market is saying yes, it’s still enough, and the Fed has been setting us up for a hike. The other half of the market is saying that a number short of estimates, and a drop-back in wages growth to 0.1% for the month, means no, a hesitant Fed will have an excuse to hesitate once more.

So take your pick.

The various markets took their picks on Friday night, in either direction.

The US dollar index initially plunged on the jobs release, suggesting no hike, before turning around and closing up 0.3% at 95.88. A stronger dollar should be a drag on gold, but gold is up US$11.20 at US$1324.80/oz, suggesting no hike.

The US ten-year bond yield closed up 3 basis points at 1.60%, suggesting a hike. Commodity prices were both up and down. The US stock markets opened up on the news – probably suggesting relief that there would not be a hike, before dropping mid-session as the debate raged, and finally recovering to a modest gain on the day.

The Dow closed up 72 points or 0.4%, the S&P gained 0.4% to 2179, and the Nasdaq rose 0.4%.

Not even a US jobs number day could break the Dow/S&P run of sessions of no move in excess of 1% in either direction, which has now extended to forty.

So how do we interpret these moves? We don’t. We’ll likely just have to wait till September 22.

Commodities

West Texas crude closed up US69c at US$44.22/bbl, suggesting the technical bounce off 43 was more influential than jobs.

Aluminium fell 1.5% but lead rose 0.5% and nickel and zinc rose 1%, with copper off a tad.

Iron ore rose US60c to US$59.00/t.

As noted, gold jumped US$11.20.

With the US dollar index up 0.3%, the Aussie is actually up 0.2% at US$0.7570.

And also as noted, the SPI Overnight closed up 31 points or 0.6% on Saturday morning.

The Week Ahead

US markets are closed tonight. It’s a quiet week thereafter for US data, but the Fed’s Beige Book will be released on Wednesday.

It’s far from a quiet week in terms of Australian data.

Today we’ll see the service sector PMI, along with everyone else except the US, which will publish tomorrow night. We’ll see the local construction PMI on Wednesday.

In terms of other monthly data, today it’s ANZ job ads, on Thursday it’s the trade balance, and on Friday it’s housing finance.

In terms of June quarter data, today we’ll see company profits and inventories and tomorrow the current account, including the terms of trade. On Wednesday the GDP result will be released. Expectations are for an ease-back in quarterly growth to 0.4%, down from March’s shock 1.1%, but for the annual rate to increase to 3.2% from 3.1%.

The RBA will hold a policy meeting tomorrow but no change is likely, given (a) they moved last month, (b) they usually don’t move ahead of a GDP result and (c), there’s no clarity around Fed policy.

The ECB will hold a policy meeting on Thursday, just to add to the fun.

China will release trade numbers on Thursday and inflation on Friday.

On the local stock front, we’ll see out-of-cycle earnings reports from Karoon Gas ((KAR)) tomorrow, Sigma Pharmaceutical ((SIP)) and Xero ((XRO)) on Thursday and Premier Investments ((PMV)) on Friday.

It’s a big week for companies going ex-dividend, acting as a natural drag on the index.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls at 11.15am. He'll be in the studio twice on Thursday. First from 12.30-2.30pm and again for an interview on Switzer TV between 7-8pm. He'll repeat the Skype-link up around 11.05am on Friday.


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

As always, it is difficult to know just how Wall Street will respond to a good/bad/indifferent jobs number tonight, and even more difficult to know what the Fed might think. Typically, the smart money stays out of the market on jobs day given potentially wild volatility before moving in response in the next session.

In this case, the US Labor Day long weekend will mean we’ll have to wait until Tuesday night. US markets are closed on Monday night.

This means the US services PMI for August will be published on Tuesday, while all others will post on Monday.

The Fed Beige Book will be published on Wednesday but then attention will move to the ECB, which will hold a policy meeting on Thursday.

Following on from yesterday’s PMIs, China will be in the frame once more with Caixin’s services PMI and official trade and inflation data due next week.

The RBA will hold a policy meeting on Tuesday. While economists are still predicting further cuts it is unlikely the RBA will double up in September, particularly given the chance the Fed might go the other way.

The Australian June quarter current account and trade balance are also out on Tuesday ahead of Wednesday’s GDP result. On a monthly basis, we’ll also see ANZ job ads, trade and housing finance data next week.

On the local stock front we’ll see off-cycle earnings reports from Kathmandu ((KMD)), Sigma Pharmaceutical ((SIP)) and Premier Investments ((PMV)). There will also be a lot of stocks going ex-dividend.


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article 3 months old

The Overnight Report: Mixed Messages

By Greg Peel

The Dow closed up 18 points or 0.1% while the S&P was flat at 2170 and the Nasdaq rose 0.3%.

Holding On

Yesterday’s weakness on the local market was all about the resource sectors, which in turn is all about Fed policy. Lower commodity prices ensured both energy and materials fell 1.7% although in the case of materials, we have to count back the effect of BHP Billiton ((BHP)) going ex.

Having had a solid run from the Brexit rebound on better than expected commodity prices, the resource sector names have now suffered an investor exit. While demand/supply fundamentals still underpin – oil being the obvious case in point – commodity prices have over that period been supported by the assumption the Fed would not be raising its cash rate in September and perhaps not in December either.

Now that assumption has reversed, the US dollar has thus risen, and dollar-denominated commodity prices have come under mathematical pressure. We note also the next worst performing sector on the local market yesterday was utilities, down 0.5%, which suffers via the the Australia-US interest rate differential.

Elsewhere, sector moves were mixed and less dramatic. It is notable that the ASX200 was down 32 points late morning before turning around to come back almost to square mid-afternoon, ahead of a final drift-off. At its nadir the index hit 5405 and technically, 5400 is the support line.

Whereas the month of August was dominated by individual stock moves during results season, September has opened with a return to the macro influence of economic data. Australia’s data releases were quite mixed.

The mass media were calling the June quarter private capital expenditure result (-5.4%) another shocker – sky’s falling and all of that – but indeed quite the opposite is true. We know that resource sector spending is continuing to fall as mining investment exits its boom and LNG projects reach completion. But the fall in June quarter “mining” spending was actually not as great as forecast.

We are looking to non-mining spending to carry the can and indeed it rose during the quarter. The other important element of yesterday’s capex data is capex intentions, and here we saw an upgrade to FY17 spending intentions. The June quarter represents the third estimate, and things are heading in the right direction.

We know that the decline in “mining” spending will soon exhaust itself. While it won’t reverse, it will stop dragging down the net numbers, It’s then up to non-mining to drive economic growth. Here, a lot depends on just how sharply the housing boom cools off, and on the positive side, just how helpful other sectors can be, for example, inbound tourism.

Because Australian consumers are not exactly doing their bit at the moment. Retail sales growth was flat in July when 0.3% growth was forecast. Following only 0.1% gains in both May and June, annual sales growth has fallen to a tepid 2.7%.

Aside from being a reflection of stiff retail competition (down, down etc) in dollar terms, weak sales growth is a reflection of just how misleading the current unemployment rate is. The ongoing increase in part time jobs at the expense of full-time jobs – both counted equally as a “job” in the official unemployment rate number – is resulting in weak wages growth and subsequently, weak consumption.

What is the RBA to do? The capex data were pleasing but the sales data were not. And Sydney/Melbourne house prices continued to rise in July despite assumptions a peak must surely soon be reached. Having staved off concerns over a housing investment bubble via stricter lending standards, the RBA is now faced with owner-occupiers piling in to fill the gap. These O-Os, as they’re called, are more likely to stretch their budgets to accommodate a hefty mortgage than investors who at least pick up rent, and negative gearing.

Can the RBA afford to cut rates again?

The central bank can probably afford to ignore yesterday’s Australian manufacturing PMI for August which indicated a collapse into contraction at 46.9, down from 55.4. I’ve said this before, but it seems very strange that every other economy on the planet manages to only ever post incremental monthly PMI changes but Australia’s manufacturing PMI leaps all about the place like a cricket on steroids. Maybe it’s because Australia’s manufacturing sector is so tiny, or it’s just too small a sample, but either way, credibility is lacking.

It’s a different story in China, albeit there are other doubts about the value of Beijing’s data. Beijing’s official manufacturing PMI sparked all sorts of excitement yesterday by rising back to 50.4 from 49.9 in July. Big whoop. Aside from Caixin’s equivalent falling to 50.0 from 50.6, Beijing is trying to shift away from being an export economy. Beijing’s service sector PMI fell to 53.5 from 53.9.

And that’s more concerning.

PMI Plunge

Japan’s manufacturing sector managed to slow its pace of decline in August. The PMI rose to 49.5 from 49.3, but Japan is totally reliant on exports so it’s hardly a good result. The eurozone equivalent slipped to 51.7 from 52.0 which we might say was all about Brexit but if it is, the Poms have clearly made the right decision.

The UK PMI shocked everyone in rebounding to 53.3 from 48.8.

The US equivalent, on the other hand, fell to 49.4 from 52.6, when economists had forecast 52.0.

On this news, early in the session on Wall Street, the US dollar index plunged 0.4% and stayed there. The Dow plunged a hundred points. But hang on, if the Fed is data-dependent then surely here is clear evidence a rate rise is not a good idea. Subsequently, the US stock indices rallied back again.

It’s just what we need – more confusion over what the Fed might do this month. And tonight we have the jobs report.

In the meantime, last night represented the 39th consecutive session in which the neither the Dow nor S&P has moved more than 1%.

Commodities

The US dollar index is down 0.4% at 95.64 on the assumption a September rate rise is by no means a given, if indeed it ever was. This is good for commodity prices.

All base metals moved to the upside in London, with lead, nickel and zinc each rising more than 1%.

Gold rose US$5.10 to US$1313.60/oz.

Iron ore dropped US60c to US$58.40/t but as I often note, iron ore does its own thing. But clearly no one told the oil market a weaker greenback is a good thing.

West Texas crude has lost another 3%, down US$1.30 at US$43.53/bbl. Once 45 was breached it was going to take more than Fed policy to calm the nerves.

The Aussie has matched the greenback’s fall in rising 0.4% to US$0.7550.

Today

The SPI Overnight closed down 12 points.

US jobs tonight, which is about all that really matters, but note that S&P/ASX will announce pending index component changes today before they become effective in two weeks.

And Fortescue Metals ((FMG)) goes ex.

Rudi will Skype-link with Sky Business 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.

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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: Under Pressure

By Greg Peel

The Dow closed down 53 points or 0.3% while the S&P lost 0.2% to 2170 and the Nasdaq fell 0.2%.

Fed Fear

Welcome to September, historically the worst month of the year for stocks. Indeed, over the hundred year history of the Dow, only one month of the year has averaged a loss, and that is September.

But it’s just an average.

The last day of the local earnings season ended with a bit of a whimper. There were not that many companies left to report but it’s the first time in the last three weeks there have not been some significant up/down moves in reporting stocks to highlight.

There were still some moves – Harvey Norman ((HVN)) rose 2.7%, Independence Group ((IGO)) fell 3.7%, Adelaide Brighton ((ABC)) fell 4.2% -- but nothing in the teens or worse as we have seen often this season.

It was otherwise a weak session, on a beta rather than alpha basis. Late morning the ASX200 was down 66 points and it was looking like the market was set to book a real shocker, with technical selling backing up fundamental nerves. Chartists have been calling the market lower if the index failed to hold above 5500, which it hasn’t.

Some buying came in to stabilise things through the afternoon but across the sectors, ultimate weakness can very much be put down to Fed fears. As we entered the August result season, the assumption was the Fed was no chance of raising in September and possibly not in December either. As we exited the result season, there now is a very real chance the Fed could hike this month and maybe even in December as well.

Even if the Fed funds futures are still only pricing in around a 33% chance of a September hike, it pays to be safe. And for many an Australian company impacted by US interest rates, there’s a lot of premium to give back.

A Fed rate hike means a stronger US dollar and that means weaker commodity prices, particularly gold. Gold has drifted down since Jackson Hole but not yet tanked. It is nevertheless hard to find any Australian gold stock with a Buy rating from a stock analyst. Result season featured many a solid operational result from the goldminers, but a consistent call of overvaluation from analysts, even on a bullish gold price forecast.

Result season featured many a strong result from defensive yield-payers in the market, but again, Buy ratings were very hard to find. REITs in particular have drawn a lot of overvaluation calls. If the US rate rises the value of Australian yield stocks to offshore investors slips slightly, and many are carrying premiums.

Then we have the double-whammy stocks. They include resource sector names paying solid dividends, such as the Big Two miners and a couple of Big Gas names, and they include yield stocks with direct US exposure, which would lose out on both the currency translation and the interest rate differential.

Yesterday saw materials lead the market down with a 2.4% drop, backed up by energy with 1.1%. Utilities lost 1.0% and defensive consumer staples 1.3%. The banks and telcos were also sold, but hung in there with only 0.4% drops.

We may only have to wait until tomorrow night to decide whether there will indeed be a Fed rate hike this month. If the US jobs report comes in as anything other than very bad, Wall Street is going to start to lock a rate rise in. Unfortunately the FOMC decision will not be announced until September 22, so we’ll have to suffer three weeks of tedious Fed speculation.

On a brighter note, yesterday’s release of local July sector credit numbers showed steady, if not surging, credit demand.

In annual growth rate terms, overall credit is up 6.0%, down from 6.2% in June. Total housing credit growth has slipped to 6.6% from 6.7% (and 7.5% a year ago) because investor loan growth has fallen to 4.8% from 5.0% in June and double-digits in the first three quarters of 2015. Owner-occupier loan growth has slipped to 7.6% from 7.7% but June marked the highest rate in six years. At 6.2%, business loan growth is up from 4.9% a year ago.

Not shooting the lights out, but enough to be comfortable with.

Weak Close

After five consecutive months of rallies, August saw the Dow close lower, having featured fresh all-time highs mid-month.

All talk on Wall Street is, of course, about the Fed, and specifically about tomorrow night’s jobs report and just what it might imply. The current forecast is for 185,000 new jobs and that is considered enough to keep the Fed talking rate rise.

Last night the ADP private sector report showed 175,000 new jobs created in August, in line with non-farm payroll predictions.

As we have witnessed this year, US jobs reports can be extremely volatile and often their veracity is questioned, particularly given large revisions are common in subsequent months. But again, Wall Street is looking at being safe rather than sorry.

With pressure on commodity prices it didn’t help that the weekly US oil inventory numbers showed a greater than expected build in crude and a lesser than expected drawdown of gasoline. The US dollar index was flat last night at 96.02 but risk is to the upside and thus commodity price risk is to the downside. Oil prices fell 3%.

Fedheads were also out and about again pursuing their favourite pastime of trying to confuse Wall Street into submission. The bottom line is two spoke with dovish tones and one with hawkish tones but of the three, only the hawk is an FOMC voting member.

US stock markets thus continued their modest correction. There is no great expectation a September rate rise would unleash a major plunge – most agree 25 basis points is neither here nor there and everyone would just like to settle the matter one way or the other – but September is the month of volatility so the jitters, at least, may run through the markets.

Tonight will probably be a quiet one on Wall Street ahead of the jobs report, but that is never certain.

Commodities

West Texas crude is down US$1.43 at US$44.83/bbl.

The build-up of commodity price fear is being reflected in mining stocks but metal prices have not exactly buckled. Last night saw aluminium fall 1% but lead rise 1.5% and the other base metal were little moved.

Iron ore is unchanged at US$59.00/t.

Gold is down US$2.00 at US$1308.50/oz.

The Aussie is up 0.1% at US$0.7520.

Today

The SPI Overnight closed down 19 points or 0.4%. Aside from current momentum to the downside, and technical weakness, the energy sector will be under pressure today.

It’s the first of the month so across the globe, including in Australia and the US, manufacturing PMIs will be released. China will release both its manufacturing PMI and service sector PMI.

In Australia we’ll also see August house prices and June quarter private sector capex, the latter being one of the RBA’s most closely watched data sets.

No more earnings reports. Woohoo! But do be reminded we are now very much into that which comes after – the ex-dividend season. Among those stocks going ex today is BHP Billiton ((BHP)).
 

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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