Tag Archives: China and Emerging Markets

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

Wall Street is closed tonight for the Independence Day long weekend and holiday-makers will no doubt be in a jolly mood after a solid week of gains for the stock market, weather permitting. The question going into next week, however, will be one of how long can this last before the Fed is forced to put up rates.

And what will happen if it does.

Next week sees the minutes of the last Fed meeting released on the Wednesday night and while minutes are always ostensibly “old news”, the focus of attention will be on whether or not support for Janet Yellen’s persistently dovish stance is waning among some members of the FOMC.

Next week will also see US data releases for chain store sales and wholesale trade along with the Treasury budget, which means it’s a quiet week economically. Anticipation will start to build with regard June quarter earnings results, nevertheless, given Alcoa will report on Tuesday to unofficially kick off the season. The banks start to report late in the week and then the floodgates begin to open the week after. At present consensus is for around 6% net quarterly earnings growth.

China will release its June inflation numbers and trade balance next week.

It’s a busy week economically for Australia, including releases for ANZ job ads, the TD Securities inflation gauge, the construction PMI, NAB business confidence, Westpac consumer confidence, unemployment, housing finance and investment lending. We might anticipate a rollercoaster ride for the Aussie dollar, in the wake of Glenn Stevens’ speech, if these numbers paint a mixed picture.

There’s very little scheduled on the corporate front next week as we move through the typical disclosure vacuum between EOFY and the August result season. We shall shortly start to see the next quarterly round of resource sector production reports, nevertheless.
 

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article 3 months old

The Overnight Report: The Yankees Are Coming!

By Greg Peel

The Dow closed up 92 points or 0.5% to 17,068. Another millennial mark bites the dust. It was also a new all-time high, as it was for the S&P, up 0.6% to 1985. The Nasdaq rose 0.6%.

Glenn “Super Mario” Stevens gave it a red hot go yesterday in Hobart, knowing full well he can’t cut the cash rate to take the heat out of the currency at the moment so the only way to get the Aussie down is to talk it down. Fear is always the best tool, so Stevens warned that when the Aussie does eventually plummet, and it will, you best not be stuck with any.

And don’t think the RBA doesn’t have the ammunition to achieve that. No sir-ee Bob. If necessary, Glenn will get out his big knife and cut that rate some more. Not worried about house prices.

It was pure theatre, and everyone was thoroughly entertained, agreeing that Stevens bloke sure puts on a great show. But no one told the forex guys it was just that – theatre – so they actually thought it was all real. At 11am yesterday the Aussie free-fell a cent and is now at US$0.9347.

To be fair, Stevens did warn that the strong March quarter GDP will prove misleading, and that Australia’s growth will slow notably from the June quarter. The RBA is worried about progress in the transition away from mining, although not so worried about the budget. The implication is nevertheless that another rate cut cannot be ruled out. We recall that ECB president Mario Draghi talked down and talked down and talked down the euro for about two years, to no avail. Eventually he did have to cut rates. But while Australia offers safe, higher yields than the rest of the developed world, the Aussie ain’t coming down. The only way the Aussie can come down is if the greenback rises.

Speaking of Australia’s non-mining economy, building approvals surged by 9.9% in May, well above 3.2% expectations, to 14.2% annual growth. The swing factor was a 25.5% jump in lumpy apartment block approvals compared to only a 0.6% increase in single dwelling approvals. There is little doubt Australian cities are moving away from the quarter acre mentality and towards the Manhattan model, with 45% of all current residential construction represented by apartments, up from a 30% average ten years ago.

The greater the ratio of apartments, the lesser the positive impact on the construction and building materials sector, given a lower ratio of size and materials per dwelling compared to single dwellings.

And retail sales fell 0.5% in May. The only surprise here was that anyone was surprised – not in the number itself but the fact the ASX consumer discretionary sector rose 0.6% yesterday on the news and was actually one of the best performing sectors on the day. I noted yesterday morning that retailer after retailer after retailer slashed guidance in June, bemoaning the mild autumn. We all knew retail sales would have a Barry in May. Sell the rumour – buy the fact.

Despite the big jump on Wednesday, the ASX 200 kicked on solidly again yesterday as the materials sector led the charge given big jumps in base metal prices overnight. But everyone piled back into Telstra ((TLS)) as well, which says a lot about the “unloved” rally. If we truly are seeing a return to economic strength, why is yield still king?

Because it’s all driven by central bank funny money. How long can it go on?

Last night’s US non-farm payrolls report blew forecasts away with a result of 288,000 jobs added and a fall in the unemployment rate to 6.1% from 6.3%. It’s the lowest rate since that fateful month known as September 2008, and the first time 200,000 plus jobs have been added five months in a row since 1999 (although the population may have somewhat expanded in 15 years).

Talk now is of economists starting to question whether they should bring their first rate rise expectations forward in time in spite of ongoing Fed dovishness. The fear is that confirmation the US economy truly is powering along may cause the dam to break in the bond market, and the subsequent sell-off to spark an equivalent plunge in stocks. But if that really were the case, why would the Dow go up 92 points in a half-session to yet another all-time high last night, smashing through the 17k barrier on its way? And the US ten-year bond yield rise only 2 more basis points to 2.65%?

It’s a tough one, and the question hanging over markets across the world right now. Is good news good or is good news bad? No one knows for sure, until it happens.

For the record, the world released the June round of service sector PMIs last night. The only measure to show a rise was HSBC’s China number, which rose to 52.4 from 50.2. Every other result was negative, although with varying degrees of concern implied. In the loser camp are Australia, with a fall to 47.6 from 49.9, and Japan, with a fall to 49.0 (49.3). In the “negative watch” camp is the eurozone, with a fall to 52.8 (53.2).

The ECB left policy unchanged last night as expected.

In the “numbers are so big a tick down doesn’t really matter” camp are Beijing’s official Chinese measure, showing 55.0 down from 55.5, the UK with 57.7 (58.6) and the US with 56.0 (56.3).

The US dollar did actually manage to rise last night, as it should, by 0.3% on its index to 80.20. Stevens may soon get his wish. Gold fell back US$6.40 to US$1320.10/oz.

Base metals were mixed on small moves, although copper added another 0.5%, while iron ore jumped US$1.80 to US$96.50/t.

The oils had a quiet night, with Brent closing at US$111.07/bbl and West Texas at US$104.21/bbl on little movement.

The SPI Overnight closed up 27 points or 0.5%, so strap in again today. 5500 here we come. It is Friday though, and there’s no Wall Street tonight. Good day to go to lunch? I am.

I’m going to grab me a drum and grab me a fife and sing Yankee Doodle. Happy 7/4 to all our Seppo mates.
 

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article 3 months old

The Overnight Report: New Highs To Kick Off The Quarter

By Greg Peel

The Dow closed up 129 points or 0.8% while the S&P gained 0.7% to 1973 and the Nasdaq added 1.2%.

Once again one had to hold a magnifying glass to the RBA statement yesterday to determine if there were any changes at all from the month before. While Glenn Stevens has basically used the same template all year while leaving the cash rate unchanged, there were nevertheless two minor points to pick up on.

In June, the statement noted “In Australia, the economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year”. Yesterday, with the March GDP result now a known result, the statement said “In Australia, recent data indicate somewhat firmer growth around the turn of the year,” but added at the end of this paragraph, “Overall, the Bank still expects growth to be a little below trend over the year ahead”.

In other words, the RBA does not expect as solid a GDP result in subsequent quarters as was booked in March. This has a lot to do with the currency. In June, the RBA noted “The exchange rate remains high by historical standards, particularly given the further decline in commodity prices”. Yesterday the statement said “The exchange rate remain high by historical standards, particularly given the decline in key [read: iron ore] commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy”.

And on that note, the Aussie shot up. Well, actually that’s not true, it’s just the way the fools in the general media saw it. The Aussie didn’t budge on the afternoon RBA statement release, rather it shot up late morning on the China PMI releases, breaching a brick wall of technical resistance at 94.60, to be up 0.7% over 24 hours to US$0.9496. That breach gives the currency an open pass to make another run towards parity, as some economists are forecasting.

Beijing’s official June manufacturing PMI came in at 51.0, up from 50.8, and in line with expectations. HSBC’s alternative measure came in at 50.7, up from 49.4 but a tick off last week’s flash estimate of 50.8. The numbers did not surprise anyone, but confirmation that China’s manufacturing sector is now in expansion mode – on both measures – was enough to spark the charge in the Aussie. While yesterday’s RBA statement suggested no rate rise should be expected for some time, the forex market looks at an improving China and sees scope for a rate rise down the track.

Never mind that the victim of the stronger currency, as was noted by the RBA yesterday, is Australia’s domestic economy. Australia’s own June manufacturing PMI fell to 48.9 in June from 49.2 and has now been in contraction since about the time Brockie won his last Bathurst, or thereabouts.

Bridge Street pays a lot more attention to the Chinese PMIs than the local version, given relative GDP impact. I suggested yesterday morning we might see a reversal of Monday’s end-of-year sell-off during the session but it was not to be. What we saw was a switch. It looks like at least one big fund manager, if not many, declared FY15 to be the year to sell the banks and buy the cyclicals, or sell yield and buy growth, given the 20 point fall in the ASX 200 was all about a 1% fall in financials, countered by a 1% rise in industrials and a 0.5% rise in materials. The supermarkets also copped it, given a 0.6% fall in staples.

If readers refer to yesterday’s Equity Strategies For FY15, they’ll note more than one broker is recommending such a portfolio rearrangement in the first half. Interestingly, a lot of that recommendation is based on an expectation US bond yield will finally begin to rise this half, and hence the Aussie will finally fall as it should.

All evidence to the contrary so far, although the US ten-year bond yield did begin the new quarter with a bit of a rally last night, rising 5 basis points to 2.56%. At least it’s a start. The US stock market opened its account with another push to new highs.

At their closing levels, both the Dow and the S&P marked new all-time highs last night. It was not data-driven, given the US manufacturing PMI saw a fall to 55.3 from 55.4, although that’s still decent expansion. It was just an opening gambit, Fed-backed, and supported by expectations of 6-8% corporate earnings growth in the June quarter soon to be confirmed, potentially, when the quarterly reporting season begins in a couple of weeks.

The new high for the Dow was a near-run thing, given at lunchtime the average was actually up 172 points at 16,998. It looked 17,000 in the eye and then ran away to 16,956, just scraping over the previous high of 16,947. A new “millennial” milestone is only a psychological concept, but usually requires some work to achieve.

There nevertheless are few on Wall Street who don’t believe 17k will be in the bag sooner rather than later.

For the record, Japan’s PMI rose to 51.5 from 49.9, the eurozone saw a slip to 51.8 from 52.2 and the star performer – the UK – saw a rise to 57.5 from 57.0. One commentator called it “the greatest British output in a generation”.

The pound rose again on the news but is already pricing in the first BoE rate cut, so the US dollar index was steady at 79.81. Gold was also steady, at US$1325.70/oz.

The oils continued to drift off last night, despite an attempt in Iraq to form a new government to counter the rising ISIL onslaught ending in chaos, with many Sunni and Kurd representatives boycotting the session anyway. Brent slipped US25c to US$112.25/bbl and West Texas eased US10c to US$105.38/bbl just as motorists start to worry about the price at the pump this Fourth of July long weekend – a popular time to hit the roads.

The current US average price of “gas” is US$3.67 a gallon (about one Aussie dollar per litre) and US$4.00 is considered to be the price at which US consumers start to crimp their spending.

Base metals started strongly in London on positive global PMI numbers but were sold off in the afternoon, to be down slightly at the close. We recall they all had a good rally on the last day of June.

Iron ore rose US40c to US$94.20/t.

The SPI Overnight rose 18 points or 0.3%.

Will the switch continue on Bridge Street today? We have the May trade balance out this morning and tonight sees the US private sector jobs report, along with a speech from Janet Yellen.

Rudi will appear on Sky Business at 5.30pm.
 

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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

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

Beyond Monday, next week ushers in the new financial year in Australia and being the first week of the month, means the usual barrage of local and global economic data.

Once we get through the noise of EOFY stock market argy-bargy, although I note we’ve gone quiet this morning, and we get past potential July 1 buying/selling of everything sold/bought in the run-up to June 30, then we might know where the market wants to go.

Tuesday is manufacturing PMI day across the globe featuring reports from Australia, China, China HSBC, the eurozone, UK and US. Service sector PMIs follow on Thursday.

For the US the first week of the month is always jobs week, although the usual Friday release of US non-farm payrolls will be brought forward to Thursday next week. Friday is the Fourth of July holiday and the NYSE and other markets will shut up shop at lunchtime on the Thursday.

Next week’s US data releases include the PMIs, ADP and official jobs numbers, the Chicago PMI, pending home sales, construction spending, vehicle sales, factory orders and the monthly trade balance.

The eurozone flash CPI estimate for June is due on Monday ahead of Thursday’s ECB policy meeting.

In Australia, the RBA will meet on Tuesday but no change is again expected, while data for the week include private sector credit, the trade balance, building approvals and retail sales along with the PMIs.

Confession Session is now over for Australian corporates, and July typically sees a dearth of company news as financial statements are prepared. Then all hell breaks loose in August when result season arrives.
 

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article 3 months old

The Overnight Report: Dress Those Windows

By Greg Peel

The Dow closed down 21 points or 0.1% while the S&P lost 0.1% to 1957 and the Nasdaq was flat.

If you can keep your head while all about you is losing theirs. It appears the desire to lock in profits for year-end gave way yesterday to the desire to enhance fund manager FY14 returns as the madness continued on Bridge Street. After some sharp selling earlier in the week, the ASX 200 turned tail and returned rapidly from whence it came, with little discrimination among sectors. Expiry of June quarter stock options was no doubt another factor, while the big round of ex-divs was lost in the dust.

We have two more days of this.

A similar dynamic appeared to be in place on Wall Street last night for quarter-end. The Dow was down 121 points from the open on disappointing data and contradictory comments from a Fedhead, before grafting its way back all session to a less imposing close.

There was also a kick around lunchtime when it was confirmed USA will advance to the round of 16.

US personal spending rose only 0.2% in May when 0.4% was expected, and most of that increase can be accredited to big-ticket car and truck purchases. When adjusted for inflation, consumer spending went backwards for a second straight month.

On the other side of the equation, personal incomes rose 0.4% in May and are up 3.5% over 12 months, the highest rate since late 2011, consistent with falling unemployment. A lot of that income was pocketed, with savings rising to their highest level in eight months. Adjusted for inflation, “real” incomes are up only 1.9% over 12 months.

The US economy contracted by 2.9% in the March quarter. Wages are rising and prices are rising and US consumers are not spending. The risk is stagflation. St Louis Fed president James Bullard is on to it, suggesting last night US unemployment may fall below 6% and inflation rise over 2% ahead of the central bank’s 2015 expectation. The implication here is that the Fed may need to raise rates as early as the first quarter next year.

While Bullard is not an FOMC member and known to be hawkish, his suggestion is clearly at odds with Janet Yellen who has called inflation mere “noise” and persistently ensured a zero funds rate for an extended period. The number of observers in the US worried that the Fed is falling behind the curve is growing. Since the release of the final March quarter GDP result, economists have begun to rein in their June quarter growth forecasts. Some started in the fours, now the average is down to 3.6%, and across the spread some economists now have forecasts in the twos.

Beijing’s ongoing probe into illegal collateralised loans hit another target yesterday, with authorities uncovering a US$15bn gold-financing scheme that began two years ago. Chinese firms have used falsified gold transactions to borrow from banks. There is now a suggestion the sudden rally in gold seen on June 19 may have been driven from China. Last night gold futures fell on Comex but the physical spot price is down only US$1.50 to US$1316.90/oz over 24 hours.

The energy markets are beginning to gain more confidence Iraq’s critical south-eastern oil infrastructure is safe from insurgent overrun despite hostilities escalating across all borders. The outcome is still anyone’s guess, but it seems ISIL will not make it that far given strong Iranian-backed Shia resistance. Last night’s weekly US crude inventory reports also showed a rise, so all up Brent fell US$1.17 to US$113.08/bbl and West Texas fell US$1.16 to US$105.64/bbl.

Base metals were again mixed on small moves last night with the exception of nickel, which rose 1.6%. Spot iron ore has posted another solid gain nevertheless, rising US$1.60 to US$95.30/t.

The SPI Overnight rose 3 points.

Will the ASX 200 settle the year at 5400 or 5500? It seems either is possible at this stage and good luck if you can pick it.

Japan will provide a monthly data dump today while tonight the UK will make its final revision of March quarter GDP amidst heightened expectations of a BoE rate rise being near. Fortnightly consumer sentiment is due in the US.
 

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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

The Overnight Report: Summer’s Here

By Greg Peel

The Dow closed down 9 points while the S&P was flat at 1962 and the Nasdaq was also flat.

The ongoing rebound in the iron ore price helped the ASX 200 to a solid start yesterday, and another kick was provided when HSBC released a flash estimate of its Chinese June manufacturing PMI. Sellers arrived in the afternoon but it still proved a solid session.

HSBC’s PMI showed a jump to 50.8 from 49.4 in May, which not only well exceeded forecasts, it represents the first month of expansion for Chinese manufacturing in 2014 according to HSBC’s small business-oriented survey. A solid boost was also seen in the sub-segment of new orders, which bodes well going forward.

Economists suggest the turnaround is reflective of the mini-stimulus program Beijing has been pursuing in the first half of 2014, aimed at arresting a slide in annual GDP growth which saw a fall to 7.4% for the March quarter from 7.7% in December. Markets were sceptical when the Chinese premier recently reiterated a target of 7.5% growth for 2014, with most forecasts below that figure.

Whatever the case, the result is good for Australia’s miners – the materials sector led the charge up 1.4% yesterday on the iron ore price and the PMI – and it’s “good” for the Aussie dollar which, unfortunately, is up 0.3% to US$0.9419. That’s the trade-off.

Wall Street liked the Chinese PMI as well, and also liked the domestic data releases of the day. But the problem for Wall Street is that valuations are looking pretty full at new all-time highs, which makes it difficult to buy. There’s not much point in selling, as that would be to “fight the Fed”. So what to do? Well, it’s summer.

America correctly marks its change of seasons on the solar calendar and not by when the Marine Corps in the colony of New South Wales is permitted to change uniforms, as is the case in other strange lands. Thus last night’s session was the first of the summer and already there is talk of fund managers having packed off and headed to the Hamptons. With valuations stretched and volatility at an historical low, it could be a long and languid three months.

Markit’s flash estimate of the US June manufacturing PMI came in at 57.5, up from 56.4, to mark its highest level since May 2010. Sales of existing homes rose by 4.6% to an annual rate of 4.89m when economists had expected 4.75m. The median sales price is up 5% year on year but the pace of sales is down 5%, although the hope is the stall in US housing brought about when Fed tapering was first announced is now over.

There are several more US housing-related data releases due this week.

The news is not quite as positive out of Europe, where the flash estimate of eurozone composite PMI (manufacturing plus services) fell to 52.8 from 53.5. Germany’s activity slowed slightly, but the real contributor to the downturn was France. Economists are now beginning to assume the June quarter will show contraction in the eurozone GDP.

But the ECB’s on to it, and Mario Draghi has promised to do whatever it takes.

There was subsequently not a lot of reaction in currency markets, with the US dollar index steady at 80.27. The US ten-year yield also remains steady at 2.62%, while last night gold eked out a US$3.40 gain to US$1318.10/oz.

The Chinese PMI would normally be positive for oil prices, but Iraq is dominating oil market sentiment. ISIL now controls all the border crossings from Syria and Jordan in the west of the country, but is meeting resistance in its push towards Baghdad. US secretary of state John Kerry is in Baghdad discussing a response with government officials and religious leaders, which might include replacing a prime minister who is seen more as part of the problem than part of the solution. The oil markets are playing it safe, and last night saw Brent crude fall US62c to US$114.03/bbl and West Texas fall US83c to US$107.00/bbl on the new August delivery front month.

The Chinese PMI is also positive for metals, although the metals are playing individual games at present. Copper’s quiet recovery continued last night with a 0.8% gain while zinc is also improving incrementally, while last night lead decided to go for a run and jumped 2%. The others were steady.

The iron ore rebound continues, as does the 2012 déjà vu, with another US$1.30 gain to US$93.40/t.

The SPI Overnight closed up one point.

More house price and sales data are due out in the US tonight along with consumer confidence, but what will it take to drag traders off the beach?

Today marks the official end of trading for what we currently know as Westfield Group ((WDC)) as well as the end of the road for Westfield Retail Trust ((WRT)). Deferred settlement trading begins tomorrow for “new Westfield” and the Scentre Group.
 

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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 Monday Report

By Greg Peel

The Australian market suffered a loss on Friday which looked rather dramatic, but really must be taken in the context of the even more dramatic surge on Thursday, index/futures expiry day. If we net the two sessions together we get a more realistic picture of how the market is balancing a rebound in the iron ore price, stimulus promises from China, ongoing low rates from the Fed and the Iraq insurgency.

With the final week of the financial year upon us, more volatility would not be out of place as tax loss selling meets fund manager window dressing as well as Thursday’s stock options expiry.

Over on Wall Street, Friday night saw another session in which traders kept a wary eye on Iraq but could not get past the assurances of a supportive Fed. There were no economic data releases of note, so the indices continued to drift higher with caution. The Dow closed up 25 points or 0.2% to mark a new all-time high by a slim two points. Sitting at 16,947, the next milestone for the average will be the 17,000 mark. The S&P gained 0.2% to 1962, representing the index’s 21st record close in 2014, while the Nasdaq’s 0.2% gain took that index to a 14-year high.

Meanwhile, the US ten-year bond yield remains cemented at 2.62%.

Inflation continues to be the major topic of conversation on Wall Street, which itself ties into the Iraq insurgency. ISIL now controls Iraq’s largest oil refinery, in Baija. Baija services Iraq’s domestic demand, hence its loss does not directly impact on exports, but analysts suggest it will not be long before the trickle-down effect is felt. Iran has politely told the US to back off and let the Iraq government handle the situation, which is likely what President Obama would prefer to do, but the fear is that the successful establishment of a Sunni “caliphate” across Syria and Iraq would lead not to peace but to a training ground for jihadists.

In the meantime, the Kurds are looking to “do a Bradbury” in a sense, exploiting the opportunity provided by the Sunni-Shia battle to sell its first ever oil shipment independently of Baghdad, quietly thumbing its nose. Their hope is that whatever emerges from the ashes, it will include a separate state of Kurdistan.

While oil prices have indeed rallied to date, they have not yet exploded. Friday night saw Brent crude fall US41c to US$114.65/bbl and West Texas rise US62c to US$107.26/bbl to counter last week’s spread blow-out. We must not forget that there is still an element of geopolitical premium built into oil prices from the Ukraine-Russia issue, which continues to simmer in the background, but oil traders are not keen to stick their necks out until supply disruptions are confirmed.

Americans continue to watch the West Texas crude price with trepidation yet virtually all Americans pay Brent-level prices at the pump. At least until key North American pipeline infrastructure is completed. The risk is that oil prices will reach a point at which they become a threat to the US economic recovery, which in turn would impact corporate earnings and thus stock prices. The Fed does not include energy prices in its inflation measure, which is one reason Janet Yellen suggested last week that current CPI inflation creep is just “noise”.

Things may soon become very loud.

It was relatively quieter on the LME on Friday, with most metals doing little but the exception being copper, which rallied over a percent. After having spent a long time range-trading, copper may now have begun to awaken. Targeted Chinese stimulus would be supportive of copper, while lower-for-longer US interest rates support all commodity prices.

The other good news for the Australian market on Friday night was a further US$1.40 rebound in the iron ore price to US$92.10/t. At this stage the drop into the eighties and the subsequent sharp rebound is proving very reminiscent of 2012, which would imply a pretty swift return to US$120/t. Or maybe not this time.

Gold is the traditional inflation hedge, but having posted its big short-covering rally on Thursday night, gold took a breather on Friday night with a US$5.60 fall to US$1314.70/oz.

The US dollar index was steady at 80.33 and the Aussie slipped 0.2% to US$0.9388.

The SPI Overnight rose 10 points or 0.2%.

The new week starts with “flash day” today, as China (HSBC), Japan, the eurozone and US roll out their estimates of June manufacturing PMI results. For the US it’s another busy week of data.

Tonight sees the Chicago Fed national activity index and existing home sales, tomorrow it’s the Case-Shiller and FHFA house price indices, new home sales and the Richmond Fed manufacturing index, and Wednesday it’s durable goods, a flash estimate of the June services PMI and the next revision of the March quarter GDP. The first estimate suggested 0.1% growth, the second 1.0% contraction. Expectation is for 1.7% contraction on the last read.

Thursday it’s personal income and spending and Friday sees the fortnightly Michigan Uni consumer sentiment measure.

Japan will provide a data dump on Friday of inflation, industrial production, retail sales and unemployment numbers.

The week is devoid of major Australian economic releases, but the focus will be on corporates as the week careers towards year-end. Metcash ((MTS)) posts its full-year profit today, and Collins Foods ((CKF)) follows suit on Wednesday. Santos ((STO)) will conduct an analysts’ site tour of its GLNG facility on Wednesday, while Thursday sees not only stock option expiry day but a raft of stocks going ex-dividend.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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

It’s quadruple witching on Wall Street tonight, which can lead to a bit of volatility, and then we enter what is effectively the final week of the local financial year, albeit June 30 falls on the following Monday. After Thursday’s rally the ASX 200 is sitting in familiar limbo-land between 5400 and 5500.

A point of focus next week will be whether last night’s sudden gold price rally is a one-off or a break-up to higher levels supported by US inflation concerns and the battle in Iraq. There’s also a solid raft of US data due next week for markets to consider.

New and existing home sales, two house price indices, consumer confidence, durable goods, the Chicago Fed national activity index, Richmond Fed index and personal income and spending are all on the block, with the latter providing an alternative measure of US inflation to the CPI. On Monday a flash estimate of June manufacturing PMI will be released, followed by a service sector equivalent on Wednesday, and on Wednesday the second revision of US March quarter GDP is due.

The UK also sees a GDP revision next week, while China (HSBC) and the eurozone also release flash PMI estimates.

There’s not much in the way of economic data due in Australia next week.

On the local stock front, Metcash ((MTS)) will release its full-year result on Monday and Thursday sees the expiry of June stock options.
 

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article 3 months old

The Overnight Report: Gold Soars

By Greg Peel

The Dow closed up 14 points or 0.1% while the S&P gained 0.1% to 1959 and the Nasdaq lost 0.1%.

Down by the stairs and up by the elevator. That was the story yesterday as the ASX 200 posted its biggest single gain for 2014, up 1.5%. So much for the 5400 level on futures and index option expiry day – it was nothing but up as the 5450 mark was also surpassed.

It’s amazing what a one dollar rally can do for iron ore producers. The materials sector led the charge with a whopping 2.7% gain. Energy had been knocked down on Wednesday following Shell’s sale of its Woodside stake but on a big jump in oil prices on Wednesday night, the energy sector chimed in with a 1.8% gain. Industrials posted 1.9%, and never to be left out, the banks rose 1.5% amidst the sea of green.

Adding to the euphoria was a comment from the Chinese Premier with regard to a possible hard landing for the Chinese economy. “This will not happen,” said Li, adding that he expects China’s GDP to grow by 7.5% -- which is a lot more optimistic than most analysts are suggesting. Beijing would nevertheless not be adopting “strong stimulus” to assure such growth, rather measures that are “smart and targeted”.

Janet Yellen’s earlier press conference and assurance that “no mechanical triggers” would set off the first Fed rate rise clearly helped the local market yesterday, along with her assertion that recent gains in US inflation were just “noise” and that the Fed did not see the stock market as overvalued. It was not a day to be short.

As I have noted a number of times before, the “smart money” prefers to stay on the sidelines during the volatility that can immediately follow a Fed statement/press conference, mull things over overnight and then make a move the next day. Last night it appears the conclusion was that despite the Fed’s comfort, the stock market is pretty well valued and not worth pushing beyond all-time highs at this point. So what does one buy instead? Bonds are too expensive also. Oil has surged on the Iraq factor. The only thing that hasn’t yet moved is gold.

Until last night. Investors were apparently not so thrilled with Yellen’s “noise” comment, which suggests potentially that the central bank may be overly complacent about inflationary factors building in the US economy. As a precaution, it might be time to grab a bit more gold for the portfolio. Then last night President Obama announced that if deemed appropriate, the US was prepared to take “targeted and precise” military action against ISIL. From the opening bell on Comex, the mother of all short-covering rallies commenced, sending gold up US$42.80 or 3.4% to US$1320.30/oz. Silver jumped 4.3%.

Oil was not left out of the equation either, and despite the obvious connection between Iraq and oil prices, these days many investors prefer oil to gold as an inflation hedge. Brent crude rose US81c to US$115.06/bbl and West Texas rose US85c to US$106.64/bbl.

Meanwhile, forex traders were still hanging on Yellen’s inference that US interest rates would remain low even if unemployment fell further and inflation exceeded the 2% target. The implication is that the UK will indeed likely be the first major economy to see a rate rise, hence last night the pound traded at its highest level against the greenback since 2008. The US dollar index fell 0.1% to 80.32. The Aussie, on the other hand, is unchanged over 24 hours at US$0.9402, despite yesterday’s stock market spree.

US bonds aren’t biting, with the ten-year yield steady at 2.62%.

The LME had its first chance to respond to the Fed last night, and on the promise of lower-for-longer US rates and Chinese stimulus, all metals bar nickel posted modest gains.

The good news for those ploughing into iron ore names yesterday is that the spot price is up again overnight, by US40c to US$90.70/t.

The new September front-month contract in the SPI was down 4 points overnight.

Just how much was yesterday’s volume and movement on Bridge Street related to expiry? That’s what we’ll find out today, one presumes (although I think we know where gold stocks might be headed). But with a week to go to EOFY, fund managers will be happy to see stock prices higher rather than lower for end of year reporting. In between are the tax sellers, and somewhere in the background, the real world.

Wall Street sees its own June expiry session tonight, the famed “quadruple witching”. Anything can happen.
 

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article 3 months old

The Overnight Report: Flat As A Tack

By Greg Peel

The Dow closed flat the S&P closed flat and the Nasdaq closed flat.

Yesterday’s Australian housing lending data showed the value of loans to owner-occupiers is up 6.7% year on year, to investors it's up 29.8%, and to construction-related projects it's up 5.7%. Investors clearly continue to dominate the market despite indications of potential peaking in house prices. Interesting that investors are choosing yields below that of bank deposit rates rather than looking to higher yields available in the stock market.

There is of course less risk in bricks and mortar.

ANZ’s job ads series showed its first fall in five months to be net down 3% year on year, although the positive trend of the last six months suggests to the economists at CBA unemployment has still likely peaked under 6%. The ANZ economists nevertheless find it difficult to reconcile April’s 5.6% fall in job ads and the pre-budget plunge in Westpac’s consumer confidence measure with yesterday’s NAB business confidence survey which showed a slight fall in perceived business conditions but no change in confidence.

The first post-budget (cum Senate passage) Westpac survey is due out today which will no doubt be interesting, and possibly of little comfort to the likes of Pacific Brands ((PBG)) and The Reject Shop ((TRS)) which both issued “confession season” profit warnings yesterday, citing falling consumer confidence as well as the unseasonably warm autumn. The consumer sectors were yesterday responsible for the flat close on Bridge Street despite a 30-plus point opening rally in the ASX 200. Healthcare was the only other negative contributor, but CSL is to the healthcare sector what Telstra is to the telco sector in cap-weight terms – most of it.

China released its May inflation data yesterday but this had little impact on the tenor of the Australian market. China’s annual CPI rose to 2.5% from 1.8% in April, slightly ahead of 2.4% expectations but still well below Beijing’s 3% upper limit, suggesting no impact on room to move policy-wise. The PPI “rose” to minus 1.4% from minus 2.0% in April to suggest possible stability emerging in factory prices following 27 consecutive months of disinflation. If so, this is good news for China’s economic growth.

That about wraps up the action over the past 24 hours as absolutely nothing happened on Wall Street. There were no economic releases or anything of note in the corporate sector so it was Dullsville all day to a flat close.

It was thus strange that gold suddenly emerged from a week’s sleep to rise US$7.40 last night to US$1260.20/oz, despite another euro-related rise in the US dollar index of 0.2% to 80.80, with increased Chinese inflation offered as a weak excuse. Wall Street’s stall at new highs these past couple of sessions may be providing some impetus to look at gold, if one suspects a pullback might be in order for stocks. The US bond market does not offer a lot of upside potential as an alternative, and indeed the ten-year yield ticked up a couple more basis points to 2.63% last night.

The Aussie is up 0.2% also, at US$0.9371, likely due to Morgan Stanley yesterday joining the chorus of economists predicting a return to parity by year end – mostly the same mob who were suggesting 86 cents earlier in the year. The difference is US bond yields have not rallied as expected and the US dollar has not rallied as expected under Fed tapering. And now the ECB is playing the QE card. So even as Australia’s own bond yields plummet, they are still attractive as AAA-rated returns in a zero yield world.

LME traders are now eyeing the summer, leading to declining interest in metals markets. Last night saw a quiet session highlighted by aluminium and nickel edging down around a percent.

Spot iron ore fell US70c to US$93.60/t.

It was also dull on oil markets, with both major crudes falling US20-30c.

The SPI Overnight soared one point.

As noted, Westpac releases its local consumer confidence survey today. There are no US releases of note until tomorrow night.
 

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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