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

It’s been a week in which the world turned to the safety of developed market government bonds, specifically those of the US, Germany and the UK, as more investors followed the lead of those choosing yield over risk. With questions being raised over the true strength of the US recovery, and an ECB easing now more probable than possible, bond markets continued to eschew popular forecasts and stock markets started to worry if all-time highs were a mistake.

Recent US data have been divergent and unconvincing and tonight and next week will bring more evidence to ponder in the form of consumer sentiment, housing starts, existing and new home sales, a flash reading on the manufacturing PMI and a leading economic indicator. The minutes of the last Fed meeting will be released on Wednesday and Janet Yellen will also make a speech that day. Markets will be looking for any sign of a possible taper of the tapering.

China and the eurozone will also see flash manufacturing readings while the UK will revise its first estimate of March quarter GDP and Germany’s IFO business sentiment survey will be released.

Westpac’s monthly consumer confidence survey will be the economic highlight in Australia while there’ll again be plenty to consider on the corporate front.

DuluxGroup ((DLX)), James Hardie ((JHX)) and Thorn Group ((TGA)) will release earnings results while Transurban ((TCL)) and BT Investment Management ((BTT)) will provide updates and the AGM season will roll on. Aurora Oil & Gas ((AUT)) shareholders will meet to no doubt accept a takeover offer while Arrium ((ARI)) will provide a quarterly production report.

The US ten-year bond yield, now at 2.5%, should see strong technical support at 2.4%. If it gets that far, the stock market will really start to worry.
 

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article 3 months old

The Overnight Report: Now What?

By Greg Peel

The Dow closed up 19 points or 0.1% while the S&P was flat at 1897 and the Nasdaq fell 0.3%.

Oh the pain, the pain.

Moving on, one might have reasonably expected a quiet day on Bridge Street yesterday ahead of the most anticipated budget since federation but the action on Wall Street on Monday night was too tempting to ignore. A new high for the S&P and snap-back rallies for momentum/small-cap stocks hinted of a return to a more positive tone, and so it was the ASX 200 exploded from the opening bell and hit its high in the first half hour. One might assume the market had decided the bulk of budget evils had already been sufficiently previewed.

Then there was the small matter of China’s monthly data dump to absorb. Here are the numbers:

 Chinese industrial production rose by 8.7% in the twelve months to April, down from 8.8% in March and below 8.9% expectation. Retail sales rose 11.9%, down from 12.2% and below 12.2% expectation. Fixed asset investment rose 17.3% year to date, down from 17.6% last month and below 17.7% expectation. Home sales year to date fell 9.9%, having fallen 7.7% in the year to March. Property investment rose 16.4% to April having risen 16.8% to March.

Put it altogether and Beijing’s 2014 growth target of 7.5% is looking optimistic. Add in last week’s surprisingly week Chinese inflation read, with CPI falling to 1.8% annualised from March’s 2.4%, and it is clear the government will have to pump up the volume when it comes to targeted stimulus.

Which is a sufficiently comforting thought for the Australian market, hence the ASX 200 held onto the bulk of its early gains by the close. Then at 7.30, the streets fell silent.

On the basis of the speech itself and half an hour of ABC analysis, I’d posit that there were no bombshells. Retailers will be despairing, but they’ve been steeling themselves for the worst for a month. Biotech's might have popped the odd cork. The numbers will be dissected in their minutiae all week but the market will sail on.

And the ASX 200 is back up against the 5500 wall. Last night the S&P 500 snuck over the 1900 mark briefly, early on in the session, before pulling back to the previous intra-day high level of 1897. From a technical perspective, Wall Street is poised. What would not been encouraging was the failure of the aforementioned snap-back rally to persist. The Nasdaq eased 0.3% but the Russell 2000 small cap index, which bounced 2.5% on Monday, fell back a full 1.1%.

Emblematic of why Wall Street is sitting at all-time highs but no one feels any particular excitement is last night’s US April retail sales result. After US consumers spent the first two months of the year trapped behind the six feet of snow blocking their front doors, the March thaw saw frantic catch-up spending to mark a 1.5% increase in sales – the highest in four years. Economists were expecting the numbers to even out in April to a 0.4% increase, so the 0.1% result was a disappointment. Not disastrous, but more grist for the mill of the non-believers in the GDP surge-back story.

Understandable, thus, that the US ten-year bond yield would fall back 4 basis points to 2.62%. The US dollar index, by contrast, rose 0.3% to 80.12, but only because of weakness in the euro. The euro was weak because the German ZEW investor sentiment survey fell for the fifth straight month to the lowest level in a year. More fodder for the ECB easing argument.

Gold was steady at US$1294.70/oz.

I fondly remember the days in the dealing room when the Aussie would fly all over the place with every word Paul Keating uttered in his budget speech, but back then nothing was ever leaked beforehand. The Aussie has been on hold for days, and last night’s reaction was a sum total of…still on hold, at US$0.9352.

The suggestion from Access Economics last night (on ABC TV) was that Joe’s no-gain-share-the-pain budget was worth about 25 RBA basis points. In other words, were the RBA to be considering raising the cash rate in, say, September, by 25 basis points, it won’t have to because fiscal tightening has already affected such an increase. Thus the much anticipated first rate rise looks more likely to be next year rather than this year, as many have been suggesting for a while anyway.

After leaping on Monday night on the implications of Friday’s low Chinese CPI, base metals fell back last night on the triple whammy of weaker than expected Chinese data, weaker than expected US retail sales, and an ongoing decline in European investor sentiment. Nickel fell (yes, fell) 1.4% while copper lost 0.6% and the others were mostly weak. Spot iron ore was unchanged at US$103.00/t which, with all the scaremongering going on around that market lately, is probably a positive result.

Nymex traders are expecting a fall in weekly US crude inventories in the numbers tonight, as the US summer driving season draws nearer, but no one ever gets it right. OPEC’s monthly report released last night showed no change to demand growth expectations, despite apparent slowing in the likes of China. Brent is thus up US92c to US$109.32/bbl and West Texas is up US$1.27 to US$101.86/bbl.

The SPI Overnight rose 1 point.

Commonwealth Bank ((CBA)) will provide a quarterly update today to bring the bank earnings season to a close while CSR ((CSR)) will post its full-year result.

The ASX 200 will start with a handicap today as all of Westpac ((WBC)), National Bank ((NAB)) and Macquarie Group ((MQG)) go ex-div.

Rudi will appear on Sky Business at 5.30pm.
 

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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)

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article 3 months old

The Monday Report

By Greg Peel

A quiet session on Bridge Street on Friday saw the Australian market settling itself ahead of the weekend and tomorrow night’s federal budget. The economic highlight of the day was a surprise drop in Chinese inflation. China’s CPI came in at 1.8% annualised in April, down from 2.4% in March and well below expectations of 2.1%. It’s the lowest CPI reading in eighteen months.

Worse still is China’s PPI, which posted its 26th consecutive monthly drop in falling 2.0%, having fallen 2.3% in March. The long decline of wholesale prices is blamed on overcapacity in many industries, and particularly in steel and cement. While the bad news suggests Beijing needs to continue with its attempts to rationalise industry, the good news is weak inflation provides plenty of scope to step up stimulus injections.

This might have thus been a bad-news-is-good-news result for the Australian market on Friday, but activity has slowed to a crawl ahead of tomorrow night. The next two sessions will likely be similarly cautious, and Wall Street provided nothing alarming in either direction on Friday night.

With not much in the way of significant economic releases or corporate results, Wall Street meandered its way to a positive close on Friday having dropped from the bell. The Dow opened down around 40 points but recovered to post a 32 point gain, or 0.2%, to 16,583. This is new blue sky. The S&P rose 0.2% to 1878 while the volatile Nasdaq jumped 0.5% but still finished lower for the week.

While the large cap index is again at an all-time high, a lot of attention is now being directed to US small caps. The EFT on the Russell 2000 small cap index crossed its 200-day moving average to the positive in September 2012 and spent 2013 enjoying the momentum of market-wide PE re-rating. But as is the case now with momentum and internet/biotech high-PE plays, riskier small caps have been seen as overvalued. The Russell ETF began to turn this quarter, and just failed to reach a record run above its 200-day MA before it fell through to the negative on Friday night, providing a weak technical signal.

While the Russell might be offering some concern, the unanswered question on Wall Street remains how can the US stock index be at an all-time high when the US ten-year bond yield is stuck at 2.6%? As analysts forecast a big economic rebound from the weather-crippled first quarter, perhaps to the tune of 4% GDP growth, the bond market is refusing to agree.

The euro continued to fall on Friday night having dropped on Thursday night after ECB president Mario Draghi actually suggested a timetable for renewed monetary easing. Having offered nothing but vague commitments month in, month out up to this point, Draghi suddenly pencilled in June. On the euro’s fall on Friday, the US dollar index rose 0.5% to 79.89.

Unfortunately there was little flow through to the Aussie, which is little changed at US$0.9362. Forex traders will also be holding their breath for Joe’s big night. Gold is also steady, at US$1290.10/oz.

Nickel continued its relentless surge on Friday night, easing from its intraday high by the LME bell but still posting another 4% gain. Copper also eased to post a 0.6% gain, while the stronger greenback and Ukraine concerns for the weekend saw the other metals lower. Iron ore continued its slide, falling another US$1.00 to US$102.70/t.

The oils were steady, with Brent off a tad to US$107.95/bbl and West Texas down US21c to US$100.05/bbl.

The SPI Overnight closed unchanged on Saturday morning.

Over the weekend two eastern regions of the Ukraine ignored the Russian president’s call and went ahead with a referendum on seceding from Ukrainian government to form autonomous states linked to Moscow, a la Crimea. As to what happens next if the “yes” vote wins is anyone’s guess.

Enough has been said about the Australian federal budget to now, so bring it on.

Next week’s regular local data releases include the NAB monthly business sentiment survey today, housing finance and investment lending tomorrow, and vehicle sales on Thursday.

There are some significant numbers out in the US this week beginning with retail sales tomorrow night, housing market sentiment and the PPI on Wednesday, the Empire State and Philadelphia Fed manufacturing indices and the CPI on Thursday, and housing starts and fortnightly consumer sentiment on Friday.

Mario Draghi will have plenty to consider with the eurozone ZEW investment sentiment index tomorrow, industrial production on Wednesday, the CPI and first revision of March quarter GDP on Thursday and the trade balance on Friday.

Beijing will provide a data dump tomorrow of April Chinese industrial production, retail sales and fixed asset investment numbers.

Bridge Street thus has a couple of interesting sessions to get through before the big night, and there’s quite a bit of activity on the corporate front this week as well.

Incitec Pivot ((IPL)) will release its interim profit result today, Orica ((ORI)) will follow tomorrow and CSR ((CSR)) chimes in with its full-year on Wednesday. Wednesday also sees a quarterly update from Commonwealth Bank ((CBA)) to bring the bank earnings season to a close while Thursday sees a quarterly result from Paladin Energy ((PDN)), interim from Graincorp ((GNC)) and full-years from Singapore Telecom ((SGT)) and SP Ausnet ((SPN)).

This week’s AGM highlights include Coca-Cola Amatil ((CCL)) tomorrow, Sydney Airport ((SYD)) on Thursday and Oil Search ((OSH)) and Santos ((STO)) on Friday.

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.

It’s budget week in Australia, do you know where your wallet is?


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

Overture, curtain, lights
This is it, the night of nights…

It’s the Joe Hockey show!

Yes folks, it’s been some time since a federal budget was so highly anticipated, feared and agonised over. There’s been plenty of talk from the Coalition but few definitive “leaks”, and we’re yet to find out whether Joe is simply ham-acting the old script of preparing everyone for the worse and then letting them off a little more lightly, or whether his prime minister is truly digging a very big hole.

Or we could just be in for another old trick: savage first budget with election two years away, a square-up with one year to go, and a candy shop budget in the election year. Either way, the stock market is a lot more nervous this year than usual, and thin stock market trading this week is likely a consequence.

Well, we’ll know by Wednesday. Meanwhile, global financial markets roll on and next week offer up plenty to ponder.

The US earnings season is coming to a close and while more positive than forecast on average, surprises have only come off much lowered expectations. Conclusion: positive, but nothing to write home about. Economically, next week the US sees retail sales, industrial production, housing market sentiment, housing starts, inflation and the Empire State and Philly Fed manufacturing indices.

China will provide a monthly data dump next week of industrial production, retail sales and fixed asset investment numbers.

We’ll also see industrial production numbers from Japan and the eurozone and each will revise their March quarter GDP results.

In Australia will see the NAB business confidence survey and housing finance and lending numbers all before Tuesday night, and then we’ll spend the rest of the week discussing the budget fallout. Things will also be hot on the corporate front.

We’ll see profit results from the chemical brothers Incitec Pivot ((IPL)) and Orica ((ORI)) as well as CSR ((CSR)), SingTel ((SGT)) and SP Ausnet ((SPN)). CommBank ((CBA)) will wrap up the bank earnings season with a quarterly update and Paladin Energy ((PDN)) will also provide a quarterly result. The AGMs continue with next week featuring Coca-Cola Amatil ((CCL)), Oil Search ((OSH)) and Santos ((STO)).

Hold onto your wallets.

Tonight what heights we’ll hit
On with the show this is it!
 

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article 3 months old

The Overnight Report: It’s All Ups And Downs

By Greg Peel

The Dow closed up 32 points or 0.2% while the S&P eased 0.1% to 1875 as the Nasdaq fell 0.4%.

The market taketh away and the market giveth. On Tuesday night the Dow fell over 100 points and on Wednesday night it rose over 100 points. On Wednesday the ASX 200 fell 40 points and yesterday it rose 40 points. On Wednesday you couldn’t give away a bank or an iron ore miner and yesterday you would have been bowled over in the rush. Yet the NAB result was a touch on the low side and the iron ore price fell. On Wednesday the retail sales number was weak and yesterday the jobs number was strong, but economics are only a distraction in a thin market.

Yesterday’s Australian April jobs number was one of the cleanest and most positive for some time. Gone were the wild head-scratch numbers of earlier in the year to be replaced by a more sensible 14,200 addition. There were several encouraging aspects to the report: (1) the unemployment rate remained steady at 5.8% when a rise to 5.9% was expected; (2) the participation rate was also steady, meaning the “beat” on the unemployment rate had nothing to do with people leaving the workforce; (3) all of the net gain was in full-time jobs for once, with part-time jobs remaining flat; and (4), despite the steady unemployment rate, the RBA’s closely watched trend in unemployment has now turned negative (or if you like, trend in employment has turned positive).

In its April statement the RBA suggested “The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. It will probably rise a little further in the near term”. This week’s May statement was a tad more positive: “The demand for labour has been weak over the past year and, as a result, the rate of unemployment has risen somewhat. More recently, there has been some improvement in indicators for the labour market, but it will probably be some time yet before unemployment declines consistently”.

Yesterday’s result will potentially lead the central bank to believe unemployment may have peaked earlier than it had previously assumed. The turn in trend may yet prove a head-fake but the sort of numbers some economists were forecasting at the beginning of this year – such as a peak of 6.5% in 2015 – look a little bearish. This result alone will not spark a rate rise, but it’s another piece in the puzzle.

China’s April trade balance hit the wires about the same time yesterday. It showed a further push back into surplus following the brief lunar new year-impacted foray into deficit in rising to US$18.45bn from US$7.71bn in March and beating expectations of US$13.9bn. Having fallen 6.6% in March, analysts had expected Chinese exports to fall 3.0% in April but instead they rose 0.9%. Imports fell 11.3% in March and analysts expected a fall of 2.1% but they rose 0.8%.

So China provided reasons to be cheerful, part two, but realistically we’ve seen a lot of volatility in the local market of late but no meaningful shift out of the 5400-5500 range while similarly Wall Street has been flying around just below all-time highs and effectively going nowhere.

Last night the Dow rose steadily from the bell on easing Ukraine tensions, positive China data and a decent read on US chain store sales, to send the Dow up 104 at lunchtime and into fresh blue sky. By 3pm, the Dow was slightly negative. At 4pm, it closed up 32, below the all-time high. The Nasdaq again proved a drag, with last night’s momentum victim du jour being electric car maker Tesla, down 11% after offering weak guidance.

Another positive lead for Wall Street from the bell came from ECB president Mario Draghi after last night’s ECB policy meeting. Prior to the meeting, forex traders pushed up the euro in an attempt, it would seem, to taunt Draghi into actually acting on his now hackneyed threats to ease policy in order to cap the currency, likely presuming he would cry wolf yet again. So when Draghi said he would be “comfortable” acting June if needs be – the first time an actual timeframe has been suggested – the euro tanked. ECB easing would flow through to positivity globally, assuming you’re a QE fan this late in the game.

Many aren’t of course, which is why we have this unfamiliar dichotomy on Wall Street of a bullish stock market and a bearish bond market (in economic outlook terms). Or is there a simpler explanation? Surveys suggest almost three quarters of those investing for retirement in the US would rather put their money into cash instead of a stock market which blew them away six years ago. A thirty-year government bond will get you 3.4% while cash will get you little more than zero (ie negative real).

The US dollar index rose 0.3% to 79.44 last night on the euro’s fall, the US ten-year yield was steady at 2.60%, gold was steady at US$1289.20/oz and the Aussie has risen 0.4% to US$0.9369 on the positive local jobs number.

It was fun and games in metals last night. The LME closed with Wall Street at its highs, which was provided as the reason all base metal prices were positive rather than the Chinese trade data. Copper was up 1%. One might have assumed a bit of the Russia-sanction premium could have come out of nickel last night given Putin’s apparent back-down, but we’ll never know because Vale announced it had suspended production at its nickel mine in New Caledonia. You might be forgiven for thinking New Caledonia is hardly the nickel capital of the world. The LME nickel price jumped 4%.

On the other hand, iron ore fell US$1.40 to US$103.70/t.

The oils were relatively steady, with Brent down US11c to US$108.01/bbl and West Texas down US48c to US$100.29/bbl.

So we had a flattish session on Wall Street and mixed messages from commodities. The SPI Overnight is up 3 points. Looks like a Friday.

China’s inflation data are out today while the RBA will release its June quarter Statement on Monetary Policy. JB Hi-Fi ((JBH)) will provide a trading update.

After the bell on Wall Street, News Corp ((NWS)) posted a positive result and its shares are up 2% in the after-market.
 

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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: Putin Softens

By Greg Peel

The Dow closed up 117 points or 0.7% while the S&P gained 0.6% as the Nasdasq lost 0.3%.

Two points to note about the 45 point sell-off on Bridge Street yesterday are that volume is very thin ahead of next week’s budget and that the ASX 200 was down 64 at its worst. Often these big sell-offs snowball to close on the lows, so some buying support was found in the afternoon.

Another point to note is that for some strange reason the market seems to religiously respond to monthly fluctuations in the retail sales numbers when quite frankly the series is a joke. The ABS samples a small set of bricks & mortar retailers and the following month moves to a different set (outside a few large retailers). No wonder the series is volatile, and no wonder it ultimately bears little correlation to the quarterly consumer spending component of the GDP number which samples a much larger set and includes online sales (but thus admittedly takes quite a while to publish).

Having blown the market away the previous couple of months with surprising strength, yesterday the retail sales number shocked everyone with disappointing weakness. Sales, supposedly, rose only 0.1% month on month when 0.4% was expected. Fortunately yesterday’s release also included the quarterly summation, which saw volumes rising 1.2% quarter on quarter and prices rising 0.8% to provide 5.7% year on year growth in sales (by value), riding on the coat tails of the house price surge.

Little to be concerned about there, but having opened down 20 points the ASX 200 freaked out on the retail sales release and plunged straight to its lows. Yet by the time the dust had settled at 4pm, we did see the consumer sectors down but bigger falls were felt in materials and telcos and similar falls in banks and healthcare. Info-tech crapped itself, but barely moves the index dial. There was more of a rush to get out of iron ore stocks, despite the iron price having stabilised for the moment.

HSBC’s China service sector PMI came in at 51.4, down from 51.9. No great panic there.

All will be forgiven today, perhaps, given the Dow has regained what it lost on Tuesday night and the SPI Overnight jumped 28 points or 0.5%. But the iron ore price is down US90c to US$105.10/t.

The Dow jumped 76 points from the opening bell last night after news came through Vladimir Putin had told his troops to withdraw from the Ukrainian border in line with international demands and called for a delay to Sunday’s planned Ukrainian referendum. It seems even Vlad can now see little upside in an all-out Ukrainian civil war and potential sanction expansions that could ultimately cripple the Russian economy. Meanwhile, the Pentagon called on Ukrainian troops to halt operations against pro-Russian activists.

The relief did not last long on Wall Street, with markets suddenly being slapped and the Dow dropping quickly to be down 44. March quarter US productivity was shown to have fallen 1.7% against expectations of a 1.1% fall but this is another snow story and was not the real driver of weakness. The real driver was a continued assault on the Nasdaq and momentum names, led by further selling in Twitter.

The cavalry soon arrived for the broader market when Granma Yellen fronted the Joint Economic Committee of Congress. The Fed chair acknowledged the harsh winter and suggested economic growth would rebound but also expressed concern over a slowing in the housing recovery. If the rebound panned out as expected, QE tapering would end as planned, but when pressed on the first rate rise Yellen (with her “six month” furphy still lingering) insisted “there is no mechanical timetable”.

Such talk is like a speedball to an addict, so the Dow shot up to close 117 higher on the day. The Nasdaq had been down 1.4% at its depths but managed to recover to its close down 0.3%.

The US bond market is not swayed by Granma’s pleasantries and the ten-year yield remained unmoved at 2.59%. The US dollar index regained some of Tuesday’s loss in rising 0.1% to 79.24 while the Aussie fell 0.3% to US$0.9328, having not read too much into the weak retail sales number.

The LME closed last night ahead of Putin’s troop withdrawal, with traders still fearing further escalation. Traders were also squaring ahead of today’s Chinese trade balance release in selling base metals, including aluminium, copper and zinc by around 1%. Nickel rose yet again, but now includes a premium for the potential of sanctions against Russia to impact on Russia’s significant nickel exports.

Any de-escalation in Ukraine should, in theory, take a premium off oil prices as well but last night’s weekly US inventory report showed, OMG, a big fall back from the record supplies of the week before. (You reckon Oz retail sales numbers are volatile? US weekly crude inventories are hilarious.) West Texas thus jumped US$1.29 to US$100.79/bbl and Brent followed with a rise of US$1.10 to US$108.12/bbl.

So more fun and games are likely on the local market today, with Chinese trade balance lining up with the local jobs numbers (another roulette wheel) and National Bank’s ((NAB)) interim, all in a thin pre-budget market. We also have results out from News Corp ((NWS)) and friend ((FOX)) and AGMs being held by AMP ((AMP)) and Rio Tinto ((RIO)) among others.

Rudi will appear on Sky Business at noon.
 

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: Nowhere To Go But Sideways

By Greg Peel

The Dow closed up 17 points or 0.1% while the S&P gained 0.2% to 1884 and the Nasdaq rose 0.3%.

The ASX 200 was up 28 points from the open yesterday and down 16 at lunch time before closing basically flat. There seemed little consideration given to a particular FSU country careering towards civil war but there appears to have been a lot of angst about economic data. It unfortunately looks like Australia is about to adopt a US-style good-news-is-bad-news undertone, with the RBA playing the role of the Fed.

The Australian service sector PMI fell to 48.6 in April from 48.9 in March. The local PMIs continue to paint a contractionary picture but other economic data suggest otherwise.

The ANZ job ads series showed another solid rise of 2.2% in April. For the four months to April, ads have grown at an annualised rate of a whopping 30% but as an indication of where we’ve come from, year on year growth is at 1.5% -- reaching positive territory for the first time since August 2011.

Building approvals fell 3.5% in March having fallen 5.4% in February, but the 188,000 approvals granted in March represent the highest level since 1995 and a 20% gain on March 2013.

TD Securities’ monthly inflation gauge increased by 0.4% on the headline in April to 2.8% annual, following a 0.2% gain in March for a 2.7% annual rate. Normally we ignore any headline scare to note a more subdued core reading (trimmed mean), but not this time. Having risen only 0.1% in March for 2.7% annual, the core inflation reading jumped 0.5% in April to an annual rate of 3.1%. The headline rate was impacted by a 6.7% drop in fruit and vegetable prices, leaving the measure the RBA is focused on sitting above the central bank’s 2-3% target zone.

This, in theory, would suggest the first rate rise will be due sooner than most had expected. The RBA does not take a lead from TD Securities nor does it respond automatically, so we’ll at least be waiting until after the official June quarter CPI release in August before property investors and retailers start worrying.

What we can deduce is that these numbers do not support a picture of an economy needing a historically low cash rate to survive. But the RBA will be fighting a new contractionary force after next week – the first Hockey budget.

Meanwhile, the HSBC read on China’s manufacturing PMI, released around midday yesterday, showed a rise to 48.1 from 48.0 in March. This might have been good news, if not for last week’s flash estimate of 48.3. Take it as you will. Beijing’s number, released last week, showed a gain to 50.4 from 50.3 and it was after the HSBC release yesterday that the ASX 200 bottomed out.

Wall Street apparently didn’t like the Chinese number, or was it Ukraine fears that sent the Dow down 135 points from the open? Whatever the case, US stocks rapidly rebounded from that point, aided by a service sector PMI of 55.2 in April, up from 53.1 in March. But the US indices took their lead from and closely tracked the US ten-year bond yield in the session, suggesting that concerns over why US yields remain so low, and the yield curve so flat, are weighing on stock investors. Last night the ten-year yield fell initially before closing up 2 basis points to 2.61%.

Only gold was left to display apparent lingering concern over the Ukraine, rising another US$9.60 to US$1310.20/oz last night, despite the US dollar index being steady at 79.51.

Trading has been relatively thin around the globe these last few sessions, with holidays being enjoyed all over the place. Late last week Europe and China were closed, Japan and Korea were closed yesterday and will be again today, the UK was closed last night and May 5 is a big festival in Mexico. Sunday was, of course, the most important day on the Jedi calendar (May the fourth be with you).

With London closed there was no base metals trading yesterday, while iron ore fell US10c to US$105.90/t.

The oil markets are in a quandary at present, stuck between excess US supply, potential sanctions against and from Russia, and Libyan supply that is only tenuously flowing once more. Not to mention the Chinese PMI yesterday. So last night Brent fell US96c to US$107.63/bbl and West Texas fell US38c to US$98.38/bbl.

The Aussie is steady at US$0.9277 and the SPI Overnight rose 10 points or 0.2%.

The RBA will hold a policy meeting today and while no one expects any change from a 2.5% cash rate, attention will focus on the statement’s views on inflation and the stubbornly high Aussie dollar. We’ll also see the March trade balance numbers today.

The world is dominated by uncertainty at present. What might happen in the Ukraine? Is the US economy bouncing back from the harsh winter? Will the ECB introduce QE? Is the Australian economy actually transitioning better than expected, implying RBA tightening? But whereas uncertainty is usually the mother of volatility, the current global picture is one of tracking sideways. Without quite knowing what to do, it’s best to do nothing.
 

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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)

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article 3 months old

The Monday Report

By Greg Peel

The US posted its best non-farm payroll number in two years on Friday night, adding 288,000 jobs. The employment rate plunged to 6.3% from 6.7% to mark the biggest one-month drop in 31 years. So far in 2014, new jobs have been added at the rate of 214,000 per month, up from 2013’s average of 194,000.

It all looks very rosy, and offers further proof of the US economy having been hampered over the winter months, but the devil was in the detail.

The big drop in the unemployment rate was assisted by a huge drop in the participation rate, to 62.8% from 63.2%. It doesn’t seem like much, but this rate rarely moves more than 0.1% each month, and at 62.8% the percentage of Americans looking for work is at a 35-year low. Fast-declining labour force participation has sparked heated debate in the US as to what exactly is the cause. Structural decline due to baby boomer retirement is one factor, but arguably not enough to cause such a sharp drop. The unemployment rate falls not only when those looking for work find it, but when those looking for work give up.

One clue is in the average wage growth element of the non-farm payrolls report. The average wage was unchanged to April from March, and is rising at an annual rate of only 1.9%. This weak growth backs up the argument of more job-seekers giving up than finding employment. It also means the good news of new jobs being created is tarnished by the lack of consumer spending capacity being generated as a result.

Wall Street initially responded positively to the jobs number, pushing the Dow up 62 points into fresh blue sky, before the sellers moved in. Between the questionable strength of the overall report, a new all-time high, and escalating violence in the Ukraine, traders decided it was safer to take profits ahead of the weekend. The Dow finished down 45 points or 0.3%, below its previous closing high, while the S&P lost 0.1% to 1881 and the Nasdaq fell 0.2%. All three indices nevertheless posted 1% gains for the week.

Ukraine-Russian tensions have provided an uneasy backdrop for international markets over the past couple of months, but not prevented new highs in the US stock market. The VIX volatility index is sitting just under 13, suggesting few investors have sought put option protection against any negative ramifications and see little risk. However the situation took a turn for the worse over the weekend when Ukraine forces allowed 40 pro-Russian separatists to perish in a burning building.

This will do little to bolster the global support the Ukraine has enjoyed outside Russia to date. And while stock markets remain relatively sanguine, Friday night saw the US ten-year bond yield close down 2 basis points to 2.59% having initially jumped 7 basis points to 2.68% on the jobs number. Gold fell initially to 1280 before rebounding sharply to US$1300.60/oz, up US$16.30 on the session.

The US jobs number did nevertheless provide a boost to base metal prices on the LME, with copper, tin and zinc all rising 1%. But trading on the exchange was thin on Friday with China on holidays, it will be closed tonight for Labour Day in the UK, and Japan is also on holiday today and tomorrow. Iron ore rose by US60c a tonne or 0.6% to US$106.00 a tonne. Over the week iron ore fell by US$5.00 a tonne.

Oil prices closed higher on Friday night, which is to be expected given the threat to global oil trade from any step-up in Russian sanctions. Were it not for recent reports indicating excess US crude inventories, the oil price would likely be a lot higher still. Russia has called the United Nations Security Council together for a meeting to discuss the serious escalation in violence in the Ukraine and global oil supply implications.

President Obama and Germany’s Chancellor Merkel jointly announced on Friday that any step-up in sanctions against Russia will be held off until after the May 25 election in the Ukraine. Meanwhile, others are calling on the Ukraine to postpone what is a rather pointless election at this stage lest it simply become a catalyst for further fatalities.

The SPI Overnight has once again put on an optimistic display, rising 6 points on Friday night.

Australia’s week will open to Ukraine concerns and ongoing fear and loathing with regard the federal budget due next week. One does get the feeling Joe the Axeman is playing the old game of preparing everyone for the worse and then delivering something a lot milder. But we’ll have to wait and see. Ahead of the budget, there are a lot of important local data releases due.

Today sees the ANZ job ads series, the TD Securities inflation gauge, building approvals and the service sector PMI. Tomorrow the trade balance will be released and the RBA will hold a policy meeting, with no change to the status quo expected. Wednesday it’s retail sales, both for March and the March quarter, and the construction PMI. On Thursday the local jobs numbers are due. On Friday the RBA will release its June quarter Statement on Monetary Policy.

China is back in business this week and today HSBC will release its manufacturing PMI, delayed due to last week’s two-day break. Over the weekend, Beijing released its official service sector PMI which showed an increase to 54.8 from 54.5. HSBC will post its own service sector equivalent on Wednesday, while the April trade balance is due on Thursday and inflation data on Friday.

The UK is closed tonight, the UK and eurozone will both release service sector PMIs tomorrow and both the ECB and Bank of England will hold policy meetings on Thursday.

The economic week in the US sees the services PMI tonight, trade balance tomorrow, March quarter productivity on Wednesday (another weather impact indicator), chain store sales on Thursday and wholesale trade on Friday. The earnings results season has now moved into its long-tail second half.

Things are nevertheless hotting up on the Australian corporate calendar, as quarterly updates run into the bank earnings season and a round of AGMs for calendar year reporting companies.

Westpac ((WBC)) will release its interim result today and National Bank ((NAB)) on Thursday. Dexus ((DXS)) offers a quarterly report on Wednesday, News Corp ((NWS)) and the departing 21st Century Fox ((FOX)) will report quarterly earnings on Thursday, and JB Hi-Fi ((JBH)) will provide an update on Friday.

Among the AGM highlights this week are Sigma Pharmaceutical ((SIP)) on Wednesday, AMP ((AMP)), GPT Group ((GPT)) and Rio Tinto ((RIO)) on Thursday, and Alumina ((AWC)) on Friday.

Rudi will appear on Sky Business today at 11.15am, on Wednesday at 5.30pm and on Thursday at noon.
 

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

Tonight’s US jobs report will likely determine whether Wall Street enters the new week with further new highs in its sights or a “Sell in May” attitude creeps in. Locally, it seems investors have already decided to take a bit of heat out of the market and wind back a few lofty PEs. There will remain a shadow of Cold War II tensions over proceedings for the time being.

It will be interesting to see whether this week’s weakness in iron ore prices have anything to do with the Chinese four-day break, such that prices might rebound next week, or whether weakness is unrelated. Tomorrow sees the release of China’s service sector PMI and next week HSBC will report its manufacturing and services numbers. Later in the week Beijing will release the April trade balance result and inflation data.

The US will see its services PMI, trade balance, productivity and monthly chain store sales numbers while the UK and Europe will also see service sector numbers as well as ECB and Bank of England policy meetings. The UK is closed on Monday.

It’s busy times in Australia next week, with data releases including service and construction PMIs, the trade balance, retail sales and jobs numbers. The RBA will meet on Tuesday but no change in policy is expected.

On the corporate front, we’re now heading into an AGM season for the calendar year reporters. Highlights next week include AMP ((AMP)), Rio Tinto ((RIO)) and Alumina ((AWC)). Westpac ((WBC)) will report its interim result on Monday and National Bank ((NAB)) on Thursday while Thursday will also see quarterly results from News Corp ((NWS)) and the about-to-delist 21st Century Fox ((FOX)). JB Hi-Fi ((JBH)) will provide a trading update on Friday.
 

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article 3 months old

The Overnight Report: Putin On The Pressure

By Greg Peel

The Dow closed down 21 points or 0.1% while the S&P was flat at 1883 and the Nasdaq rose 0.3%.

Someone must have pointed to the calendar at the ASX yesterday and everyone realised it was now May, and we know what investors must do in May. Realistically though, it appears the market has returned from a nice extended Easter break and, with a clear head, decided there’s very little reason on offer as to why the ASX 200 should be trading at a new post-GFC high.

The selling on Bridge Street yesterday was more widespread than sector-specific. The banks continue to return from lofty valuations, despite a decent result and increased dividend from ANZ Bank ((ANZ)), the materials sector was thumped again on another fall in the iron ore price, and consumer staples continue to fall since neither supermarket group managed to wow the market. These sectors take account of most of the largest caps. But telcos, utilities and healthcare were all down yesterday as well.

Budget fear is possibly involved. Stock markets usually pay scant heed to politics but given the extent of Joe the Axeman’s warnings and the suggestions made in yesterday’s Commission of Audit report, there is no doubt concern building around everything from tax rates to the PBS. The Australian manufacturing PMI for April was a shocker, falling to 44.8 from 47.9 in March, but quite frankly this series is so ridiculously volatile compared to equivalent surveys around the developed and even emerging world its value is questionable.

The PMI that matters – China’s – rose to 50.4 from 50.3. It was a positive move, albeit barely so, and economists were looking for 50.5. Drilling down, the new export orders component fell to 49.1 from 50.1, which has done nothing to allay fears of further slowing in the world’s second biggest economy.

Over in the world’s biggest economy, the focus is on tonight’s April jobs number. Last night’s data releases were positive, with the US April manufacturing PMI rising to 54.9 from 53.7 and construction spending rising 0.2% in March after falling 0.2% in February. Personal spending in March rose 0.9% to mark the fastest pace in almost five years, when economists had forecast 0.6%. It’s another argument to suggest the winter hampered consumers but the spring has seen them catching up. Personal incomes rose 0.5% against 0.4% expectation while savings fell to 3.8%, down from 4.2% in February.

But it’s the jobs number that everyone focuses on, which is likely why the Dow pulled back last night from the all-time high posted on Wednesday and traders set themselves for another guess and giggle on what the non-farm payrolls number might be, and how to respond to it.

US earnings results have continued to be more positive than negative, albeit off lowered expectations, with the score card now running at around 2% growth for the S&P 500. Last night shares in Yelp, which is apparently an online review platform, jumped 9% following its earnings release. Last night’s after-the-bell highlight was another social media darling in the form of Linkedin. Its shares rose 5% ahead of the release, the result was a beat, and the shares are now down 4% in the after-market.

While S&P 500 companies might be seeing better results than lowly forecasts had suggested, earnings growth continues to come more from cost cutting than from revenue growth. Moreover, the extent of M&A activity and share buybacks, which link back to QE, low interest rates and strong corporate cash positions, is reducing the equity pool. Ergo, stock price should rise by default without fundamental justification.

I have been suggesting for a while now that the real concern over the Ukraine/Russia situation and subsequent Western sanctions lies with global energy markets. The latest round of sanctions merely extended asset and visa freezes to a wider circle of Putin cronies, but among them were oil bosses. Putin has now warned that while he doesn’t want to, he may be forced to “think about who is working in the Russian energy sector, and how”. He is referring to long-term Russian projects being carried out by the likes of BP (UK), Shell (Netherlands), Total (France) and Exxon-Mobil (US).

Europe is backing away from energy-targeted sanctions, given the continent imports 30% of its gas supply from Russia. But by the same token, energy represents 40% of Russia’s GDP and 75% of its exports. Were Putin to turn off the spigot, Europe would be challenged but would cope, while the real victim will be the Russian economy. It is for that reason analysts suggest this Cold War II will not get beyond threats, but then no one would be surprised if Putin threw logic to the wind in his neo-imperialistic tango.

Furthermore, were Putin to go down the oil war path, and Europe looks to more reliable sources of energy, Russia may forever lose a customer. The above global oil giants are all involved in Australian LNG, US shale, and more.

But oil markets seem none too worried at this stage. Last night Brent fell US33c to US$107.79/bbl and West Texas fell US37c to US$99.37/bbl. Recent inventory data suggest the US is very well stocked ahead of the approaching summer driving season, although analysts concede WTI might be a lot further under the 100 mark were it not for Ukraine implications.

Base metal markets have the Chinese on holiday yesterday and today and the LME closed on Monday, so action there is patchy right now. Last night saw prices mostly lower, with aluminium and zinc down 1%. The iron ore market is closed for the Chinese holiday.

Rising East-West tensions don’t appear to be having much effect on gold, which was down another US$7.40 to US$1284.30/oz last night with the US dollar index steady at 79.51. If you want to know where US fund managers think the US economy is really heading, ignore the stock market and look at the bond market. Last night the US ten-year yield fell 4 basis points to 2.60% and left stock brokers scratching their heads. It’s now almost bizarre to recall the plus 3% levels that were quickly established in December when Fed tapering was confirmed.

The Aussie is off 0.2% at US$0.9270.

Those SPI futures traders remain ever optimistic (I think they’ve called it up every day this week), so last night the SPI Overnight rose 14 points or 0.3%.

China is closed today, although Beijing will release its April service sector PMI tomorrow. US jobs will capture everyone’s attention tonight.

Australia will see building approval and new home sale data today along with the March quarter PPI. Macquarie Group ((MQG)) will report its full year result and Myer ((MYR)) will release quarterly sales numbers.
 

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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