Tag Archives: China and Emerging Markets

article 3 months old

The Overnight Report: False Alarm

By Greg Peel

The Dow closed down 266 points or 1.6% while the S&P fell 2.1% as the Nasdaq plunged 3.1%.

Only two days earlier the ASX 200 remained locked in its struggle to break through the 5400 level. Yesterday it briefly kissed the sky at 5503, even before the jobs numbers came out. The ultimate close of 5480 still represented a sudden swing to optimism over a two-day period. Presumably we’ll see that optimism cut off at the knees today.

In February the ABS had changed its model for the monthly jobs survey and warned of a statistical hiccup, which was duly delivered in the form of a 48,000 job increase which no one believed. The unemployment rate hit 6.0% nevertheless, but economists were mostly all assuming that yesterday’s March number would correct the hiccup, and the unemployment rate would rise to 6.1%.

Well they were wrong. The unemployment rate for February was actually revised up to 6.1% but in March it plunged to 5.8% on the addition of yet another 18,000 jobs. There was another tick down in participation, but otherwise the numbers left everyone confounded. The manufacturing states of Victoria and SA did see losses, but WA and Queensland are holding their own despite the mining downturn and NSW is powering ahead. Despite all the scratching of heads, it has to be noted that the ANZ jobs ads series has been on the way up and this month the ANZ economists noted a historical pattern that predicts the unemployment rate must fall. They were right.

The impact of the jobs number was to send the Aussie crashing up through resistance at 94 without a blink. The currency peaked at 94.6 immediately after the jobs release, before drifting off and then falling further in last night’s trade. Over 24 hours the Aussie is up 0.2% to US$0.9406.

Aside from meeting a new resistance level at 5500, the market took pause to ponder the implications of an Aussie now some 6c above its recent lows, and in particular how that might impact on commodity exporters. BHP Billiton ((BHP)), for example, finished the session down 1.3% despite a US$1.20 rise in the iron ore price. The big miners start reporting their production and sales numbers next week for the March quarter and there is likely to be an impact felt in realised prices, which at this early stage is looking even worse for the June quarter.

Then came the Chinese trade data. On first glimpse they looked good, given China’s trade balance rose to a surplus of US$7.7bn in March, representing a big swing from February’s deficit of US$23bn, and ahead of forecasts for a US$1.75bn surplus. But the underlying elements were not all that flash. Exports fell 6.6% (year on year), which was better than February’s 18.8% fall but well short of expectations for a 4.2% gain. Imports were worse, falling 11.3% compared to February’s 10.1% drop, but nowhere near forecasts for a 2.8% gain.

Economists had to a great extent dismissed the February data as representing the annual statistical glitch that is the lunar new year holiday. They thus expected a turnaround in the March data, but have been forced to acknowledge that prior to the recent government clampdown, Chinese export data were forever being exaggerated by “over-invoicing”, a trick used at the provincial level to make that particular province look good to attract more national funding. Somewhere in all of this is “the new normal”, but we may have to monitor further data in the months ahead to truly gauge the “real” story.

So the ASX200 closed off its highs but still looked pretty healthy, having decided the latest Wall Street mini-correction was over for now. Oh dear.

I have said it many times now, but it is always important to note that the “smart money” never responds immediately to any Fed event – particularly a policy statement but also the release of the minutes of a meeting – but rather lets the headless chooks run wild, sleeps on it, and comes back the next day with a relevant trading strategy. On Wednesday night the chooks decided the Fed had become a lot more dovish than it was a month ago. The smart money knew that in actual fact, and despite Janet Yellen’s earlier blooper, Fed policy has not changed at all this year and indeed has not changed since those hazy, crazy days of Uncle Ben.

So why the sudden excitement? What the Fed was really saying at its meeting is that it doesn’t think the US economy is really recovering as quickly as forecasts are suggesting. That is actually not good news. So a day later, it was back to correction mode. From the higher starting point afforded by Wednesday night’s rally. And once again, the “momentum” plays were trashed. Really trashed. Biotech, social media, general internet. Everything from drug developers to Facebook and Amazon. Even with Wednesday night’s brief bounce, the Nasdaq is down 7% this month. Over a quarter of the Nasdaq 100 is down 20% or more for the year.

But this was no wholesale sell-off, and nor was it earlier in the week. Volumes have not been substantial, suggesting a lack of buyers rather than an avalanche of sellers, and the switch is on into the large-cap, less exciting stocks. Dow names like IBM, Microsoft, McDonalds, Caterpillar, Proctor & Gamble, AT&T – these stocks have largely maintained their support while all about them is losing theirs. Fuelling the weaker Dow are the banks, such as JP Morgan who reports tonight, along with consumer discretionary and, funnily enough, healthcare. Healthcare had been on a tear since last year.

The switch was also on back into bonds, with the US ten-year yield falling 6 basis points to 2.63%. The US dollar fell 0.1% to 79.43 as it continues to give up ground to the euro. Strange – the ECB is talking about introducing QE and the Fed is quietly reducing it. Gold rose US$5.80 to US$1318.60/oz.

Base metal markets were a standout last night. The LME closed ahead of the release of the Fed minutes on Wednesday night so last night was the first chance to respond. What LME traders saw was a weaker US dollar on Fed dovishness. And they also saw a Chinese trade surplus that was a lot bigger than forecast. So they bought the metals. Copper and tin remained stagnant but zinc rose 1%, and the recent stars surged further, with aluminium up 1.6% and nickel up 2.4%.

Spot iron ore fell US30c to US$119.10/t.

The oils were quieter, with Brent easing US26c to US$107.47/bbl and West Texas US25c lower at US$103.35/bbl.

For the ASX 200, it looks like 5500 is just going to have to wait for another day. The SPI Overnight fell 51 points or 0.9%.

Bank of Queensland ((BOQ)) will report its interim earnings today and China will release March inflation data.
 

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article 3 months old

The Monday Report

By Greg Peel

The story in US stock markets on the weekend was not just one of jobs but also of the spectacular death of the momentum trade. Share prices in companies for which PE is meaningless but future possibilities drive value have lost all popularity these past couple of weeks and Friday night the flood turned into a torrent. Biotech stocks and internet stocks, which had run hard over 2013 on fairy dust, crashed. The Nasdaq fell 2.6%.

Big names in the internet space such as Facebook and Netflix are now down 20% from their 2014 peaks. Apple fell 1.3% on Friday, which not only has a big impact on the Nasdaq 100 but is felt in the S&P 500. The S&P ultimately fell 1.3% to 1865 while the Dow fell 159 points or 1.0%.

It was not the reaction one might have expected to the jobs number, but then it wasn’t just an employment-focused reaction. The US added 192,000 jobs in March, shy of the 200,000 consensus estimate. The result goes some way to confirming that the stumble in earlier months was all about the weather and that the US recovery is still on track. There was a rolling build-up of hope leading into the release, such that the so-called “whisper number” grew to heights above the 200k prediction, but realistically a 150 fall in the Dow is not reflective of this minor “miss”.

Indeed, the initial response on Wall Street was positive, at least for the first hour. Then the rot set in and the indices cascaded downwards. Tonight Alcoa will report its March quarter earnings result and thus unofficially kick off the quarterly earnings season. Part of the sell-off on Friday, which pulled both the S&P and Dow away from their earlier all-time highs, was about squaring up ahead of the reporting season. Otherwise it was about switching out of high-flying, wing-and-a-prayer stories and back into more solid, PE-calculable stocks and also back into one particularly beaten-down global sector – emerging markets.

Emerging market investments were left behind in the domestic multiple expansion phase of 2013 and have had a tough time of it in 2014 to date. China led the way with slowdown fears, a once surging Brazil fell back to the pack and imperial posturing had its impact on Russia. The Russian dust has settled for now, Beijing has begun its incremental stimulus program and on Friday night, the LatAm ETF in New York was one of few instruments that finished in the green.

Yet the reaction in other markets provided evidence that there was indeed overall disappointment in the jobs result. This is despite the February number being revised up to 197,000 from the previous 175,000 estimate, with January at 144,000 and December at 84,000. Perhaps the fact March’s 192,000 failed to show rolling progress was enough to imply the Fed may not be as hasty as it has recently implied in its tapering program and interest rate rise timetable. The unemployment rate was steady at 6.7% but this was because the participation rate rose to 63.2% from 62.0% in February and is now at its highest level since September.

The clue in the market’s perception of the Fed’s potential response was in the US bond and gold markets. The benchmark ten-year yield, which had been ticking up solidly all last week, dropped 7 basis points to 2.63%. Gold, which had been drifting off all last week, jumped US$17.50 to US$1304.70/oz. The implication here, and to some extent in the stock market, is that US investors had set themselves up for a cracker of a jobs report and didn’t get one.

The US dollar index remained steady at 80.44, but unfortunately when one talks of “emerging markets” one also turns to a traditional proxy – the Aussie dollar. The Aussie is up 0.7% to US$0.9290.

The reaction in commodity markets was nevertheless muted. Base metals put in another mixed session while iron ore rose US20c to US$115.70/t. The oils rather liked the jobs number, with West Texas rising US77c to US$101.14/bbl and Brent, which is currently supported by lingering uncertainty over Libyan supply, rising US33c to US$106.55/bbl.

The ASX 200 had its big stumble on Monday last week but spent the rest of the week grafting its way back in an attempt to force its way out of the gravitational pull of the 5400 level. Alas, it could be just another manic Monday today, with the SPI Overnight down 41 points or 0.8%.

Once upon a time the adage was one of where goes the Alcoa result, so goes the rest of the US result season. It’s a different world for aluminium these days and hence the adage no longer applies, although there is a lingering psychological effect from the first Dow cab off the rank. The real stuff nevertheless starts later in the week when the first bank results roll out from JP Morgan and Wells Fargo.

The suggestion is earnings forecasts have been downgraded due to the weather impact and overly so, thus there is more potential for upside surprise than downside. The jobs results of the past couple of months might support that argument. But that is to some extent why the US indices pushed into new high territory last week, only to see it all fall in a heap on Friday. So now we can only wait as the season plays out to assess the proof of the pudding.

It’s otherwise a quiet week economically in the US with wholesale trade on Wednesday, chain store sales on Thursday and consumer sentiment and the PPI on Friday being the highlights.

The Bank of Japan will hold a policy meeting tomorrow in the afterglow of much FTA schmoozing from Tony Abbott, James Packer and his large-cap CEO pals. The Japanese economy is now coming to terms with the fiscal thorn on the rose of monetary stimulus, being the sales tax increase which took effect this month.

China is also in the frame again this week. It’s a holiday in China today for tomb sweeping, as you do, then on Thursday the March trade balance is due. February’s balance showed a shock plunge in exports and a jump in imports but the numbers were typically distorted by the lunar new year break. Hence Thursday’s result will be keenly watched for signs of reversal. Chinese inflation data is due on Friday.

It’s a busy economic week in Australia beginning today with the ANZ job ads series and the construction PMI. Tomorrow it’s NAB business confidence and on Wednesday Westpac consumer confidence along with housing finance and investment lending. On Thursday, our own jobs numbers are due. Last month’s big jump in jobs seemed to all and sundry to be patently ridiculous so it will be interesting to see if we correct in March.

On the local, stock front we’ll see off-cycle interim results from Ten Network ((TEN)) on Thursday and Bank of Queensland ((BOQ)) on Friday while the March quarter resource sector production report season will kick off this week with ERA’s ((ERA)) report tomorrow.

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 sees the US jobs number for March and on Monday in the US, Alcoa will report its March quarter earnings. The US quarterly earnings season will thus begin. In both instances, weather is expected to come into play. If not, Wall Street is in trouble.

Aside from expecting a healthier jobs number tonight, Wall Street is anticipating that downgrades to earnings forecasts for US companies over the course of the quarter, a lot of which have been weather-related, will prove overdone. Hence traders are hoping for upside surprise, which is why the S&P 500 is back at its all-time high. The US earnings season will take a month to play out.

In economic data terms it’s quiet in the US next week, with the highlights being chain store sales, consumer sentiment and the PPI, along with the minutes of the last Fed meeting. Given Janet Yellen’s infamous “six months” call was made in her subsequent press conference rather than in the policy statement, the market will be scrutinising the minutes for any further clues on the timing of the first interest rate rise.

China’s March trade balance and inflation numbers are due next week and in Australia we’ll see ANZ job ads, NAB business confidence and Westpac consumer confidence. Japan’s CPI result is also due.

Local earnings results are expected next week from the Ten Network ((TEN)) and Bank of Queensland ((BOQ)).
 

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article 3 months old

The Overnight Report: Non-Farm Non-Action

By Greg Peel

The Dow closed flat while the S&P lost 0.1% to 1888 and the Nasdaq fell 0.9%.

Australian retail sales rose 0.2% in February having risen 1.2% in January, missing the 0.3% consensus forecast. Quite frankly, the retail sales data are not worth the paper their written on. They do not include domestic online sales (let along offshore) and represent only a small sample set of large retailers. The selection of retailers rotates each month, so we’re not even comparing apples to apples from one month to the next.

But it’s all we’ve got between quarters (the spending segment of the GDP calculation differs and is more comprehensive, including domestic online), and that’s why the Aussie is down 0.2% to US$0.9229. It’s also why the ASX 200 ran out of steam yet again yesterday and once more failed to meaningfully break out of the gravitational pull of 5400.

The longer the index spends trying punch ahead without success, the more likely it is the next move of significance will be down. Volumes have fallen away on Bridge Street and we’re about to enter a period of school holidays and consecutive Easter/Anzac long weekends. Three days off gets you a ten day holiday. Then it’s May. And we all know what happens in May.

On the subject of dodgy data, the Australian service sector PMI for March fell to 48.9 from 55.2 in February, basically reversing the jump up from January. From healthy expansion back to contraction in a heartbeat. Every other PMI around the world moves incrementally, but Australia’s fly around like an aerobatics team. No wonder the market pays not the slightest bit of attention.

The irony, of course, is that the entire world pays very close attention to the Chinese PMIs, agonising over every 0.1 of movement from month to month. Yet no one trusts data out of Beijing – not even the Chinese. Yesterday saw Beijing’s service sector PMI drop to 54.5 from 55.0, while HSBC’s independent number rose to 51.9 from 51.0. Direction almost never varies between these two different surveys, but in one month we’ve had Beijing’s manufacturing PMI go up and HSBC’s go down and Beijing’s services PMI go down and HSBC’s go up.

How much can a koala bear?

No wonder it was quiet on Bridge Street yesterday, notwithstanding tonight sees the US jobs number. The number will be important in confirming the weather effect, given a couple of shockers in the last two months. Economists are looking for 200,000. I suggested yesterday Wall Street might be flat last night ahead of the release and indeed it was, with the exception of the Nasdaq which lately is moving around more violently than an Australian PMI.

The Dow banged up against an all-time high last night but took a step back at the close. No one much cares about the Dow but there is some traditional psychological impact there, although in this case it is watered down by the fact the broad market S&P 500 is already in blue sky.

Attention last night was mostly directed at Europe, where the ECB elected not to cut its cash rate despite much speculation. While not using this particular monetary tool, the eurozone central bank board did however have an “ample and rich” discussion about implementing some form of quantitative easing in order to stave off deflation. This was enough to send the euro down against the greenback, but as ECB President Mario Draghi conceded at his press conference, the mechanics of a QE program were not hashed out. The Fed can implement QE simply by buying US bonds. The eurozone has no collective bond.

The eurozone service sector PMI fell to 52.2 from 52.6 while the UK equivalent dropped to 57.6 from 58.2. The UK numbers are easing, but only to supercharged from turbocharged. The US number rose to 53.1 from 51.6.

The falling euro sent the US dollar index up another 0.3% to 80.46. Gold nevertheless held on, falling only US$2.90 to US$1287.20/t.

Base metal price moves were mixed and insignificant outside a 1% gain for tin, while spot iron ore rose US20c to US$115.50/t.

A rise in the US service sector PMI was used for the excuse as to why West Texas crude rose US80c to US$100.42/bbl. Not sure what the connection is there. Having fallen sharply for two days, Brent rebounded US$1.66 to US$106.22/bbl despite the suggestion a deal is close to being struck with the Libyan rebels who have been blockading Libyan oil terminals for some time.

The SPI Overnight fell 6 points.

Non-farm payrolls in the US tonight. Consensus is for 200,000 which would represent a big jump from the last two months’ results and confirm that the US suffered from severe weather earlier in the year. A bad result would bring weather into question and support suggestions the US recovery is actually slowing. But if that is the case, chances are the Fed might ease off, that is, taper the taper. So anything could happen.

Clocks go back in relevant Australian states this weekend. On Tuesday morning the NYSE will close at 6am Sydney time.
 

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article 3 months old

The Overnight Report: Positive Data Encourage New Highs

By Greg Peel

The Dow closed up 40 points or 0.2% while the S&P gained 0.3% to 1890 and the Nasdaq rose 0.2%.

The ASX 200 is struggling to meaningfully break through 5400 which is no great surprise given the technical significance of the level. Meanwhile the S&P 500 is back into blue sky and last night the Dow briefly traded at a new all-time high for the first time in 2014 before slipping just under at the close. We are reminded that the all-time high in the ASX 200 is 6828, a mere 26% away. In very simple terms, the difference between us and the US is the Aussie dollar effect.

Yesterday saw a choppy ride on Bridge Street as the market opened with gusto on Wall Street’s lead but then fell on the weak building approvals numbers. Residential building approvals fell 5.0% in February which is a bit disturbing when the housing market is supposed to be one of the primary drivers of Australia’s economic transition away from mining development. It is also disturbing given capital city house prices rose a record 2.3% in March. The two numbers together suggest supply is falling as demand is rising.

But residential building approvals are up 23.2% over twelve months. Non-residential is also trending higher, as are numbers for home alterations and additions. One clear trend is the increase in multi-unit dwellings which now represent 45% of approvals versus 55% single homes compared to 30/70% ten years ago. Apartment blocks and town houses represent less investment per unit than houses but can ease the supply squeeze more quickly.

The index then received another kick yesterday when Beijing answered the call and rolled out a “mini” stimulus package. Gone are the days of late 2008 when China implemented the biggest fiscal stimulus package in the history of mankind and in so doing fuelled property and credit bubbles. More recent stimulus has involved incremental, targeted spending with a mind to avoiding further indiscriminate lending and the package announced yesterday will be directed towards railways, social housing and tax relief for small businesses.

The market had already priced in stimulus from Beijing and the mini package is no great game changer. Hence the ASX 200 yet again slipped back towards the 5400 mark.

The Dow Transports has hit a new all-time. In tea-leaf terms a new high in the Dow Transports preceding a new high in the Dow Industrials (“the Dow”) is a bullish signal and closely watched on Wall Street. In fundamental terms an increase in transport sector earnings implies rising economic activity which implies a flow-through to an increase in industrial sector earnings. Next week the US earnings season begins.

Last night’s US economic data releases included a 1.6% rise in factory orders in February following a 1.0% fall in January, compared to 1.3% expectation. And ADP reported the private sector added 191,000 jobs in March, up from February’s increase of 178,000. Consensus for tomorrow night’s non-farm payrolls number has now risen to 200,000 new jobs.

The US dollar index rose 0.2% to 80.23 last night on a combination of the positive US data and selling in the euro ahead of tonight’s ECB policy meeting. There has been a lot of talk this past week or so about the ECB possibly easing policy further in some way, shape or form to fight the threat of deflation. Inflation in the US is also failing to gain any traction and so it was a bit of Fedspeak last night from one of the known FOMC doves who suggested that the tapering program could itself be tapered if inflation failed to respond. This was enough to stop the rot in gold, at least for now, which rose US$9.00 to US$1290.10/oz.

It was not enough, nevertheless, to encourage any change of heart on the US bond market. With geopolitical tension easing and fears of a China slowdown abating the benchmark US ten-year bond yield has been creeping up again, and last night hit its highest level since January at 2.80%. Bond yields are supposed to move higher as tapering continues.

Aluminium has gained a bit of support lately and last night rose 2%, but strength is related more to supply-side cuts than increased demand. The price remains below the average cost of production. Copper jumped initially on news of the earthquake off the Chilean coast but fell back again once it appeared mining infrastructure in the country, where the likes of BHP Billiton operate major copper mines, was unaffected.

Spot iron ore fell US$2.30 to US$115.30/t. Perhaps the market was hoping for a more exciting stimulus package from Beijing.

Oil prices ticked down further, with Brent falling US60c to US$104.56/bbl and West Texas falling US25c to US$99.49/bbl.

Despite the rise in the US dollar index, the Aussie is steady at US$0.9246.

The SPI Overnight rose 18 points or 0.3%.

It’s service sector PMI day today, with numbers due from across the globe and most importantly, for Australia, both Beijing and HSBC will release China numbers. Australia will also see retail sales and trade balance data.

Tonight Wall Street may well go quiet ahead of tomorrow night’s jobs report but all eyes will be on the ECB. Any further easing would be seen as positive.

Rudi will appear on Sky Business at noon and again on Switzer TV between 7-8pm to discuss iron ore.
 

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article 3 months old

The Overnight Report: And Back To All-Time Highs

By Greg Peel

The Dow rose 74 points or 0.5% while the S&P gained 0.7% to 1885 and the Nasdaq jumped 1.6% (somewhat of a turnaround).

RBA governor Glenn Stevens’ statement following the March policy meeting included this line:

“Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate.”

Yesterday’s statement included this line:

“Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time.”

This line is the only change in the entire statement from March to April. Do we infer that the RBA no longer expects unemployment to rise further before it peaks? If so, any idea of another rate cut looks even more remote. And what of the currency? If the “lower exchange rate” reference has now gone, does this mean (a) the RBA no longer believes a lower exchange rate will help growth to strengthen, or (b) the RBA no longer expects the exchange rate to fall any lower? Stevens did repeat that “the exchange rate remains high by historical standards”.

Despite the Aussie rallying 6% from its recent lows, suddenly the RBA has stopped trying to talk it down. Perhaps it’s a bit hard to talk down a currency on the one hand while implying the next rate move will be to the upside on the other. See the employment reference above.

Meanwhile, the RP Data-Rismark index released yesterday showed capital city house prices rising 2.3% in March – the biggest monthly rise since records began being kept 18 years ago. Bubble? What bubble? It is interesting that such price rises should coincide with a recent loosening of bank mortgage lending requirements. The RBA may have given up on the currency but it has stepped up its warnings on the housing front to both borrowers and lenders. Maybe a rate rise sooner rather than later is needed to cool the market.

The problem is that Australia’s manufacturing industry continues to contract. Not that the country’s economic future lies in manufacturing. Yesterday’s PMI showed an increase in the pace of contraction in March with a fall to 47.9 from 48.6 in February. But Bridge Street was never going to pay a lot of attention to the domestic number. What mattered were the Chinese numbers.

Beijing’s manufacturing PMI rose to 50.3 from 50.2 in February. HSBC’s equivalent fell to 48.0 from 48.5. Neither survey is praised for its accuracy and HSBC’s leans more towards SMEs, which often results in a gap in absolute value, but rarely do the two move in opposite directions. Whatever the case, the ASX 200 turned around on the Chinese releases yesterday.

The index fell in the morning by an amount roughly equivalent to the rally on the last day of the quarter, just to confirm that was all about window dressing. Then the Chinese data came out, and the index rallied back to provide a flattish close. Last week when HSBC’s flash estimate of China’s March PMI suggested a fall to 48.1 from 48.5, Bridge Street rallied on the assumption Beijing must now step in with the stimulus. Yesterday’s result provided confirmation on the HSBC result, but Beijing’s number improved and remains in expansion territory. Does the Chinese government actually pay any heed to some throwback to British colonialism? Or on the basis of a positive government number, is the need for stimulus now less urgent? Either way, the ASX 200 rallied in the afternoon.

In other manufacturing news, the eurozone PMI fell to 53.0 in March from 53.2 while there was some concern in the UK with a fall to 55.3 from 56.7. Australian manufacturers would give their left ones for a number like 55. The US PMI rose to 53.7 from 53.2, which appears on face value to reinforce weather excuses.

And as it was the S&P 500 closed at a new all-time high last night. Through rain and snow and dark of night. Here’s an interesting statistic: Around 94% of all gains in the S&P 500 are made in the two weeks before each quarterly result season and in the four weeks of the result season. US companies will begin reporting March quarter results in the next couple of weeks and expectations are that forecasts have been lowered too far.

The US dollar index was steady last night at 80.09 and gold was little moved at US$1281.10/oz. The Aussie is 0.2% lower at US$0.9248. Is that because the HSBC PMI was weaker or Beijing’s number stronger?

Base metals price moves were mixed and inconsequential while spot iron ore rose another US70c to US$117.60/t.

Then there’s oil. Having barely moved in the last several sessions, suddenly the oils decided to tank last night. Brent fell US$2.59 to US$105.16/bbl and West Texas fell US$2.29 to US$99.29/bbl. The excuse given was the “weak Chinese PMI”, which seems dubious. Aside from Beijing’s number implying improvement, HSBC’s number was close enough to last week’s flash estimate as to be old news. It is more likely the bulls became sick of waiting for oil to rise, and as each day goes by it appears less likely there will be any disruption to oil supply in relation to the Ukraine situation, hence someone decided to bail and a stampede was started.

The SPI Overnight rose 27 points or 0.5%.

Perhaps today is the day we crash through 5400. Building approvals data are out today, and tonight in the US sees the ADP private sector jobs number which provides clues for Friday’s all-important non-farm payrolls release.

Rudi will appear on Sky Business at 5.30pm.
 

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article 3 months old

The Monday Report

By Greg Peel

Putin has told Obama he wants the Ukraine to become a federation of self-governing states, allowing autonomy for individual regions and ethnic majorities. In other words, Putin wants ethnic Russians in the Ukraine to have their own governments and choose their own allegiances. He also wants assurances over the Moldovan state of Transnistria, and he wants Ukraine to be blocked from joining NATO. Then he will withdraw the 40,000 troops amassed on the Ukraine border. As the two leaders spoke, Crimea changed its clocks to Russian time.

However this proposal might play out, global markets have decided the Ukraine is less of a geopolitical risk than it might have been now diplomacy is heading off invasion. There may be some lingering doubt in the oil market but otherwise, markets have moved on. They have moved on to China where on Friday Premier Li Keqiang suggested Beijing was ready to support a cooling Chinese economy, likely through speeding up government infrastructure projects. China has now taken over the US’ “bad news is good news” playbook, such that any further weakness in Chinese data releases will be seen as positive as they increase the likelihood of swift action from Beijing. This week’s PMI data releases will be testament.

With this news from China on board, and knowing Putin had asked to speak to Obama, Wall Street began in a positive mood on Friday. The Dow rallied 150 points early in the session, helped along by data releases.

Personal spending increased by 0.3% in the US in February, ahead of 0.2% expectation. The good news was offset by a revision to the January number, down to 0.2% from an earlier 0.4%. Incomes grew 0.3% in February as expected. Michigan Uni’s gauge of consumer sentiment ticked up to 80.0 from 79.9 a fortnight ago but is down from 81.6 at the end of February.

By midday Wall Street began to run out of puff. Last week featured volatile sessions ending either up or down but achieving mostly net sideways, albeit the S&P 500 was down for the week. On Friday the Dow closed up 58 points or 0.4% while the S&P gained 0.5% to 1857 and the Nasdaq rose 0.2%.

The US dollar index was steady on Friday at 80.14 as was gold at US$1294.80/t. The US ten-year bond yield, on the other hand, jumped 4 basis points to 2.71% in contrast to the trend of the week. Fed chair Janet Yellen will speak tonight and while no one expects her to admit an error and withdraw her “six months” remark, she may well clarify or water down, which is enough to encourage bond traders to square up.

Base metals were mixed on Friday, with aluminium and copper posting better than 1% gains while nickel fell 1.5%. Spot iron ore was unchanged at US$112.30/t. The oils each rose slightly, with Brent up US34c to US$107.98/bbl and West Texas up US39c to US$101.67/bbl.

The Aussie is off slightly at US$0.9252 and the SPI Overnight rose 12 points.

It’s a big week ahead for global economic data.

Tomorrow is the first of the month and thus manufacturing PMI day, with numbers due from Australia, China (both Beijing and HSBC), the eurozone, UK and US. Thursday sees the equivalent round of service sector PMIs.

It’s jobs week in the US. The Chicago PMI is out tonight and the Fed chair, as noted, will make a speech. Aside from PMIs, tomorrow sees construction spending and vehicle sales, Wednesday factory orders and the ADP private sector jobs number and on Thursday it’s the trade balance. Friday it’s non-farm payrolls.

Japan will issue PMI data and industrial production this week along with the Tankan Survey for the first quarter. Japan has managed to stay out of the news of late but expectations are for some sort of policy development there as well, while the eurozone argues over rate cuts/QE. A flash estimate of eurozone inflation is due tonight, which is the critical factor.

It’s also busy in Australia. Today sees private sector credit, new home sales and the TD Securities monthly inflation gauge while tomorrow it’s the manufacturing PMI and the monthly RP Data-Rismark house price index. The RBA will meet tomorrow, leave rates on hold, and probably suggest the Aussie is too high.

On Wednesday it’s building approvals, then on Thursday retail sales and the trade balance along with the Services PMI. Enjoy the last of the warm evenings – Daylight Savings ends this weekend.

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

Tonight in the US sees personal income & spending data along with consumer sentiment, and then Monday signals the end of the March quarter. It’s been an eventful quarter, from US snow to Australian earnings results to Russian imperialism and a Chinese credit clampdown, not to mention Janet Yellen’s first “oops” moment, but realistically markets have gone nowhere. The mood remains mostly positive, but watchful.

The new month means PMI data hence on Tuesday we’ll see manufacturing PMIs from Australia, China, the eurozone, UK and US, followed up by service sector PMIs on Thursday.

It also means US jobs numbers, hence the ADP private sector report is due on Wednesday and the non-farm payrolls numbers on Friday. The US will also see the Chicago PMI, vehicle sales, construction spending, factory orders and the trade balance over the week.

Private sector credit data is due in Australia on Monday ahead of the April RBA meeting on Tuesday. The RBA won’t fool around, and will keep its “on hold” policy intact while likely trying to talk the Aussie down again. The Aussie has risen around 6% this year.

April will be a disjointed month, particularly in Australia where we’ll see Easter in a fortnight followed quickly by Anzac Day, providing for a four-day week followed by a three-day week and school holidays thrown in to boot. So trading might become a little thin. We might also see some end-of-quarter argy bargy today and on Monday as fund managers try to lock in their quarterly returns, and after next week we’ll be plunged into early darkness as Daylight Savings ends.
 

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article 3 months old

The Overnight Report: And Today We Go Down

By Greg Peel

The Dow closed down 98 points or 0.6% while the S&P dropped 0.7% to 1852 and the Nasdaq fell 1.3%

Bridge Street had a solid run yesterday, spurred on by gains on Wall Street, some better looking commodities prices, an assumption China must stimulate soon, and even more (endless) chatter in Europe over some possible form of QE. Materials led the way but gains were booked across the board with the exception of IT.

Speaking of IT, the Nasdaq continues to be hammered in the US as traders exit what has been feared as the next “dotcom” bubble – not quite as spectacular as the run-up to 2000 but tech companies have been well sought after in the rally from mid last year and once again analysts have been scratching their heads as to why companies that make no money are valued so highly.

As for the broader US market, it just seems like no one is quite sure what to do at this point. Yellen has signalled that rate hikes could come sooner rather than later, economic data are turning positive again, PEs are stretched and Russia is an accident waiting to happen. Throw in the same China/Europe stimulus talk. It’s a mixed bag of “whereto from here?”.

New durable goods orders data for February were released last night, showing a net rise of 2.2% when economists had expected 0.0%. Taking out lumpy aircraft and auto orders left a rise of 0.2% but the critical measure of core capital goods orders fell for the fourth time in six months. So a mixed result there.

On the other hand, a flash estimate of the March service sector PMI predicted a rise to 55.5 from February’s 53.3. Despite the global obsession with manufacturing PMIs, the US service sector contributes about three quarters of GDP and a similar level of employment.

These data releases were enough to see the Dow up 99 points from the bell but Wall Street quickly began to run out of oxygen.

While markets have not quite called the Crimea situation done and dusted, there has been an air of indifference permeating even as more Russian troop movements suggest something more sinister and speculation has stretched as far as an ethnic Russian region of Moldova, to the west of Ukraine, as being another target for Putin’s new Soviet Union. Last night President Obama warned the world of “casual indifference” towards Russia and urged more economic sanctions, which was enough to refocus Wall Street on the possible ongoing threat.

Perhaps the US bond market is paying more attention. At lunchtime the US Treasury auctioned US$35bn of five-year bonds and was knocked over in the rush. Hang on – didn’t the Fed just hint at a forthcoming rise in interest rates? Bidders offered to buy 2.99x the amount on offer compared to a running average in recent months of 2.66x, and 50.9% was snapped up by “indirect bidders” compared to an average of 42.7%. Indirect bidders include mostly foreign central banks and sovereign funds but in recent months more US money managers have entered the fray. The benchmark ten-year yield fell 3 basis points to 2.70%.

Wall Street pays close attention to the bond market because of the longstanding belief the bond market always knows what it is doing, whereas the more widely understood and accessible stock market can be dominated by headless chooks. And so it was US stock markets turned negative rather quickly in the afternoon in the wake of the bond auction.

On Tuesday night in London funds were buying metals on the talk of Chinese stimulus but last night they didn’t, so in subdued trading all base metals, including copper, fell back around 1%. Spot iron ore managed a US10c gain to US$111.90/t.

It’s not shaping up well for Bridge Street today. Yesterday RBA officials were out and about making speeches but there was no specific attempt made to “talk down” the Aussie dollar, as was expected. So what does the Aussie do when it’s on a roll at present? Rise another 0.7% to US$0.9226 and a significant 2014 high. Technical analysts believe there’s little stopping the currency before the 94 level.

The US dollar index was otherwise steady last night at 79.97. By rights if they’re buying US Treasuries they should be buying gold as well, but no. Gold fell US$8.70 to US$1303.60/oz after a brief foray under the 1300 mark which brought in some buying.

Brent crude was steady at US$106.92/bbl while West Texas was responding to domestic weekly inventory news in rising US$1.03 to US$100.22/bbl.

The SPI Overnight fell 33 points or 0.6%. Swings and roundabouts.

It’s individual stock option expiry day today on the ASX which could cause some individual volatility and Sigma Pharmaceutical ((SIP)) is due to release its interim result. Tonight sees another revision of the US December quarter GDP which is now a bit “old news” but can still prompt some market movement.

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: Wall Street Struggles For Direction

By Greg Peel

The Dow closed down 26 points or 0.2% while the S&P fell 0.5% to 1857 as the Nasdaq dropped 1.0%.

Yesterday’s flash estimate of HSBC’s China manufacturing PMI for March came in at 48.1, down from 48.5 in February. The reading is disappointing given hopes were held for a rebound in the pace of manufacturing growth following the lunar new year disruption, as is the case most years. Output and new orders both weakened while export orders grew for the first time in four months, suggesting weakness is in the domestic economy.

The reading highlights concerns China’s economy is slowing to a point it will miss Beijing’s GDP growth forecast of 7.5% in 2014 and generally become a drag on the global economic recovery. Many an economist has been downgrading forecasts since it became apparent Beijing has stepped up its financial reform program, squeezing out shadow banking and indebted companies and allowing greater volatility in the renminbi trading band. While such measures are seen as ultimately positive, they are also short term disruptive and beg the question as to by how much Beijing will allow GDP growth to slow.

A weak release from China of this nature could normally be relied upon to spark weakness in the Aussie dollar and the Australian stock market. But yesterday the opposite was true, suggesting investors are back on the stimulus bandwagon, otherwise known as "bad news can be good news". The Aussie is up half a cent from yesterday morning at US$0.9134 and the ASX 200, while not exactly firing yesterday, did turn an early drop into a positive close.

The eurozone’s flash manufacturing PMI ticked down to 53.0 from 53.2 and the composite PMI, which incorporates services, eased to 53.2 from 53.3. The adjustments are little to be concerned over with Europe’s economy clearly in expansion territory.

The US manufacturing PMI showed a fall to 55.5 from 57.1 in February. This is still a healthy pace, and indeed US manufacturing somehow managed to continue growing a-pace right through all the bad weather. The New York and Philadelphia Fed manufacturing indices showed quite a different picture, but what the hey.

Wall Street likely needs some evidence in subsequent data that the weather excuse is indeed justified and that the US recovery has not stalled. Markets are still experiencing reverberations from last week’s suggestion from Janet Yellen the first Fed rate rise may not be as far off as assumed. Last night proved a volatile session, with the Dow up around 80 from the bell and down 85 at lunchtime before staging an afternoon recovery of sorts. The S&P has again flirted with a new all-time high in recent sessions which appears to be providing resistance at this point. The Nasdaq has proven the hardest hit since Yellen made her comments.

Gold copped a hiding last night, falling US$24.90 to US$1310.00/oz. The fall was attributed to larger funds deciding to reduce gold holdings and reposition for Yellen’s interest rate rise. The US bond market is not so impatient, with the ten-year yield falling another 2 basis points to 2.73% last night. The US dollar index slipped 0.2% to 79.92.

Base metals were mixed on small moves in London while spot iron ore fell US20c to US$110.50/t.

The weak China data was enough to help Brent crude down US45c to US$106.52/bbl while an oil spill that shut down a major seaport in Texas was behind a US65c rise in West Texas to US$99.55/bbl.

The SPI Overnight fell 33 points or 0.6%.

There’s a raft of US data out tonight including two house price indices, new home sales, consumer confidence and the Richmond Fed manufacturing index, which straddle a period from January to March and may help to discern whether or not the weather had an effect.

TPG Telecom ((TPM)) will release its interim result today.
 

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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