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

The first revision of US March quarter GDP will be released tonight. Wall Street is hoping for some improvement on the first estimate of a disappointing 0.5%. Janet Yellen will also speak tonight. Recent Fedspeak has been far more hawkish, suggesting the Fed is preparing the market for a June rate hike.

Will Yellen typically kill the mood with her more dovish tone? Otherwise, trading is sure to be thin on Wall Street tonight ahead of the Memorial Day long weekend. The US is closed on Monday.

Across next week the US will see house prices, consumer confidence, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, the Fed Beige Book and the manufacturing and services PMIs. Most importantly, the May US jobs report will be released on Friday – likely the final swing factor in the June rate hike decision.

Wednesday is the first of the month and that means manufacturing PMIs across the globe, and both the official Chinese manufacturing and service sector PMIs. The rest of the world releases services PMIs on Friday.

The ECB will hold a policy meeting on Thursday.

Australia will be included in the PMI releases, and we’ll see monthly data for building approvals, retail sales and trade. We will also see March quarter numbers for company profits, inventories and the terms of trade ahead of Wednesday’s release of March quarter GDP.

ALS ((ALQ)) will release its earnings report on Monday but thereafter, corporate events begin to thin out as we head into EOFY.


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article 3 months old

The Monday Report

By Greg Peel

Friday

I mentioned on Friday morning, with regard Thursday’s trade on the local market, that telcos had traded up 0.8% and utilities down 1.7%, with no real rhyme or reason. Well on Friday, telcos were down 1.2% and utilities up 1.0%, so go figure that one.

Beyond that, there was an air of “Friday” about Friday’s trade. We had the run-up into the technical target range of 5300-5400 and having done so, ran out of any reason to push higher. Materials fell 1.2% with a bit of help from weak metal prices but energy was down 0.5% despite a stronger oil price.

Consumer staples led the market down 1.5% as traders took profits after having successfully ridden the rally back in the supermarkets from oversold conditions, to the point further catalysts are not apparent. Discretionary (+0.8%) is getting more attention now thanks to the RBA’s urgent change in policy.

With Wall Street down on Friday night, the SPI down 15 points and the weekend’s Chinese data releases disappointing, it looks like we’ll be in for some further consolidation as the new week begins.

It’s Structural

All last week on Wall Street we saw large US chain stores lining up to report earnings misses and suffer share price drops as a result. On Friday it was JC Penney’s turn to join the queue, falling 3%. By Friday night an ETF made up of all these big brick & mortar retail names was down 15% for the week alone, prompting concerns for the US economy.

The consumer represents two thirds of US GDP. If Americans are not spending, then the US economy is in trouble. On Friday night the April retail sales numbers were released, which were hoped would throw some light on the issue.

Vale bricks & mortar. April sales rose 1.3%, exceeding forecasts of 1.0% and marking the biggest monthly gain in a year. While autos represent a chunky component, sales ex-auto were still up a solid 0.8%. Outside of autos, one of the best performing segments was “non-store sales”. In other words, online.

Good news – the US economy is not in trouble. Bad news – such a stellar result will not have been missed by the Fed. Could June once again be back in play?

On the sales result, the US dollar index rose another 0.5% to 94.38. The greenback continues to rebound from what were previously encouraging lows, thus weighing on shares of multinationals. The US two-year yield spiked up on a return of the June possibility, before settling back to be down one basis point. But the ten-year yield closed down 5 basis points to 1.71%.

This “flattening of the yield curve” suggests that while the Fed may hike again in the short term, in the longer term the bond market does not anticipate strong US growth. Flat yield curves do not offer banks much opportunity to profit, thus the financials were sold down on Wall Street on Friday night. Slow economic growth does not bode well for consumer staples, so Wal-Mart led the Dow down.

The Dow closed down 185 points or 1.1% while the S&P fell 0.9% to 2046 and the Nasdaq lost 0.4%. The S&P breached its 50-day moving average at 2054 and thereafter the selling accelerated. Typical “risk-off” ahead of a weekend was exacerbated by a monthly options expiry.

Commodities

The sell-off on Wall Street had nothing to do with oil prices, which for once were very flat on Friday night. West Texas was barely changed at US$46.38/bbl and Brent was down a tad at US$47.80/bbl.

Thursday night’s selling on the LME gave way to retrospection on the strong US sales result, but also squaring ahead of the weekend’s data out of China. Only a 1% rally in zinc is worth noting.

Iron ore fell US90c to US$53.50/t.

Despite the stronger greenback, gold managed to rally US$9.60 to US$1272.80/oz. Because of the stronger greenback, and a change in trend since the RBA rate cut, the Aussie fell 0.7% to US$0.7268.

The SPI Overnight closed down 15 points or 0.3% on Saturday morning.

China

On Saturday Beijing released monthly Chinese data for April.

Industrial production rose 6.0% year on year, down from 6.8% in March and missing forecasts of 6.5%. Retail sales rose 10.1%, down from 10.5% and missing 10.5% forecasts. Fixed asset investment rose 10.5% in the four months to April, down from 10.7% for the three months to March, and missing 10.9% forecasts.

So all were disappointing. But then, the March numbers had been stronger than expected so once again, we must factor in the Lunar New Year distortion. Beyond that, just how worried should the world be about an economy growing output at a 6% annual rate, retail sales at 10% and construction spending at 10%?

The Week Ahead

The minutes of the April Fed meeting will be released on Wednesday night. As usual, the market will be looking for any clues as to what the Fed might do next.

US data this week include housing sentiment and the Empire State index tonight, housing starts, industrial production and the CPI tomorrow, the Chicago national and Philly Fed indices on Thursday, and existing home sales on Friday. More grist for the Fed mill.

Japan will report March quarter GDP on Wednesday.

The minutes of the RBA’s May meeting are due tomorrow and these, too, will be closely scrutinised.

On Wednesday Australia’s March quarter wage price index result will be released – the first of the quarterly releases ahead of our own GDP result in a couple of weeks. The April jobs numbers will be released on Thursday to a country in election mode.

God help us.

On the local stock front, Elders ((ELD)) will report earnings today, while DuluxGroup ((DLX)), James Hardie ((JHX)) and Ozforex ((OFX)) will report tomorrow. There is another handful of AGMs to be held this week and Woodside Petroleum ((WPL)) will hold an investor day on Friday.

National Bank ((NAB)) goes ex tomorrow.

Rudi has a busy TV appearances schedule ahead of him this week. On Tuesday he'll Skype-link with Sky Business around 11.15am to discuss broker calls. Later that day, he'll host a webinar for clients of VFSGroup. On Wednesday he'll host Your Money, Your Call Equities (8-9.30pm). On Thursday, he'll appear twice; first as guest on Sky Business (12.30-2.30pm) then later as guest on Switzer TV, between 7-8pm. On Friday, he'll linkup again through Skype, probably around 11.05am, to discuss time broker calls one more.

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

The US will release April retail sales numbers tonight which might go some way to confirming whether US consumers simply aren’t buying, or just not buying from bricks & mortar, given a very weak run of chain store quarterly earnings results this week.

Tonight also sees the eurozone’s March quarter GDP result.

Tomorrow Beijing will release Chinese retail sales, industrial production and fixed asset investment numbers for April.

Japan will release its March quarter GDP result next week, in a busy week for US data.

They include numbers for housing sentiment, starts and existing home sales, industrial production and inflation, as well as the Empire State, Philly Fed and Chicago Fed activity indices. The minutes of the April Fed meeting are also due.

The minutes of the May RBA meeting are out on Tuesday but between last week’s rate cut and the Statement on Monetary Policy, the market has a pretty clear idea of where the RBA is headed.

Australia’s jobs numbers are also out next week and the release of the March quarter wage price index kicks off the run-down to the GDP result in two weeks’ time.

Next week will see earnings results from Elders ((ELD)), DuluxGroup ((DLX)), James Hardie ((JHX)) and Oxforex ((OFX)) while Woodside Petroleum ((WPL)) will hold an investor day and several more AGMs are scheduled.
 

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article 3 months old

The Overnight Report: No Correlation

By Greg Peel

The Dow closed down 34 points or 0.2% while the S&P rose 0.1% to 2058 and the Nasdaq gained 0.3%.

Eager

It was another up and down day on the local bourse yesterday, with up winning in the end. Wall Street had closed modestly positive on Friday night despite a weak jobs number, although that weakness likely keeps the Fed at bay in June.

The numbers to consider on the day were the Chinese trade data and the local ANZ job ads series.

Chinese exports fell 1.8% year on year in April having risen 11.5% in March. Imports fell 10.9% having fallen 7.5% in March.

The export number disappointed, as it appears to have killed off what looked like a Chinese economy finally in recovery following various stimulus measures. The import number is troubling as this reflects the new, domestic-focused economy Beijing is trying to engineer. But we go through this same charade every year – Chinese numbers are not seasonally adjusted, and thus often wildly distorted on the move into and out of the Lunar New Year holiday.

It appears that’s how the Australian market took the results yesterday. The materials sector was the only sector to finish in the red, but only by 0.6%. It’s not the stuff of panic. Energy, on the other hand, rose 1.2% to be one of the better performing sectors on the day.

Australia had the chance to respond to the Chinese numbers before the rest of the world. Overnight, the rest of the world has panicked. More on that in a moment.

Australian job ads fell 0.8% in April and remain broadly unchanged in number since October last year. “The number of job ads has been broadly flat now for six months,” ANZ noted. “This follows a period of substantial growth in employment, and some modest slowdown should probably not be surprising”.

So all up, no great surprise in either the local or Chinese numbers, it would seem. By the close on the ASX every sector bar materials had put on a relatively even performance to the upside, with consumer staples probably the only stand-out with a 1.7% gain. The banks were up 0.5% on Commonwealth Bank’s ((CBA)) not too bad result, while Orica’s ((ORI)) result was poorly received but again, probably not a major shock for a company selling explosives to miners.

Right now it looks like the market wants to be above 5300, and so doing push towards 5400 and beyond. The RBA has cut and will likely cut again, the Aussie has come off strongly as a result and also thanks to a stronger greenback, and in another couple of months we will have a new-look parliament, which throws up all sorts of possibilities. Majority in the Senate? Now that would be a breath of fresh air, whichever side of the aisle you sit. Australian governments of both stripe have been hamstrung for a decade.

Commodities

The Australian market may not have seen the Chinese trade numbers as particularly ominous but that’s not how commodity markets saw them last night.

West Texas crude is down US$1.32 or 3.0% to US$43.24/bbl and Brent is down US$1.70 or 3.8% to US$43.63/bbl. Oil markets were further affected by the announcement out of Saudi Arabia that the Crown Prince had moved aside the longstanding oil minister and appointed his own technocrat, only serving to fuel uncertainty.

Base metals markets have been hit in recent selling by the speculators and commodity funds who chased prices up in the February rebound, and last night, thanks to China, that trickle became a flood. Lead fell 1%, tin 1.5%, copper 2%, aluminium and zinc 2.5% and nickel 4.5%.

Iron ore fell US$2.10 or 3.6% to US$55.60/t.

Commodity prices were not helped by the US dollar, which rose another 0.3% on its index to 94.15 thanks to a lower yen, which responded to talk out of Tokyo that currency intervention has not been ruled out.

Gold is down US$24.30 at US$1263.40/oz.

Nor were commodity prices helped by an article appearing in the China People’s Daily – the Communist Party propaganda rag – suggesting the government was not prepared to use excessive investment or rapid credit expansion to counter subdued growth.

The Aussie is down another 0.7% at US$0.7314 thanks to the stronger greenback and weaker commodity prices.

Material Move

The US materials sector led down Wall Street last night, aided by energy. But the firm correlation with oil prices seen earlier in the year is now but a memory and other sectors managed to post sufficient gains to offset the resource sector drag, particularly healthcare. Volatile biotech had a good day, helping the Nasdaq up 0.3% when the Dow was down 0.2%.

There is much talk on Wall Street now that the market has run about as far as it can, and if nothing comes along to provide the next shot of upside adrenalin, surely it must go down. Many are worried that oil prices are set for a pullback. While the correlation has abated for now, there is little doubt it will be back in spades were oil prices to fall out of bed once more.

The S&P500 remains little changed for the year.

Today

The SPI Overnight closed down 16 points or 0.3%.

China will release inflation data today. Too strong and it will kill off hopes of further stimulus. Too weak and it will exacerbate slowdown fears.

Incitec Pivot ((IPL)) will release its earnings result today and QBE Insurance ((QBE)) will hold an investor day.

Rudi will Skype-link with Sky Business at around 11.15am to discuss broker calls.
 

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

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

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

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article 3 months old

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 should serve to help tighten up assumptions of whether the Fed will or will not hike in June, albeit there will be one more jobs report before that meeting. The market is forecasting 200,000 jobs. If that is accurate, we probably can’t draw any real conclusion.

US data releases are thin on the ground next week until Friday, when retail sales, inventories, the PPI and consumer sentiment numbers are due.

China will release inflation numbers on Tuesday.

The Bank of England will hold a policy meeting on Thursday but one assumes monetary policy must now be on hold ahead of the Brexit vote in June.

The eurozone will release a first estimate of March quarter GDP on Friday.

Locally, ANZ will release its jobs ads series next week and Westpac its consumer confidence survey. Housing finance numbers are also due.

Commonwealth Bank ((CBA)) will follow up this week’s bank results with a quarterly update while Orica ((ORI)), Incitec Pivot ((IPL)) and AusNet Services ((AST)) will report interim earnings over the week.

QBE Insurance ((QBE)) will hold an investor day and there will be a handful of AGMs held throughout the week, including AMP ((AMP)) and Oil Search ((OSH)).
 

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article 3 months old

The Overnight Report: RBA Rattles Wall Street

By Greg Peel

The Dow closed down 140 points or 0.8% while the S&P lost 0.9% to 2063 and the Nasdaq fell 1.1%.

Shock!

The RBA delivered a “shock” rate cut yesterday afternoon, apparently, due to the latest CPI data signalling “deflation”. At least those were the mass market headlines.

Actually it was a 50-50 chance, and it is clear from Glenn Stevens’ statement the disinflation experienced in the March quarter concerned the board enough to make the move:

“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

Media commentators may now like to go and look up the definition of deflation.

The statement again made a passing reference to a strong Aussie dollar potentially “complicating” Australia’s economic transition but “remarkably” accommodative monetary policy around the world was clearly a factor behind cutting. And “critical” to the decision was the impact felt in housing investment by tighter lending regulations, which provided the central bank with sufficient breathing space.

And didn’t the stock market love it.

Before the opening bell, ANZ Bank ((ANZ)) posted its first drop in profit since the GFC and cut its dividend. Computers sold down the stock 4% from the open. But very quickly the banks, including ANZ, were back in the green. We might put this down to (a) they were all sold off the day before, (b) ANZ’s dividend cut was not totally unexpected, (c) the market is positive on ANZ’s restructure and more prudent approach, and (d), short positions in the banks were the highest they’ve been since 2011 heading into this week.

By late morning the ASX200 was up 50 points, with buying in the banks a significant driver. The market then settled and waited. At 2.30pm, bang!

Zeroes one day, heroes the next. The ultimate 3% jump in the financials index yesterday was the major driver of the 2% rise for the index. The interesting point here is that in order to make money, banks need interest rates to go up, not down. But lower rates do take the pressure off the recent rise in bad debts which has impacted on bank earnings.

Other sector moves were more straight forward. The yielders, telcos and utilities, and consumer discretionary, which benefits from more money in punters’ pockets, each rose over 2%. The offshore earners, which benefit from a lower Aussie, drove healthcare and industrials up over 2%. The cut is a mild positive for consumer staples, which rose 1%, while the resources sectors watched from the sidelines. Energy was actually down 0.7% on a lower oil price.

And how about that Aussie? Over 24 hours it’s down a full 1.8 cents to US$0.7485 having experienced a two-step plunge. The first cent was on the rate cut, while the balance was a result of the US dollar having a much anticipated rebound last night.

But now that the euphoria has subsided, how will Bridge Street far today? The SPI Overnight is down 63 points. Oil is down, iron ore is down, base metals are down and Wall Street is down.

At least last night’s pre-election “safety” budget will have little impact.

Aussies in the mix

Nobody much noticed on Bridge Street yesterday but Caixin’s China manufacturing PMI for April showed a drop to 49.4 from 49.7 in March when 49.8 was forecast. Wall Street noticed, and China was on the list of concerns that sent the US indices lower last night.

Oil was lower, as reality continues to sink in with regard global production, while the US dollar index is up 0.5% to 93.00, stalling the currency story. These were three reasons cited for weakness on Wall Street last night.

The fourth was the RBA rate cut. It’s not that the world has recently decided the RBA has the power to move global mountains, it’s simply a matter of global sentiment.

Ever since the GFC, global stock markets have applauded every increase in central bank stimulus. But when the BoJ moved Japanese rates into the negative this year, there was a tangible shift in sentiment. Where is this currency war leading to? With the yen firmly stronger and the Nikkei weak, the BoJ is expected to have to move again. With the euro stubbornly strong, and the ECB just having reduced its inflation forecast, Mario Draghi is expected to have to continue with “whatever it takes”.

Now one of the world’s favoured carry trade destinations, the reliable, commodity-driven high yield economy of Australia, has been forced into joining the war. Clouds are gathering.

The US ten-year bond yield fell 7 basis points to 1.8% last night.

It all comes back to the Fed. But until the Fed can find any cause to hike again, there is no end in sight. The US economy grew by only 0.5% (year on year) in the March quarter.

Commodities

The US dollar index is up half a percent following a persistent drop. That’s enough in itself to send commodity prices south.

On the creeping reality of ever growing OPEC production, West Texas crude is down US$1.01 to US$43.88/bbl and Brent is down US$1.35 to US$46.75/bbl.

On the weak China manufacturing numbers, and bear in mind the LME was closed on Monday night, aluminium, copper, lead and zinc are all down over 2%. Nickel and tin were spared.

Iron ore is down US$2.70 to US$62.50/t.

Gold is down US$5.20 at US$1285.70/oz.

Today

The SPI Overnight closed down 63 points or 1.2%. Chartists have long been anticpating the 5350-5400 range as a target for the ASX200. Yesterday we hit 5353.

Australia’s service sector PMI is due today, and tonight sees the same in the US, along with the private sector jobs number for April.

Dexus Property ((DXS)) will issue a quarterly report today and several AGMs will be held, including those of QBE Insurance ((QBE)) and Santos ((STO)).

May the fourth be with you.
 

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: Buy In May

By Greg Peel

The Dow closed up 117 points or 0.7% while the S&P rose 0.8% to 2081 and the Nasdaq gained 0.9%.

Westpacked

Westpac ((WBC)) reported its interim result before the opening bell yesterday morning and when the bell rang, the market proceeded to plunge 70 points without a blink. But it was all about the banks. When the market closed down only 9 points it was still all about the banks -- the only sector to finish in the red.

Westpac reported a miss on earnings due to an increase in bad debt provisions for some high-profile companies that have gone to or very close to the wall over past months, such as Arrium ((ARI)) and Slater & Gordon ((SGH)). Investors were relieved the dividend remains intact, albeit it’s the first time in a while Westpac has not raised its dividend (from the previous six month period).

Westpac is not, of course, alone in its exposure to high-profile names. Thus while Westpac shares closed down 3.5% yesterday, shares of the other three all closed down around 2%. Yet while Westpac’s earnings result missed analyst forecasts, the one unknown analysts were at pains to cite in their result previews was such corporate exposure, as well as more general exposure to loans in the mining states and also the NZ dairy industry. In other words, it was a “miss” but not entirely a surprise.

Which is possibly why the financials sector closed down 1.6% yesterday having been down around 3% at the 11am nadir. Meanwhile, Telstra’s ((TLS)) announcement it was going to spend millions to end constant outages in its mobile network was well received, as were its buyback plans, sending the telco sector up 2.8% and offering those selling banks another yield stock alternative to switch into. Materials rose 1.4% on another jump in the iron ore price but beyond that, all other sectors posted only modest gains.

Bank problems are not macro problems. ANZ Bank ((ANZ)) will report today (it has by now - see below) and National Bank ((NAB)) on Thursday. In these two cases, dividends will be critical.

Another bank will also take the spotlight later today. Will the RBA cut? Half the market says yes and half says no. Employment is strong, the terms of trade is looking a lot healthier, house prices continue to rise, as yesterday’s data confirmed, and business confidence has dipped but remains robust, as yesterday’s NAB survey revealed, but the Aussie remains elevated on the weaker greenback and inflation is going backwards.

I believe the question will come down to whether or not the RBA believes another 25 point cut will make any difference. Notwithstanding the fiscal side of the equation, which could all change tonight. Has the central bank been allowed a look at the budget ahead of today’s meeting? Not sure how that works. The budget is a week early. My tip is no cut, but I will not be shocked if I’m wrong.

Around the Grounds

Australia’s manufacturing PMI dropped to 53.4 in April from 58.1 in March. Japan’s hit a three-year low 48.2, down from 49.1, the eurozone ticked up to 51.7 from 51.6, and the US fell to 50.8 from 51.8, On Sunday Beijing’s China result was published as 50.1, down from 50.2, and the UK and Caixin China numbers are out tomorrow.

Buffeted

On a weak close to April trading on Friday night, Wall Street traders came in late to set themselves long ahead of the weekend. Typically traders square up ahead of a weekend, but this weekend saw the annual Berkshire Hathaway shareholders meeting. The Oracle has a history of rallying the troops, and sure enough those traders were right. All agreed last night’s hundred point rally in the Dow was all down to Warren Buffet.

Apart from the historical precedent, traders noted that the rally lacked any real investor conviction. Volumes were low, and pretty much have been for some time now in this rally no one’s all that convinced about. It is nevertheless worth noting that oil prices fell in the session, so we can say that the direct correlation no longer stands.

Unless oil prices fall back out of bed, which some are expecting.

After seven days of falls, the Nasdaq finally rose last night, and indeed outperformed the other indices. Again this was attributed to Buffet, who talked up Amazon and the FANG stocks while admitting he doesn’t understand the new-tech sector. That’s why his fund is in IBM and Amex and did rather poorly last year. Buffet still couldn’t help Apple last night nonetheless, which was down for an eighth straight session – its worst run in 18 years.

Commodities

Data suggest OPEC has now boosted its production levels since the failed meeting in Doha. Each monthly increase represents a new record. The suggestion is OPEC producers want to squeeze production as hard as they can to set the highest record they can before the regular June OPEC meeting, at which point they can then agree to freeze.

West Texas is down US$1.10 at US$44.89/bbl and Brent is down US$1.41 at US$45.96/bbl on the new July delivery contract.

There is also some fear in the market that oil’s April rally was very much supported by Chinese government stockpiling, as Beijing took advantage of low prices. There is only so much storage space, and at some point Chinese buying will stop.

Then there’s the issue of how much further the greenback can fall, and whether it’s due a bounce. The dollar index is down another 0.5% at 92.57 and greenback weakness has also been very supportive of commodity prices this past month.

Gold is the classic case in point, although it is relatively steady this morning at US$1290.90/oz having briefly traded up to 1300 overnight.

The LME was closed for the UK public holiday, so no base metal trading last night.

The holiday in Singapore also means iron ore is unchanged at US$65.20/t.

The drop in the greenback means the Aussie is up 0.8% at US$0.7664. The forex cowboys will be oiling their saddles prior to 2.30pm.

Today

The SPI Overnight closed up 12 points or 0.2%.

Late Breaking News: ANZ has just announced its first drop in profit in seven years and has cut its dividend by 7%.

On the local economic front, we have building approvals this morning, the RBA statement this afternoon and the federal budget tonight.

On the local stock front, beyond ANZ, Woolworth’s ((WOW)) will release quarterly sales numbers today, Goodman Group ((GMG)) will issue a quarterly report, Transurban ((TCL)) will host an investor day and omigod what a stupid name media ((OML)) will hold its AGM.

Rudi will skype-link with Sky Business to discuss broker calls around 11.15am today, then appear as guest on Thursday (12.30-2.30pm), re-appear on Switzer later that same Thursday (between 7-8pm) and then Skype-link again on Friday, probably around 11.05am.
 

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

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

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

Next Week At A Glance

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


By Greg Peel

Tonight will see the release of the first estimate of eurozone March quarter GDP. The US will see personal income & spending data, including the Fed’s preferred PCE measure of inflation.

Last night’s weak US GDP number would suggest a June rate hike from the Fed is now less likely, although the decision by the Bank of Japan not to cut further has some suggesting the Fed’s door is now open in June.

On Sunday, Beijing will release China’s April manufacturing and services PMIs.

Australia, Japan, the eurozone and US will all release manufacturing PMIs on Monday. China and the UK will be closed for May Day on Monday, so the UK and Caixin China manufacturing PMIs are due on Tuesday. Services PMIs are due on Wednesday with the UK and Caixin again a day later.

Other data releases for the US next week include construction spending, vehicle and chain store sales, factory orders, trade and productivity. Wednesday sees the ADP private sector jobs report for April and Friday brings the all-important non-farm payrolls numbers.

Tickets are now hard to come by for the RBA’s monetary policy announcement on Tuesday. Some economists had already forecast a May rate cut on the strength of the Aussie but as commodity prices continued to rally, not all economists held fast. Then came this week’s CPI disinflation shock. About half the market is now tipping a cut on Tuesday.

Aside from PMIs, Australia will also see building approvals, retail sales and trade numbers next week.

On the local stock front, it’s bank earnings season. Results are due from all of Westpac ((WBC)), ANZ Bank ((ANZ)), National Bank ((NAB)) and Macquarie Group ((MQG)).

The quarterly updates and investor days continue to flow, with Telstra ((TLS)) among the highlights next week.  Woolworths ((WOW)) will report quarterly sales. The AGM season also starts to hot up from next week.
 

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article 3 months old

China’s Stock Market Remains A Risk


Bottom Line 27/04/16

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Down
Support Levels: 2772 / 2639 / 2437 / 2280
Resistance Levels: 3016 / 3328 / 3678

Technical Discussion

Reform measures in China over the past couple of years that have created a bumpy ride for markets may now be taken over by policies aligned to supporting economic growth. Some of these policies include the Central Bank lowering reserve requirements for banks which in turn allows them to lend more. The outcome thus far has been a pick up in credit growth. Property market transaction restrictions have been eased. Government spending on big projects is set to start rising again, and margin lending restrictions on shares have recently been removed. New policies take time to kick in yet some early positive signs have been a sharp rebound recently in the manufacturing sector and an increase in property sector activity. Early days yet the titanic may slowly be trying to turn !

Reasons to remain bearish:
→ interest rate cuts to this point having mixed results only
→ the drop off the June 2015 highs was extremely strong
→ price chart revealing technical damage
→ more positive signs returning technically above 3678

The fundamentals are the drivers of markets with the technicals related to timing market moves and changes in sentiment. We've seen some solid changes to fundamental policy as stated in our introduction yet to this point price remains unconvinced. A rosy picture can be painted as much as we like yet unless price action can back it up, from a trading perspective it means for nothing. Bearish divergence that has been lingering around since February has now finally triggered and is almost back to oversold. Yet what is dragging the chain here is price action and this is what needs our full attention. Yes it could spring into gear at any time yet for the moment the rise off the late February lows has simple lacked conviction. So what this sets up is the potential for it to drop again with the best case scenario being a double bottom back towards 2639, with the worst case being a resumption of the strong downtrend with price setting its sights on strong technical and psychological support circa 2000. A market we need to keep a very close watch over throughout 2016.  

Trading Strategy

We don't trade the Index yet put it this way, if the local Chinese Bourse can find its mojo again, then our markets here in Oz will likely gain some confidence as well. For now though there is still the potential for another round of pain throughout 2016 before we can finally look to start building on some gains. Not what we all want to hear yet this is where the bias continues to sit. Beyond 2016 though continues to have potential. Overall the patience of traders here in Australia has been sorely tested for a number of years, yet in our view now is not the time to throw in the towel. A low point still requires confirmation yet we could be getting close!

 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

The Monday Report (on Tuesday)

By Greg Peel

Friday

Friday’s local session was a game played in two halves. Taking a lead from Wall Street, which having rallied up to psychological levels on its major indices decided it was time to take some profits, the ASX200 fell sharply from the open.

It nevertheless appeared to be more of a case of buyers standing aside rather than sellers piling in, thus when the morning’s opening rotation was complete and close to 50 points were lost, the buyers were ready to get in at better levels. If we truly are in rally mode right now, such dips offer welcome opportunities for previous slow movers.

So by lunch time the index was back to square. But then someone pointed out that it was a long weekend, and thus Friday afternoon was all about drifting off again as traders locked in what should have been some solid short term profits and got out of the city as soon as possible.

We can always take such Fridays with a grain of salt. The profit-taking tale is most obvious if we look at the biggest sector fall on the day, that of materials, which dropped 2.4% on a day iron ore had rallied 7%. You don’t see that too often. But given the likes of BHP and co had run up some 30% from their lows as the iron ore price pushed sharply higher, it seemed like a great opportunity to lock that in. Particularly if that 7% jump seemed like a possible blow-off top.

The fall in energy was less dramatic at 1.1%, but oil prices were actually down a tad. Elsewhere, the two standout sectors in what was otherwise a fairly general pullback were the banks, which didn’t move, and utilities, which were hit 1.7%.

Interesting that the banks, which have also seen a run good run this month, should not see any notable profit-taking a day after a major broker issued a warning that the two smaller members of the Big Four could well cut their dividends next month.

As for utilities, well I noted in Friday morning’s Overnight Report that selling on Wall Street was driven mostly by yield sectors, including utilities, following a week of gains for the US ten-year bond yield. It looks like the local market saw this as a lead.

Friday Night

The Dow closed up 21 points or 0.1% to scrape back over 18,000. The S&P was flat at 2091 as the Nasdaq tumbled 0.8%.

If Bridge Street’s session was a game played in two halves, Wall Street’s session on Friday night was a game played across two halves of the market.

We tend to call stock such as Microsoft and Google “old tech” because they’re last century’s stars while the likes of a Facebook or a Netflix represent the “new tech” of the new millennium. But if we put those two together and call them “new(ish) tech” we can compare them to what we might call “very old tech”, such as railroads.

After the bell on Thursday night, earnings misses were posted by Microsoft and Google. This clearly put the frighteners through the market on Friday night, such that all tech names were unloaded in a hurry, new or old. That’s why the Nasdaq was down 0.8%.

But two major railroads posted solid results and went for a run, sending the Dow Transports (separate to the Dow Industrials) surging. Within the Dow Industrials, General Electric – the only remaining company to have been included in the first ever Dow Jones Average – posted an earnings beat while Caterpillar, which has seen the going very tough as commodity prices collapsed, suggested the bottom is nigh.

Honeywell, another old world stock (even aerospace is an old industry), also posted an earnings beat. Having run up strongly ahead of their releases, all three of these industrials saw slight dips on the day, but the distinction is clear. McDonalds is another Dow stock that is pretty old world these days, and it posted its best quarter in a very long time.

Hence the divergence on the day between the Dow and the Nasdaq, with the broad market S&P holding fast in the middle.

The US oil rig count fell by another 8 rigs last week to 343, according to Baker Hughes’ regular Friday report, marking a fifth straight weekly decline. West Texas crude rose US27c to US$43.70/bbl on Friday night and Brent rose US39c to US$45.12/bbl.

Zinc and nickel missed out on an otherwise strong session on the LME, which saw aluminium, lead and tin all up 1% and copper just a little shy.

Sentiment has clearly swung to the positive in commodities markets (and not just in rocks, but in agriculturals as well it should be noted). Recent strength has come despite the US dollar index having rebounded rather sharply over the week. It was up another half a percent on Friday night at 95.12.

This was good for the Aussie, which was able to come down 0.4% to US$0.7710 despite the big jump in the iron ore price, but not good for gold, which fell US$15.80 to US$1232.20/oz.

On Saturday morning the SPI Overnight closed up 26 points or 0.5%.

Monday Night

The US dollar index fell back again last night, by 0.4% to 94.79. The Aussie, however, is little changed from Saturday morning at US$0.7714.

And having been a feature of Friday night’s trade, the Dow Transports also fell back again last night.

Tech names continued to remain under pressure nonetheless, with all eyes on Apple’s earnings report tonight. But across Wall Street in general last night was a case of entering a new week which is not only loaded with earnings results and heavy on economic data releases, but which also sees two significant central bank policy meetings – those of the Fed and the Bank of Japan.

No one expects anything much different from the Fed on Wednesday night but the market will still look for any clues as to whether June might still be considered a rate hike possibility. The Bank of Japan has markets somewhat concerned nevertheless, as no one’s at all sure what might transpire. At its last meeting the BoJ lowered its cash rate into the negative, yet the yen has done nothing but rise ever since.

Could the BoJ go even further into the negative? While central bank stimulus around the globe is usually welcomed by stock markets, Japan’s negative rates represent an experiment that many worry could have unintended consequences.

Speaking of unintended consequences, Beijing is currently caught between a rock and a hard place as it tries to provide ample liquidity to the Chinese economy to prevent a sharp decline in growth while at the same time trying to keep a lid on debt, and potential asset price bubbles.

Over the weekend the PBoC requested that China’s major banks pare back their lending targets to 70% of what they were at the beginning of the month.

Oil prices fell from the open last night and helped the Dow down to almost a 150 point drop, but as oil eased back and other influences took over, Wall Street recovered. The Dow closed down 26 points or 0.2% while the S&P lost 0.2% to 2087 and the Nasdaq fell 0.2%. The uniformity of the index fall, traders suggests, signals positioning ahead of the central bank meetings rather than micro forces.

So since the ASX closed for business on Friday, the Dow was up 21 and then down 26. Just to drive home the fact little has changed on a net basis since Friday, the SPI Overnight closed up 26 points on Saturday morning and down 25 points this morning for a net one point gain.

Oil prices fell last night because Kuwait production is back in full swing following the three-day strike, and the country intends to increase its production levels. Iraq is close to reaching a production record, Iran continues to ramp up, and Saudi Arabia is close to completing a major oil field expansion.

If you can’t freeze it, pump it as fast as you can. It is probably surprising that this morning, West Texas crude is down only US71c at US$42.99/bbl and Brent is down US34c at US$44.78/bbl.

Volumes on the LME were to the low side last night as metal traders, too, await this week’s central bank meetings. In thin trading, copper lost what it gained on Friday night, zinc fell 2% and lead fell 3%.

A spot iron ore price is proving difficult to get hold of this morning, probably because of the long weekend, but I can report a price being quoted this morning after two sessions of US$66.07/t, down from US$68.70 on Thursday night.

Gold is up US$5.70 at US$1237.90/oz.

The Week Ahead

As noted, the Fed will release its April policy statement on Wednesday night and the Bank of Japan will meet on Thursday, as will the Reserve Bank of New Zealand.

A busy week for US data releases, coinciding with the busiest week for US earnings results, sees durable goods orders, Conference Board monthly consumer confidence, Case-Shiller house prices and the Richmond Fed index tonight, pending home sales on Wednesday and the first estimate of March quarter GDP on Thursday. The market is forecasting a mere 0.7% annual growth rate.

Friday sees personal income & spending, the Chicago PMI and Michigan Uni fortnightly consumer sentiment.

The UK will publish its first estimate of March quarter GDP on Wednesday and the eurozone will follow suit on Friday.

While attention will be focused on the BoJ on Thursday, Japan will also see monthly releases for inflation, unemployment, retail sales and industrial production ahead of a public holiday on Friday.

Monetary policy debate downunder will focus this week on Wednesday’s release of the March quarter CPI numbers, followed on Friday by the PPI.

On the local stock front, this week brings another mix of resource sector quarterly production reports, quarterly updates from other sectors, investor days and AGMs.

Production report highlights this week include those from Independence Group ((IGO)) on Thursday and Origin Energy ((ORG)) on Friday. ResMed ((RMD)) will release quarterly earnings on Wednesday, Mirvac Group ((MGR)) will issue a quarterly report on Thursday, and Thursday also brings investor days from Cochlear ((COH)) and Computershare ((CPU)).

Rudi is on leave this week.
 

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

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