Tag Archives: Currencies

article 3 months old

The Monday Report

By Greg Peel

Bottom?

It was just over a week ago that the ASX200 closed at a new low for the correction from 6000, at 4918. The close “took out” the previous intraday low of 4928 after having breached what had been solid support at 5000. Technically, were the index to bounce from that level we could start to believe perhaps the bottom had been seen.

And it did, back over 5000. It briefly consolidated and then commenced a five-day rally. On Thursday the ASX200 closed above solid resistance at the top of the recent range at 5200. Technically this was another green light. On Friday we rallied again, to close above 5300.

All very positive, but of course nothing is certain in financial markets. Looking at Friday’s sector moves it is nevertheless clear the rally from the bottom is being driven by commodities.

When rumours emerged last week that heavily indebted global resource giant Glencore was potentially about to go under, Lehman-style, we saw capitulation selling in local mining names that took the likes of BHP down to prices long forgotten. Glencore dismissed the suggestion, and sparked a rebound in resource sector stocks. At the same time, commodity analysts have for a while now been suggesting that prices may have fallen about as low as they can go in this cycle. Already there have been big moves afoot to cut production and trim back mining and drilling activity.

In other words, China may yet disappoint further and the prices of some commodities may yet slip lower but in reality, there is unlikely to be a lot of downside left if mining companies continue to pursue a supply-side response. If there are to be casualties yet to come, they will be at the smaller end of the spectrum, and may well be consolidated through M&A rather than left to perish. Bigger companies in tenable financial positions should survive without issue, to eventually benefit from such curtailment and consolidation activity.

On Friday the local materials and energy sectors led the 1.3% index rally with 2.3% gains each. It was a long way back to banks and consumer staples with 1.2%. The big resource sector names have now rebounded very substantially from their Glencore-related bottoms. And on Friday night Glencore set metals markets on fire.

Commodities

Last night metal producers and traders converged on London for LME Week, hosted annually by the London Metals Exchange. In what has been considered a shrewd move ahead of the gathering, Glencore announced on Friday night it is responding to weak conditions to cut 100,000tpa of lead production and 500,000tpa of zinc production. The announcement is expected to promote further talk of supply curtailment over cocktails in London, and generally revive some enthusiasm in the industry.

In response, lead jumped 6.3% on the LME on Friday night. Zinc jumped over 10%, its biggest session move in decades. Meanwhile, as expectations of a Fed rate hike in 2015 continue to fade, the US dollar index dropped 0.5% to 94.87, further supporting commodity prices.

On anticipation Glencore’s announcement will not be the last we’ll hear across the metals spectrum, aluminium and copper jumped 3% on Friday night and nickel 4%. Tin, up 1%, proved the laggard, but tin had already rallied strongly last week on news of an Indonesian ban on tin exports.

The news came as markets absorbed what had been a disappointing earnings result from Alcoa, announced after-market on Thursday night, but Alcoa is also planning to break up its business and sell-off a chunk, which is all part of the consolidation process going on in the sector. While Alcoa is considered first cab off the rank for each US quarterly earnings season, it is no longer looked to as a bellwether for the season.

The weaker greenback again encouraged West Texas crude to trade over the US$50 mark on Friday night, but again it fell back by the end of the day, to close up US13c at US$49.50/bbl. At present, talk of oil having seen the bottom is also bubbling, and the greenback is supportive, but geopolitical considerations are also playing a part as tensions heighten over Syria.

There seems to be some work yet to do to break through US$50. Brent rose US80c to US$52.44/bbl.

Iron ore rose US70c to US$55.50/t.

Gold used to be the safe haven to run to whenever geopolitical tensions emerged, but not so much these past few years. A weaker US dollar is nevertheless supportive, hence gold jumped US$17.80 on Friday night to US$1157.70/oz.

Is the Aussie a commodity currency? On Saturday morning the Aussie was up a cent at US$0.7327 and is hanging in there so far this morning.

Wall Street

Unsurprisingly, the US materials sector led Wall Street higher on Friday night, with energy in tow. In the wider market it was a more sluggish session nonetheless, suggesting that while the rally marked its sixth day, things were beginning to look a little tired. The Dow closed up 33 points or 0.2% and the S&P managed just under a 0.1% gain to 2014 to notch up its best weekly performance of 2015. The Nasdaq rose 0.4%.

Atlanta Fed president Dennis Lockhart was still beating the 2015 rate rise drum on Friday night, insisting that December was still a possibility and October could not be ruled out either. But it’s starting to look like the Fed is simply trying to keep up appearances. No one believes an October rate rise is going to happen. The market is now favouring March over December.

Thus it is unlikely Lockhart’s hawkish spin had much of an impact on trading on Friday. With earnings season beginning in earnest this week, traders squared up after a week of solid gains. With Fed speculation now shifting to the background for the time being, the next month in the US will be all about earnings.

The Week Ahead

Of particular interest will be reports from the big US banks, which hit the wires this week, along with a raft of other Dow names.

Meanwhile, the SPI Overnight was down 18 points or 0.4% on Saturday morning, which seems out of line with the big rally in metals. Perhaps traders have decided the big rally in metals simply provides confirmation of the rallies on resource stocks all week long.

The mood might change, nevertheless, when the market realises that China was only on a one-week break and is now back to scare everyone to death. China releases trade data tomorrow and inflation data on Wednesday.

Tonight is Columbus Day in the US, which is a convoluted holiday that sees US banks and the bond market closed but commodity and stock markets open, but likely thin in volume.

Wall Street may have shifted its focus away from an immediate Fed rate hike but the data upon which the central bank is dependent continues to roll in. Wednesday sees retail sales, inventories, the PPI and the Fed Beige Book. Thursday it’s the CPI and both the Empire State and Philly Fed activity indices. Friday it’s industrial production and fortnightly consumer sentiment.

The eurozone will see the influential ZEW investor sentiment index out tomorrow night – the first since the VW scandal. Friday night sees eurozone trade and inflation data which will be closely watched as expectations of a second wave of ECB QE gather steam.

Japan is closed today.

In Australia, tomorrow brings the monthly NAB business confidence survey and Wednesday the Westpac consumer equivalent. The September jobs numbers are belatedly due on Thursday. The RBA’s deputy governor will speak tomorrow and on Friday the RBA will publish a Financial Stability Review.

On the local stock front, this week sees a step-up in the number of AGM’s and resource sector quarterly production reports. In the former camp, Telstra ((TLS)) tomorrow and CSL ((CSL)) on Wednesday offer highlights. In the latter camp, Fortescue Metals ((FMG)) and Woodside Petroleum ((WPL)) on Thursday and Rio Tinto ((RIO)) on Friday are the big names.

Rudi will appear on Sky Business on Thursday at noon.
 

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article 3 months old

The Overnight Report: Release The Doves

By Greg Peel

The Dow closed up 138 points or 0.8% while the S&P gained 0.9% to 2013 and the Nasdaq rose 0.4%.

Hesitating

My apologies for suggesting yesterday that Australia’s September jobs report was due. It seems the ABS has moved the date on me, shifting the release to next Thursday, which is a week later than has always otherwise been the case. Perhaps I missed an announcement.

Following strong leads from overseas, the ASX200 rocketed out of the blocks yesterday to jump 59 points from the bell, charging through the 5200 support level to above 5250. The breach of that support is a bullish sign, but often markets have to work hard at establishing what is finally a breach confirmation.

As it was, the index began to waver through the morning, and there was much anticipation regarding the opening of the Shanghai Exchange after China’s week-long break – a week which has seen a very strong global market recovery. The Shanghai index duly opened up 3%, and largely remained there for the rest of the session.

Not enough? The ASX200 suddenly plunged at lunchtime before wobbling its way to a close of up 12 points. At 5210, the index has held the 5200 previous resistance level, but it appears more needs to be done to convincingly push higher. Given the SPI Overnight is up 62 points this morning, it may be the case today.

If China was a disappointment then we would not have seen the best performers on the index yesterday being materials (+1.7%) and energy (+1.3%), offset by a 1.0% drop for industrials and a 0.9% fall for the telco. This looks like more of a switch trade. Calls of commodities and therefore resource sector stocks having now seen their lows have become stronger, and there’s a lot of potential recovering to do.

Backflip

Last night Wall Street did a whole lotta nothing ahead of the release of the minutes of the September Fed meeting at 2pm. Then the Dow rallied over 100 points.

It had been assumed that the Fed’s decision not to raise in September had been a close-run thing. The FOMC may well have been ready to pull the trigger, but at the last minute members were spooked by the level of market volatility in August on growing concerns for Chinese, and global, growth. They thus decided to hold off, but suggested a 2015 hike was still the likely outcome.

Well the minutes revealed that the decision was not as close-run as assumed. The FOMC really was quite worried about China, its inexorable connection to the US economy in today’s world, and the drag a weaker China would likely have on US inflation. Members were not concerned about market volatility, and indeed they shouldn’t be or no policy decisions would ever be made. Market volatility was due to the same China concerns held by the FOMC, so to be concerned about volatility per se would be to double up.

Members were also hesitant over US jobs. Clearly the slack in the US labour market had been overcome if one takes a “normalised’ unemployment rate as the guide. But wage growth remains minimal, and that’s not what one would otherwise expect. Without wage growth, inflation is not likely to push back above the Fed’s 2% target anytime soon. Put these two inflation-related considerations together, and the FOMC decided to wait.

The irony is that the rally we’ve seen this past week, beginning from an initial Wall Street plunge on the shock September jobs number, has taken the S&P500 back to where it was just before the September Fed meeting. On that day, when the Fed didn’t raise, Wall Street tanked, suggesting the market really wanted a rate rise. Last night, on the release of the minutes of that meeting which suggest the Fed was even further away from a rate rise than assumed, Wall Street rallied.

The S&P500 has now reconquered the 2000 mark.

It just goes to show that above all else, markets do not like uncertainty. Clearly Wall Street is buoyed by lower-for-longer monetary policy, as has been the case since the GFC, but when it looked like the Fed was set to raise, Wall Street said please just get this out of the way and end the speculation. Disappointment thus followed. Since the weak jobs report, and now greater insight from the release of the minutes (of the meeting held before the jobs numbers were released), Wall Street sees the uncertainty as having been nipped in the bud for now.

Interestingly, on the above scenario one would expect US bonds to be bought alongside stocks, on implication of lower for longer. But the US ten-year yield jumped 5 basis points last night to 2.11%, just to add some confusion.

Commentators suggest that the minutes were not so influential last night, and rather the bond market is focussing on a steepening of the yield curve, implying short-end bonds are indeed being bought but the long-end is being sold. This, it is suggested, represents foreign central bank selling from those countries looking to bolster their own finances, such as China and Japan.

Commodities

While LME traders have been keenly awaiting the return of the Chinese to metal markets, it seems no one was very keen to do anything radical last night ahead of the release of the Fed minutes, by which time the exchange was closed. Yet there was still disappointment the Chinese did not come barrelling in.

Hence aluminium, copper and zinc fell 1%, with other metals seeing smaller, mixed moves.

Iron ore rose US40c to US$54.80/t.

The oil markets were back in buying mode last night, and again WTI had a shot at US$50/bbl. But once again this proved a bridge too far for now. The oils still managed 3% gains on the session, with West Texas up US$1.48 to US$49.63/bbl and Brent up US$1.55 to US$53.24/bbl.

Last night it was not about supply/demand balances but about good old geopolitics. To date, oil markets have not paid too much attention to the war in Syria because Syria is not an oil mover and shaker, but now that Russia’s in on the game the mood is changing. Reports last night that Russian missiles aimed at Syria had strayed into rural Iran were unsettling.

The US dollar index is down 0.2% on the impact of the minutes at 95.31, but gold fell back US$6.10 to US$1139.90/oz.

If Fed policy is set to remain lower for longer, then pressure on the Aussie dollar is eased. The Aussie is up another half a cent at US$0.7258 and looks like, for now at least, the swinging sixties will have to wait.

Today

The SPI Overnight, as noted, closed up 62 points or 1.2%.

Australia will see August housing finance details today (I hope), which will provide more colour to an emerging picture of weaker building approvals and a clear drop-off in apartment building and sales.
 

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

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article 3 months old

The Overnight Report: Top Of The Range

By Greg Peel

The Dow closed up 122 points or 0.7% while the S&P rose 0.8% as the Nasdaq gained 0.9%.

Energized

Yesterday on Bridge Street was all about investors piling back into beaten-down energy stocks, following 5% gains in oil prices overnight on news OPEC may be prepared to discuss the global oil situation with the US. While materials is another sector in which investors are looking for bargains (it rose 1.6% yesterday) and utilities continue to experience bizarre volatility (up 1.2%), yesterday’s gain for the ASX200 was all about a 6.7% rally for energy.

Nothing else moved much, and for some reason those buying energy stocks decided to wait until around 11am to begin doing so. Perhaps they were still strapping on their boots. The index fell sharply from the open to be down 30 points at 11am probably on profit-taking on this latest rebound and due to the buyers not yet being ready.

Thus realistically the big oil stock buying spree was worth 60 ASX200 points.

Yesterday’s economic news reinforced the notion the Australian economy is currently dealing with a double-edged sword. Australia’s September construction PMI actually fell back to 51.9 from 53.8 in August but in not falling back into contraction (<50), the PMI posted its first back-to-back expansion in twelve months.

It’s all about residential construction, the sub-PMI for which increased by 2.4 points to 56.8, and residential construction is all about apartments, the sub-sub-PMI for which increased by 4.5 points to a breakneck 64.9. The sub-PMI for non-residential construction slid 6.5 points into contraction at 48.1.

The housing boom continues – that’s great news for Australia’s non-mining economy. But it’s also about the only thing driving Australia’s economy at present, as we await the slow moving beneficial impact of the lower Aussie. And how long can it last?

Australian new home sales jumped 2.3% in August, according to HIA. For months the trend of increasing sales has been driven by apartments, with sales of houses lagging behind. But in August, house sales rose 3.5% to offset a decline in apartment sales of 1.7%.

Last week the ABS reported building approvals were down 6.9% in August, and that approvals for apartment blocks were down 8.5% from their peak in May. The apartment boom, it would appear, has experienced a blow-off top.

How will this impact on Australia’s non-mining economy going forward? At least detached house sales are picking up, and houses require more building materials per dwelling than apartments.

Oil Dominates

It was another rollercoaster ride on US stocks markets last night and that mostly came down to a bit of a rollercoaster for oil prices. Following on from Tuesday night’s gains, West Texas crude rallied again for the open last night to almost reach the US$50/bbl mark, but then the sellers moved in.

The issue was the weekly US production and inventory numbers published by the Energy Information Administration. They showed an increase in both last week, and indicated that US production is currently in a rising trend yet again, not a falling trend as higher oil prices would suggest and as everyone might expect.

As oil prices fell back again last night, the Dow turned a 170 point opening rally into unchanged on the session. But as oil prices stabilised, investors turned their attention to other sectors. There were some big moves up in metal prices last night, so materials sector stocks were bought. Big healthcare names have been sold down recently along with the biotechs, on price regulation threats and the implications of the TPP trade agreement, so bargain hunters moved in there. And talk of big M&A moves afoot in the beer market attracted some attention.

The other point to note is that at the peak of Wall Street’s opening rally last night, the S&P500 hit 1999. It was only last Friday night that the S&P hit 1900 on an opening jobs-related plunge, before this latest Fed-related Wall Street surge began. Traders had always assumed 2000 in the S&P would provide a short-term cap, and so it proved to be. But on the afternoon rally back again, the S&P made it back up to 1995.

So traders may now be eying a breach of that level.

Commodities

Activity on the LME has been fairly quiet this week with China on holiday, but China has missed quite a lot in its absence. In particular, that the Fed won’t be raising anytime soon, and hence that the US dollar is not about to surge further and weigh on commodity prices, and that global stock markets have rallied strongly ever since.

So last night base metal traders decided it was not a good idea to be short ahead of China’s return today. Subsequently, aluminium and tin rose over 1%, nickel and zinc rose over 2% and lead rose 3% last night. Copper had already been stronger over the week, and managed only a 0.4% gain.

The US dollar did not have any impact. It is up 0.1% at 95.54.

For the third day running, iron ore is stuck on US$54.00/t, awaiting the return of the Chinese.

As noted, the oils had an up and down session last night. West Texas is down US54c to US$48.15/bbl having flirted with 50 and Brent is down US33c to US$51.69/bbl.

Gold is a tad lower at US$1146.00/oz.

The short-covering rebound in the Aussie continues, on a combination of no rate rise expected from the Fed soon, as was not previously the case, and no rate cut forthcoming from the RBA, even though no one expected one. The Aussie is up half a cent at US$0.7207.

Today

The SPI Overnight closed up 32 points or 0.6%, suggesting the index is set for another assault on the 5200 resistance level today.

Australia’s September jobs numbers are out today. Will Scott Morrison follow in Joe Hockey’s footsteps and spin the results such that a positive number is all down to Coalition brilliance and a negative number is all down Labor ineptness, or will he say something intelligent?

The minutes of the September Fed meeting are out tonight. These will be pored over for clues of just how close the FOMC was to pulling the trigger last month, but are now rendered somewhat outdated by last week’s shock US jobs report.

Bank of Queensland ((BOQ)) will report FY15 earnings today.

Rudi will appear on Sky Business at noon (Lunch Money) and later again on Switzer TV, between 7-8pm.
 

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

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

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

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article 3 months old

The Overnight Report: Where To Next?

By Greg Peel

The Dow closed up 13 points or 0.1% while the S&P lost 0.4% to 1979 as the Nasdaq fell 0.7%.

Hitting the Roof

It was of no surprise that the ASX200 was once again off to the races yesterday morning, on the back of a 300 point rally in the Dow. From the opening bell the index pierced through the top of the recent range to hit 5214, before falling back to what is now a resistance level at 5200. The troops reassembled and another raid took us to 5220 at 11am.

And that was it for the session. Stocks drifted back again, another less convincing attempt to penetrate was made at midday, but when the third attempt failed it became clear to day-traders it wasn’t going to be the day. Profits were duly taken and by the closing bell a 70 point rally had become a 16 point topping on Monday’s 100 point rally.

Typically, it takes more than one session to break a stiff resistance level.

There was also the economy to think about yesterday, but fundamentals are not the major driver at present. Australia’s August trade data showed a bigger than expected blow-out in the deficit, but was really no surprise given weak commodity prices. Export volumes are still strong – indeed, iron ore exports hit a record in August, believe it or not – but prices remain the issue.

The lower Aussie dollar is quietly working to offset weaker prices, and is also starting to make an impact in tourism, which is an export, as has been anticipated.

The other local economic event yesterday was the RBA meeting. Yet again no one expected the central bank to cut its cash rate and yet again the forex market acted as if completely dumfounded by the decision not to. The Aussie jumped around half a cent on the news, and is higher still this morning, up 1.2% over 24 hours at US$0.7169, given an overnight fall in the greenback.

One needed a microscope to find any difference in Glenn Stevens’ statement yesterday from the previous statement. The only difference is that in September, Sydney house prices were a worry and “The Bank is working with other regulators to assess and contain risks that may arise from the housing market”. In October, both Sydney and Melbourne house prices are a worry but “Regulatory measures are helping to contain risks that may arise from the housing market”.

Otherwise, the RBA remains on data-watch.

A lack of rate cut made little difference to the afternoon performance of the stock market yesterday. Having failed to break 5200, the index was always going to retreat to regroup.

Breather

The other news that continues to resonate downunder is of course the Trans-Pacific Partnership trade agreement. And last night it was resonating for another signatory.

As has been well documented, pharma had proved a potential stumbling block for the entire agreement before the Americans relented on the time limit before generic versions of new drugs could be sold. They wanted eight years, we (and partners) wanted five, and we won.

Subsequently, US biotech stocks took another tumble last night on Wall Street. Indeed, the moving averages on the biotech index completed a frightening Death Cross and there was much wailing and gnashing of teeth.

We might recall that last week, all the major US indices posted Death Crosses, the sky was expected to fall in, and then the Dow rallied 750 points in two sessions. If those who believe in Death Crosses were to learn that Santa rallies are not caused by an actual Santa Claus, they’d be shattered.

So hush.

The end result was nevertheless a 0.7% fall for the Nasdaq. The Dow managed a 0.1% gain thanks to DuPont shares jumping 8% on the news the longstanding CEO is to retire. Thanks for coming. The S&P split the difference. Otherwise, a blow-out in the US August trade deficit highlighted the ongoing impact of a stronger dollar on US exports.

But when said and done, last night on Wall Street was really only a breather after solid rallies post the end, for now, of Fed rate rise speculation. The question now is: where to next? No doubt US earnings season, which begins at the end of this week, will have a say in the matter.

Commodities

Today is the last day of the Chinese Golden Week holiday, and last night trading on the LME was deathly quiet. Tin managed a 1% gain, but all other metal price moves were negligible.

Iron ore was again unchanged at US$54.00/t.

It was left to oil markets to provide some action.

The big news on oil markets is that OPEC looks like it might finally be about to buckle. Speaking in London overnight, the OPEC chief suggested oil prices are set to rebound due to steep reductions in oil investment globally. This in itself is not new news, but Mr el-Badri also suggested he is open to discussing the current oil market turmoil with the US.

Amidst the tantalising possibility of oil market peace talks, last night also saw the US Energy Information Agency report a 120,000bpd cut in US production in September from August and forecast a continuation of production reduction all the way through to next August.

Subsequently, West Texas crude is US$2.35 or 5% higher at US$48.69/bbl and Brent is US$2.64 or 5% higher at US$52.02/bbl.

Oil prices were also supported by a weaker US dollar, which was weaker due to the US trade deficit blow-out, which was caused by a stronger dollar. Funny old world. The greenback nevertheless continues to come under pressure as emerging market currencies continue to recover post the time-out for Fed speculation. The dollar index is down 0.7% at US$95.42.

The weaker dollar helped gold up US$11.80 to US$1147.60/oz.

Today

The SPI Overnight closed up 6 points.

Australia’s construction PMI is out today, along with new home sales numbers. China remains closed for one last day and the Bank of Japan will hold a policy meeting, although no changes are anticipated.

Aurizon ((AZJ)) will hold an investor day today.

Rudi will appear on Sky Business' Market Moves, 5.30-6pm.
 

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: Back To The Future

By Greg Peel

The Dow closed up 304 points or 1.9% while the S&P gained 1.7% to 1987 and the Nasdaq rose 1.6%.

A week is a long time

Most of Australia was enjoying a long weekend yesterday but that didn’t deter those who saw an opportunity to buy into a beaten-down stock market. It’s amazing to think that less than a week ago we were staring at a possible second leg down in the correction to maybe 4800 or lower, and today we will potentially hit and even breach the top of the recent range at 5200, in which case the second leg bets are all but off.

What changed in the meantime?

The Fed story, that’s what. As painful as it is to admit it, it looks like we’ll now be debating the will they/won’t they question on the first rate rise right through until March. At least, that’s where the US markets have now determined the greatest probability lies. Last Friday’s jobs report changed everything.

For most of 2015 Wall Street had been trading on a bad news is good news theme with respect to Fed policy, rising every time it appeared the Fed would keep rates lower for longer. But when it became clear the Fed was getting very close to making the first move, Wall Street switched around to a “just do it” attitude, increasingly frustrated with the uncertainty the central bank was perpetuating. Bad news became bad news.

But Friday’s shocker of a September US jobs report, including a downward revision to an already weak August and also to July has put Wall Street right back in its box. The uncertainty has ended, for the time being – not the way we expected, with the first rate rise, but due to the data, upon which the Fed is dependent, suggesting it’s simply too early right now.

That postponement of uncertainty led to the big reversal on Wall Street on Friday night, from 250 Dow points down to 200 points up at the close. The Dow spun on 16,000 and the S&P on 1900, and in technical terms it was a “key reversal day” having hit a lower low but closing at a higher high than the day before.

Everything bad is good again. And last night Wall Street carried on with that theme.

Yesterday it was a case of “buy everything” on Bridge Street. The most beaten-down sectors were more heavily favoured, such as materials, up 3.5%, and energy, up 2.9%, bit otherwise every sector put in gains of 1.5 to 2%.

There were some positive data releases out yesterday locally, but realistically they didn’t make much difference. The ASX200 opened strongly and had established its rally for the day within the first hour, largely drifting from there all the way to the close.

ANZ’s job ads series showed a strong 3.9% gain in September, following 1.3% in August, to suggest a monthly trend of 1.0%. “Growth since mid year now appears a little stronger than previously,” said ANZ.

A 0.3% rise in TD Securities’ inflation gauge in September takes us to 1.9% annual and the strongest pace since November last. The core rate remains at 1.6% annual, still below the RBA’s 2-3% comfort zone.

So no rate rise today. And no cut either.

Australia’s service sector PMI fell to 52.3 in September from 55.7 in August but at least remains above 50, suggesting expansion, and it’s the service sector providing the bulk of ANZ’s job ads trend.

News that the Trans-Pacific Partnership trade agreement had been settled was also likely a positive for the market yesterday, but as I suggested, I don’t think any of the above mattered that much.

As you were

The US service sector PMI fell to 56.9 from 59.0. Hooray! Everything bad is good again.

The eurozone services PMI fell to 53.6 from 54.3. Bravo! More QE from the ECB is on the cards. The German stock market was up 2.7% and the French up 3.5% last night. The UK PMI fell to 53.3 from 55.6. Ra Ra! The Bank of England won’t be raising anytime soon. The London market was up 2.8%.

The mood carried over to the US, where Wall Street opened higher and continued to rally all session, closing pretty much on its highs. The 300 gain for the Dow makes it 750-odd points from the initial negative reaction to Friday’s jobs report.

It wasn’t that long ago 750 points would represent a solid year.

Emerging markets also enjoyed strong sessions yesterday, given the threat of an accelerated currency crisis due to a Fed rate rise was killed off on Friday night. China remains on holiday, but a downgrade of Chinese GDP expectations for 2015 to 6.9% from 7.1% by the World Bank suggests more stimulus will be forthcoming from Beijing as well.

It seems only in Australia are we looking for good news to be good news, given we’d rather not see our economy going down the gurgler as many have feared. And we, too, may see some stimulus shortly – of the fiscal kind. It is expected the new government will have more foresight on such matters.

Commodities

The Chinese holiday has ensured quiet sessions on the LME this week. Base metals traded back and forth on low volume last night and closed mixed, with copper up 0.8% but lead, nickel and zinc all down 2%.

The US dollar index is up 0.2% at 96.09, mainly because the euro is weaker on expectations of extended QE.

Iron ore is unchanged at US$54.00/t.

The oils were stronger again last night, but still not really going anywhere. West Texas is up US68c at US$46.84/bbl and Brent is up US$1.11 at US$49.38/bbl.

Having rallied strongly on Friday night, gold is off US$3.50 at US$1135.80/oz.

The Aussie is up 0.5% at US$0.7085, with a Fed rate rise now less likely this year.

Today

The SPI Overnight closed up 66 points or 1.3%, If accurate, this would take us up through the top of the recent trading range at 5200.

Australia’s August trade balance data is out today, and this afternoon the RBA will meet and leave its rate on hold.

China remains closed today.

Rudi will appear on Sky Business three times this week. First on Wednesday, 5.30-6pm (Market Moves), then on Thursday at noon (Lunch Money) and again later that day on Switzer TV (between 7-8pm).
 

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Madness

Utilities were down 2.0% on the ASX on Friday. They were up 2.3% on Thursday. The telcos were down 1.7%, having been up 1.9%. The banks were down 1.5%, after being up 1.8%. The ASX200 fell 60 points having rallied 90.

If someone could explain to me exactly what changed between Thursday and Friday, I’d love to hear it.

Perhaps the computers have taken over the asylum. It is typical to see volatility in a consolidation phase following a 20% correction and ups and downs can be explained by uncertainty over whether we’ve put in a bottom or are just bracing for the next leg down. But these 1-2% moves every day, in opposite directions, is the stuff of madness and really should be avoided by longer term investors.

Squaring up ahead of Friday night’s US jobs report? Who knows.

Shocker

Wall Street expected 200,000 jobs to have been added in the US in September. The number was 142,000. August’s 173,000 was bad enough, and that was revised down by 59,000. The unemployment rate remained steady at 5.1%, but only because the participation rate fell. Wage growth in the month was a big fat zero.

Suddenly Janet Yellen looks like a gifted seer.

The response from economists was that we can definitely rule out an October Fed rate rise. Goldman Sachs, who had insisted on a December call ahead of the September meeting, is sticking with that call, as is JP Morgan, albeit “with less conviction”. Others say January. Others say “well into 2016”.

Others are simply exasperated that the debate is now set to go on, and on.

The Dow plunged 259 points on the open on the news, as one might expect from a market now seeing bad news as bad news and desperately wanting to end policy uncertainty. But there was no volume to speak of – no conviction or panic. As the Dow neared 16,000 the S&P500 fell under 1900. These levels are merely psychological, but they’re technically important on that basis anyway.

When traders realised there was no momentum in the sell-off, they knew the weakness wouldn’t last. Those looking to buy the dips saw an opportunity. And no doubt there remain those in the market who see “lower for longer” interest rates as a positive.

The Dow closed up 200 points, or 1.2%. This 450 point down to up reversal is the biggest on Wall Street in four years. The S&P closed up 1.4% at 1951 and the Nasdaq leapt 1.7%.

The Nasdaq jumped because everyone saw an opportunity to go piling back in to beaten down biotechs. Elsewhere, big US multinationals were being highly sought at the bottom, given the US dollar plunged a full percent on the jobs report release. But when Wall Street rallied back, so did the dollar, to be down only 0.3% at 95.91.

The US ten-year yield fell from 2.04% to 1.91% before it, too, recovered, to be down 5 basis points on the day at 1.99%.

Gold is up US$25.80 to US$1139.30/oz, having held its gains through to the end of the session. Silver jumped a whopping 5%.

And what is the end result of it all? Nothing. We’re no closer to knowing whether the market wants to go up or down, or to knowing what the Fed is going to do. 

Commodities

Base metal traders were torn between the weak economic signal provided by the US jobs report, and the fall in the US dollar. In the end, all metals closed slightly higher, with only copper posting a gain of greater than 1%.

Iron ore fell US50c to US$54.00/t.

The oils were slightly stronger, with West Texas up US64c to US$45.66/bbl and Brent up US32c to US$48.27/bbl.

The Aussie dollar rose to match the US dollar’s fall, by 0.4% to US$0.7053.

And the SPI Overnight closed up 67 points, or 1.3%, on Saturday morning. So wouldn’t you know, we’ll be heading up again today.

The Week Ahead

The only impediment is the fact most of the country is enjoying a long weekend today. Volumes will thus be thin, so it will come down to just how many people actually want to play.

ANZ will release its job ads series today and TD Securities its monthly inflation gauge. We’ll also see the local service sector PMI, as we will for Japan, the eurozone, UK and US.

Tomorrow it’s the trade balance, and an RBA meeting at which nothing much will happen. Wednesday it’s the construction PMI, Thursday it’s our own jobs report, and Friday sees housing finance data.

The Bank of Japan will hold a policy meeting on Wednesday and the Bank of England on Thursday.

China remains closed until Thursday.

A quieter data week in the US sees the services PMI tonight, trade balance tomorrow, consumer credit on Wednesday and chain store sales on Thursday. Thursday also brings the release of the minutes of the last Fed meeting, although they have probably now been rendered redundant by the weak jobs report.

Wall Street is preparing for the September quarter earnings season about to begin.

On the local stock front, we’re in a bit of a lull this week before AGM season really starts to ramp up next week, and resource sector production reports start to flow. Ansell ((ANN)) will hold its AGM on Wednesday and Aurizon ((AZJ)) will hold an investor day, while Bank of Queensland ((BOQ)) reports its FY15 result on Thursday.

Most broker analyst desks are closed today and only skeletons are manning the phones. Today’s FNArena service will be abbreviated as a result.

Rudi will appear on Sky Business 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.

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

The Overnight Report: Road To Nowhere

By Greg Peel

The Dow closed down 12 points or 0.1% while the S&P gained 0.25 to 1923 and the Nasdaq rose 0.2%.

Cherry Picking

Yesterday’s session on Bridge Street was a game played in two halves.

The ASX200 opened the session, the month and the December quarter with a 40 point gain, suggesting Wednesday’s window-dressed session did indeed include an element of buying for other purposes, most likely technical. The index previously returned to the original correction low and then rebounded back above the solid support level of 5000, which is all very positive.

There the market stalled as traders awaited the midday release of the all-important Chinese purchasing managers’ indices (PMI).

In less than half an hour following those releases we were up another 40 points, and by the close we were up 90 points in total. The impetus for a second burst of strength came no doubt from the fact Beijing’s official September manufacturing PMI ticked up slightly, to 49.8 from August’s 49.7.

It’s hardly an increase to write home about, and indeed 49.8 implies China’s manufacturing sector remains in contraction (<50). But it was an increase, and not a decrease, which suggests, potentially, that the manufacturing decline in China we’ve seen these past few months may now have bottomed out on the back of Beijing’s various stimulus measures.

In fact, even an unchanged number would have been positive in that sense. And that was actually the case for China’s now larger services sector, for which Beijing’s PMI came in at 53.4, in line with August.

However…

Independent surveyor Caixin’s picture looks very different. Caixin’s manufacturing PMI, weighted more towards small and medium enterprises, fell to 47.2 from 47.3. Caixin’s services PMI fell to 50.5 from 51.5. We recall that it was Caixin’s flash estimate of August manufacturing PMI that sent the ASX200, and global markets, tumbling in the first place.

So it would appear the market has cherry-picked the stronger result. Admittedly, Caixin’s flash estimate of September manufacturing came in at 47.0 last week, so 47.2 is actually an improvement in a sense. It appears Bridge Street was happy to run with the numbers on the smaller Chinese manufacturing sector as sufficient reason to push on with the technical rebound from the lows.

In sector terms, it makes sense that energy (+2.5%) and materials (+1.9%) should see solid gains on an improved Chinese PMI, but it was otherwise a very mixed game. Industrials should be supported on a cyclical basis, and they rose 2.0%, but were outpaced by defensive utilities, which saw a 2.3% gain. Telcos were up 1.9%. Consumer staples were up 1.9%. Banks were up 1.8%.

No clear intent is evident there.

For the record, what’s left of Australia’s manufacturing sector saw its PMI rise to 52.1 from 51.7. Lower Aussie kicking in? Japan fell to 51.0 from 51.7.

Confusing

The UK manufacturing PMI fell to 51.5 from 51.6. London’s stock market was largely flat. The eurozone PMI was unchanged at 52.0, while Germany in particular fell to 52.3 from 53.3. The German stock market fell 1.6%.

The flat close on the Dow last night belies the fact the mood in Germany carried across the pond and indeed the Dow was down over 200 points mid-session. It then rallied all the way back.

So why was it down? Did Beijing’s data not ease some of those global growth fears?

Well, not initially. The US manufacturing PMI fell to 50.2 from 51.2 to mark its slowest pace of growth since November 2012. Here, it is the strong dollar being blamed. But on the other hand, a record 18 million new vehicles were sold in the US in September, causing veteran auto-watchers to shake their heads in disbelief.

It is apparent that Americans are now less fearful about jobs and the economy, and as such are confident enough to replace the now ten year-old cars they’ve had since before the GFC. Fuel is cheap, and finance is cheaper.

Nevertheless, the 200 point Dow fall possibly was a simple offset of the 200 point gain the night before, which was seen as pure window-dressing. When the buyers came in, they started buying the materials and energy sectors which does seem to be more like a response to China.

Except that base metal prices actually fell in London overnight. Oil jumped initially, on news of Russian airstrikes in Syria, but quickly fell back again as traders decided there wasn’t really much to be scared about. So the Dow fell when oil went up and rallied back when oil came back down – the reverse of what has been true these past months.

So all a bit strange, and, in the end, a flat close to kick off the start of the December quarter with no directional indicators at this stage. But it’s jobs night tonight, which will likely set the tone.

On that score we should note the US ten-year yield fell as low as 2.00% last night when the stock market was at its low, before rallying back in tandem to be down two basis points on the session at 2.04%. Given the ten-year hit 2.50% at the height of Fed rate rise expectations earlier in the year, we might suggest the bond market does not see a rate rise in 2015, despite the Fed’s insistence.

Commodities

Base metal prices did initially rally on the LME on the Chinese data but fell back in the afternoon, with all metals finishing in the red. Copper and lead, down 1.5%, and nickel, down 2.4%, were the standouts. The Chinese themselves were absent.

Iron ore rose US10c to US$54.50/t.

West Texas was up as much as US$1.75 at its height last night before falling to be down US33c at US$45.02/bbl. Brent is down US57c at US$47.95/bbl.

With the US dollar index flat at 96.16, gold is relatively steady at US$1113.50/oz.

The Aussie is up at US$0.7028 having traded as high as .7080 yesterday following the Chinese data release.

Today

The SPI Overnight closed down 18 points or 0.4%.

Australia’s August retail sales numbers are out this morning. China remains closed.

US jobs numbers are due tonight.

This weekend is a long weekend for most of Australia, including NSW, but the ASX will be open on Monday. Broker research will nevertheless be mostly absent so while The Monday Report will be published as usual, FNArena’s full service will be abbreviated on the day.

Clocks go forward on Sunday morning so as of Tuesday morning, the NYSE will close at 7am Sydney time.
 

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: Nice Windows

By Greg Peel

The Dow closed up 235 points or 1.5% while the S&P gained 1.9% as the Nasdaq jumped 2.3%.

All Dressed Up

Question: if the Dow is up 1.5% overnight, why are the SPI futures only up a single point this morning?

The answer is because futures traders are likely writing off last night’s rally on Wall Street as end-of-quarter window-dressing and short-covering, just as was the case in Australia yesterday.

While we might argue that having reclaimed the correction low, and Wall Street not falling out of bed on Tuesday night, the local market was ripe for a rally. But if we note that the sectors that led the charge yesterday were all the sectors that have been beaten up over the past three months, we can’t really read much into yesterday’s performance as far as October is concerned.

The ASX200 finished the quarter down 8%, and down 20% from the June quarter high. Yesterday saw the banks, telco, materials and consumer staples all posting near equivalent 2.5% rallies while all the other sectors posted lesser performances. We would have likely seen energy joining in as well were it not for Origin Energy’s ((ORG)) announced capital raising.

Technically, it was interesting to note yesterday that the ASX200 did jump sharply from the open, but came a cropper at the familiar level of 5000. It appeared that previous solid support was now going to revert to resistance. We came all the way back to 4950 by midday.

The buying nevertheless then resumed, possibly with assistance from news of a surprise jump in Westpac’s China consumer sentiment index. It rose to 118.2 from 116.5 in August to mark the highest level in over a year, at only 1.7% below the long-run average. Interestingly, only 11% of those surveyed were invested in the stock market.

Aside from confirming the minimal connection between the Chinese stock market and the Chinese economy, the survey does suggest Chinese consumers are heartened by Beijing’s various stimulus and reform measures.

The ASX200 began to drift back up through the afternoon but it was the three o’clock wave that took the index back through 5000 without a hitch on the second attempt. To be back above that support level is technically positive, but we can now tear off the sheet that was the September quarter and start with a fresh page for October. Apart from October carrying its typical stigma, today sees the release of China’s PMIs and they will likely determine whether this scary month starts off with a bang or a whimper. Then China goes on holiday for a week.

Job Countdown

Wall Street similarly enjoyed a window-dressed session last night after posting around 7% falls for the major indices over the quarter. There was some good news, nonetheless, for fans of the “Just Do It” brigade.

ADP announced the addition of 200,000 new private sector jobs in the US in September when economists had forecast 190,000. While not always a strong correlation, Wall Street is setting itself for a similarly positive non-farm payrolls number tomorrow night.

So we could say there was an element of “good news is good news” in Wall Street’s rally last night.

Over in Europe, QE rules, which means “bad news is good news” still prevails. Last night’s flash estimate of the eurozone’s September CPI showed headline inflation has fallen back into deflation, at an annual minus 0.1%. Economists had expected a drop to 0.0% from August’s plus 0.1%.

The drop in inflation reflects oil prices, and indeed the eurozone’s core inflation measure is steady at 0.9%, but Mario Draghi has insisted the ECB will do whatever it takes to revive the European economy and deflation suggests he will be extending the central bank’s QE program in due course. The euro thus fell last night, and the European stock markets were all off to the races.

This sentiment flowed over the pond, and ensured a positive start in New York. Like the Australian market yesterday, the US indices lost steam mid-session but powered home in the last couple of hours. Of particular note was the biotech sector, which has been creamed this past week or more. It rallied back strongly, no doubt helped by short-covering, and hence the Nasdaq posted a 2.3% recovery.

Commodities

The same game was evident in London. But for LME traders, there was an added incentive to square up ahead of the week-long Chinese holiday. If the LME were Wall Street then copper would be the biotechs, and it rallied back 3.4% last night. Nickel is another metal that’s been hit particularly hard, and it jumped back 4.6%, while zinc has also had a tough time of late, and it put on 1.5%.

There were no such shenanigans in Singapore, where iron ore fell US30c to US$54.40/t.

The oils each jumped just over US50c, to US$45.35/bbl for West Texas and US$48.52/bbl for Brent. WTI began the quarter at US$60 so it’s had a 25% hammering, although the price has been stuck like glue to the US$45 level for all of September, but for some sharp ups and downs.

That strong ADP jobs number is another nail in the coffin for gold, if a Fed rate rise is what will kill off the yellow metal. Gold is down US$12.40 at US$1115.30/oz.

The US dollar index is up 0.3% to 96.23 on euro weakness but the Aussie is also up, by 0.4% to US$0.7013.

Today

As noted, the SPI Overnight is up a whole one point. Bridge Street will probably do very little this morning ahead of the Chinese PMI releases around midday.

Otherwise, China is now closed until next Wednesday for Golden Week.

China’s is not the only manufacturing PMI we’ll see over the next 24 hours, with Australia, Japan, the eurozone, UK and US all reporting, but it’s the only one that matters at this point.

Rudi will make his usual appearance on Sky Business' Lunch Money today, midday until 1pm.
 

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: Holding Firm

By Greg Peel

The Dow closed up 47 points or 0.3% while the S&P rose 0.1% to 1884 as the Nasdaq fell 0.6%.

Technical

The interesting point to note about yesterday’s 3.8% rout on Bridge Street is that it did not represent a selling stampede. When the bell rang at 10am, there were simply no buyers to be found. Half an hour later, following the opening rotation, the buyers were found 150 points lower.

And that’s where everything stopped, all the way to 3pm. Late selling then took the index down another 50 points. It seems strange to say, but it was actually a very in-volatile day. Calm, almost.

If we subtract the very weird 71 point rally posted on Monday, against the tide of the rest of the world, then the ASX200 was realistically down 124 points yesterday. The open took us immediately down through the solid 5000 support level to stop at 4966, where we still were at 3pm. But staring the market in the face was the previous intraday low of the correction at 4928, hit back in August. Technically, markets like to retest previous lows on a second leg of a correction before it can be said a bottom is in place.

And so we tested it, closing at 4918. Technicians have been suggesting a breach of 5000 would see 4800 as the next support level. But since we are set for a rebound, most likely, today, given Wall Street is up, commodity prices are mostly up (except iron ore), and the SPI Overnight closed up 43 points, it might be that we have now “passed” the test.

Or we could still go lower. It’s not like sentiment has suddenly improved overnight. And Wall Street is yet to retest its own correction low, at 1867 in the S&P500. That’s still 17 points, or 0.9%, away.

Taking out the previous low is actually a source relief for the market from a technical perspective.

It is also interesting to note the Aussie did not go with the stock market yesterday. It’s steady at US$0.6987.

The brunt of yesterday’s fall was taken by energy, down 6.7%, and materials, down 5.0%. These are the “China fear” sectors. The related fear is one of debt held by the big miners and gas players. Talk of global mining giant Glencore (down 30% on Monday night) potentially going to the wall does not help sentiment for the likes of BHP and Rio, who both carry debt on their balance sheets. But not to any extent of bankruptcy fear.

The banks dropped 3.6%, in line with the index. But then the banks are the clearest proxy for the index on a cap-weighted basis. The other fall of note was telcos, down 4.5%. Here we might suggest that while Telstra is also a mega-cap in Australian index terms, that strange session on Monday failed to take account of the fact the M&A going on among the juniors in the sector is actually creating a fourth viable competitor to Telstra, Optus and TPG Telecom in the broadband stakes. Vocus-Amcom-M2 will be a powerful force, increasing competition in that market place, and for Telstra in particular.

Why did we sell-off yesterday? Is it directly “China fear”, which is hardly a new fashion trend, or because of the technical action on Wall Street on Monday night which saw “Death Crosses” across the indices? If Wall Street’s gonna go, local traders thought yesterday, we’d better get the hell out now.

While one session is not enough to call the chicken entrails wrong on this one, it is nevertheless noteworthy that last night Wall Street put in a quiet and largely dull session, meandering to a vague gain. Hardly what one might expect as a result of staring technical Hades in the face. The Nasdaq closed down another 0.6%, but that was all about the ongoing biotech clear-out, which commentators are suggesting has now likely run its course.

Breather

The US biotech sell-off has now taken PEs in the sector down from lofty, bubble highs to multiples more in line with the current market average.

That’s good news, and Wall Street was also greeted with good news last night in the form of the Conference Board monthly consumer confidence survey. It unexpectedly rose to 103.0 from 101.1 in August, to mark the second highest level since the GFC bottom (January saw the highest). And while I hate to bring it up this far out (anyone spotted tinsel yet?), such a reading is positive heading into “the holidays” as Americans like to call them.

In further news, it seems the US housing recovery is hanging in there. The Case-Shiller house 20-city house price index for July showed a 4.7% year on year gain, up from 4.5% in June.

Tonight brings the ADP private sector jobs report, a precursor to Friday’s non-farm payrolls report, which is a pre-cursor to a Fed rate rise. Despite the New York Fed president’s suggestion on Monday night that October is a possibility, the market is only ascribing a 10% chance. December is the firm favourite at this point.

Before we get to US jobs on Friday, we have to get through Chinese PMI day tomorrow. The official and Caixin readings for China’s September manufacturing and service sector PMIs will all be released.

And today locally, and tonight in the US, is the end of the quarter. “Window dressing” seems a bit hollow after a 200 point drop the day before, but the indications are positive going into today’s session. As October begins, so will both Bridge Street and Wall Street be poised – ready for the data that will likely determine whether we are reaching a bottom or whether there is another serious leg down yet to come.

Commodities

Base metal prices consolidated last night ahead of this raft of important data. Tin dipped slightly, but every other metal posted a small rally ranging from a slight tick-up for lead to a 1.7% gain for zinc.

Iron ore fell US$1.30 to US$54.70/t. With Glencore shares having rebounded 17% in London overnight, helping BHP Billiton ((BHP)) up 1.6% in London and Rio Tinto ((RIO)) up 1.8%, one presumes this drop in the iron ore price will not force the big miners lower again today after yesterday’s efforts.

West Texas crude rose US83c to US$44.84/bbl and Brent rose US64c to US$48.00/bbl.

Gold slipped another US$4.90 to US$1127.70/oz, possibly presuming that last night’s unexpectedly positive read on US consumer confidence only plays into the rate rise camp.

The US dollar index is steady at 95.92.

Today

As noted, the SPI Overnight closed up 43 points or 0.9%.

Australian building approval numbers are out today. Japan will release industrial production and retail sales data.

Tonight sees a flash reading on eurozone September CPI, which will be closely watched by Mario Draghi. As noted, the US private sector jobs report is due.

And it is the end of the quarter. Thank God that’s over, one might say. Except that tomorrow, it’s October.
 

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: Harbingers Of Death

By Greg Peel

The Dow closed down 312 points or 1.9% while the S&P lost 2.6% to 1881 as the Nasdaq fell 3.0%.

Oops

Yesterday’s action on Bridge Street just goes to underscore the fact the market is being run by a bunch of Nervous Nellies at present, who can become equally as nervous about missing out on the upside as they can about getting out on the down.

The lead-in of a flat session on Wall Street and lower commodity prices – base metals were net lower, iron ore and gold were lower and the oils were only a tick up – ensured the ASX200 went nowhere for the first half hour but suddenly the announcement of a planned merger between fibre cable company Vocus ((VOC)), which had recently swallowed up peer company Amcom, and junior telco M2 Group ((MTU)), which had lost a battle for iiNet with TPG Telecom ((TPM)), set the world on fire.

At any other time we might assume M&A in the telco sector would do little more than fire up the telco sector but yesterday we saw a flood of buying across the board. Leading the charge was energy, with a 2.2% gain, possibly because if there is any sector for which analysts anticipate a round of consolidation, its Australia’s gas industry. Why consolidation among telcos would imply the same in LNG is by the by.

The somewhat astounding aspect to yesterday’s close on the high for the ASX200, up 71 points, was nevertheless that the bad news out of China released around midday caused no more than a brief dip in the rally.

Australia is supposed to be the China proxy. The Aussie is down 0.5% to US$0.6990 but in stock market terms it was left to Japan, down 1.3% yesterday and London, down 2.5%, Germany, down 2.1% and France, down 2.8% last night to provide a China-based response. There followed a 2.6% plunge on Wall Street.

Red faces today? Yesterday’s data showed Chinese major industrial companies saw their profits fall 9% year on year in August, marking the fastest decline in four years.

Yesterday BHP Billiton ((BHP)) rose 1% and overnight in London the shares are down 6%.

Oops indeed.

One might argue that August was the month Beijing really brought out the big guns of stimulus – including the currency devaluations – and they have to be given time to have an impact. We note China’s own stock market actually closed up 0.3% yesterday. Admittedly there was more to last night’s Europe/US sell-off than just Chinese profits, given a couple of Fedheads got involved. But the fact the SPI Overnight has closed down 104 points this morning might be taken as proof the local market got it rather a lot wrong yesterday.

October?

Wall Street opened lower on the flow-on from Europe and an undertone of further China slowdown fears. Then along came New York Fed president William Dudley who, speaking to the Wall Street Journal, reiterated Janet Yellen’s insistence that the Fed was still on track for a rate rise in 2015, and went as far as to suggest it could come as early as the October meeting.

Now, I have been noting since the Fed’s non-decision earlier this month that Wall Street has swung around in sentiment from being negative about a rate rise to being positive, on an “end the uncertainty” basis. So why did the Dow drop 300 points last night?

Three reasons, basically. Firstly, the sell-off in biotechs that began on Friday night turned into a flood last night, sending the Nasdaq down 3%. Biotechs are both a momentum trade and an anti-beneficiary of higher rates.

Secondly, commodity prices were already weaker overnight, with copper, iron ore and oil all down on the China data. Higher US rates mean a stronger US dollar, and even if that implies a stronger US economy, it also mathematically implies pressure on commodity prices. The materials sector was among the hardest hit on Wall Street last night, although ironically, the US dollar index is actually 0.3% lower this morning at 95.97.

The third reason is technical. Ever since Wall Street bottomed out from its correction in late August and attempted to recover, trader after trader has suggested the market needs to go back down to test the August 24 intraday lows before a true bottom can be called. And even if it gets down there, it could go further to test the October 2014 bottom.

On August 24 the Dow opened down 1000 points and reached 15,370. That’s another 4% down from here. The S&P500 on the day hit 1867, but the 2014 bottom was 1831. If ever there was a precursor to such bottom retesting as far as technicians are concerned, last night the Dow, S&P, Nasdaq and Russell 2000 all simultaneously posted a “Death Cross” (50-day moving average crosses down through 200-day moving average) for the first time since…you guessed it…August 24.

So drag out the Ouija board and dust off the crystal ball – it could all be about to get spooky.

Even Chicago Fed president Charles Evans’ suggestion later in the afternoon that the Fed should be in no hurry to raise interest rates failed to stop Wall Street continuing its slide last night. The only ray of hope is that the Dow did venture below 16,000 briefly before jumping back at the close to 16,001.

So the conclusion is that while Wall Street really does want to get this rate hike over and done with, the implications for the likes of biotechs and commodities is in the meantime enough to force a clear-out, and the technicals will likely feed on themselves.

Interestingly, the US ten-year yield fell 7 basis points last night to 2.10% when a rate hike would imply the opposite. Is the bond market remembering that China held back the Fed this month, so ever weaker Chinese data should ensure a further delay?

Commodities

Tin bucked the trend in rising 2% on the LME last night and zinc and lead were steady, but aluminium, copper and nickel all fell over 1%.

Iron ore fell US20c to US$56.00/t.

West Texas crude fell US87c to US$44.47/bbl and Brent fell US$1.24 to US$47.36/bbl.

Despite a dip in the US dollar, gold fell US$13.70 to US$1132.60/oz on renewed rate rise expectations.

Today

As noted, the SPI Overnight closed down 104 points or 2.0%. If accurate, that would take the ASX200 back down to very familiar territory just above 5000, for about the umpteenth time. If the Dow is going to crack through 16,000 because it is foretold in the chicken entrails, then presumably the local index will breach 5000, and then it’s next stop 4800 according to the local technicians.

House prices and consumer confidence will be on show in the US tonight.

Locally, as Australia struggles to emerge from what has been a particularly long winter, Kathmandu ((KMD)) will report its FY15 result today.
 

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