Tag Archives: Energy

article 3 months old

The Monday Report

By Greg Peel

Buy the Dip

Last week saw the ASX200 falling from resistance at 5400 down towards support at 5250 as expectations of a rapid round of RBA rate cutting were reconsidered. Those expectations were fuelled by the weak march quarter inflation number but tempered by last week’s strong trade numbers reflected in both the March quarter GDP result and April trade data.

Expectations of further rate cuts led to strength in the banks – the biggest influence over the index by market cap weighting. Last week saw bank shares falling back again.

But as it looked like we might break back down through support and once again fall into the gravitational pull of 5000, the buyers stepped back in on Friday. Never mind what the US jobs number overnight might be, it was mostly a Buy Australia session. All sectors contributed on a relative equivalent basis.

Friday’s economic data release was the local service sector PMI, which swung back into expansion with a rise to 51.5 in May from 49.7 in April. Caixin’s independent take on China’s services PMI saw a fall to a three-month low 51.2 from 51.8. Nobody seemed to be paying much attention.

The rally on Friday took us into the middle ground of around 5300. Developments over the weekend may make for an interesting session today.

Yes, there is the US jobs report, which I’ll get to in a moment. But while the SPI Overnight closed up one point on Saturday morning, we’ve since seen destructive storms along Australia’s east coast, from South Queensland down to Tasmania, which are still in play. Immediately one might think of the impact on insurance companies, and the impact on retail sales. There were also major power outages in Sydney yesterday that shut down everything from online pizza ordering to EFTPOS payments at supermarkets.

That said, we also have tomorrow’s RBA policy meeting to consider, which might otherwise suggest a quieter day’s trading today in anticipation. While the market is only ascribing a small chance to a follow-up rate cut so soon, the central bank’s response to the balance of weak inflation and strong economic growth will be carefully analysed.

Job Shock

The US added 38,000 jobs in May. Even if you adjust for the 35,000 striking Verizon workers the result does not even come close to the 160,000-odd forecast. Wall Street was dumbfounded.

To confuse matters further, the unemployment rate actually plunged to 4.7% from 5.0%. But this was due to a big drop in the participation rate, which in itself is another negative. On the other side of the coin, wages grew by 0.2%, which in any other set of numbers would be considered reasonable.

The initial reaction on Wall Street was to sell, and the Dow was down 150 points from the open. But as had been the case almost every day last week, the rest of the session was spent grafting back that loss. There are three ways to interpret 38,000.

Either it’s bad news, suggesting the US economy is slowing, or it’s good news, suggesting the Fed will hold off on raising, or in the wider scheme of things, it’s neither here nor there. It is not the first time in the past few years Wall Street has been confronted with a jobs number that has fallen spectacularly short of expectation. In those instances, the following month saw a big rebound to a number above expectation.

So it could just be a blip. But suffice to say, ahead of the release the market was factoring in around a 33% chance of a Fed rate hike in June and a 66% chance in July. In the wake of the release, the market has June at a near zero chance and July at 33%.

The shift in odds is underscored by a huge drop in the US dollar index, down 1.8% to 93.87 in a heartbeat. At the same time the Aussie jumped 1.9% to US$0.7366 as a result, and gold jumped US$33.10 to US$1243.50/oz. The US ten-year bond yield fell 11 basis points to 1.70%.

On increasing expectation of a Fed rate hike, US banks have been enjoying a rally and leading Wall Street back towards its highs. The banks thus took a bit of a hiding on Friday night, but there was sufficient offset elsewhere to ensure a less dramatic close. A lower greenback is good for commodity prices, so resource sectors performed well, and yield stocks such as utilities regained their appeal.

The Dow closed down 31 points or 0.2%, the S&P lost 0.3% to 2099 and the Nasdaq fell 0.6%. That the S&P should close near 2100 is significant, as this has proven to be neutral territory of sorts in 2016 – the pivot point between strength and weakness.

Fed chair Janet Yellen will coincidentally give a speech tonight on monetary policy. The market has now dismissed a June hike, albeit many presumed the Fed would wait until after the Brexit vote anyway, but now July looks uncertain. We’ll nevertheless see the June US jobs report out before the July meeting and if there is indeed a rebound, the picture may well change once more.

What will Yellen have to say tonight?

Commodities

Commodity prices have been beholden of late to Fed rate hike expectations and the negative implications of a stronger US dollar. All base metal prices were stronger on Friday night but copper’s 1.5% gain was the stand-out, with other moves less significant. There is of course a trade-off implication of a weaker US economy.

Iron ore rose US$1.60 to US$49.50/t.

The oils did not rally, because for the first time since last August, the US rig count saw an increase over the week. West Texas crude fell US16c to US$48.90/bbl.

This is exactly what the market has been anticipating/fearing. A price of US$50/bbl has been widely considered as the threshold at which shuttered US production would begin to come back on line following a period of weak prices. While 50 has not quite been achieved the WTI price has stabilised above 45 and thus we see some producers now confident to fire up again, no longer burning cash at spot prices.

If they start to forward-sell their production, the risk is prices will fall again. Oil has surprised many by managing to hang onto its rebound despite runaway OPEC production increases.

The Week Ahead

As noted, the SPI Overnight closed up one point on Saturday morning, suggesting the local market is not quite sure what to make of the US jobs number.

Of particular interest locally today will be the release of the Melbourne Institute inflation gauge for May, leading into tomorrow’s RBA meeting. Is the weak inflation trend continuing? We’ll also see ANZ job ads today. The other highlight for the week locally will be housing finance numbers on Wednesday.

China will release May trade numbers on Wednesday ahead of the usual industrial production, retail sales and fixed asset investment suite on the weekend.

In the US, Yellen’s speech tonight will be the highlight in a week largely devoid of economic data, up until fortnightly consumer sentiment on Friday.

Things have quietened right down now for local corporate events and releases, beyond any unscheduled “confession session” announcements that may yet be forthcoming. Vicinity Centres ((VCX)) will hold an investor day on Wednesday.

The coming weekend is a long one, with the ASX closed next Monday for the birthday the Queen has already had. We should probably expect some squaring up towards the end of the week.

Rudi will appear on Sky Business through Skype-link on Tuesday, 11.15am to discuss broker calls. On Thursday he'll be on screen from inside Sky news studios from 12.30-2.30pm and on Friday he'll Skype-connect again at around 11.05am.
 

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

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article 3 months old

The Overnight Report: Bring On Jobs

By Greg Peel

The Dow closed up 48 points or 0.3% while the S&P gained 0.3% to 2105 and the Nasdaq rose 0.4%.

June Swoon

It’s as if someone called “last drinks” on the rally at the end of May and the punters have been gradually making their way out the door ever since. May saw the ASX200 rally from around 5250 to over 5400 and the past three sessions have us back at 5278. Were the market to break back down through 5250 it would be technically bearish, although we’ve seen a big jump in the futures overnight.

The change of heart between May to June has been all about a contradiction having arisen between Australian inflation and Australian economic output. The weak March quarter CPI result prompted the RBA to cut the cash rate and economists to predict at least one if not three more to come. This week’s March quarter GDP made the market think again. It’s a tough one, given typically one would expect strong economic growth to drive stronger inflation. But really all we’ve seen is solid sales of rocks while price and wage growth has been non-existent.

Then we can throw in the Fed, which Wall Street has come to believe will hike again in July, if not in June. A Fed rate hike by default acts like an RBA rate cut via the exchange rate.

The banks had been the major driver of the rally in May, on a supposed promise of lower local rates to come, which offer up the opportunity for mortgage repricing and eases the pressure on bad debts. The banks have now led the index back down again.

There was not much happening yesterday ahead of the day’s economic data releases. And again, the April data is underscoring the contradiction of the March quarter. Retail sales rose by a modest 0.2%, missing expectations and leaving the annual growth rate unchanged at 3.6%. This number points to low inflation. Meanwhile the trade deficit fell in April, driven by a 0.6% rise in exports and 0.8% fall in imports. The positive trade numbers echo the GDP strength.

The market sided with the GDP, and sold the banks down again, by an influential 1.2%. Materials backed up with a 1.0% fall on lower copper and iron ore prices. Healthcare lost 0.7% after one broking house downgraded the listed aged care sub-sector but otherwise there wasn’t much else going on.

Interestingly, the SPI Overnight has closed up 40 points or 0.8%, when Wall Street only rose 0.3% and commodity prices are again lower. Perhaps as we near 5250 in the physical, traders who sold at 5400 are now looking to get back in on better value.

Do Jobs Matter?

For the second session in a row, Wall Street fell on the open and rallied back to the close. This time the indices finished a little higher, such that the S&P500 is sitting above the 2100 level – significant because it is a round number.

Wall Street has now gone into summer-lite mode, with the long weekend signaling the beginning of the annual leave period. Volumes typically drop in the summer, and there was never going to be much going on last night ahead of tonight’s jobs number.

OPEC oil ministers held their regular mid-year meeting last night for the world’s amusement, which, blow me down, did not produce any agreement. The oil price is little changed.

Otherwise, the question on Wall Street last night was not so much “What’s the jobs number going to be?”, but more a case of “Does it really matter what the jobs number is?”. The “whisper” number is 160,000, which is in line with April and below the 200,000 trend of previous months. But there is a complication with regard the 35,000 Verizon workers who went on strike has month, and either way Wall Street is coming to believe the Fed has already made up its mind.

If it wasn’t for the Brexit vote, the Fed would hike in June. Because of the Brexit vote, they’ll hold off till July. So what impact is this final bit of data meant to have?

And these days it’s never quite clear whether Wall Street wants good news or bad news anyway. The S&P500 is back at its April high and only 34 points from the all-time high. There doesn’t seem to be a lot of rate rise fear.

Commodities

West Texas crude is up US15c at US$49.06/bbl.

Copper has fallen another half a percent and aluminium 2%.

Iron ore fell US$1.40 to US$47.90/t.

The US dollar index is slightly higher at 95.54 and gold is slightly lower at US$1210.40/oz.

The Aussie is down 0.4% at US$0.7227 and is right back where it was before this week’s GDP result.

Today

The SPI Overnight closed up 40 points or 0.8%.

It’s service sector PMI day across the globe today, including Caixin’s take on China.

US jobs tonight.

Asciano ((AIO)) holds an EGM today to discuss the wolves at the door.

Rudi will Skype-link with Sky Business this morning, likely around 11.05am 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

Strong Prospects For Cooper Energy In Tight Gas Market

-Strong position in Sole field development
-Momentum from AGL sales agreement
-Utilities keen to source new suppliers
 

By Eva Brocklehurst

Australia's east coast gas market is tightening. All three major LNG projects in Gladstone, Queensland, are ramping up, but with the aid of third-party volumes. Current gas demand from Gladstone stands just short of 3,000TJ/day and is set to grow to over 3,500TJ/day, Canaccord Genuity observes.

With the major domestic players downgrading reserves, the broker believes there is a material opportunity for Cooper Energy ((COE)), as the domestic market needs supply alternatives to that provided by Esso/BHP Billiton ((BHP)), and the company's stake in the Sole gas field fits the bill.

Gas supply from the Esso/BHP Longford plant in Victoria is up 50% in the year to date while the Santos ((STO)) Moomba gas plant is up 88%, the broker highlights.

As the Cooper Basin fails to live up to expectations, Canaccord Genuity believes Cooper Energy's strong leverage from its 50% equity interest in the Sole gas field and Orbost plant, and 100% of the BMG field, both offshore Victoria, puts it in a key position.

While other operators are still in the throes of proving a commercial resource, Cooper Energy has moved to a position at which it is more than half way through its front end engineering design (FEED) on Sole, signing agreements with tier 1 gas customers. The first was signed in August last year and AGL Energy ((AGL)) signed in March this year. On the above bases, Canaccord Genuity initiates coverage of the stock with a Buy rating and 34c target.

Final investment decision (FID) is scheduled for the September quarter 2016. Ahead of this the broker observes a number of milestones need to be completed such as refining costs estimates, completing the data room, more gas agreements and finalising funding.

The Sole gas field is a conventional play which the broker notes has relatively simple geology, and is close to infrastructure. This makes it a logical candidate for development in a tight gas market where demand has trebled.

Most recent cost estimates for Sole are $2.30/GJ for development and 80c/GJ for operating expenditure. Canaccord Genuity notes this is well below the estimated average cost of production for undeveloped Queensland CSG and undeveloped Cooper Basin resources.

Cooper Energy has sales agreements covering 60% of its 121PJ in 2C resources and the broker believes it is on track to meet a target of 80% of contracted sales pre FID. The 53PJ agreement with AGL energy ((AGL)) is observed as providing substantial momentum to the project.

Canaccord Genuity suspects the company's recent decision not to complete the data room process at Sole until after the FEED is completed is a sign that costs could be coming down. The most recent cost estimate for Sole stands at $550m, calculated prior to the oil price slump.

The company's cash footing will rise towards $55m post completion of an equity raising and sale of an Indonesian asset and the broker believes the support from the equity market should encourage the company to maintain a higher level of equity in the Sole development, which in turn signals a long-term positive for shareholders.

Counter-intuitively, the broker believes the problems encountered at Santos, the other 50% owner of the Sole field, are a net positive for the development. Santos has a 66% interest in the Cooper Basin SACB joint venture and in 2015 downgraded reserves by 183PJ. This was the second straight year of downgrades from an area which was expected to have 100PJ in reserve additions, the broker notes.

The new CEO of Santos, Kevin Gallagher, has signalled the company will no longer sanction developments which require a serendipitous rise in oil prices to be economic. At current prices its Cooper Basin asset is loss-making and Canaccord Genuity suspects that if that cannot be made to work under current prices, then the company will probably look to reduce its exposure.

Yet Santos has a contractual commitment to supply 750PJ to GLNG and another 150PJ in legacy contracts. Hence, this gas must be sourced from somewhere. Meanwhile, the broker observes the market is becoming increasingly nervous about relying on the Longford and Moomba plants.

It should thus come as no surprise that major utilities have expressed a desire to have new suppliers in the market to reduce concentration risk and ensure competition. Enter the Sole field and Cooper Energy's potential into the broker's figuring.

The Sole project makes up 55% of the valuation of the stock and remains the major driver of the Buy rating. Without a positive view on Sole the stock is seen more than fairly valued, even under a rising oil price.

Cooper Energy's other interests include the Cooper Basin's Western Flank, with a 25% stake in a joint venture with Beach Energy ((BPT)) and a 30% stake in a joint venture with Senex Energy ((SXY)). The company is currently marketing the Tangai-Sukananti KSO in Indonesia, its remaining asset in the country.

The company also has the Manta project in the BMG complex, which the broker observes has had a troubled history. Last month Beach Energy decided to relinquish its 35% interest for nil consideration. While this is not the valuation an investor would relish, Canaccord Genuity maintains this would not be the first time that Cooper Energy has identified value where others have not.

Cooper Energy intends to focus on the gas resource in the field. While yet to be convinced this is ultimately an economic development, the broker believes, if any of the prospective plays work, the upside could be material.
 

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article 3 months old

The Overnight Report: Paint It Beige

By Greg Peel

The Dow closed up 2 points while the S&P lost 0.1% to 2096 and the Nasdaq rose 0.3%.

Good News is Bad News

Yesterday’s plunge from the open for the ASX200 may have confused certain ABC finance commentators but I believe the story is pretty clear. The market may have dropped a couple of hours before the strong GDP result was released but the fact is we already knew the GDP result would be strong by virtue of Tuesday’s surprisingly positive net export result.

That result had economists scrambling to upgrade their GDP forecasts from under 3% annual growth to potentially over and guess what, it was 3.1%.

I noted yesterday that May had seen the ASX200 rise from 5250 to 5400. It was not about commodity prices – they rose in April, and while oil has moved little since, iron ore has fallen. This particular increase was all because at the beginning of the month the RBA delivered a surprise rate cut thanks to the March quarter disinflation shock, which again had economists scrambling, this time to lower their cash rate expectations and predict 1.00% by next year.

The May rally was thus led by the banks and other yield-payers. Yesterday’s strong GDP result, coming off the back of the strong December quarter result, now has economists questioning whether 1.00% is at all possible. Suddenly the yield-payers are not as attractive as they were last week. On Tuesday local investors started to sell these sectors in response to the export data, while the significant cohort of offshore investors in Australian yield slept. Overnight, offshore investors had the chance to place their “sell on open” orders ready for yesterday morning.

So down we went. There was a brief “buy the fact” rebound when the actual GDP result was released, but then the Chinese PMI results for May were released.

Beijing had the manufacturing PMI unchanged at 50.1. Caixin’s equivalent fell to 49.2 from 49.4. Beijing’s services PMI fell to 53.1 from 53.5. Caixin’s equivalent is due out tomorrow. For a brief couple of months the Chinese economy looked like it might have bottomed out, ahead of a stimulus-fuelled recovery. But as I had pointed out at the time: never trust the numbers around Chinese New Year.

Suffice to say the ASX200 fell again in the afternoon. The resource sectors joined in thanks to the China data, but we had lower oil and iron ore prices from the outset anyway. Any attempt by the ASX200 to conquer 5400 and push back up towards 6000 again appears now to have been postponed.

Or has it?

Economists agree the GDP result is unusual, and misleading. In short, the strong growth rate comes down to an increase in the volume of output, not the value. On the one hand, lower commodity prices had stripped export volumes of that value. On the other, wages growth is at its slowest pace since the Keating recession and inflation is also slowing. The official unemployment rate is surprisingly low but only because the official unemployment rate is a joke. The vast number of Australians who’ve given up looking for work are the ones ensuring there is no inflation in this country.

Does this, therefore, mean the RBA can keep cutting? That will be the question for June.

Modesty

When the numbers start to become misleading, analysts like to actually get out into the real world to get a handle on what’s actually going on. A good example of this is the Fed’s Beige Book – an anecdotal assessment of economic activity in the twelve Fed districts.

If yesterday’s Australian GDP brought into question further RBA rate cuts, last night’s Beige Book brought into question the June or July Fed rate hike Wall Street has all but come to assume. It was a Triple-M result – growth in each district was either “moderate”, “modest”, or “minimal”. If anything, the US economy has slowed since the last anecdotal assessment.

So maybe the Fed won’t hike after all. How does one respond?

Well it is no longer clear – on Wall Street at least – whether bad news is bad news or good news, or vice versa. Which probably explains why the Dow initially fell over a hundred points before recovering all of that loss by the close. I’ve made the reference before but it’s fitting once again – if this was QI, now’s the time to hold up your “Nobody Knows” card.

On the positive side, the US manufacturing PMI for May rose to 51.3 from 50.8. But while this is an improvement, it still suggests a very “modest” pace of growth. Not the stuff of rate hikes. Meanwhile, the pace of auto sales also slowed in May and construction dropped 1.8% in April.

To further complicate matters, the S&P500 index has had a couple of goes at the technically important 2100 level but failed to breach it. Just like the ASX200 keeps failing at 5400.

Attention now turns to the data biggie, being tomorrow night’s US non-farm payrolls report. Tonight sees the private sector precursor. I apologise for assuming that report was due last night, on a Wednesday as always, but the long weekend has knocked it back by a day.

Commodities

The US dollar index fell for a change last night, down 0.6% to 95.4, thanks to the Beige Book. That should be supportive of commodity prices, but the implications of a slower than assumed US economy, and disappointing Chinese data, should do the opposite. In short, there was no clear trend last night.

West Texas crude is little changed at US$48.91/bbl.

Copper fell over a percent when all other base metals rose, including zinc by 2.5%.

Iron ore fell US30c to US$49.30/t.

Gold is down slightly at US$1212.70/oz.

The Aussie dollar initially shot up on the GDP result yesterday, was then sold back down by those who bought it on the export number the day before, and rose again last night thanks to the weaker greenback. It’s up 0.3% over 24 hours at US$0.7255.

Today

The SPI Overnight closed up 3 points.

With the March quarter now put to bed, today brings local the retail sales numbers and trade balance for April.

The ECB holds a policy meeting tonight.

The ADP private sector jobs number for May is out in the US.

Challenger ((CGF)) will hold an investor day today.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm and then returns for an interview 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: End of Month

By Greg Peel

The Dow closed down 86 points or 0.5% while the S&P fell 0.1% as the Nasdaq rose 0.3%.

Good News is Bad News?

We saw another questionable open on the ASX yesterday, in which the index plunged 43 points on the opening rotation with no lead-in from offshore whatsoever, following a flat session on Monday. As soon as the market was “open”, the index recovered virtually all of the ground the computers had lost.

Presumably the humans have learned to simply stand aside, let the computers run riot in the first half hour.

With normal programming re-established, all eyes were on the release of the March quarter current account data.

The current account and trade deficits both narrowed more than expected, which in short is good news for those who listen anxiously to politicians’ warnings over Australia’s debt. Importantly, the loss in export dollars experienced in the quarter due to plunging commodity prices was offset by the increase in volumes exported.

Export volumes rose 4.4%, underpinned by strong contributions from resources (5.6%) and services (6.1%). Export prices fell 5.0% and are down 11.3% year on year. The net result is a 0.7% fall in the value of exports.

On the other side of the ledger, the volume of imports fell 0.8%, led by a 7.0% fall in mining equipment. Import prices were 3.1% lower, and thus the value of imports 3.8% lower.

Put the two together, and the terms of trade will add 1.1 percentage points to March quarter GDP – a figure ANZ’s economists described as “very solid” and CBA’s as “whopping”. Economists have scrambled to lift their GDP forecasts from a prior 2.8% annual to as much as 3.2%.

But what does this mean for RBA rate cut expectations? Perhaps a clue lies in the fact yesterday saw the banks fall 0.5%, the telcos 1.2% and consumer staples 1.4%. Aside from a 1.5% fall in energy due to the lower oil price, these three yield-paying sectors led the index down. We should acknowledge there was also a pay dispute issue impacting Wesfarmers, and that utilities only fell slightly.

It’s not cut and dried, but the bottom line is if the March quarter GDP suggests the Australian economy is actually healthier than even the RBA had assumed, then economists might start to back away from their 1.00% cash rate forecasts.

And just to add fuel to that fire, yesterday’s data releases for the month of April showed a big rise in business borrowing – a positive indication for Australia’s economic “transition” – and an increase in building approvals when economists had forecast a fall following March’s strong result.

It would seem rumours of the housing boom’s demise are premature.

Yesterday it appeared the local market was trading off a theme so pervasive in US markets for so many years: With regard monetary policy, good news is bad news.

Sell in May? The ASX200 rose from 5250 to 5400 over the month. It would be of no surprise if yesterday simply saw some end of month squaring.

Flat in May

The same is likely true on Wall Street last night, albeit the Dow closed May only a handful of points higher for the month. Last night’s session was further complicated by stage 2 of the introduction of US-listed Chinese stocks into the various MSCI global indices.

Many an index-tracking fund benchmarks off the MSCI indices, and if new stocks are added, others must be sold to match new index weightings. The net impact should be a net offset, but if US stocks have to be sold, that impacts on US indices.

Last night’s data showed US consumer spending jumped in April by a better than expected 1.0% -- the biggest monthly gain in seven years. Incomes rose 0.4%. The personal income & expenditure (PCE) measure of inflation rose to 1.1% annual from 0.8% in March in core terms. This is the Fed’s preferred indicator.

Nothing to stop a June rate rise there, although Wall Street continues to favour a post-Brexit vote July hike. Having at one point priced in little chance of a rate hike in 2016, the market now sees July as about a 66% chance to June’s 33%.

Last night also saw oil continue to drift back, having failed to penetrate the 50 level.

Commodities

West Texas crude is down US79c or 1.6% at US$48.83/bbl.

Also failing at the 50 mark is iron ore, which fell US70c to US$49.60/t.

It was a quiet return to trading on the LME. Zinc jumped 1.5% but moves in all other metals were negligible.

Gold found a bit of a bid last night nevertheless, having fallen steadily of late on the stronger greenback. The US dollar index is up 0.2% at 95.86 but gold is up US$10.10 at US$1215.00/oz, possibly also reflecting the end of the month.

On the strong current account numbers, the Aussie is up 0.7% at US$0.7231.

Today

The SPI Overnight closed down 24 points or 0.5%.

While Sell in May might have been quashed for another year, June is a month downunder which can often be impacted by tax-related selling of underperforming stocks ahead of EOFY.

Australia’s March quarter GDP result is out this morning.

And being the first of the month, it means PMIs. Most importantly, we’ll see May manufacturing PMI numbers for China from both Beijing and Caixin, along with Beijing’s service sector PMI.

The Fed will release its Beige Book tonight, but the focus will be on the ADP private sector jobs number for May, ahead of Friday’s non-farm payrolls release. There is a complication this month given 35,000 workers at Verizon were on strike over the survey period and will thus be counted as “unemployed”, even though they’re now back. So there may need to be some averaging between the May and June numbers, albeit the Fed meets in between.

Rudi will host Your Money, Your Call Equities tonight on Sky Business, 8-9.30pm.
 

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

Material Matters: Lithium, Iron Ore, Oil And Alumina

-Lithium producers holding back
-Timing is critical for new entrants
-Iron ore price momentum fading
-Low rates, weak AUD supports oil, utilities
-Alumina capacity set for low utilisation
 

By Eva Brocklehurst

Lithium

Lithium became a buzz word in commodity circles as the price surged in 2015 while other commodities were stymied. Macquarie notes the price is up 50% since the beginning of 2015 and lithium demand is up 8% overall and 22% for battery use. The market is now in deficit, aided by established producers consciously not lifting output to meet demand, the broker asserts.

Macquarie also highlights lithium demand is not just about electric vehicles. Up until this year batteries for portable devices consumed more lithium, as did ceramics and glass. The broker does not envisage demand destruction as the price rises either. Lithum comprises less than 2% of a rechargeable lithium ion battery with cobalt and nickel more important from a cost angle.

There is no capacity constraint in the market, with four entities accounting for 90% of global production. The largest miner, Talison, is operating at only 60% of nameplate capacity, Macquarie observes. The broker believes that the price increase since the start of the year is being driven by short-term supply side constraints and, in order to protect market share and keep new entrants at bay, existing producers will eventually be forced to raise volumes.

The market is expected to move back into balance within 18 months and, longer term, the broker remains positive for the sector outlook, driven by expectations for lithium demand in new energy vehicle batteries out to 2021, at which point they would account for one third of all lithium demand versus one tenth today.

Macquarie concludes that timing is the key for raw materials suppliers, and has initiated coverage of five Australian-listed lithium hopefuls.

The broker has set Outperform ratings for those most ready to be near-term producers, Orocobre ((ORE)) and Neometals ((NMT)).

Galaxy Resources ((GXY)) is rated Underperform, as Macquarie does not believe medium-term demand supports the development of Sal de Vida and, hence, the stock is fully valued. A similar issue exists with Underperform-rated Pilbara Minerals ((PLS)), as the broker currently foresees the Pilgangoora mine entering the market at a time of oversupply and declining prices.

Altura Mining ((AJM)) is proposing to build its own project adjacent to Pilbara Mineral's Pilgangoora, with lower capex and at a faster rate. Macquarie does not believe this is a superior project, or that it will achieve its aggressive timelines, and sets an Underperform rating on the stock.

Iron Ore

Morgan Stanley notes large miners recently moderated their guidance for iron ore production but the tonnage is still arriving. The lift in iron ore prices has invited the re-entry of smaller producers into the seaborne market, with exports from a number of countries all rising this year. India is also coming back into the market, annualising 11mt of exports to China versus just 2mt in 2015.

Collectively, Morgan Stanley observes these tonnages are meaningful, up 31% year on year. Meanwhile, Chinese domestic output is also ramping up in response to robust steel production rates, the broker noting output lifted to 103mt in April. Feedback from the broker's recent visit to China suggests that most remaining domestic mines are profitable at a seaborne price of over US$50/t.

Ord Minnett also observes Chinese steel production is rising, which should absorb some of the volume growth in iron ore, but positive iron ore price momentum is fading. Chinese economic data is now longer overwhelmingly positive and measures are being introduced to reduce speculative trading. The broker deems it critical for the data to remain relatively robust over the second half for sentiment towards iron ore prices to remain positive.

The broker forecasts iron ore prices at US$53 and US$48 per tonne in 2016 and 2017 respectively. Nevertheless, with a rise in supply forecast for the second half of 2016, price volatility should continue.

Analysis of port data suggests Australia's Roy Hill mine is running at a 22mtpa rate, around 40% of full 55mtpa capacity. On this basis the broker increases 2016 shipment expectations from the supplier. Ord Minnett makes no other changes to supply assumptions for Australian producers but also notes that non traditional supply to China spiked in April.

Oil

Ord Minnett considers the current macroeconomic environment is positive for the energy and utilities sectors, despite a reduction in oil price assumptions. Near-term Brent forecasts are lowered to US$45/bbl in 2016 from US$50/bbl previously and to US$55/bbl in 2017 from US$60/bbl previously.

Oil prices have been rising as demand strengthens and high-cost production comes out of the supply chain. Lower cash rates are also positive for those stocks offering yield, such as in the utilities sector. The broker expects a further reduction to the Reserve Bank of Australia's cash rate to 1.0% by June 2017. In conjunction, a further weakening of the Australian dollar is expected, descending to a low of US65c by mid 2017.

Over the medium term the broker expects oil prices to be driven higher by stronger demand growth from India, China and Russia, declining non-OPEC supply and tight OPEC spare capacity.

Alumina

Price rises since the start of the year have taken the alumina price to over US$250/t FOB, too high relative to fundamentals, Macquarie maintains, and the price is likely to be crunched soon, reverting to US$220/t FOB Australia.

This price increase has not been matched by the Chinese domestic price. Chinese alumina production accounts for around 50% of the global total so the domestic price is the most important benchmark, the broker asserts.

While the Chinese price is up over 20% from the start of the year, it has stagnated in the past month. As a result, the import arbitrage for alumina into China has been closed since January. Macquarie observes this comes against a backdrop where demand is not rising.

Chinese output is for aluminium is down on where it was six months ago and while the broker is confident smelters will re-start, as yet this has not been the case. Some of the strength in the alumina price is also likely to have been smelters sourcing material ahead of potential re-starts.

Meanwhile, given a recovery in the price, Chinese alumina production is also re-starting, ahead of aluminium. Longer term, alumina is considered one of the few commodity markets where new projects are being delivered in coming years and capital is still being invested. This is due to a positive demand outlook for aluminium and reasonable industry margins, the broker contends.

Still, there is the likelihood that the global alumina market will be set for relatively low utilisation rates and/or capacity closures towards the end of the decade. China will still increase its demand for aluminium raw material units but given the Chinese business model of purchasing raw materials and building more than enough process capacity, Macquarie suspects the growth opportunity will be in bauxite.
 

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article 3 months old

The Overnight Report: Tumbleweeds

By Greg Peel

Last night’s public holidays closed US stock and bond markets and UK markets including the LME.

Losing Streak

It was thrill-a-minute stuff on the local bourse yesterday. The ASX200 whipped around violently to be as much as 10 points up from the opening bell and 14 points down mid-morning. The whipsaw ride continued through the afternoon before traders were finally able to draw breath with a close of up 2.

Jokes aside, there was more than one reason the local market should put in a quiet session yesterday.

The lead-in from Wall Street was insignificant, following commentary from Janet Yellen that neither confirmed nor denied a June Fed rate hike. US markets then shut down for the long weekend, ahead of a week full of economic data releases culminating in the last monthly jobs report before the next Fed meeting.

It is also a big week for Australian data, with tomorrow’s GDP set to provide either greater or lesser cause for the RBA to cut again in August.

And on that note…

Yesterday’s March quarter data showed company profits falling by 4.7% when economists had forecast a flat result, to be down 8.4% year on year. The December quarter number was also revised down to a greater fall than previously published.

Among the sectors, mining profits (which includes energy) fell 9.6%, manufacturing 14.5%, utilities 5.6% and property and business services 6.4%. The stand-out positive contributors were transport and storage up 5.3% (online shoppers?) and accommodation and food services up 3.8%. Construction only managed a 0.6% gain, as did retail trade.

Wages data within yesterday’s release underscored the current trend. Employment is presently growing at an annual rate of 2.1% and yesterday’s numbers noted 3.5% growth in wages. But because 60% of jobs growth is part-time, annual weekly wages growth, CBA economists calculate, is only 1.4%.

Put the profits and wages data together and there is no reason to foresee anything other than low inflation. On that basis, actual GDP result notwithstanding, there is little to suggest the RBA will not cut again.

Indeed, the Aussie dollar did drop yesterday on the data release to around 70.5, but has recovered overnight to be unchanged at US$0.7183, despite the US dollar index being little changed. The market is already pricing in an August rate cut.

The other reason the local market went a whole lot of nowhere yesterday is largely a technical one. We are stuck on a pivot point at 5400. This week’s data here and in the US will be critical to central bank monetary policy, and hence we are likely seeing some pause for thought among investors.

But despite the flat close for the ASX200, there was actually some movement among sectors yesterday. Materials was the only major loser, falling 0.7%, while energy was up 0.7%, consumer staples was up 0.8% and discretionary 0.5%, with healthcare up 0.5%. The banks and other sectors went nowhere. Clearly materials has regained a lot of its market cap oomph lost when the big miners were trolling the bottom.

Commodities

No base metals, with the LME closed.

West Texas crude is little changed at US$49.62/bbl.

Iron ore fell US60c to US$50.30/t.

Gold is down US$7.90 at US$1204.90 despite the US dollar index being little changed at 95.65.

Today

The SPI Overnight closed down 7 points.

Tonight in the US brings house price and consumer confidence numbers. Most critical, however, will be the April personal income and spending data, including the Fed’s preferred PCE inflation measure.

Data releases in Australia today include April building approvals and private sector credit, along with the March quarter current account, including the terms of trade.

Rudi will Skype-link with Sky Business today to discuss broker calls. Macquarie has initiated coverage on lithium stocks. Should be fun.
 

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article 3 months old

Prices Rally But Oil & Gas Volatility Continues

-Focus likely  to remain on costs
-Incentives continue in CSG-LNG
-Material pain looming for LNG?
 

By Eva Brocklehurst

Will the higher oil prices seen recently be sustained? What is the outlook subsequently for the LNG market? These are questions brokers are attempting to answer as they evaluate the key stocks in the sector.

UBS observes a trend higher in oil prices since January, driven by continued decline in US production and demand surprising to the upside. The broker warns that there is unlikely to be significant growth investment in the sector. While further declines in US oil output and global oil demand growth are expected, countering this is the likelihood that shut-in production could re-start over coming months.

The broker estimates cash flow break even for the large cap stocks is below US$60/bbl, with Santos ((STO)) at US$47/bbl, Oil Search ((OSH)) at US$25/bbl and Woodside ((WPL)) at US$12/bbl. UBS believes Santos needs oil at or above US$60/bbl to make inroads into its debt levels. The question for the other two is, given LNG revenues will be higher at US$60/bbl oil, will growth projects be approved if oil stays up?

The broker notes both stocks have struggled in recent weeks despite the oil rally and expects the focus is more likely remain on costs for the foreseeable future. Credit Suisse, in a similar vein, was surprised by the announcement by Santos and AWE ((AWE)) to drill a well at Ande Ande Lumut, Indonesia, considering the pressure on capital at Santos, though acknowledges the decision was consistent with AWE's commentary.

Citi is more confident that oil prices have turned and revises its outlook for 2016, with a pronounced recovery expected in the second half. The decline in the oil price since 2014 is finally seen having an impact in reducing capital spending by the oil majors, with sub US$40/bbl oil considered too low to replenish supplies and meet growing demand.

The broker's Brent estimates are upgraded by 9% to US$47/bbl with a longer-term real oil price assumption of US$70/bbl maintained and an Australian dollar forecast of US70c from 2019.

Nonetheless, while expecting the low point in oil prices has occurred, and with a positive outlook, Citi acknowledges weakness remains a heightened risk. The broker recently downgraded Beach Energy ((BPT)) to Sell, level with Oil Search, retaining a Neutral rating on InterOil ((IOC)) with others under coverage retaining Buy ratings.

Santos recently announced GLNG train 2 has started production, further de-risking cash flows. Citi welcomes the news as it shifts the company towards a positive cash flow, mitigating the balance sheet risk to further equity raising. Despite a weak spot LNG price, the CSG to LNG projects still carry incentives to maximise production, given low variable costs, and Citi considers forecasts for LNG production should only be limited by expectations for gas supply.

The broker estimates that if all trains were online, GLNG could produce at 80% of nameplate and Origin Energy's ((ORG)) APLNG at over 90%. The broker re-casts its well-by-well production forecasts for each project, based on both well flow rate outperformance and higher upstream processing capacities being demonstrated. For GLNG the modelling indicates nameplate will be reached by mid 2017 and APLNG in early 2017.

Hence, Citi suspects estimates which assume a long ramp-up profile are likely underestimating the earnings and valuation of Santos. The broker's faster ramp up profiles for both LNG operations increases its earnings forecasts for Santos and Origin by 5.0% and 8.0% respectively in 2017. Citi now believes the economics are compelling to run the LNG projects as hard as possible.

On the other hand, Credit Suisse believes the risks around the LNG market from both spot and re-contracting exposure need to be examined. The broker is unsure where the positive news can come from at this juncture and suspects a period of material pain is looming for the spot market.

Credit Suisse does observe that Woodside stated it was not surprised or worried by the current oversupply in LNG markets. The broker currently models for the company's LNG production to be at a plateau until 2030 and struggles to reconcile what appears to be the company's changed view of the LNG market, given management alluded to an expected deficit and need for additional supply in past presentations.

The broker assesses various scenarios out to 2025 and retains a macro view that LNG markets will be in balance by then and spot prices will return to, effectively, the contract price. In the case of Woodside, UBS observes the share price has materially under performed peers over the past four months.

The broker attributes this to a combination of lack of confidence in the M&A strategy, following the failed attempt to acquire Oil Search, a lack of material growth opportunities and concerns that major shareholder Shell may look to divest.

Hence, Woodside continues to trade with the lowest implied oil price, which UBS believe makes it the best relative investment among the large cap oil stocks. The broker also likes the fact that more than 80% of LNG production is contracted to 2019, with some level of downside protection in the contracts.

In contrast Oil Search performed strongly, but prior to the rally was already factoring in the highest implied oil price, which UBS attributes to an M&A premium following Woodside's approach.

The broker, in downgrading Oil Search to Sell, believed that its premium was unjustified and became increasingly concerned around the state of the global LNG market, which it suspects will remain oversupplied until 2023. In this environment, UBS envisages delays ahead in progressing the company's two LNG growth projects.
 

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article 3 months old

Material Matters: China, Iron Ore, G7 On Steel & Aluminium, BHP, Nickel And Oz Gold Miners

-Buying opportunity in iron ore?
-G7 strategies re steel, aluminium likely
-More value in shrinking BHP?
-Nickel deficit looms but price capped
-AUD drift down to support Oz gold miners
 

By Eva Brocklehurst

China Outlook

UBS observes real demand is improving in China, just as speculative and re-stocking demand reverses its first quarter momentum. Still, the broker's contacts expect sequential growth to slow through the second half.

Steel prices are expected to fall as supply is re-commissioned and outweighs demand. This, in turn, is expected to compress mill margins and suppress iron ore and metallurgical (coking) coal prices.

The broker observes neutral copper price risks relative to current forecasts, while aluminium and alumina are in deficit with production re-starts likely to cap prices in the near term. Meanwhile, zircon and titanium demand is lifting, but UBS does not observe any pricing tension returning as yet.

Iron Ore

Iron ore prices are back at levels not seen since February and Macquarie observes falling rebar prices in China have clearly put it under pressure. The likelihood is that both steel and iron ore could overshoot on the downside in the near term.

The broker observes steel production rose 0.5% in April and supply has responded to improved margins. Inventory build-up in steel appears to be pushed by supply, rather than any re-stocking demand. Prices should, fundamentally, be sustainable at US$50/t for iron ore, with US$60/t a cap to prices given the sensitivity of supply to re-starts, the broker maintains.

Macquarie suspects the current softness in iron ore pricing could present a buying opportunity for the iron ore miners. Port data suggests Fortescue Metals ((FMG)) is shipping ahead of forecasts while BHP Billiton ((BHP)) is lagging and could miss FY16 guidance.

Rio Tinto ((RIO)), meanwhile is running in line with forecasts. The broker's latest port data has separated shipments for Roy Hill berths for the first time. Roy Hill's shipments have been running at close to 30mtpa for the past four weeks. The broker's preference in the sector lies with Fortescue Metals and Rio Tinto.

Steel & Aluminium at G7

The G7 is in discussions around potential solutions to global industrial over-capacity. Macquarie believes steel and aluminium will be at the forefront of the talks, given the scale of excess supply, high Chinese exports and the interest generated among the G7 constituency.

While the US is likely to lead the lobbying call, the broker observes it is actually the smaller G7 manufacturing oriented countries such as France, Italy and the UK which have suffered the most.

While steel exports tend to hit the headlines, Maquarie notes China's output has dropped more rapidly than its peers in the past three years. In contrast, aluminium has been steadily ramping up, meaning 55% of global output now originates in China.

Macquarie suspects that, like it or not, what happens in China will govern these industries over coming years and, from a G7 perspective, they should accept these industries are lost. Hence, the G7 discussions are expected to be about strategies to protect areas where the next battle lines are likely to be drawn, namely capital goods.

BHP Billiton

Citi suspects BHP is suffering an identity crisis. Its diversity during the “super cycle” was expected to help its dividend policy weather any downturn but the deterioration in commodity prices has proved this incorrect.

Now the broker observes there is nothing in the company's proposed minerals development pipeline defined as greenfield discoveries while oil exploration has been more successful in that regard. While de-merging South32 ((S32)) was viewed as, partly, a recognition that more complex operations do not suit the company's profile, Citi believes there is more work to be done at core operations to be best in class in terms of operating performance.

The broker also observes a reluctance at BHP to trade low margin third party material more aggressively and suggests failed tilts at Rio Tinto and Potash Corp indicate M&A is not the company's forte either. To value the stock the broker notes the main issue is increased volatility around earnings and dividends, and further analysis suggests the company could deliver greater shareholder value by shrinking the business further.

Nickel

Macquarie finds increasing signs the nickel market is moving to deficit, amid a significant tightening of the global physical market. Production cuts have so far been larger in nickel than for any other base metal. Macquarie forecasts a deficit of over 70,000 tonnes this year.

Nickel use has surprised the market, with a sudden rise in Chinese stainless steel production. Macquarie observes March production rose 50% month on month. The surge is a consequence of the fiscal and monetary stimulus enacted by the Chinese government, with a real consumption impact in construction and infrastructure.

While this is expected to unwind gradually in the second half of the year it should still leave usage higher than previously envisaged. Macquarie also observes a tightening in supplies of secondary nickel. If the nickel scrap shortage turns out to be more serious than assumed, and nickel ore supplies from the Philippines do not accelerate sharply, the broker suspects the deficit into 2017 could even be larger.

While history suggests high inventories do not stop prices rising when the market moves to deficit, Macquarie believes high stocks will restrict, but not prevent, upside in nickel prices over the next 18 months.

Gold Miners

Gold prices are likely to rebound to over US$1,400/oz by mid 2019, driven by investment demand, inflation and global negative real rates, Macquarie contends. In this case the broker's revamped, lower-for-longer, Australian dollar forecasts translate to a 1-6% increase in forecasts for the Australian dollar gold price.

In the near term, however, Macquarie believes weakness in gold is not helped by the Australian currency and expects Australian dollar spot gold to trend down to $1,670/oz. Marking to market the gold price has driven modest upgrades to all producers, with the broker noting Alacer Gold ((AQG)) and Saracen Minerals ((SAR) feature larger percentage upgrades because of modest earnings forecasts in the current year.

Key near-term beneficiaries of the broker's lower currency estimates are Evolution Mining ((EVN)) and St Barbara ((SBM)). As a result of the strong appreciation in the share prices the broker has downgraded Evolution Mining to Neutral from Outperform and Regis Resources ((RRL)) to Underperform from Neutral.
 

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article 3 months old

The Monday Report

By Greg Peel

New High

In recent trade the ASX200 has had a couple of goes at breaching 5400, only to find profit-takers lined up in readiness. The push higher has been helped along by Wall Street, which has also been working its way back toward its highs. But whereas traders have dismissed the rally on Wall Street as a temporary short squeeze, short positions in Australia have recently been historically low.

Which suggests genuine buying is behind the local rally, with shorter term traders happy to call 5400 an appropriate level to cash in. But on Friday the index shot straight through 5400 from the open and reached as high as 5427 by mid-morning. This would suggest traders who had been riding the rally from under 5000, particularly in the likes of the big resource stocks and banks, have now squared up.

The index meandered its way in the afternoon, Friday-style, to a close of 5405 which, although below the high of the day, represents the first close above 5400 since the index plunged through that level in the China scare last August.

A half percent gain for the banks was the primary driver, while Wesfarmers managed to find some buyers having previously been knocked down on its write-offs. Consumer staples led the gains with 1.0%. For once the resource sectors sat it out, while buyers continue to look to the yield-payers of telcos and utilities in the face of likely ongoing RBA rate cuts.

The SPI futures closed up 23 points on Saturday morning, suggesting we should be set to go on with it today. But Wall Street is closed tonight, as is the UK, and it’s a very big week for local economic data releases, including March Quarter GDP.

More Yellen

All eyes were on Janet Yellen on Friday in the US as the Fed chair spoke at Harvard University. Given the apparent step-up in hawkishness emanating from her FOMC colleagues of late, Wall Street was keen to hear whether the typically more dovish chair would yet again pour cold water on the debate.

In the end, Yellen didn’t really say anything to fuel either the June hike or no June hike arguments. If the US economy continues to show signs of recovery, according to the data, then another rate hike sometime in the next few months would be appropriate, she said. And caution will be required.

While the US indices typically wobbled on the news, as the computers tried to interpret Yellen’s words, it was a case of a small down before a rapid recovery. Perhaps the take-away is that Yellen said nothing that suggests there will not be a rate hike in June. This was enough to see US bank stocks continue their interest rate-driven rally, while the US dollar index and US ten-year bond yield also rallied, implying rate hike expectations.

Or at least improving odds of a rate hike. The Fed futures market is presently only pricing in about a 33% chance of June hike. Perhaps those odds might tighten if the Brexit polls in the UK continue to trend further toward the “stay” vote, albeit many still believe the Fed will not consider moving until July just in case.

With regard the Fed’s “data dependence”, Friday night saw the first estimate of March quarter GDP revised up to 0.8% from a previous 0.5%, largely in line with expectation. Additional growth came from housing construction and warehouse stocking. We recall that the first estimate is always an extrapolation of the first month of the quarter – in this case January – and the first revision adds in the second month before the final revision adds in the third. Mid-winter is always the slowest period.

We’re about to enter June so the March quarter seems a long way away, but the positive revision was nevertheless seen as a positive by the markets, rather than generating a rate hike scare. As has been the Fed’s intention for some time, markets are now relatively well prepared for a rate hike.

Commodities

The US dollar index was 0.6% higher on Saturday morning at 95.70 as it continues to price in a rate hike or at least the underlying reason for a rate hike, being an improving US economy. It is the improving US economy that is providing reason for commodity prices to hold their ground, despite the mathematical drag of the stronger dollar.

Signs of Chinese restocking also supported base metal prices on Friday night, with the LME closing ahead of Yellen’s Harvard visit. Lead and zinc rose 1% while the other metals saw smallish gains. The LME is closed tonight.

West Texas crude is US14c higher at US$49.54/bbl.

Having looked a bit vulnerable under US$50, iron ore rallied back US$1.00 to US$50.90/t.

More beholden to the inverse relationship with the greenback is of course gold, which fell for the eighth straight session on Friday to US$1212.80/oz, down US$6.70.

The Aussie was 0.5% weaker on Friday morning at US$0.7185.

The SPI Overnight closed up 23 points or 0.4%.

The Week Ahead

It is a very big week for data this week.

Wednesday is the first of the month, which means manufacturing PMIs around the globe, followed by services PMIs on Friday.

After the holiday tonight, the US will see personal income & spending, including the Fed’s preferred PCE inflation gauge, consumer confidence, Case-Shiller house prices and the Chicago PMI tomorrow night. Wednesday it’s construction spending, vehicle sales, the Fed Beige Book and the ADP private sector jobs number for May.

Thursday it’s chain store sales, while Friday brings factory orders and the last set of non-farm payroll numbers before the June Fed meeting.

The ECB holds a policy meeting on Thursday.

Australia can also strap in.

In terms of monthly data, we have building approvals and private sector credit tomorrow, house prices and the manufacturing PMI on Wednesday, retail sales and the trade balance on Thursday, and the services PMI on Friday.

In terms of March quarter numbers we have company profits and inventories today, the current account, including the terms of trade, tomorrow, and the GDP on Wednesday.

The data is hotting up just as the corporate news begins to wind down ahead of books-close, notwithstanding any more profit warnings that may surprise during this “confession session” period.

ALS ((ALQ)) will release earnings numbers today and hold an investor day tomorrow. FlexiGroup ((FXL)) will hold a strategy day tomorrow, and Challenger ((CGF)) an investor day on Thursday.

Rudi will Skype-link with Sky Business on Tuesday morning, 11.15am, to discuss broker calls. On Wednesday he'll present Your Money, Your Call Equities while the masses will be watching State of Origin. On Thursday he'll re-appear 12.30-2.30pm and again between 7-8pm for the Switzer Report. On Friday he'll repeat the Skype-link, probably around 11.05am.
 

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

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