Tag Archives: Energy

article 3 months old

The Overnight Report: What Goes Up

By Greg Peel

The Dow closed down 113 points or 0.6% while the S&P lost 0.5% to 2091 and the Nasdaq closed flat.

Energised

A 5.7% gain for the energy sector about sums up yesterday’s session on Bridge Street, although it was not a lonely journey. A strong gain for oil prices overnight spurred on energy stocks but ongoing gains for iron ore with support from base metals had materials up 2.0%, while the dominant market cap sector of the banks posted a 0.8% gain.

The banks may currently be under siege from all quarters but it seems the market is more interested in bad debt relief being offered by the commodity price rebound and the flow-on of stronger commodity prices into a reduced likelihood of the RBA having to cut its cash rate.

Assuming the commodity price rally holds. But it must be said some previously bearish analysts are beginning to concede there may be some justification in recent strength beyond just short-covering and seasonal restocking.

Healthcare and consumer staples both posted 1% gains yesterday but elsewhere movements were more modest, with the telcos missing out altogether.

The ASX200 has now left 5200 behind and is eyeing off 5300 on its way, chartists are assuming, to 5400, but we may see a stumble today after Wall Street decided to take some money off the table last night. It might be a mixed bag nonetheless, with oil prices off a bit last night but iron ore going nuts with another 7% jump.

Yield Off

Mario Draghi offered up no surprises last night in leaving ECB monetary policy unchanged following the shock & awe package delivered in March.

After a couple of strong post-Doha sessions which took oil prices to new 2016 highs, it was no shock to see a bit of a pullback last night. But while this did mean a bit of selling in US energy stocks, it was not the primary reason for a generally weaker session on Wall Street on the oil correlation, which was more of a March quarter story.

With the Dow having hit 18,000 and the S&P 500 having hit 2100, following a strong run up, it was time for some consolidation. These numbers are no more important than any other but because they are round, they are targets traders will often set as a triggers for taking profits.

Yet while the pullback in stocks last night was not surprising, the spread of sector movements was interesting.

The US ten-year bond yield has been moving up recently, rebounding from the depths reached following the aforementioned shock & awe package from the ECB which dragged down German yields and thus US yields on a relative basis. While the Fed has indicated it is in no rush to hike yet and US economic data releases have not been too encouraging of late, bonds have been sold off across the globe as general panic has subsided.

As US bond yields rise, the value of high-yielding US stocks eases. When the wheels fell off in January and into February this year as the oil price collapsed, investors ran to the shelter of yield stocks such as utilities and telcos and out of cyclicals such as resources. They were rewarded as bond yields continued to fall.

That trade is now reversing. With Wall Street having returned to 2016 highs on a commodity price rebound that is looking more entrenched, steadily rising US bond yields (now back at 1.87% in the tens having been down towards 1.6%), investors are switching out of those defensive yield names in fear they may miss a cyclical push higher.

Thus last night’s hundred point fall in the Dow and pullback from the high in the S&P was more about sector rotation than it was about general market selling. We note the Nasdaq, in which it would be hard to find a solid dividend payer among the growth stocks, closed flat.

Of course we’re also in the midst of US earnings season, and after a strong start it has to be said the results have become more mixed, offering another reason for Wall Street to take a breather.

Among the Dow stocks, misses led to sharp falls for Verizon and Travelers last night while American Express managed a modest gain. In the wider market, General Motors managed a decent gain but Mattel had a session Barbie would prefer to forget.

It got worse after the bell. All of Microsoft (Dow), Visa (Dow), Google and Starbucks posted misses and their shares are down 3-5% in the aftermarket.

Tonight sees results from some heavy industry names in the form of General Electric, Caterpillar and Honeywell and global barometer McDonalds. A common theme among reporters so far has been the impact of the strong greenback in the March quarter, as well as commodity price weakness, so given both have since reversed, traders are prepared to give some weaker results the benefit of the doubt as the June quarter progresses.

Commodities

West Texas crude is down US75c at US$43.43/bbl for the new June front month and Brent, already trading June, is down US84c to US$44.73/bbl. Note how tight that spread has now become.

Iron ore, blow me down, closed up US$4.40 or 6.8% at US$68.70/t.

Trading was mixed on the LME, with nickel down 2% and zinc 1% but copper and aluminium continuing their steady rise with 0.5% gains.

The US dollar index is up 0.1% at 94.66 but gold is a little higher at US$1248.00/oz.

It looks like perhaps the forex cowboys had set themselves for an ECB rate cut into the negative last night even though no one else expected such. The Aussie had pushed higher above 78 all through the local session then suddenly plunged in European trading to be down 0.7% over 24 hours at US$0.7739, despite the big jump in iron ore and despite little movement in the greenback.

Today

The SPI Overnight closed down 29 points or 0.6%. We’re probably due an index pullback, but it could be a jumble among the sectors.

Japan, the eurozone and US will all publish flash estimates of April manufacturing PMIs tonight.

Santos ((STO)) will release its quarterly production report today.

Rudi will link up with Sky Business through Skype this morning, probably around 11.05am to discuss broker calls. Citi is calling for dividend cuts from both National Australia Bank ((NAB)) and ANZ Bank ((ANZ)) over the next few weeks, so that might have an impact in today's session too.
 

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

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

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

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

article 3 months old

BHP Opts For Value Over Volume

-Output slowing, underpins iron ore price
-Should more allowance be made for disruptions?
-Iron ore probably dependent on steel rally
 

By Eva Brocklehurst

BHP Billiton ((BHP)) flagged a reduction in its iron ore output target for FY16, news that was largely foreshadowed by a similar decision from major rival Rio Tinto ((RIO)).

The value versus volume proposition appears to have won over BHP too, as a means, brokers believe, to underpin the iron ore price. BHP has lowered FY16 iron ore shipment guidance to 260mt, down by 10mt, and will undertake a two-year railway maintenance program at its Western Australian iron ore operations.

Ord Minnett was surprised by the duration of the rail program. The company stated this is necessary to get to 290mtpa, which suggests a bottleneck. The broker has lowered FY17 output forecasts to 269mt from 274mt and expects a tighter iron ore balance in 2017, which should be positive for prices.

The 2017 oversupply in the market is now just 55-65mt, Ord Minnett contends, and there is upside to the broker's 2017 forecast price of US$42/t. While acknowledging tighter supply and positive data out of China recently, the broker considers the stock is already pricing in upgrades and a Lighten rating is retained.

BHP remains one of Morgan Stanley's preferred mining exposures. The broker does wonder, while the rail works run for 24 months and are intended to support productivity gains, whether any allowance should be made for other production disruptions in the short term. Morgan Stanley expects the company's Western Australian iron ore output to rise to 267mt in FY17.

In the company's other commodities the Spence option that is being considered could increase copper output by 200,000t per annum, the broker ascertains. It remains in feasibility studies.

Morgan Stanley acknowledges that a decision to invest in this project, maybe up to US$2bn, would test the equity market's support for such counter cyclical development. On the other hand, Indonesian coal may not be such an option any more as the company has flagged a strategic review on the long-term future of its coal assets in that country.

In Credit Suisse's view iron ore may have more upside while the rally in Chinese steel lasts. The broker notes steel mills are enjoying rare profitability and, in lifting output, are seeking iron ore on the spot market to supplement contracts.

The question the broker asks, which reflects on the outlook for iron ore suppliers, is whether the rally in steel can continue. On this subject, Credit Suisse notes there are mixed views but it expects re-stocking should support the steel rally at least for the rest of the June quarter. If real demand for infrastructure follows to absorb the rising output then prices can be supported all year.

Macquarie reduces BHP's iron ore production forecasts in line with the company's announcement and notes a cash cost target of US$15/t has been retained for FY16, based on an average US72c for the Australian dollar. If the current strength of the currency is sustained then Macquarie expects cash costs would end up above the target.

March quarter copper equivalent production was down 2.0% quarter on quarter, with strong performances from copper and gas and under-performance from the Pilbara, Deutsche Bank observes. The broker slows its modelling of the ramp up in iron ore production with an end point of 280mtpa.

Deutsche Bank, too, suspects there could be a bigger issue with the rail maintenance announcement. The main line is experiencing a ballast stability issue which is affecting train speeds, and the speed of the trains was an important part of reaching 290mtpa by the end of FY17.

The stock is trading below Deutsche Bank's valuation but as the copper equivalent growth outlook is flat, with oil production peaking and minerals growth projects long dated, a Hold rating is maintained. UBS suspects the rail maintenance will likely push out the company's ability to reach 290mtpa until at least the end of FY18.

FNArena's database shows four Buy ratings, two Hold and two Sell for BHP. The consensus target is $20.27, suggesting 3.9% downside to the last share price. Targets range from $15.00 (Macquarie) to $28.70 (Morgans).
 

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.

article 3 months old

Whereto Now For Australia’s LNG Producers?

By Greg Peel

The Oil Price

There was never any indication the meeting of OPEC and non-OPEC oil producing nations held in Doha last weekend was going to result in a production freeze agreement. Saudi Arabia was sticking to the line it would not freeze if Iran did not join in. Iran has always stuck to the line it was not going to freeze.

The meeting appeared destined to descend into farce even before it began. As it was, Iran announced at the last minute it wasn’t going to bother turning up. As Morgan Stanley noted, at least back in February the relevant parties were able to reach a non-committal agreement, for whatever that’s worth. This time there was no agreement whatsoever, suggesting progress has moved backwards.

The only surprise is that so many in the oil market seemed to be hanging on to a possibility of a freeze, and thus the likelihood of an oil price collapse following a 40% rally from the low were a freeze not to eventuate. Morgan Stanley was among them, suggesting a bull case of US$45/bbl (WTI) in 2016 and US$80/bbl long term were a freeze agreement to be reached. The broker’s bear case scenario, in light of no agreement, has oil falling back to US$30/bbl in the short term.

The prevailing view among traders is that oil will remain in a range of US$35-45/bbl to the end of the year. The fact the oil price did not collapse on the “no agreement” outcome suggests few had faith in the first place, implying the recent US$40 level for oil was not pricing in a premium for such an agreement as many assumed. However the “right” price for oil post-Doha is a little hard to pin down given coincidental supply-side issues among OPEC members, including a strike by oil workers in Kuwait.

While strikes typically represent temporary issues, this particular strike may yet be a harbinger of things to come. Oil analysts now fear that relationships have broken down between OPEC members to such an extent a production war is quite possible, threatening to send oil prices back to previous lows on sheer oversupply. But OPEC members, and non-OPEC members such as Russia, are suffering such a critical loss of government revenue from low prices the risk is they are forced to reduce oil worker wages, as Kuwait has attempted to do, thus sparking more strikes and the opposite effect – supply reduction.

Now that would be ironic.

Commonwealth Bank’s oil analysts take the popular view of a US$35-45 range in 2016 a step further and suggest a range of US$35-55 over the next decade.

In the June and September quarters of 2016, CommBank sees the oil price tracking higher as US production continues to track lower. As UBS notes, US oil production is currently running at around 9.0 million barrels per day, representing a slow decline from a peak of 9.6 million in June 2015. On most recent data the US rig count had fallen to 354, down from 734 a year ago and 1510 two years ago.

The number of bankruptcies among marginal US shale oil producers is growing by the day.

But CommBank sees oil prices tracking lower again in the December and March quarters due to increasing Iranian production, high levels of OECD inventories and the potential for US shale production that has simply been idled, rather than bankrupted, to restart. This is the critical conundrum for the US shale industry, which is the true swing factor in global oil production. CommBank estimates a price of US$55 is enough to encourage the restart of idled production, or maybe even US$50 if the cost of production can be further reduced, as has been the trend in the past several years.

The only road to sustained higher oil prices is therefore sustained lower oil prices, at least for a sufficient amount of time to enforce actual production abandonment rather than just mothballing. Debt defaults and bankruptcies in the US hold the key.

Outside of the US, Commbank suggests the threat of a complete disintegration of OPEC is real, as member countries continue to compete aggressively on price to steal market share away from each other, which is anathema to the original purpose of the Organisation.

At the very least, Morgan Stanley analysts are now suggesting, in the wake of Doha, that their previous assumption of a 2017 recovery in prices could now be pushed out to 2018 on such a supply war.

Then there’s the demand side.

The International Energy Agency recently revised its forecast for non-OECD oil demand growth higher. Morgan Stanley believes this forecast to be optimistic, and the US Energy Information Administration, and indeed OPEC, are beginning to see it that way too. The EIA notes that while the demand for oil products from non-OECD countries has increased in 2016, the pace of increase has been falling since August.

The IEA also assumes growth in Chinese gasoline demand will be about the same in 2016 as it was in 2015, despite signs of continued weakness. While there is indeed promising demand growth apparent in India and other emerging markets, this is unlikely to overcome falling Chinese demand, Morgan Stanley believes.

The LNG Price

From a time when Australia first started shipping liquid natural gas to Japan from the North West Shelf, LNG cargo pricing has been linked to the price of oil. This suited both buyers and sellers as the correlation between oil and gas prices had remained in a reliable range throughout history, and oil was a liquid, internationally traded market offering price discovery when no such international gas market existed.

Aside from being oil-indexed, LNG pricing has also always been settled on a long-term contract basis. Spot pricing has only ever been used for cargos required to cover shortfalls. Again, long term contracts suited both buyers and sellers, as buyers would achieve security of supply and sellers would be guaranteed of funds flow to justify the extensive initial cost of building an LNG export facility.

Australia’s major new LNG projects on both the east and west coasts, built over the past decade, are now beginning to ramp up. Just as the oil price has collapsed. But while the oil price has traded down to US$30 post-GFC, up to over US$100 and down to under US$30 again, the price of gas as measured by the US benchmark price has barely moved, destroying the longstanding price correlation.

When the oil price was up in the heavens and the US gas price was not, LNG buyers argued oil-index pricing could not be justified. But the sellers could always argue the US benchmark price was a US domestic price only and given the US did not export LNG, irrelevant. Unfortunately for the sellers, excess shale gas production has meant the US has now begun to export LNG. The US is a long way behind Australia in turns of ramp-up, but the oil-index price argument no longer stands up, even if the oil price has come all the way back down again.

Furthermore, low oil prices are not providing an incentive for LNG buyers to continue to lock in long term supply contracts, as one might expect. For one thing, the gas price has not fallen alongside oil, it was already near its lows. And for Japan, long term LNG contracts are not desirable at present given the uncertainty over whether the country’s nuclear power generators are now in a restart phase or not.

Japan is thus pushing for shorter duration contracts and greater contract flexibility. Ord Minnett notes LNG sales not on long term contract now account for 29% of the market. The problem with short term contracts is they do not provide the incentive for LNG producers to commit to high cost developments when little price and volume security exists.

When Australian producers were committing to large scale LNG developments a decade ago, a primary assumption was that global LNG demand would grow steadily into the future to ultimately absorb the step-jump in supply the new developments would affect. This thesis remains intact but a decade ago no one predicted the North American shale oil/gas explosion.

LNG demand is expected to be driven to a large extent by the move away from coal on an environmental basis. The problem recently is that coal has become so cheap, it is offering emerging market economies a more economic power source and thus hampering the rise in gas demand. China is a swing-factor nonetheless, as Beijing has pledged to reduce its carbon emissions by 2030 and the government’s shift towards “green” energy includes a preference for gas over coal.

Were LNG buyers to insist on shorter term contracts, longer term supply projects and expansion will not be incentivised, Ord Minnett suggests, leading to a supply shortage down the track against assumed demand growth. That would mean much higher LNG prices in the future.

Ords also believes the days are numbered for oil-indexed gas pricing, but in order for gas pricing to stand alone, a liquid global spot market is required and none exists at present. West Texas Intermediate crude futures provide global benchmark pricing for oil – the most highly traded commodity on earth – but US Henry Hub gas futures remain very much a domestically-driven US price mechanism with little relevance to the rest of the world, until, perhaps, the US becomes a major player in global LNG export sometime in the future.

Oz Energy Stocks

The share prices of Australia’s big energy names have come back strongly from near death experiences in February when the WTI price hit US$26, now that WTI is back at US$42. As to the outlook from here, however, it is very difficult to find consensus.

Macquarie points out, for example, that the ongoing development of Oil Search’s ((OSH)) PNG gas growth options mean the commissioning of a third LNG train grows ever closer. Santos’ ((STO)) second GLNG train is set to deliver first LNG this quarter, thus ending a long and difficult development period for the company.  Woodside Petroleum ((WPL)), on the other hand, is delivering strong near term cash flows from the North West Shelf and Pluto but has no growth options.

Macquarie thus prefers Oil Search and Santos over Woodside.

Morgan Stanley, who we recall sees oil falling back to US$30, notes that while Oil Search, Santos and Woodside all offer similar upside value were oil to rally further, Oil Search and Santos offer greater downside than Woodside given their debt levels.

UBS has crunched the numbers and estimates Woodside can break even on free cash flow in 2016 at US$30.26 and Oil Search at US$33.25, but Santos requires US$47.09.

Citi is the only broker in the FNArena database with a Buy rating on Woodside. On the balance of cash flow today and no growth tomorrow, the other seven brokers in the database rate the stock a Hold.

That’s where any agreement ends. Oil Search attracts four Buys, three Holds and a Sell (UBS) and Santos attracts four Buys, two Holds and two Sells (including Morgan Stanley).

Obviously broker valuations are highly dependent on broker oil price forecasts, which at this stage vary rather notably.
 

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.

article 3 months old

The Overnight Report: Quiet Achievement

By Greg Peel

The Dow closed up 42 points or 0.2% while the S&P rose 0.1% to 2102 and the Nasdaq gained 0.2%.

Wall of Worry?

On Tuesday the ASX200 gave up an 82 point rally to close up 51 and yesterday gave up a 44 point rally to close up 27. The rally from 4900 to 5200 has been driven almost entirely by the energy, materials and financials sectors due to rallies in oil and iron ore and subsequent loan relief for the banks.

This two steps forward, one step back increase suggests not everyone’s convinced in its sustainability. You would be hard pressed to find an analyst who believes the rally in oil represents any more than short-covering which must soon end, and the rally in iron ore a seasonal upswing which must soon be followed by a downswing.

Yesterday the materials sector led the charge with a 2.1% jump and energy chimed in with 1.1%, but both moves represented slips back from early highs. Financials closed flat yesterday after initially rising, thanks to the government’s decision to make the banks pay for increased funds for ASIC to keep a closer eye on them. Industrials decided to make a move yesterday, up 1.2%, but there was little happening in other sectors.

If the rug were pulled out from under commodity prices then there is nothing else holding up the local market at present. But last night oil was up another 4% and iron ore another 4% and the futures are suggesting up 36 from the open this morning.

Softly Softly

The US earnings season to date has so far registered earnings beats for 71% of reporting S&P500 companies. But it’s still early days and numbers for the big industrials are only just beginning to flow. Last night’s highlight was Coca-Cola (Dow), which missed on revenue and fell 4%. This morning American Express (Dow) posted a beat after the bell, and is up 6% in the aftermarket.

In US economic news, existing home sales jumped a better than expected 5.1% in March. It’s one bright data point in what has generally been a pretty weak run of late, underscoring expectations the US economy barely grew in the March quarter. But hey, the Fed’s got Wall Street’s back.

Which just leaves oil.

Weekly US data last night showed a 2.1m barrel increase in US crude inventories when 3.1m was expected. US production fell by 24,000bpd to 8.9mbpd, marking the six consecutive weekly decline. Forget Doha, this is where the real supply freeze is going on.

WTI is thus up 4% this morning. It’s a bold play to push oil higher still when most of the market believes the only thing holding prices up at present is the Kuwaiti strike, which must eventually resolve, unless prices were never going to fall after Doha anyway. It could just be ever more short-covering, but one day the shorts may be right if the post-Doha world means stepped up competition for market share between OPEC members.

On that point, Saudi Arabia, who scuttled Doha, is now considering the unthinkable – putting a stake in its state-owned Aramco energy company up for IPO. Saudi Arabia has always maintained it can endure lower oil prices until production declines in the US, but clearly the kingdom needs the money.

The Dow gave up a hundred point gain at 3pm to post another modestly positive session. Trading was quiet and volume was light, as it has been over the week. If Wall Street is to reach to new all-time highs in the next few sessions, it won’t be without some level of nervousness, it would seem.

But where else are you going to put your money?

Commodities

On the expiry of the May delivery contract, West Texas crude closed up US$1.67 or 4.1% to US$42.63/bbl. Brent, already trading June, is up US$1.51 or 3.4% at US$45.57/bbl.

Right now commodities are not paying a lot of attention to the US dollar, which last night rebounded 0.5% on its index to 94.55. On the LME, talk is of Beijing preparing to announce a ramp-up of infrastructure stimulus (hence the jump in the iron ore price) and of production cuts in China and elsewhere, which have at least been announced if not yet delivered.

A fall in inventories saw aluminium jump 2.5% last night in another generally positive base metal session in which only zinc slipped a bit.

Iron ore is up US$2.50 at US$64.30/t.

The rebound in the dollar has gold off US$6.00 at US$1244.30/oz but the trade-off of a stronger greenback and stronger commodity prices means the Aussie is only down 0.2% at US$0.7797.

Today

As noted, the SPI Overnight closed up 36 points or 0.7%.

The ECB will hold a policy meeting tonight, but there is no expectation of anything new at this stage.

Before that, it will be a very busy day on the Australian corporate front.

The quarterly production reports come thick and fast today and include numbers from Alumina Ltd ((AWC)), Iluka ((ILU)), OZ Minerals ((OZL)) and South32 ((S32).

Quarterly updates will also be provided by Brambles ((BXB)) and Challenger ((CGF)), while Wesfarmers ((WES)) will report quarterly sales and Ten Network ((TEN)) will report first half earnings.

Cimic ((CIM)) and Woodside ((WPL)) will hold AGMs and Nufarm ((NUF)) will host an investor day.

Bring on the long weekend.

Rudi will make his usual weekly appearance on Sky Business today, 12.30-2.30pm, and re-appear for a verbal wrestle with Peter Switzer at around 7pm.
 

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

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

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

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

article 3 months old

Bullish Set-Up For Santos

By Karo Cornips, advisor, Options Educator, Traders Circle

Some of the most well-known patterns used in technical analysis are triangle patterns. Today we are looking at the Ascending Triangle on STO.

Appearance:  This pattern is easily recognisable, as it resembles a triangle. A horizontal line connecting multiple highs can be drawn indicating resistance above the current share price. A second ascending trend line is drawn below the stock prices connecting multiple higher lows, completing the ascending triangle pattern.

Context:  An Ascending Triangle is a bullish pattern with traders generally looking for a Bullish breakout. The Ascending Triangle forms as a consolidation period within the uptrend and indicates upwards continuation will follow when the resistance breaks.

Breakout Expectation:  A breakout typically occurs when the resistance is penetrated. A breakout sometimes occurs at about two thirds of the way into the triangle. A stock, which does not break prior to reaching the apex of the triangle is generally sluggish and often a less reliable trading candidate. To determine the expected price rise, which could follow, the widest portion of the triangle may be measured and added to the breakout point (resistance level). There are instances when Ascending Triangles form a reversal patterns. When bullish patterns fail, they can produce extremely quick and powerful bearish moves.

Example: The daily OHLC (open high low close) chart below illustrates an Ascending Triangle on Santos ((STO)) as indicated by the trend-lines in blue. You can see the stock as recently bounced off the trend line, and may in fact continue on to break the resistance level, confirming the overall break out of the triangle. If this occurs, this is considered a strong bullish entry signal.


 
Reprinted with permission of the publisher. Content included in this article is not by association the view of FNArena (see our disclaimer).
 


 

General Advice Warning

The author of the article and Traders Circle Pty Ltd are Authorised Representatives of OzFinanical Pty Ltd, AFSL number 241041. Any advice provided in this article is general in nature and does not take into account your financial circumstances. Before making an investment decision, you need to consider whether the advice is appropriate for your own personal financial circumstances. This might mean that you seek personal advice from a representative authorised to provide such advice.  Trading Options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only act on our recommendations if you are confident that you fully understand what you are doing.  . It is important that you understand that past returns do not reflect future returns.
 

Technical limitations

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

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.

article 3 months old

Is Too Much Growth Factored Into Oil Search?

-Elk/Antelope resource next catalyst
-Likely delay to train 3
-Is too much growth being factored in?
 

By Eva Brocklehurst

Oil Search ((OSH)) impressed brokers with its March quarter production and operations, continuing to set records at PNG LNG. Ord Minnett observes PNG LNG continues to be an outstanding producer, with full year guidance implying production levels that are 9-14% above nameplate.

The broker notes final investment decisions on the company's two major growth projects - PNG LNG's train 3 and the Papua LNG expansion - are a year away. While there are significant hurdles to any joint development given ownership structures are different, Ord Minnett notes, if some of the company's flagged intent on co-operation could be obtained, there would be major cost savings.

Otherwise, the catalyst over the next year is considered to be the establishment of foundation customers and long-term contracts to underpin projects and the broker retains a positive view on the stock with an Accumulate rating, given the company's interests in these low-cost assets.

Quarterly production at PNG LNG was an annualised 8.0mtpa and revenue of US$313.1m was above broker estimates. Record sales volumes were offset by lower realised prices of US$6.84/ mmbtu for LNG and US$34.76/bbl for oil. Production guidance for 2016 of 27.5-29.5mmboe is maintained.

Production drove a 10% revenue beat on Deutsche Bank's forecasts. The broker notes the Elk/Antelope JV is now undertaking a resource certification process for the field, with the resource size likely to be be known around mid year. If it exceeds 7tcf, the broker notes Oil Search will be liable for a milestone payment to the original owners of the resource. For example, at 8tcf a US$177m milestone payment will need to be made.

This resource determination is the next catalyst in Morgan Stanley's view. The broker considers the company’s long-term growth options are attractive, but time is needed to determine the expansion opportunities. Development capex remains low, which highlights the attractiveness of PNG LNG, in the broker's opinion. Operations are breaking even on cash flow at around US$19/boe and, on the broker's modelling, assuming mandatory debt repayments and maintenance capex in the low US$30/boe range, this is defensible.

Credit Suisse concurs. Even into a depressed spot market the cash flow from de-bottlenecked volumes helps and there is large operating leverage, given the low cash cost of these volumes, the broker points out. Therefore, when spot prices return to more normal levels the upside is significant. While the broker finds it hard to make to definitive a statement on the value of the growth portfolio, it does not dispute the fact the projects are world class.

Credit Suisse is also interested in the company's comments regarding co-operation, and possibly integration, of the two projects although considers it relies on the two majors, Exxon and Total, playing nicely and acting rationally. The broker retains a Neutral rating, as with three incremental trains risked at 65% of net present value this is effectively fully de-risking two of them. Meanwhile, the pathway on timing, funding and costs remain unclear and, hence, the quandary. Credit Suisse wonders whether waiting for the “right” price to own the stock may be foolish, but wait it will.

UBS notes the higher LNG output will mean more gas is required to keep both trains full for 20 years, raising the level of gas volumes that are required to underpin a third train. The delays in P'nyang appraisal drilling reinforces the broker's view that train 3's final investment decision won't be made until 2018 at the earliest. The broker's start up time frame has been pencilled in for 2023.

The company's LNG exposure may be the best in its class but the low oil price and oversupplied LNG markets are expected to impact further cash flow and create challenges in moving new LNG trains into the development phase. UBS does not expect the market to re-balance until 2023. Hence, the broker believes the market is factoring too much for the company's growth story and retains a Sell rating.

Macquarie looks forward to having greater clarity on undeveloped resources by year end. Following the conclusion of the certification of Elk/Antelope the company expects that re-certification of the Hides, Angore and AG fields will commence. This provides further basis, the broker contends, for the company to move the proposed acceleration of AG fields into Front End Engineering Design by the end of the year.

FNArena's database shows four Buy ratings, three Hold and one Sell (UBS). The consensus target is $7.28, suggesting 7.5% upside to the last share price. Targets range from $6.26 (Morgan Stanley) to $8.40 (Morgans).

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.

article 3 months old

The Overnight Report: Just Like Old Times

By Greg Peel

The Dow closed up 49 points or 0.3% while the S&P gained 0.3% to 2100 and the Nasdaq fell 0.4%.

Well Resourced

It was all about commodities and the resource sectors on the local market yesterday thanks to a jump in the iron ore price and no drop in oil prices. We recall that on Monday, energy names were sold down following a lack of agreement coming out of Doha, perhaps not so much as a panic trade but more of a safety trade.

Given oil prices fell initially but ultimately recovered on Monday night, yesterday saw those same energy names bought back again. The banks had similarly seen some squaring up for safety on Monday on the energy sector loan link, and they, too, recovered yesterday.

The ASX200 was up 82 points early in the session before some profit-taking emerged after the solid run up from 4900 in the past few sessions. The close of up 51 points was led by energy (3.8%) and materials (3.3%) with some help from the banks (0.8%).

But interestingly, the resource sectors were the only cyclicals to join in the spoils as the index briefly breached 5200. Industrials actually fell 0.6% and the consumer sectors were flat while the defensives of telcos and utilities each rose 1%. If we are to push upward towards 5400 as the technicals suggest, we cannot be confident in a rally driven by defensive yield and fickle commodity prices.

There is much focus at present on Wall Street and the potential of quarterly earnings results to push the US indices back to all-time highs. But locally we are now entering an important quarterly season of our own – not in the form of official earnings results but in the form of quarterly updates from both resource sector and non-resource sector companies, as is increasingly becoming the norm. By next week we will start to see a flood of AGMs being held by calendar year-reporting companies.

In other words, we are entering a period of micro influence that in aggregate should help paint a macro picture for the Australian economy. The macro has taken a back seat in other developed economies given safety nets provided by central banks. As to whether the Australian central bank can also provide some support is now a subject of heated debate.

RBA governor Glenn Stevens spoke in New York last night and I suggested yesterday it probably wasn’t the forum to discuss currency issues downunder. And it wasn’t. Stevens made it clear he wasn’t there to discuss Australia but to provide his take on the current international economic climate.

Yesterday the minutes of the RBA’s April policy meeting were released, and provided no new insight. The word “complicate” was used in the official statement following that meeting and appeared again in the minutes:

“Oil and iron ore prices had risen noticeably since earlier in the year. The rise in commodity prices had been accompanied by an appreciation of the Australian dollar, which also partly reflected the expectation that US monetary policy would be more accommodative over the coming year than had been anticipated earlier. Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards the non-mining sectors of the economy.”

We might note that in early April the Aussie was trading around US$0.75 and on the strength of commodity prices and further weakness in the US dollar, is up 0.8% over the past 24 hours to US$0.7812.

A lack of any further hints about a possible rate cut to address the “complication” is likely why the consumer and industrial sectors were held back yesterday. More than one economist is tipping a May rate cut, although you wouldn’t pick one from the RBA’s current rhetoric.

Here We Are Again

With OPEC having failed to agree to a production growth freeze on the weekend it’s perhaps ironic that right now OPEC supply is under restraint thanks to the strike in Kuwait, significant production outages in Yemen, South Sudan and Iraq and pipeline outages in Nigeria. These restraints are helping to support oil prices, which were up a couple of percent last night.

But strikes and outages are usually temporary so the real focus is on US production, and the US weekly numbers are out tonight. Ongoing weakness in the US dollar is also supporting oil prices and indeed commodity prices across the board.

The weaker greenback is also supporting Wall Street. The current focus is on March quarter earnings and whether they’ll be less bad than forecast, and a lot of the weakness built into forecasts reflects a strong US dollar over a quarter in which assumptions were for routine Fed rate rises. Now that those assumptions have evaporated and the greenback has steadily fallen, Wall Street can also look ahead to some better earnings numbers from multinationals in the June and September quarters.

Last night the S&P500 closed smack on the psychological level of 2100. The broad index did reach as high as 2104 early in the session as the Dow shot up 100 points on the open, but there is some nervousness beginning to creep in. It’s only 300 more Dow points to the all-time high and 30 more S&P points. The average PE ratio is starting to test the top of its typical range.

And next month is May. But the “Sell in May” adage usually only works if Wall Street has rallied through the first quarter and into the second, and this year we’re still not yet at the old high as May approaches. The S&P last saw 2100 in November and first saw 2100 in February of last year. The earnings result season has only just begun.

Last night’s earnings results were not that flash. “New tech” Netflix saw its shares down 13% after the company eased back subscriber growth forecasts, which goes a long way to explaining why the Nasdaq bucked the trend last night. “Old tech” IBM (Dow) saw its shares fall 5.5% following yet another drop in revenue. Further old tech disappointment was provided by Intel (Dow) after the bell, and its shares are down 2% in the aftermarket, while Yahoo shares are up 1%.

Commodities

West Texas crude is up US91c at US$40.96/bbl and Brent is up US$1.13 at US$44.06/bbl.

Base metal prices have been given a kicker by the stronger oil price, or perhaps the not weak oil price, and also by the weaker greenback. The US dollar index is down 0.4% at 94.11 and aluminium, nickel and tin all rose on the LME last night, 1% while copper, lead and zinc all rose 2%.

Iron ore’s surge continues. It’s up another US$1.90 at US$61.80/t.

The dollar index briefly breached the 94 support level last night which has the gold bugs excited. Gold is up US$17.80 at US$1250.30/oz.

Today

Hard to ignore commodity price strength. The SPI Overnight closed up 31 points or 0.6%.

BHP Billiton ((BHP)), Newcrest Mining ((NCM)) and Woodside Petroleum ((WPL)) all report quarterly production and sales numbers today.

Rudi will host Your Money, Your Call Equities tonight. Tune in from 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.

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: Doha Indifference

By Greg Peel

The Dow closed up 106 points or 0.6% at 18,004 while the S&P gained 0.7% to 2094 and the Nasdaq rose 0.4%.

Playing it Safe

The primary talking point across financial markets over the last 24 hours is Doha, and genuine surprise that oil prices did not collapse in the wake of a lack of agreement at the meeting. But given no one believed there would be an agreement reached, why the surprise?

The Australian market had to make the call yesterday before northern hemisphere oil trading provided direction. I had noted yesterday that the Aussie had plunged over a cent on the Doha news but immediately recovered more than half of that drop, and suggested that might just be a hint as to what would happen in other markets.

Sure enough, the ASX200 fell 39 points from the open yesterday, led down by the energy sector, and it looked like we might be in for an ugly session. But no, by late morning the index was back to square.

We drifted off again in the afternoon to a close down 20 points, and the energy sector closed down 2.9%, suggesting it might be a good idea to square up ahead of what no one was sure was going to happen in oil markets last night. But the energy sector had fallen well over 3% initially.

The banks took a similar tack, given the market is tying in the energy sector loan factor at present. The financials sector fell 0.7%. Materials fell 0.9% on a pullback in the iron ore price.

Those losses were nevertheless offset by two other sectors – healthcare, which rose 1.1%, and telcos, which rose 1.5% after analysts all agreed a share buyback will likely follow Telstra’s ((TLS)) asset sale last week.

It was not the stuff of disaster. And just as well, given what did actually eventuate in oil markets and on Wall Street overnight.

Doha Schmoha

The WTI price plunged 6% on the open last night, hitting US$37.61/bbl. The fall most likely reflects buyers standing aside to see what would happen rather than sellers going in hard. When the price found a bottom, the buyers came in and steadily pushed the price back again throughout the session, to only a modest drop.

US energy stocks all opened lower from the opening bell, sending the Dow down 50 points, but as soon as the oil price found a bottom, so did Wall Street. Not only did energy stocks recover, they quickly became the leaders in a rally which took the Dow up to the 18,000 mark for the first time since last July. The suggestion is the market had set itself short oil and short oil stocks ahead of Doha, expecting a big plunge when no agreement was reached. As soon as buying appeared, a short-covering scramble was triggered. Oh no, we got it wrong.

I don’t buy that argument. I believe nobody expected an agreement in Doha and on that basis, WTI at 40 was already pricing that reality in. All that happened last night is that buyers stood aside in the oil and stock markets to let a few wood ducks make fools of themselves early, providing an opportunity for the smarter money to take advantage. WTI is at 40 because US production is on the decline. It’s got nothing to do with OPEC.

There is also a suggestion a strike by oil workers in Kuwait overnight was actually oil’s saviour. Nah.

Meanwhile, in US economic news, an index of housing sentiment held steady at 58 for the third month running, suggesting modest but consistent optimism. In earnings news, Morgan Stanley became the fifth major US bank to release a less-bad-than-expected earnings result. Pepsico also beat on earnings, while Disney had a strong session following solid weekend box office on the release of its Jungle Book remake.

I remember going to see the original when knee-high, at the Sky studios in North Ryde. Of course back then it was a drive-in.

On last night’s rally the Dow is now a mere 300-odd points shy of its all-time high. The S&P, which is the “real” market, is about 40 points shy. The Dow has reclaimed the psychological level of 18,000, while the S&P only needs a few more points to retake its psychological level of 2100, above which traders see only upside.

With the Yellen Put in place, and on the assumption the less-bad theme continues throughout the US earnings season, traders are feeling pretty confident. This week is an important one for earnings as the first of the big multinational industrials release their numbers.

Commodities

West Texas is down US37c at US$40.05/bbl and Brent is down US13c at US$42.93/bbl.

An increasingly more volatile iron ore price has bounced back a solid US$2.40 to US$59.90/t.

Aluminium, copper and zinc all rose around 0.5% on the LME and nickel managed 2%, while tin fell 1%.

Gold is relatively steady at US$1232.50/oz despite the US dollar index being down 0.3% at 94.46. The Aussie is nevertheless up 0.3% as a result to US$0.7749 – above where it was before Doha.

Today

The SPI Overnight closed up 53 points or 1.0%.

Presumably today we’ll see a recovery in the local energy sector after the safety game played yesterday. We should also see a reversal in the materials sector’s fortunes thanks to iron ore. And Dow 18k will likely in itself provide optimism the local market might just now have the capability to push through to the 5400 mark chartists have been adamant about for some time. Although it will depend on further US earnings reports.

And last night it was all but confirmed Australia is headed to, as the Brick would call it, a “double dis-allusion” election. While history shows stock markets are indifferent to political stripe, the prospect of a government being able to govern without the hindrance of senate cross-benchers resembling a bowl of mixed nuts should be a positive for sentiment, if that’s how things play out.

Back in the real world, Rio Tinto ((RIO)) and Oil Search ((OSH)) both report quarterly production today, Burson Group ((BAP)) hosts an investor day and Recall ((REC)) hosts an EGM with regard the Iron Mountain takeover offer, which has now been given the green light by the FIRB.

The minutes of the April RBA meeting will also be released today, with the market wondering what the central bank might ultimately do about the Aussie. Glenn Stevens will speak tonight in New York, which probably won’t be a forum for offering currency hints.

Rudi will Skype-link up with Sky Business at 11.15am today 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.

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 Monday Report

By Greg Peel

No Deal in Doha

Shock horror. The meeting of OPEC and non-OPEC oil producers in Doha last night has failed to reach any agreement on a coordinated production freeze. The first market to respond this morning to the stunning news is the Aussie dollar, which fell from around US77.2c to under US76c in a heartbeat.

But in almost as short a space of time, the Aussie is currently back at US76.6c.

As to why the meeting in Doha even went ahead is a mystery. All year Saudi Arabia has said it will only freeze production if all relevant oil-producing nations, including Iran, freeze production, and all year Iran has said no. Heading into the meeting, Saudi Arabia maintained its position. As it turned out, Iran didn’t even bother to attend.

The question now is as to whether, heading into the meeting, oil and other markets had accepted the fact the whole thing was going to be a farce or whether today will bring substantial moves in response, in particular a plummeting oil price. Perhaps the Aussie has provided a clue. Were the initial response in oil prices to be a plunge, the buyers may well be ready to jump on the opportunity and damage will be limited.

There can hardly be any excuse for being surprised.

And then there’s China

Notably, the only sector not to finish in the green on the local market in Friday’s trade was energy. A slight dip suggested squaring up for Doha.

The banks and the materials sectors both had quieter sessions after their solid runs last week, up 0.5% each. This left the rest of the market, which had mostly taken a back seat last week, to pick up the ball and have a run. The consumer sectors, healthcare, telcos and utilities all posted gains of around 1% or more, with industrials just off the pace. It was a choppy session, but in the end the 0.8% gain for the ASX200 was mostly a market-wide effort.

The highlight of the day was the release, mid-session, of Chinese economic data.

China’s GDP grew by 6.7% in the March quarter, smack on expectation. That’s down from 6.8% in December, and, as the headlines in the populist press will be quick to point out, the slowest pace of growth since 2009. It may be a fact but it’s also an ignorant comparison. China’s economy has grown substantially since 2009, such that to achieve the dollar value of additional GDP represented by 6.7% growth today would have required a growth rate in 2009 well into double digits.

In the month of March, Chinese industrial production grew by 6.8% year on year, up from 5.4% in February and ahead of 5.9% forecasts. Retail sales grew by 10.5%, up from 10.2% and ahead of 10.4% forecasts. Year to date fixed asset investment grew by 10.7% over the same period last year, beating expectations of 10.3%.

While drawing upon the usual grain of salt, we may conclude from the data that the stimulus measures undertaken by Beijing last year and into this year are finally starting to see some results. But once again the caveat is the impact of volatility around the Lunar New Year break.

The Chinese numbers helped lift a wobbly ASX200 to a stronger close on Friday but it was not the sort of performance one might have expected in times past when China reported Street-beating numbers. The local resource sectors had a muted session.

Wall Street

Wall Street’s session on Friday was mostly about waiting for Doha. The WTI price fell a dollar to sit poised near the US$40 mark in anticipation. US oils stocks similarly saw a square-up.

Citigroup was the last of the major US commercial banks to report on earnings on Friday and just as had been the case for its counterparts throughout the week, Citi reported a result that was weak but not as weak as forecast. All up Wall Street finished slightly lower on Friday night but higher for the week, led by the rebound in bank stocks.

On Friday night the Dow closed down 28 points or 0.2% while the S&P fell 0.1% to 2080 and the Nasdaq lost 0.2%.

US data releases for the session were weak. Industrial production fell a greater than expected 0.3% in March to mark the sixth monthly decline in seven. The Michigan Uni fortnightly measure of consumer sentiment showed a fall to 89.7 from 91.0 at end-March, suggesting a fourth consecutive month of decline.

Bucking the trend, The Empire State activity index rose to 9.6 from 0.6 last month, to post its strongest reading since January 2015. But this series has become increasingly volatile, and could just as easily be negative next month.

Either way, Wall Street is currently supported by the Yellen Put. Weak data only serve to push out the expected timing of the next Fed rate hike.

Commodities

On Saturday morning, West Texas crude was sitting at US$40.42/bbl, down US$1.03 from Thursday night, and Brent was down US81c at US$43.07. We await tonight’s reaction to Doha.

We can say the same for base metal prices, given the direction of oil has this year been a significant factor in sentiment on the LME. Moves were mixed on Friday night, with zinc’s 1% gain the standout as copper fell 0.7%.

Iron ore fell US$1.10 to US$57.50/t.

The US dollar index had slipped 0.2% by Saturday morning to 94.70, which helped the Aussie up 0.4% to its pre-Doha level of US$0.7726. Gold rose US$6.50 to US$1234.10/oz.

The SPI Overnight closed down 4 points on Saturday morning, but that’s no longer relevant.

The Week Ahead

The US earnings season steps up a gear this week, as a range of Dow components across all sectors take centre stage. Morgan Stanley and Goldman Sachs will round out the investment banking performance, while everything from Johnson & Johnson to Google, Caterpillar and General Electric will offer a more widespread indication of the state of the US economy.

Economic data releases will come thick and fast as well, but as suggested, they lack any real clout above the Fed’s safety net.

Tonight sees housing sentiment, tomorrow housing starts and Wednesday existing home sales, while Thursday brings house prices, leading economic indicators, the Philadelphia Fed activity index and the Chicago Fed national activity index. Friday will see a flash estimate of April’s manufacturing PMI.

Japan and the eurozone will also flash on Friday. The ECB will hold a policy meeting on Thursday but no one is expecting anything new.

It’s a quiet week for Australian data, but the RBA will be in the frame nonetheless. The central bank’s Financial Stability report, released on Friday, suggests concerns over Australia’s apartment construction bubble. Glenn Stevens will speak on Tuesday, and the minutes of the April RBA meeting will be released.

There’s plenty of action on the local stock front this week. The resource sector quarterly production report season ramps up in earnest, with highlights this week featuring Oil Search ((OSH)) and Rio Tinto ((RIO)) tomorrow, BHP Billiton ((BHP)) and Newcrest Mining ((NCM)) on Wednesday, OZ Minerals ((OZL)) and South32 ((S32)) on Thursday and Santos ((STO)) on Friday.

Outside of resources, quarterly reports will be forthcoming from Transurban ((TCL)) today and Brambles ((BXB)) and Challenger ((CGF)) on Thursday. Wesfarmers ((WES)) will report quarterly retail sales on Thursday.

Cimic ((CIM)) and Woodside Petroleum ((WPL)) will hold AGMs on Thursday.

Watch the price of Woodside this morning.

Rudi will appear on Sky Business on Tuesday around 11.15am, via Skype-link, then again on Wednesday, to host YMYC 8-9.30pm, then twice on Thursday (12.20-2.30pm and Switzer TV between 7-8pm), and then again via Skype-link on Friday, usually around 11.05am.
 

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

Next Week At A Glance

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


By Greg Peel

As far as anyone can tell, Saudi Arabia is not prepared to enter into a coordinated production freeze agreement with OPEC and some non-OPEC members if Iran is not prepared to join the freeze. It is clearly understood Iran is not prepared to join the freeze.

It is for this reason a meeting planned for Moscow last month was abandoned. Why, then, is Sunday’s meeting in Doha proceeding? The fact it is proceeding means oil traders are hanging on to a hope that maybe, just maybe, something positive will come out of Doha, while not really expecting anything other than a no-go outcome.

What is not entirely clear at this stage is whether or not a Doha premium is still built into current oil prices. We’ll know on Monday night.

US economic data have taken a back seat this month now that the Fed has ensured a slow approach to policy normalisation and attention has turned to quarterly corporate earnings reports. But there is still a raft of US data releases due tonight and over the next week, including industrial production, consumer sentiment, the Empire State, Philly Fed and Chicago Fed activity indices, housing sentiment, housing starts, prices and existing home sales, and a flash reading on the April manufacturing PMI.

With Wall Street poised at the top end of its longstanding trading range, the flood of earnings reports due next week will go a long way to determining whether a breakout is possible or not.

The ECB will hold a policy meeting next week.

In a largely data-free week in Australia, the minutes of the RBA’s April meeting will be released on Tuesday and Glenn Stevens will speak.

On the local stock front, the quarterly report action hots up next week with resource sector production reports now flowing freely. Among next week’s reporters are Rio Tinto ((RIO)), BHP Billiton ((BHP)), Newcrest Mining ((NCM)), Oil Search ((OSH)) and Santos ((STO)).

Non-resource quarterlies are due from the likes of Transurban ((TCL)), Brambles ((BXB)), Challenger ((CGF)) and Wesfarmers ((WES)).
 

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.