Tag Archives: Europe & UK

article 3 months old

The Overnight Report: Clueless

By Greg Peel

The Dow fell 254 points or 1.4% while the S&P lost 1.4% to 2045 and the Nasdaq dropped 1.2%.

Seriously?

There are lies, damned lies and statistics. Economists are not quite sure which category yesterday’s local October jobs numbers fit into.

“While a positive update on the labour market is welcomed,” said ANZ, “we are very cautious about taking this month’s number at face value”.

“We are always wary of reading too much into the monthly labour force ‘lottery’,” said Westpac, “but even looking through the noise it’s hard not to conclude that current labour market conditions in Australia are strong”.

“Believe it or not,” said CBA.

The ABS suggests 58,600 new jobs were added last month, which would make it one of the biggest monthly job increases since Federation. Economists are being polite, but really the mood is one of this result being about as likely as a rank outsider winning the Melbourne Cup with a girl in the saddle.

Oh wait…

CBA puts forward a largely consensus view that this big jump represents a statistical swing following a couple of months of weakness, and that if we smooth out the numbers we’ll find Australia’s job growth trend to running at around 17k-20k per month. The unemployment rate fell to 5.9% in October but CBA expects it to oscillate around the 6% mark for a while yet.

Either that, or five minutes into the job Scott Morrison has proven to be an absolute genius.

Skittish forex traders are always prepared to take anything at face value, nonetheless. The Aussie is up 0.9% at US$0.7125 on the assumption any notion of another RBA rate cut was put to the sword yesterday. They could just as quickly change their minds tomorrow.

Yesterday’s flat close for the ASX200 also reflected the same assumption. Utilities, telcos and consumer staples – all yield stocks – finished in the red. The banks were up because although they are yield stocks, banks benefit from rising rates. Elsewhere it was a bad day for resources, with energy capitulating 3.2% and materials down 1.1%.

The story for those two sectors did not get any better overnight.

Commodities

ECB president Mario Draghi last night told the European parliament he did not see eurozone inflation recovering to the central bank’s target zone in the time previously assumed. Markets took this comment as code for “We will be extending QE in December”.

By rights such a comment should spark weakness in the euro, but the euro has already largely adjusted for such an expectation and last night no less than five Fedheads were providing their two bob’s worth across the Pond. Of the five, two were hawkish, two were dovish and one said nothing at all about a December rate hike or otherwise.

That was Janet Yellen. Is it any wonder Wall Street is in a pique of frustration over a central bank that publically spouts disagreement or clams up when the world is expecting some guidance? The lack of commentary from Yellen was taken by the market as a sign that perhaps there won’t be a rate rise in December. At every other public outing recently, Yellen has reiterated her expectation of a rate rise “this year”.

Thus the US dollar index pulled back a bit last night, down 0.3% to 98.65. But whatever the timing of said rate rise, commodity markets know it will eventually come. They also know the ECB will ease further. Put the two together and they both mean a strong US dollar ahead, and that means that without any noticeable pick-up in global demand, commodity prices must go lower.

Zinc fell 1% on the LME last night, aluminium, copper and tin all fell around 1.5% and nickel fell 3%.

Iron ore actually rose US10c to US$47.80/t. There is likely some support being offered by the tragedy in Brazil and subsequent loss of production.

West Texas crude fell US$1.39 or 3.2% to US$41.69/bbl and Brent fell US$1.65 or 3.6% to US$44.27/bbl.

Gold has already taken the hit, so it’s only down another dollar to US$1083.50/oz.

Stay Out

Weakness in commodity prices, particularly oil, was a major driving force behind Wall Street’s fall last night. But so was the Fed.

Many a commentator has been perplexed of late as to why Wall Street has been going either up or down on rate rise/no rate rise speculation of late and simply not being consistent. Is good news bad news or is good news good news? The answer seems to be different each time.

The real answer is that Wall Street simply does not care about a paltry 25 bip hike. Good God Almighty, can they just make up their minds and end the uncertainty. Uncertainty is the enemy of stock markets. Commodities aside, that is why the Dow fell 250 points last night.

Today

The SPI Overnight closed down 69 points or 1.3%.

The eurozone will see a first estimate of September quarter GDP tonight.

Retail sales will be the major release in the US, along with consumer sentiment and the PPI.

Spare a thought for Santa, who one minute is packing all the presents in the sleigh and the next minute is taking them out again.

The original “Santa Rally”, when first coined, referred specifically to a tendency for Wall Street to rally after Christmas Day and into the new year. These days the Santa Rally seems to have been extended to begin in November. We’re certainly not getting one right now, but will we get one at all this year?

We recall that 2013 was a year in which Wall Street spent the whole time agonising over Fed tapering – when it would begin. Sound familiar? Many a commentator suggested in 2013 that the then long awaited Wall Street correction would surely come the day the Fed announced a start date.

Commentators have spent all of 2015 suggesting a correction would come when the Fed announced its first rate hike, but we had a correction anyway. The day in December 2013 when the Fed announced the commencement of tapering, Wall Street initially fell. The next day it started rocketing, and did not stop until early 2015.

Santa no doubt has a big circle around December 16 on his calendar. Let us only hope the Fed brings the egg nog.
 

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article 3 months old

Next Week At A Glance

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


By Greg Peel

US jobs tonight. We could go on and on about it, but we won’t.

Beijing will release China’s October trade numbers on Sunday.

It’s a quiet week for data in the US next week, and the week will be punctuated by Veterans Day on Wednesday. It’s one of those half-holidays which sees US banks and the bond market closed, while stocks and commodities remain open but trading is thin.

Friday will bring US retail sales and inventories numbers along with the PPI and fortnightly consumer sentiment.

Beijing will follow up the weekend’s trade data with inflation numbers on Tuesday and industrial production, retail sales and fixed asset investment numbers on Wednesday.

The eurozone will release its first estimate of September quarter GDP on Friday.

In Australia, next week brings ANZ’s job ads series, NAB business confidence and Westpac’s consumer confidence reports across Monday-Wednesday. Our own jobs numbers are due on Thursday.

The AGMs just keep on coming next week, while Incitec-Pivot ((IPL)), DuluxGroup ((DLX)) and Graincorp ((GNC)) all post earnings results.
 

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article 3 months old

The Overnight Report: A Live Possibility

By Greg Peel

The Dow fell 50 points or 0.3% while the S&P lost 0.4% to 2102 and the Nasdaq closed flat.

Drift Off

The local market behaved yesterday as if it had just had a huge day out at the races and woke up still feeling a little drunk, before the inevitable hangover set in and by the afternoon it was time for a snooze on the couch.

The ASX200 was off to a flyer, well overshooting the small rise anticipated by the overnight futures. But 5300 appears to be the level to trigger selling at the top of this rebound rally, and so it was the index mostly drifted lower as the afternoon wore on and traders just looked forward to getting home for a sleep.

The surprise winner on the day was materials with a 0.9% gain despite iron ore prices now being entrenched under US$50/t, while at present each day seems to be one in which you either buy the telco or sell it and yesterday was a sell-day, with telcos down 1.2%. Other sectors all closed mostly flat.

There was a slight recovery from the drift around midday when Caixin’s take on China’s October service sector PMI showed a rise to a healthy 52.0 from September’s 50.5, implying there may finally be some signs of Beijing’s stimulus measures having an impact. But then the drift began again.

Australia saw a mixed bag of data releases yesterday.

September retail sales saw 0.4% growth, as was forecast, but there was disappointment in a revision of August growth down to 0.4% from a previously reported 0.7%. The annual rate of sales growth in September was 3.7% -- down from 4.5% in August and well below the long run average of 5.2%.

The September trade deficit was lower than expected, with exports rising 3.4% and imports rising 1.7%. Unfortunately the difference came down to higher iron ore prices in the month, and they have since fallen back again. But Queensland LNG is now beginning to contribute to the numbers, with plenty of upside ahead, and the signs are a long awaited recovery in tourism is underway thanks to the currency.

Australia’s service sector PMI fell to 48.9 in October from 52.3 in September, suggesting a flip back into contraction from expansion. Australia’ PMIs are nevertheless notoriously volatile.

All up the data did not really provide a reason to get excited, but the smaller trade deficit is probably another reason for the RBA to hold off for now.

Around the grounds, Japan’s services PMI rose to 52.2 from 51.4, the eurozone rose to 54.1 from 53.7, the UK rose to 54.9 from 53.3, and the US jumped to a surging 59.1 from 56.9.

The global service sector is alive and well, it would seem.

Going Live

The other major US data release of the day was the ADP private sector jobs report for October, which showed the addition of 182,000 jobs. The September ADP number was revised down to 190,000 from 200,000.

The result confirms a belief US jobs growth is now slowing from a more robust pace earlier in the year. Economists are forecasting 177,000 new jobs to be announced in the October non-farm payrolls release tomorrow night, up from 142,000 in September but below the 200,000 plus trend that has prevailed for the bulk of 2015.

The jobs numbers nevertheless took a back seat on Wall Street last night behind Janet Yellen’s testimony before the House Financial Services Committee. In her testimony the Fed chair reiterated that the risk to the US economy posed by slowing growth offshore had now diminished, and hence December will be a “live” meeting as far as a potential rate hike is concerned.

Once again we come down to the rift across Wall Street between those who do believe current US economic growth justifies a rate rise, those who don’t believe a rate rise is justified and thus don’t expect a rise, those who don’t believe it is justified but really hope the Fed just gets it over and done with, and those who do believe it’s justified but assume the Fed will vacillate yet again.

Take your pick. Wall Street’s response last night was to drift lower with a lack of conviction, on smaller volumes than the past two sessions which produced reasonable rallies.

There was a clearer move in the US dollar index nonetheless. Not only was Yellen sounding hawkish last night, Mario Draghi was reiterating his dovishness by defending the ECB’s willingness to extend QE. Both influences mean a lower EURUSD, hence the US dollar index is up 0.8% to 97.92.

Subsequently the Aussie is back down 0.6% to US$0.7152, post the RBA’s on-hold decision.

Commodities

A day after they were up 3.5% on global supply disruptions, oil prices were back down 3% last night on a combination of the stronger greenback and a sixth consecutive rise in weekly US crude inventories. West Texas fell US$1.33 to US$46.49/bbl and Brent fell US$1.79 to US$48.76/bbl.

Only tin managed to rally on the LME in the face of the stronger greenback, up 1%, while lead, nickel and zinc fell 1% and aluminium and copper fell 0.5%.

Iron ore fell another US40c to US$48.30/t.

Gold never stood a chance against the stronger dollar given the current mood, and it fell US$9.40 to US$1107.90/oz.

Today

The SPI Overnight closed down one point.

RBA governor Glenn Stevens will deliver a speech in Melbourne today ahead of tomorrow’s release of the central bank’s quarterly Statement on Monetary Policy.

The Bank of England will hold a policy meeting tonight but nothing exciting is expected.

Commonwealth Bank ((CBA)) will today wrap up the big bank reporting season with its quarterly update and there is once more a handful of AGMs to get through.

National Bank ((NAB)) goes ex today.

Rudi will make his weekly appearance on Sky Business today, Lunch Money, noon-1pm, to return later on Switzer TV, between 7-8pm.
 

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article 3 months old

The Overnight Report: Follow The Stats

By Greg Peel

The Dow rose 165 points or 0.9% while the S&P gained 1.2% to 2104 and the Nasdaq jumped 1.5%.

Breach

A weak lead from Wall Street and disappointing Chinese PMI numbers over the weekend ensured the dour mood prevalent at the end of October carried into the new month on Bridge Street yesterday. The Chinese numbers could have been worse – the manufacturing PMI was flat but still below 50 while the PMI for the larger services sector was weaker but still above 50 – but the market was hoping Beijing’s stimulus efforts might have started to produce results by now.

The mood did not improve when Westpac released its profit result and warned of tough times ahead in Australian banking. The banks led the index lower from the bell and when support was breached at 5200, the selling became more widespread.

Australia’s data releases on the day were not so encouraging either. Our own October manufacturing PMI fell to 50.2 from 52.1, the rate of house price growth cooled in the month, and TD Securities’ core inflation gauge remained flat at 1.7%, providing no additional impetus for the RBA to cut today.

The good news is building approvals grew by a better than expected 2.2% in September, although analysts are expecting that pace to start cooling soon as well.

There was also some good news in the form of Caixin’s independent Chinese manufacturing PMI, released around midday, which showed an increase to 48.3 from 47.2. This is still sub-50 but at least heading in the right direction.

It was around this time the index decided it had been sold down far enough on the day. It was down around 1.4% at lunchtime and there it basically remained through to the close.

By the closing bell the banks had provided the stand-out weakness with a 1.9% fall, backed up by the telco with 1.6%. Other sector falls were less dramatic but no sector finished in the green, confirming market-wide selling on the technical breach.

A day is a long time on the market and we see the SPI Overnight up over 60 points this morning, suggesting we could rally all the way back today.

Going around the grounds on manufacturing PMIs, Japan saw an increase to 52.5 from 51.0 to mark its strongest pace in a year, the eurozone saw a better than expected rise to 52.3 from 52.0, and the UK shot to 55.5 from 51.8 when economists had forecast a decline.

All these regions appear to be benefitting from lower currencies, the offset of which is the US dollar. Thus the only disappointing global PMI result was the US figure of 50.1, down from 50.2, although that was still above a consensus forecast of 50.0.

Merger Monday

Interestingly, the Fed has never raised rates when the manufacturing PMI is this low.

Positive earnings reports and a slew of announced M&A deals provided a positive opening for November on Wall Street, and the major indices rallied steadily throughout the session. The S&P500 is now back above 2100 for the first time since the August break-down and hence back inside the trading range that dominated Wall Street all year up to that point.

The China scare has now been erased.

Investors are no doubt fired up about the current obsession with November-December typically being positive for stocks. Last night’s popular historical statistic was that if October is positive, November-December sees a further rally 78% of the time.

The mood may nevertheless change later in the week when the all-important non-farm payrolls data are released. Just how Wall Street will respond is never quite clear. A strong jobs number would put a December Fed rate rise back in focus.

Commodities

The US dollar index was flat last night at 96.93.

Trading on the LME was again subdued, with nickel rising 1%, zinc falling 1% and all other metals barely troubling the scorer.

After one day’s respite, iron ore is down US40c at US$49.10/t.

The oils were marginally lower, with West Texas falling US30c to US$46.14/bbl and Brent falling US72c to US$48.79/bbl.

Gold fell US$7.10 to US$1134.60/oz. It is interesting to note the US ten-year bond rate is now back at 2.19%, following a 4 basis point gain last night. This is where it began 2015 – a year expected to bring the first Fed rate rise. First it was maybe March but there was too much snow so it became June, then it was September, and now it’s December, maybe. Gold traders don’t seem keen to be caught out.

The Aussie is flat at US$0.7136 ahead of today’s RBA decision. The odds of a rate cut have now slipped according to consensus expectation.

Today

The SPI Overnight closed up 62 points or 1.2%, which if accurate means we would not only erase the best part of yesterday’s fall but also return to above the 5200 mark.

Victoria is closed today, so trading may be a little thinner, and will certainty thin out from lunchtime on. As it’s Cup Day, no local corporate is foolish enough to hold an AGM or release a result today, although there’s plenty more to come in the month.

The RBA will nevertheless release its statement at 2.30pm.

My tips for today: no cut and, given all the M&A going on both locally and abroad, The Offer.
 

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article 3 months old

Next Week At A Glance

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


By Greg Peel

Summer time ends in the US this weekend so as of Tuesday morning locally, the NYSE will close at 8am Sydney time, as will the SPI Overnight session.

On Sunday Beijing will release official October manufacturing and service sector PMIs ahead of the usual first trading day of the month manufacturing releases from Australia, Japan, the eurozone, UK and US, and Caixin’s independent Chinese number.

Wednesday brings a repeat for service sector PMIs.

Australia will also see building approvals, retail sales and trade numbers next week. Tuesday sees the Rate That Stops A Nation along with some horse race or other, which ushers in the market’s Silly Season. From here on it’s all about Christmas parties, long lunches and, hopefully, a Santa rally.

The RBA will also issue its December quarter Statement on Monetary Policy later in the week.

Japan will be closed on Tuesday for the Melbourne Cup. Or maybe for Culture Day.

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

On the local stock front, the resource sector’s quarterly production report season is now over but the AGM season rolls on with gusto, albeit the volume will begin to reduce.

Westpac ((WBC)) will report full-year earnings on Monday and Commonwealth Bank ((CBA)) will provide a quarterly update on Thursday. CSR ((CSR)) will release its interim result on Wednesday.
 

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article 3 months old

The Monday Report

By Greg Peel

Stimulus One

The Australian market had no qualms about jumping on the global bandwagon on Friday, whipped on by Mario Draghi and his near confirmation the ECB would extend its QE program beyond December. I had been noting last week global markets were struggling to find a reason to go up, and in such circumstances tend to drift down, but Draghi has proved there is pent up buying demand across the globe.

Healthcare was about the only local sector not to surge on Friday, and energy had a quieter day after a good run, but otherwise gains were significant across the board. It was not what one could call a rally, nevertheless, given the ASX200 opened up 80-odd points before peaking at a 110 point gain and drifting slightly to close up 87 points. The step-jump took the index to a close just above 5350.

Technically, a breach of 5420 would reopen the upside to the previous high.

While the rally was all about the ECB, there was a supporting element of the form of the bad news is good news kind on Friday. Caixin’s flash estimate of China’s October manufacturing PMI came in at 47.2, up from 47.0 in September.

Surely fresh Chinese stimulus must be nigh.

Stimulus Two

There was a possibility the PBoC would be prompted into action last weekend, following more weak data and a particularly dour inflation read, but it wasn’t to be. With the government’s new five-year plan set to be outlined at this week’s Plenary Session, it seemed appropriate any stimulus announcements would be made at that time.

But late on Friday, the Chinese central bank announced an interest rate cut – its sixth in twelve months – dropping the one-year lending rate by 25 basis points to 4.35% and the deposit rate by 25bps to 1.50%. As to whether the Caixin measure had tipped the PBoC over the edge, or whether China thought it has better to respond quickly to counter the ECB announcement, the result is the same.

It was off to the races again for offshore markets. London rallied 1.1%, France 2.5% and Germany 2.9%.

European markets were also spurred on by a flash estimate of the eurozone’s October composite PMI, which showed a jump to 54.0 from 53.6 in September.

High Tech

The US estimate also came in at 54.0, up from 53.1, to mark the highest reading in five months. Throw in the Chinese announcement and it was set to be a good day on Wall Street. In the end, it was the tech sector that stood out.

Amazon, now a veteran internet name and survivor of the 2000 tech wreck, has never booked a profit. Until the September quarter just passed. So surprised was Wall Street it sent Amazon shares up 6.2%.

Another survivor, Google, announced a buyback and its shares, now known under the parent company name of Alphabet, jumped 5.6%. And ditto Microsoft (Dow), which posted better than expected earnings and enjoyed a 10% rally.

The rally in tech spilled over into the volatile biotechs, and that recently beaten-down sector went for a run. By the close, the Nasdaq had rallied 2.3%. The Dow put on a 0.9% or 157 point gain, and the S&P split the difference in rising 1.1% to 2075.

Cue Johnny Mathis: It’s beginning to look a lot like Christmas…

Commodities

Base metal prices initially jumped on the Chinese rate cut news but faded later in the LME session when the US dollar started pushing ever higher. The dollar index had jumped 1.4% on Thursday night on the ECB factor and jumped another 0.7% on Friday night on the PBoC factor.

It was too much for some metals, with copper and tin falling 1% and lead and zinc closing flat, while aluminium and nickel managed 1% gains.

The quiet slide for iron ore continued, with another US50c drop to US$50.90/t.

Global stimulus is not being celebrated on oil markets, which are struggling against oversupply. On Friday night West Texas rose US11c to US$45.55/bbl and Brent fell US29c to US$47.94/bbl.

Money printing might be supportive of gold but the USD gold price must battle the USD. Gold was off slightly at US$1164.40/oz.

While currencies all about are rising and falling, the net result continues to be a flat Aussie dollar. It is little changed at US$0.7217.

The SPI Overnight closed up 55 points or 1% on Saturday morning.

The Week Ahead

The Fed has not raised, the PBoC has cut and the ECB is set to extend QE. The Bank of Japan meets on Friday, under some pressure one would presume.

We actually do have the October Fed meeting beforehand, with the statement due on Wednesday night, but no one expects any movement. On Thursday the first estimate of US September quarter GDP will be announced to fuel Fed debate once more.

The US will also see new home sales tonight, Case-Shiller house prices, Conference Board consumer confidence, durable goods and the Richmond Fed activity index on Tuesday, pending home sales on Thursday and the Chicago PMI, Michigan Uni consumer sentiment index and personal income & spending on Friday.

The RBNZ will also hold a policy meeting this week, on Thursday, but discussion will mostly centre around the rugby.

And then there’s the RBA. This week sees the September CPI data released on Wednesday amidst growing expectation of a Cup Day rate cut. Australia also sees new home sales data on Thursday and the PPI on Friday.

It is a very busy week on the local stock front.

This week sees a late rush by resource sector juniors to publish quarterly production reports. It is the biggest week on the calendar this week for AGMs.

National Bank ((NAB)) will release full-year earnings on Wednesday and ANZ Bank ((ANZ)) on Thursday while Macquarie Group ((MQG)) will releases its interim on Friday.

Medibank Private ((MPL)) will hold an investor day tomorrow and Telstra ((TLS)) on Thursday, while Woolworths ((WOW)) will release quarterly sales numbers on Thursday.

Rudi will host Your Money, Your Call on Sky Business this Wednesday. He will also appear on Thursday at noon (Lunch Money) and again on Friday, this time as guest on Your Money, Your Call - Bonds versus Equities.

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

The Fed will meet next week and issue a policy statement on Wednesday, but since the last two US jobs reports the probability of an announced rate rise is considered zero. The next day will see the release of the first estimate of US September quarter GDP.

These highlights feature in an otherwise busy week for US data, which sees new and pending home sales, house prices, durable goods, consumer confidence, personal income & spending, the Richmond Fed activity index and Chicago PMI.

The UK will also release a first estimate of GDP next week, the German IFO business sentiment survey is due, and the RBNZ will hold a policy meeting.

Monetary policy will also be very much in focus in Australia with the release of the September quarter CPI data on Wednesday, followed by the PPI on Friday. While the last set of RBA minutes implied a rate cut is not on the cards, more recent developments have economists lining up to predict a cut on Cup Day.

The local corporate calendar is choc-o-block next week.

The last week of the month sees a rush of smaller resource companies releasing production reports. It’s also the busiest week on the calendar for AGMs.

The banking sector is rarely out of focus but next week sees earnings reports from National Bank ((NAB)), ANZ Bank ((ANZ)) and Macquarie Group ((MQG)).

Woolworths ((WOW)) will report quarterly sales and Telstra ((TLS)) is among a handful of companies hosting investor days.
 

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article 3 months old

The Overnight Report: Santa Mario

By Greg Peel

The Dow rose 320 points or 1.9% while the S&P gained 1.7% to 2052 and the Nasdaq rose 1.7%.

Santossed

A weak opening sent the ASX200 back down towards the 5200 support level again yesterday morning but this time the turnaround point was 5217. There began a choppy rally back into the green to close the session up 15 points on the day.

When the dust settled, most sectors had traded off modest up or down moves but one sector stood out, that of energy, up 3.1%. Yesterday debt-burdened LNG major Santos ((STO)) announced it had received a takeover offer from private equity at $6.88 per share. The news sent Santos shares up 16% to close at $6.32.

Analysts have for some time been predicting M&A activity in the energy space and recently we saw Woodside Petroleum take an opportunistic swing at Oil Search. The bid was subsequently rejected and there has been no new news out of Woodside since so the consolidation story faded again, until yesterday. Woodside was only up slightly yesterday but Oil Search jumped over 1% and the Cooper juniors, such as Senex Energy (up 8%), all received significant attention.

Suddenly there was something to focus on in the market yesterday, after a week of meandering and wondering what might happen next. But what has also happened next is Mario Draghi.

QE2

The European Central Bank’s QE program, implemented earlier this year, is set to expire in December. QE1 has managed to stabilise the eurozone economy, but growth remains sluggish and deflation remains a threat. Speculation has grown recently that the ECB would extend its QE program into 2016.

ECB officials recently threw cold water on the notion but last night president Mario Draghi, speaking at a press conference following the ECB policy meeting, all but confirmed QE2 would be announced in December. It is likely the failure of the Fed to act on its first rate rise, and waning expectation of a 2015 lift-off, provided impetus.

The German stock market rallied 2.5% last night and France 2.3%. The mood flowed over into Wall Street, where the indices opened to the upside and continued to rally all day, turbocharged by domestic factors.

McMuffins Rule

After two years of continuous declines, which many assumed heralded a structural shift away from unhealthy fast food, McDonalds (Dow) last night posted an earnings increase and forecast beat for the quarter. It all came down to a rebound in China following a previous food safety scare, and the introduction in the US of all-day breakfast. Oh, and now they spread butter on the McMuffins. You want fat with that? Mickey D shares jumped 8%.

Manufacturer 3M, another Dow component, also posted an earnings beat and saw a 4% gain. Together these two stocks were worth 100 Dow points on the day.

Last night also saw some positive US economic data releases. Existing home sales rose 4.7% in September to the second highest level since 2007. Prices of houses with Fannie/Freddie mortgages rose 0.6% in August. And in defiance of recent weak monthly jobs numbers, the monthly running average of new jobless claims has fallen to a four-decade low.

There were also some less positive releases nonetheless. The Conference Board leading economic index surprised economists by falling 0.2% in September – its first decline in seven months – when a flat result was forecast. The Chicago Fed national activity index remained in contraction in September at minus 0.37, up from minus 0.39 in August.

But that’s okay, because all week Wall Street has been looking for something – anything – to provide a reason to buy. On Wednesday night the market closed on its lows after a late sell-off, and suddenly there was talk of the August lows being retested once more. But Mario and Ronald have saved the day.

The trade-off is nevertheless the US dollar, which last night jumped 1.4% on its index to 96.38 as the euro plunged on QE speculation. Many a US company reporting so far has pointed to the strong greenback as a drag on earnings.

Commodities

Base metal prices initially jumped on the LME last night on expected ECB stimulus, with shorts being caught. But the offset for metal prices is the US dollar, so by the close prices had drifted back again. Copper managed a 0.8% net gain but aluminium lost 2% on its own oversupply issues.

Iron ore fell US50c to US$51.40/t as the decline many an analyst has predicted continues.

The oils similarly traded off the positive of ECB stimulus and the negative of the stronger greenback. West Texas rose US24c to US$45.44/bbl and Brent rose US36c to US$48.23/bbl.

One would expect gold to fall on a 1.4% jump in the greenback but the trade-off here is the EUR gold price and the implications of more money printing in Europe. Gold is steady at US$1166.20/oz.

And a similar explanation can be given for the Aussie, which is steady at US$0.7214. The Aussie is not in the US dollar index, and the euro’s plunge does not have to impact on the AUD-USD exchange rate.

Today

The SPI Overnight closed up 78 points or 1.5%. Happy days are here again. If accurate, that would take us to a new post-correction high.

But it’s flash day today. In particular, Caixin will release its flash estimate of China’s October manufacturing PMI. Mind you, if it’s not too “flash” then the market will likely not panic, expecting Beijing to announce new stimulus measures at its Plenary Session next week.

Japan, the eurozone and US will also flash.

On the local stock front, OZ Minerals ((OZL)) and Santos feature among the quarterly production reports due today while Qantas ((QAN)) features among the AGMs and ResMed ((RMD)) will report quarterly earnings.
 

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article 3 months old

The Monday Report

By Greg Peel

Poised

The ASX200 shot up on Friday morning on the opening rotation, peaking at 10.30am when that process is completed. A solid rally on Wall Street, driven largely by general acceptance that the Fed will not be raising this year, provided the impetus as the index rose 64 points.

But that was the top for the day, and in true Friday style the index spent the rest of the session drifting back to a less dramatic rise of 38 points. Looming large in investors’ minds heading into the weekend was today’s release of China September quarter GDP, and also the possibility Beijing may pre-empt with a monetary policy announcement this weekend ahead of that release, given last week’s weak data, particularly the inflation result.

No announcement has been forthcoming, so we await the midday release of the number economist consensus has at 6.8%.

There was nothing particularly remarkable about Friday’s trade on Bridge Street. The banks provided most of the upside on a cap basis with a 1.1% gain, with utilities and consumer discretionary backing up. It was an up-day for energy but materials proved the only laggard, closing slightly weaker on another fall in the iron ore price.

The RBA released its six-monthly Financial Stability Review on Friday, which also proved unremarkable. The central bank remains concerned over property markets – seeing risks growing in commercial lending but noting that macro-prudential controls are having their intended effect on housing – and noting that Australia’s banks are facing “heightened, but manageable risk” in a number of sectors.

Confused

The most oft heard word on Wall Street at present is “confused”, with Credit Suisse even putting out a research note suggesting investors are presently more confused than they’ve ever been.

The greatest source of confusion is of course the Fed, and here we find Janet Yellen still beating the 2015 rate rise drum, the rest of the Fedheads offering diametrically opposed opinions, and the market now shifting its highest probability to March next year from January previously. The other issue is China, where monetary policy is also a source of confusion. Will Beijing pull another renminbi devaluation rabbit out of the hat?

Once upon a time stock markets traded on fundamentals. Wall Street closed the week on a positive note on Friday, with the Dow rising 74 points or 0.4%, the S&P up 0.5% to 2033 and the Nasdaq up 0.3%. It was the third straight week of net gains.

None of which has much to do with fundamentals, it would seem, given US economic data have been weak and US corporate earnings reports have not set the world on fire either. There was good news on the data front on Friday, with Michigan Uni’s fortnightly measure of consumer sentiment rising to 92.1 from 87.2 previously, but September industrial production fell 0.2%, as expected. General Electric (Dow) posted an earnings beat which saw its shares rise 3.4%, but the three sector leaders for the week of gains were utilities, healthcare and telecoms. Therein lies the tale – no rate rise.

It was also the quietest week on Wall Street in volatility terms since July. One would be forgiven for not realising there is an earnings season in progress.

Commodities

It was another mixed and largely uneventful night on the LME on Friday night ahead of today’s major Chinese data releases. Copper and zinc fell 1%, lead rose 1% and the others did not much bother the scorer.

Iron ore fell US60c to US$52.60/t to be down 5.2% for the week.

The oils were also down around 5% for the week. Friday night nevertheless saw West Texas rise US36c to US$47.22/bbl and Brent rise US71c to US$50.44/bbl. OPEC announced it would hold a “technical meeting” next week, ahead of its scheduled December meeting where production quotas are typically set. This gave oil markets some hope maybe production cuts are back on the cards, despite OPEC spokespeople strongly suggesting otherwise.

Gold fell US$6.60 to US$1176.30/oz as the US dollar index rose 0.3% to 94.71. Despite last week being the week in which Wall Street decided there would be no 2015 rate rise, the dollar is back where it was when the week began. The balance is largely the euro, given the ECB has been hinting at extended QE and holds a policy meeting this week.

The Aussie dropped 0.7% to Saturday morning, to US$0.7279, probably as traders square up ahead of the Chinese data.

The SPI Overnight closed up 22 points or 0.4%.

The Week Ahead

Beijing will release China’s September quarter GDP number today along with month of September industrial production, retail sales and fixed asset investment numbers. On Friday Caixin will release a flash estimate of October manufacturing PMI.

As we are not trading in fundamentals, the response to China’s GDP will be interesting. Were the result to match or beat Beijing’s 2015 target of 7.0%, the market may start to doubt baked-in expectations of further stimulus being forthcoming at any moment. That would be potentially negative.

Were the result to match consensus expectations of 6.8%, the popular media will have paroxysms and the headlines will scream Weakest Chinese Growth Since The Boxer Revolution or some such, but the response may actually be positive on the same bad-news-is-good-news basis.

Beyond China, the US will see housing sentiment tonight, housing starts tomorrow, house prices on Thursday, along with existing home sales, the Chicago national activity index and the Conference Board leading index, and a flash manufacturing PMI on Friday.

Japan and the eurozone will also flash on Friday.

The ECB will hold a policy meeting on Thursday night. With a 2015 Fed rate rise off the table, at least as far as the market is concerned, will Mario Draghi see extended QE as more pressing?

And ditto, will the RBA now see greater reason to consider a Cup Day rate cut? The minutes of the October meeting are out tomorrow, but that meeting was held before Westpac announced increased mortgage rates that led the market to assume (a) the other banks will quickly follow and (b) this opens the door further for a rate cut, given the impact on the housing market.

The only other local data release of note this week is NAB’s September quarter summary of business confidence.

It’s a busy week on the local stock front nonetheless.

The AGM floodgates begin to open this week, with highlights including Cochlear ((COH)) tomorrow, Amcor ((AMC)), Insurance Australia Group ((IAG)) and Medibank Private ((MPL)) and Origin Energy ((ORG)) on Wednesday and Qantas ((QAN)) on Friday, just to name a few.

On top of the AGMs we have ongoing quarterly production reports, and this week sees Newcrest Mining ((NCM)) and Oil Search ((OSH)) tomorrow, BHP Billiton ((BHP)) on Wednesday, South32 ((S32)) on Thursday and Santos ((STO)) and OZ Minerals ((OZL)) on Friday.

But wait, there’s more. Wesfarmers ((WES)) will release its quarterly sales numbers on Thursday and ResMed ((RMD)) quarterly earnings on Friday.

Could be an eventful week.

Rudi will appear on Sky Business on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

Beijing will post China’s September quarter GDP on Monday. Given the recent run of data, one can assume the government’s targeted annual rate of 7.0% will be difficult to achieve. But if it is a number in the sixes no one should be surprised, and such a result would provide for further expectation of more monetary/fiscal stimulus.

That is if Beijing doesn’t announce any stimulus measures, such as an interest rate or RRR cut, this weekend. Anticipation is high following this week’s dour trade and inflation data.

There may be some disappointment if Beijing doesn’t announce new stimulus this weekend, but as to whether there is much downside left in the China story is another matter. Meanwhile, last night’s trade on Wall Street indicated US investors may now be back in bullish mode given waning expectation of a 2015 rate hike. Recent data certainly do not support such a move.

Tonight sees industrial production and consumer sentiment numbers in the US, while next week brings housing sentiment, starts and prices and existing home sales, The Chicago Fed national activity index and Conference Board leading indicators.

On Friday the US will see a flash estimate of the October manufacturing PMI, as will the eurozone, Japan and, importantly, China, courtesy of Caixin. But Monday sees not only China’s GDP but also monthly retail sales, industrial production and fixed asset investment numbers, so the China factor will be well in place by then.

The ECB will hold a policy meeting on Thursday. Extended QE has been much hinted at.

In a quiet economic week for Australia, Tuesday’s release of the latest RBA minutes is the highlight.

The local stock market will be a lot busier, nonetheless. The AGM season is ramping up in earnest, coinciding with resource sector quarterly reports. AGM highlights include Cochlear ((COH)), Amcor ((AMC)) and Qantas ((QAN)), while production reports from Newcrest Mining ((NCM)), Oil Search ((OSH)), BHP Billiton ((BHP)) and Santos ((STO)) will provide some excitement.

Wesfarmers ((WES)) will also report quarterly sales.
 

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