Tag Archives: Europe & UK

article 3 months old

The Monday Report

By Greg Peel

Stampede

God was in His heaven and all was right with the world on Friday in Australia, for some reason, as the ASX200 soared 1.5%. Fair enough, there is a growing belief in the market, despite analysts being unconvinced, that both oil and iron ore have seen their nadirs and are headed back to more comfortable levels. A 2.4% rally for materials and 2.7% for energy on Friday is testament.

But the banks had been soggy all week, yet were highly sought after on Friday. Yield stocks have been on the nose, but were fought over. Supermarkets had taken a beating during the week, but were among the go-to stocks. There was likely a good deal of short covering involved, and perhaps word from the government it will not be tampering with super had an impact, but at the end of the day the index has only returned from whence it had come.

A three-month chart of the ASX200 looks like a saw blade, but very much within a fixed range. Since early February the market has gone nowhere.

Greek Stand-Off

The EU finance ministers were all very annoyed with Greece on Friday night, after the government failed to come up with any agenda for reform as requested. Everyone is losing patience. But in terms of action, there appears to be nothing planned, other than to tell Alexis Tsipras he’s a very naughty boy.

The ECB has given Greece enough pocket change to keep ticking over for a little while, but soon the country will run out of money. No one, on either side, appears prepared to make the big decision – Grexit – and all we can assume is that the saga will go on, and on.

Endurable

Friday night on Wall Street was a tale of strong earnings results on the one hand, and weak economic data on the other. The Dow closed up 21 points or 0.1%, the S&P regained its previous all-time high of 2117 with a 0.2% gain, and the Nasdaq pushed further into all-time high territory with a 0.7% rise, thanks to solid gains from tech stocks.

Having reported in Thursday night’s aftermarket, Amazon jumped 14% on Friday night, Microsoft 10% and Google 3%. There is a certain irony that all three are survivors from the tech wreck of 2000, and now considered “old tech”.

US new durable goods orders, on the other hand, disappointed. While March showed a 4% increase, it was mostly down to lumpy aeroplane and military orders. Take these out, and orders fell 0.5%. Economists are forecasting a 1.0% result for the first estimate of March quarter GDP, due on Wednesday night, down from 2.2% in December.

But Wall Street is trading at fresh highs. Why? Because a weaker US economy means a less trigger-happy Fed, because the weather had a lot to do with a weak first quarter, just like 2014, and because there’s really nowhere much else to put your money. Not when the ten-year Treasury yield is 1.92% and below the inflation rate.

The FOMC will meet this week, so the usual endless discussion with regard Fed policy will roll on.

Iron Ore Surge

The iron ore rebound became supercharged on Friday, with the metal surging US$3.20 or 6% to US$57.00/t. Again, one might assume a bit of short-covering in the futures contract. It might be good news, but the price really needs to get back up into the sixties before the smaller miners are even close to a return to positive cash flow. This is not what analysts are forecasting.

Big jumps in overseas trade for Australia’s big miners on Friday night should ensure a positive session on Bridge Street today, and indeed the SPI Overnight closed up 24 points or 0.4% on Saturday morning. We’re still about 100 points shy of the magical 6000, nonetheless.

Base metals, too, suddenly came alive on Friday night, and once again we might point to short-covering. The hot topic on the LME floor is this week’s Fed meeting, so there may have been some square-up on Friday, aided by a 0.5% fall in the US dollar index to 96.86 on the back of the weak durable goods numbers.

Copper and zinc jumped 1%, aluminium, lead and tin rose 2%, and nickel leapt 4%.

Brent crude was stronger on Friday night, rising US73c to a new 2015 high of US$65.46/bbl, but it looked like a bit of profit-taking was underway on the Nymex. Despite rising tensions in Yemen and another reported drop in the US rig count, West Texas crude fell US$2.18 to US$55.26/bbl.

Investors appear to be losing patience with gold. The weak durable goods numbers should add to expectations of a later rather than sooner Fed rate rise, as the lower US dollar suggests, yet gold fell US$13.30 to US$1180.40/oz. Either the gold bugs are just worried about what the Fed might come up with this week or the failure of the metal to breach 1200 has become too much of a frustration.

On the Australian monetary policy front, technicians are suggesting the Aussie might break out of its trading range to the upside, which would have Glenn Stevens pulling at his hair. What? Oh. The Aussie has jumped 0.5% on greenback weakness to US$0.7822.

The Week Ahead

Wednesday night provides for a double-whammy of both the first estimate of US March quarter GDP and a new Fed policy statement. These will be the feature events.

Otherwise, the US also sees Case-Shiller house prices, Conference Board consumer confidence and the Richmond Fed activity index tomorrow night, pending home sales on Wednesday, personal income & spending and the Chicago PMI on Thursday, and construction spending, vehicle sales, and the fortnightly Michigan Uni consumer sentiment survey on Friday.

Friday is the first of the month, hence manufacturing PMIs are due across the globe. Germany and other parts of Europe, and China, are closed on Friday for May Day so the eurozone PMI and HSBC’s China PMI will be delayed till next week.

Regarding holidays, the Kiwis are taking the Anzac Day long weekend we no longer get today and Japan is closed on Wednesday.

The UK will release its first estimate of March quarter GDP tomorrow night. The eurozone will be hoping for QE-led improvement when a flash estimate of CPI is released on Thursday.

Glenn Stevens will make a speech tomorrow, ahead of Australian private sector credit numbers on Thursday and the March quarter PPI on Friday, along with house prices and the manufacturing PMI.

On the local stock front, the week is choc-o-block with ongoing resource sector production reports. Among those, Atlas Iron ((AGO)) will presumably tell us how much it has not been producing today while Origin Energy ((ORG)) will be updating the performance of APLNG on Thursday.

We’ll also see non-resource sector quarterly reports from others over the week, including Mirvac ((MGR)), while Wesfarmers ((WES)) will post its March quarter sales numbers on Wednesday.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon. Rudi will host Your Money, Your Call Equities on Wednesday, 8-9pm.
 

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

March quarter GDPs will be in focus next week as we first see the UK’s result on the Monday and then the US result on the Wednesday. Bear in mind the US result in particular is very prone to significant revisions in subsequent months.

The US GDP will nevertheless bring Fed policy sharply back in focus and it so happens the Fed’s next policy meeting is also on Wednesday. The Fed’s data-dependence will be tested tonight with durable goods and next week with house prices, consumer confidence, the Richmond Fed index, pending home sales, personal income & spending, construction spending and the April manufacturing PMI.

Friday is the first of May which means manufacturing PMIs from Australia, Japan, China and the UK as well, although being May Day we won’t see a eurozone PMI just yet as major markets will be closed. China is also closed, hence the HSBC number will also follow later.

The impact of ECB QE should begin to be seen in next week’s inflation estimate and industrial production and retail sales numbers. Japan’s manufacturing sector appears to have slipped into contraction for the first time in almost a year, so it will be interesting to see whether the Bank of Japan is still happy to sit on its hands when it meets on Thursday.

Australia will also be focused on monetary policy next week as we have a speech from Glenn Stevens, private sector credit and the March quarter PPI numbers, as well as the manufacturing PMI.

A busy week on the local stock front will include more resource sector production reports, a handful of quarterly updates from non-resource companies, including Wesfarmers’ ((WES)) sales result, interim earnings from BT Asset Management ((BTT)) and a handful of AGMs including that of Santos ((STO)).
 

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article 3 months old

The Overnight Report: Sirens Sound

By Greg Peel

The Dow closed up 20 points or 0.1% while the S&P gained 0.2% and the Nasdaq added 0.4%.

Material Moves

HSBC’s flash estimate of its reading on China’s April manufacturing PMI came in yesterday at a one-year low 49.2, down from March’s 49.6 which was also where April forecasts sat. On any other day, such a result would have led to weakness in Australia’s resource sectors, but with belief growing that we’ve seen the bottom in oil prices and expectations that the same may be true for iron ore, as the majors start to ease back on their expansion plans, the PMI reading didn’t much matter yesterday.

We might also consider weak Chinese data to currently evoke a benign response from markets given Beijing’s clear indications, via last week’s big RRR cut, that it is prepared to pump up the stimulus as required. Thus Wednesday night’s moves up in the oil and iron ore prices were enough to promote a 1.1% rally in the local energy sector yesterday and a 1.3% rally in materials.

The ASX200 nevertheless closed almost flat on offset falls in supermarkets (0.5%) and financials (0.3%). The fall in financials doesn’t seem like much but we must remember that since the de-rating of Australia’s resource sector, the banks and other financials now account for almost half the market cap of the index. Insurers are included in the financials sector, and they continue to see fallout from the NSW east coast storms.

Grexit Games

It was not a good 24 hours globally for estimates of April manufacturing PMIs. Japan’s PMI fell to 49.7 from 50.3 in March to mark the first slip into contraction in eleven months. The eurozone saw the first decrease in two months to 51.9 from 52.2 when economists had forecast 52.6, helping the German DAX index to fall 1.2% overnight. And the US equivalent dropped to 54.2 from 55.7.

EU leaders held a summit in Brussels overnight to discuss the issue of migrants, and the Greek prime minister took the opportunity to have a quiet word to the German chancellor. The two reportedly spoke about how to keep Greece in the eurozone, but separately the German finance minister appears resigned to a Greek exit.

The EU finance ministers meet in Latvia tonight where Greece is obliged to present a list of reforms it plans to carry out in order to satisfy its ongoing bail-out conditions, but the German ministry will apparently be surprised if anything actually is presented.

Nasdaq Milestone

Having reconquered the 5000 mark for the first time in fifteen years earlier this year, the US Nasdaq index last night surpassed its previous all-time high of 5048 set in March, 2000, with a close of 5056. This sparked a lot of buzz on what was otherwise a wobbly performance from Wall Street. The Dow was up over 90 points at one stage before settling back to a small gain. The S&P500 kissed its March all-time high before retreating.

Proctor & Gamble (Dow) blamed the strong greenback for its March quarter earnings miss, and fell 1.8%. Poor results were also posted by General Motors (down 3.3%) and Facebook (down 2.6%) while Caterpillar (Dow) surprised to the upside but closed flat, and eBay was a winner with a 3.8% gain.

Results reported after the bell faired a lot better, providing for a potential boost on Wall Street tonight. In aftermarket trading, Microsoft (Dow) is up 3.1%, Google 3.5% and Amazon 5.9%.

US new home sales fell 11.4% in March to mark the slowest pace of growth since November. The result came as a disappointment after Wednesday night’s 6.1% jump in existing home sales. New home construction is economically stimulating but the swap of old houses doesn’t do a lot. Wall Street is also a little worried that weekly new jobless claims have been quietly ticking up these past three weeks.

But that only suppresses thoughts of an early Fed rate rise, so last night the US dollar index fell 0.8% to 97.30 and the US ten-year bond yield fell back 2 basis points to 1.95%. Speaking of bond yields, the German ten-year has rocketed back over 100% this week. Mind you, a move from 0.08% to 0.17% doesn’t actually move the dial much.

Hot Iron

The spot iron ore price has posted its sixth consecutive rise, gaining another US90c to US$53.80/t. Happy days are here again. Well, a little bit.

LME traders weighed up the weak Chinese PMI, and weak PMIs globally, and the drop in the US dollar before deciding, as I had suggested last week, to stick to individual metal fundamentals. Hence copper rose 0.8% while aluminium fell 1.4%, lead was down, nickel was up, and tin and zinc were down.

Iron ore might be grabbing the spotlight right at the moment, but last night the oils hit 2015 highs. Renewed Saudi airstrikes on Yemen, lower than expected weekly US crude inventories and expectations China’s weak PMI will lead to further stimulus sent West Texas up US$1.25 to US$57.44/bbl and Brent up US$2.05 to US$64.73/bbl.

The fall in the greenback helped gold to push back towards the safety of its 1200 Linus blanket, with a US$7.20 gain to US$1193.70/oz.

Today

While strong aftermarket US earnings reports may have played a part, ongoing commodity price gains are likely the reason behind a 31 point or 0.5% gain for the SPI Overnight.

Outside of the EU finance ministers meeting in Riga and a possible further step towards a Grexit, tonight sees US new durable goods orders.
 

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article 3 months old

The Overnight Report: Moussaka With Noodles

By Greg Peel

The Dow closed up 208 points or 1.2% while the S&P gained 0.9% to 2100 and the Nasdaq rallied 1.3%.

Pullback

The Australian market had the opportunity to weigh up both counter-balancing announcements out of China yesterday having closed ahead of the first announcement on Friday night. Wall Street traded on Friday night knowing only that Beijing had tightened margin lending rules and expanded short selling opportunities and that Chinese stock index futures were down 6%. But before Bridge Street opened yesterday, Beijing had sliced a big chunk off the Chinese bank reserve ratio requirement.

So it was that the Shanghai index, which has been flying to the moon recently, only fell 1.2% yesterday when it could have been much worse. But while Chinese stimulus would on any other day be a positive for the Australian economy, the ASX200 fell 0.8%. Only the telco missed out on the selling, and even the materials sector was sold off despite it being the most direct beneficiary of easier Chinese policy. Did we blindly follow Wall Street down?

Or if we consider the two Chinese announcements effectively cancel each other out, are we simply worried about Greece? Wall Street was worried about both China and Greece on Friday night. Given that no one is really sure just what impact a Grexit would have, and given many Australian yield stocks have been called overvalued by analysts, perhaps it’s just better to be safe than sorry.

Or is it because having tried and failed three times to breach the 6000 mark, the index is set up for a pullback according to technical analysts, and we’ve listened?

That would make sense, except that last night Wall Street rallied back again, factoring in the Chinese RRR cut. This implies Wall Street is not actually worried about Greece. And the SPI Overnight closed up 42 points, suggesting we’re going to rally right back again today as well. Perhaps, therefore, we have blindly followed Wall Street without giving it too much thought.

Penniless Greeks

The Greek government needs US$2bn to pay public sector wages this month and it has to make an E1bn payment to the IMF on May 12. The Greek treasury has declared cash will be in the negative as of last night. In order to receive its next tranche of bail-out funds, Greece must provide its lenders with a comprehensive list of reforms the government intends to implement.

It is exactly those “reforms” the Greek people wanted to avoid, thus electing the current government which promised to tell Greece’s lenders where they could get off. Give us the money but you can stick your austerity. The IMF has now put its foot down, and eurozone finance ministers are set to meet on Friday to discuss the issue.

A Grexit moves ever closer.

Interestingly, if one were to take announced Chinese stimulus in isolation, particularly a full percentage point RRR cut, one would expect a big rally for base metals. Metals did initially rally on the LME last night but not for long, before succumbing to aggressive selling. Only volatile nickel managed to close in the green amongst falls for all other metals, including 1.5% for copper. Greece was cited as the concern.

And There’s Earnings, Too

Wall Street has been trying to focus on the micro but has been somewhat swamped by the macro the past couple of sessions, yet the earnings season rolls on. Friday night’s releases were not so great, thus aiding a 279 point fall in the Dow. Last night’s results were better, thus aiding a 208 rally in the Dow.

Last night saw a solid result for Morgan Stanley, providing for a small upward move, but star of the night was toymaker Hasbro which has the Transformer and Marvel Comic doll concessions and subsequently has been raking it in, strong US dollar or not. Its shares jumped 13%.

The US bond market, it would seem, has focused only on China these past two sessions, given nothing has changed in Greece. On Friday night the benchmark US ten-year bond yield fell 3 basis points to 1.85%, threatening a technical breach to the downside, but last night the yield rose 5 basis points back to the 1.90% level it’s been hovering around now for some time. That looks like an “as you were” trade.

And yet last night’s US data release was far from encouraging, with the Chicago Fed national activity index falling to a three year low of minus 0.27.

The US dollar index also rose last night, up 0.5% to 97.91, as the Fed feels ever more lonely in being the only major economy contemplating a rate rise in the face of everyone else’s easing. (Back in your box, Kiwis). This allowed the Aussie to fall, by 0.7% to US$0.7724, when again one might assume a rally thanks to Chinese stimulus.

Strong Oil

The is a growing feeling the oil price has now locked in its lows, yet oil traders remain tentative and are not yet prepared to call a definitive bottom. West Texas crude was up another US39c to US$56.42/bbl last night and suddenly 45 seems a long way away. Brent slipped US18c to US$63.50/bbl.

One feature of the March quarter in the US was a lack of low oil-driven consumer spending, as everyone had predicted. The snow factor played its part, but in the spring of the June quarter we find oil prices are now 20% higher than where they were in winter. Mind you, even 60 oil is a lot better, consumer-wise, than 100 oil.

The iron ore price ticked up again last night too, by US10c to US$50.80/t. Iron ore is also showing signs of putting in a bottom, yet analysts are becoming more pessimistic by the day.

The stronger greenback sent gold down US$7.90 to US$1195.80/oz.

Today

As noted, the SPI Overnight closed up 42 points or 0.7%.

The minutes of the April RBA meeting are due out today and while they will be scoured for clues of when the next rate cut might be, it must be noted the big drop in the unemployment rate in March was revealed subsequent to that meeting and tomorrow we get the March quarter CPI result.

Glenn Stevens will make a speech in New York tonight.

It’s a busy day on the local stock front, with production reports due from Rio Tinto ((RIO)) and Oil Search ((OSH)), updates due from Brambles ((BXB)) and Transfield Services ((TSE)) and an AGM to be held by Leighton Holdings ((LEI)).
 

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Yo-Yo Market

Everything that was sought after on the ASX on Thursday, despite the strong jobs numbers putting a May RBA cut in doubt, was suddenly poison on Friday. Aside from energy, which snuck into the green on ongoing relief in the oil price, every sector was sold down uniformly (not including info technology, which is only tiny cap-wise).

This general get-out-of-stocks trade can only be attributed to heightened fear that Greece is about to exit the eurozone, or at least be forced out were it to default on its IMF repayment obligations. The IMF-ECB-EC troika appears to have lost patience, and perhaps decided that propping up Greece is self-perpetuating burden with no foreseeable end in sight. Germany, which ultimately provides the bulk of funds on the EU side, has had enough.

If the troika were to cave into to Greece’s demands for a lifting of austerity restrictions and an extension of repayment schedules, the risk is other struggling members of the eurozone would follow Greece’s lead. Popular opposition to austerity would ensure more parties are elected to government on anti-austerity platforms. Better to nip it in the bud right now and cut Greece loose. It must be remembered that Greece differs from other “peripheral” eurozone members in having been brought to its knees not by a GFC-driven property and credit collapse but by government corruption and the failure of Greeks to pay tax. Greece is an EU pariah.

China Crunch

There is much debate about what the fallout from a Grexit might be, and much nervousness in markets due to a strong sense of “vu deja” – the unsettling feeling of never having been here before. But if Greece was enough to spook markets in the Asian session on Friday, Beijing certainly did its bit after the close of trade.

The Shanghai stock market has more than doubled in a year, despite China’s economy notably slowing. The Shanghai index of shares only local Chinese can trade is up 33% year-to-date, while the Hong Kong index, containing overlapping stocks and which foreigners can trade is only up 17%.

A couple of years ago, the Chinese were piling into property speculation. Beijing took steps to cool the property market and restrict lending and the property bubble has now deflated. So the Chinese have piled into stocks instead. Recently Beijing opened up access to domestic investors to the Hong Kong exchange in the hope arbitrage opportunities would cool the Shanghai market, but this clearly has not worked. So on Friday night, Beijing took further steps.

Step one was to tighten access to leveraged stock investment by banning the use of so-called “umbrella trusts”, which exploit loopholes to provide for greater leverage within the trust than is otherwise permitted. The implication here is that stock positions within those trusts will now have to be liquidated.

Step two was to ease regulations with regard stock lending, which means investors will now have a greater capacity to sell short. The ability to sell short reduces volatility by specifically heading off bubbles, such as the one the Chinese government fears the Shanghai stock market is in right now. The implication here is that an index valued at 21x earnings is an index ripe for shorting.

Global Exit

So between fears of a Grexit and fears of a big sell-off in China this week, Germany’s stock market sold down 2.6% on Friday night, France’s 1.6% and Britain’s 0.9%. The negative sentiment roiled across the Atlantic, assuring the Dow was down over 350 points around 2pm New York time. There are enough investors on Wall Street who see any pullback in the US indices as a chance to buy, so a late rally trimmed the losses.

The Dow closed down 279 points or 1.5% while the S&P lost 1.1% to 2081 and the Nasdaq fell 1.5%.

The impact of the Greek issue was felt on global bond markets, in which the bonds of large, safe economies were bought and those of tenuous peripheral economies were sold. The German ten-year ticked down another few hundredths to 0.08%. The Netherlands ten-year fell 0.7 basis points to 0.152%. Spain saw a 7.5bps increase to 1.32% and Italy saw a 13bps increase to 1.35%. The US ten-year yield fell 3bps to 1.85%.

In closing beneath the “flash crash” low earlier this year of 1.86%, the US ten-year yield may be set for a technical tumble.

The impact in exchange rates was less apparent, given no clear desire to pile into the US dollar at a time it's already run a long way and US data are looking decidedly soggy. The US dollar index is down 0.2% to 97.45 and the Aussie is off 0.2% at US$0.7784.

Quiet Commodities

The action on Friday night was all in the financial markets, while commodities traders watched from the sidelines. Despite the arguable value of gold at such a time, it was only up US$5.70 to US$1203.70/oz.

On the LME, tin volatility continues to run rampant and this time it was a 3% rebound, while otherwise nickel’s 1.5% fall was a stand-out amongst little movement in the other base metals.

Iron ore rose US70c to US$50.70/t.

The oils had a quiet night, with West Texas easing US54c to US$56.03/bbl and Brent little changed at US$63.68/bbl.

Counter Punch

Last night Beijing announced a full percentage point reduction in China’s reserve requirement ratio, being the level of reserves Chinese banks must hold against their lending books. It’s the second cut this year and the biggest since November 2008, taking the RRR down to 18.5%. Cuts in the RRR have often been used by Beijing, alongside interest rates cuts and fiscal measures, to provide stimulus for the economy.

Interesting timing?

The cut comes as no surprise, given further stimulus had already been flagged by the PBoC ahead of last week’s 7.0% GDP growth result. The market assumed such an announcement would come any time soon. As to whether there’s a match-up in timing as a trade-off against Friday night’s stock market regulation changes is by the by. As to the net result, well, the Shanghai market will still be worth keeping an eye on today.

The Week Ahead

In Friday’s trade, ahead of the announced regulatory changes, the Shanghai index ran up another lazy 2.2%. Chinese index futures had fallen 6% on Friday night by the time Wall Street opened.

The local SPI Overnight closed down 49 points or 0.8% on Saturday morning, ahead of the subsequent Chinese stimulus announcement.

China will be in focus again on Thursday when HSBC provides a flash estimate of its April manufacturing PMI. Similar flashes will also come from Japan, the eurozone and the US.

European sentiment will be gauged this week from tonight’s ZEW investor survey and Friday night’s IFO business survey, although any further Greek developments may cloud those results.

In the US, tonight sees the Chicago Fed national activity index and Wednesday existing home sales and the FHFA house price index. Thursday it’s new home sales and the flash PMI, and Friday it’s new durable goods orders.

The focus in Australia this week will be squarely on RBA policy.

Tomorrow sees the release of the minutes of the RBA’s April meeting, in which the central bank confounded around half the economist fraternity by leaving its cash rate on hold.  But the minutes will underscore the RBA’s expectation Australia’s unemployment rate has further to rise, and since the meeting we’ve had last week’s shock jobs numbers, which saw the unemployment rate falling to 6.1%.

On Tuesday night RBA governor Glenn Stevens will deliver a speech in New York.

On Wednesday, the March quarter CPI data are due. The other half of economists who did not expect an April cut were assuming the RBA would like to get a look at the inflation picture before making a decision in May.

On Thursday, NAB will provide a March quarter summary of business confidence.

On the local stock front, the resource sector quarterly reports continue to roll in as the AGM season steps up a gear for calendar year reporters.

Among the highlights, Oil Search ((OSH)) and Rio Tinto ((RIO)) release production reports tomorrow, BHP Billiton ((BHP)) on Wednesday and BC Iron ((BCI)) on Thursday. Leighton Holdings ((LEI)) will hold its AGM tomorrow.

Beyond that, Transfield Services ((TSE)) will hold an investor day tomorrow and Telstra ((TLS)) on Thursday, while Thursday also sees Australian Pharmaceutical Industries’ ((API)) interim profit result.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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

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

article 3 months old

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

A weak first quarter in the US might delay the inevitable, but Wall Street is resigned to the fact there will be a rate rise at some point. No use sweating over ever little nuance of Fed language. If the data determine, a rate rise will come and everyone will be prepared.

Next week’s US data releases, after tonight’s CPI, include the Chicago Fed national activity index, existing and new home sales, house prices and durable goods.

The flashers will be out and about on Thursday, with China (HSBC), the eurozone and US offering estimates of April manufacturing PMIs.

Sentiment in Europe will be revealed by both the ZEW investor and IFO business surveys.

The RBA will be very much in focus in Australia next week, and confusion now reigns following this week’s surprise drop in unemployment. The minutes of the last RBA meeting are due and Glenn Stevens will also make a speech. On Wednesday the March quarter CPI data will be released, which will be critical to policy.

It will also be a busy week on the local stock front. Resource sector quarterly production reports continue to roll in and merge with the calendar year AGM season.

Next week the production reports will include those from Oil Search ((OSH)), Rio Tinto ((RIO)) and BHP Billiton ((BHP)). Leighton Holdings ((LEI)) is among those holding AGMs, Australian Pharmaceutical Industries ((API)) will release its interim result and Transfield ((TSE)) and Telstra ((TLS)) will hold investor days.
 

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article 3 months old

The Overnight Report: Rate Rise Ennui

By Greg Peel

The Dow closed down 6 points while the S&P lost one point to 2104 and the Nasdaq fell 3 points.

RBA Doubt

Well it's official – Australia is now in the "good news is bad news" camp along with just about everyone else relying on their central bank to drive markets. The ASX200 surged from the open yesterday to be up 62 points, just ahead of the release of the March job numbers. Then back it came.

The numbers confounded all and sundry, including the RBA, who have been warning Australia's unemployment rate will increase to at least the 6.5% level. This looked like a laydown misere call in January when the rate hit 6.4%, before backing off to 6.3% in February. Economists had expected another 6.3% read for March, but instead it came in at 6.1%. And February was revised down to 6.2%.

Often when the unemployment rate falls in defiance of expectation it can be explained by a drop in the number of people seeking work, but in March the participation rate actually rose. Either Australia's economy is not in the dire straits many have been railing about, or once again we need to question the efficacy of the ABS statistical model.

Who knows? Whatever the case, the Aussie has shot up a whopping 1.6% over 24 hours to US$0.7803, to be back at the top of its recent trading range. Implicit in the move is a sudden shift in expectation from a "baked in" May rate cut to questioning whether there is another rate cut in sight at all.

Despite the implications, the consumer discretionary sector still managed to post a 1.3% gain yesterday. But the real market drivers of an ultimate 39 point gain were the resources sectors, with energy up 1.5% on the strong oil price and materials up 1.3% in sympathy.

Cut ‘Em Loose

Despite all the posturing, Greece made an eleventh hour payment of its most recent debt obligation to the IMF this month. But it took about all that was left in the bank, so Greece has asked for a delay on having to make next month's payment. The IMF has responded with a flat out "No".

The assumption is thus that the IMF-EU-EC troika has decided to let Greece go. While many a country has defaulted on its bonds in the past (Argentina, Russia for example), no one has ever defaulted on the IMF. While an actual default does not happen overnight, and in fact can take quite a while to work through, it seems a Grexit from the eurozone is now the probable outcome.

As to the ramifications, expectations range from calamitous to very little at all. But last night the German DAX index fell 1.9%, suggesting there's at least a level of nervousness. The German ten-year bond yield is now sitting at 0.089%.

Release the Doves

The Fed is apparently spooked by the relative weakness of the US economy in the March quarter, which is due in part to a strong US dollar, weak oil prices and snow. No less than four Fedheads were out making comments last night, and the conclusion seems to be that the FOMC was all set to go in June but now is having its doubts.

Unusually, Wall Street did not respond to the more dovish rhetoric. In earlier days, any indication the Fed might move later rather than sooner would have sent the stock market soaring. But just as the Fed taper of late 2013 turned out to be a fizzer in market volatility terms by the time it was finally announced, Wall Street has already concluded the rate rise will probably not be in June. Hence, the news was met with a shrug.

Last night again saw mixed US data. The Philly Fed activity index rose to 7.5 this month from 5.0 in March when economists had forecast 6.0. But March housing starts fell short of expectations.

Earnings are the greater focus at present. Last night Citigroup beat on earnings but missed on revenue, yet its shares rose 1.5%. Goldman Sachs (Dow) beat on both counts yet its shares lost 0.4%. Netflix blew the world away with its result and saw an 18% share price surge.

Tin Canned

Fed dovishness has sent the US dollar index down 0.7% to 97.66 while the US ten-year bond yield closed down 2 basis points to 1.88%.

The fall in the dollar helped to drive price increases across the base metals, with copper and lead up 2% and nickel and zinc up 1%. LME traders remain buoyed by expectations of further Chinese stimulus. But ongoing uncertainty with regard Indonesian export bans has sent tin into a spiral, falling 6% last night and at one stage hitting 2009 lows.

Iron ore clawed back US30c to US$50.00/t. The materials sector has been strong on Bridge Street this week on the assumption a supply-side response is underway, if not from the biggies at least from the embattled juniors (eg Atlas). As to whether iron ore can follow oil and break meaningfully back through 50 is another matter.

The oils continued their recovery last night, with West Texas rising US56c to US$56.57/bbl and Brent rising US42c to US$63.74/bbl on the rollover to the new June delivery front month.

Despite the weaker greenback, gold fell back slightly to US$1198.00/oz.

Today

The SPI Overnight closed down 7 points.

Inflation will be a talking point tonight as both the eurozone and US release their March CPIs.

On the local stock front, Santos ((STO)) will release its quarterly production report today.
 

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article 3 months old

Next Week At A Glance

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


By Greg Peel

The US earnings season begins in earnest next week as the big banks and a raft of Dow stocks line up to provide what Wall Street is expecting will be bad news. Given such low expectations, any good news will no doubt be well received but despite the dooming and glooming, US stock indices have not corrected in response.

Amidst the earnings numbers will be the now ever present spectre of a data-dependent first Fed rate rise which will definitely come in June or definitely in 2016 depending on who you ask.

Next week the Fed will be dependent on inflation numbers, retail sales, industrial production, housing sentiment and starts, consumer sentiment, and the Empire State and Philly Fed activity indices. The Fed will also release its anecdotal Beige Book economic assessment.

Europe will be keeping an eye on trade, industrial production and inflation numbers with the ECB holding a policy meeting midweek, although one assumes there’s little more Mario can throw at it.

The PBoC is reparing to throw more at its economy and next week sees trade, industrial production, retail sales and fixed asset investment numbers.

In Australia, the Easter-delayed jobs numbers are out on Thursday and before that we’ll see the monthly NAB business and Westpac consumer confidence surveys.

On the local stock front, there’ll no doubt be much wailing and gnashing of teeth as resource sector quarterly production and sales reports roll in, including those from Woodside Petroleum ((WPL)), Fortescue Metals ((FMG)), Iluka Resources ((ILU)) and Santos ((STO)).
 

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article 3 months old

The Overnight Report: Greece Makes Good

By Greg Peel

The Dow closed up 56 points or 0.3% while the S&P gained 0.5% to 2091 and the Nasdaq added 0.5%.

Excitement Wanes

The announced deal which would see the biggest energy industry takeover in a decade lost some of its gloss for local energy names yesterday. On the not unreasonable assumption the Shell-BG deal would trigger more such action in the industry, local energy stocks jumped on Wednesday. But broker analysis has pointed out various impediments to Australia’s big names being targets, and found negatives amongst the general positive of support for the sector.

The energy sector thus fell back yesterday, by 0.9%, but a 1.3% fall was suffered in the materials sector. Materials also jumped on Wednesday, seemingly by association that if it can happen in energy, it can happen in iron ore. But the outlook for iron ore is a lot less encouraging than LNG, and anything beyond the most premium of mining assets looks a lot less enticing to suitors.

The ASX200 thus sunk further away from the elusive 6000 mark yesterday, having failed on its third attempt to break through the barrier. As Wall Street settles to assess March quarter earnings, consolidation locally is also on the cards after a rather volatile period.

There was good news for Australia yesterday, nevertheless, in that the construction sector has moved into expansion – just. The March PMI ticked up to 50.1, matching the service sector PMI which earlier in the week saw a reading of 50.2. That only leaves manufacturing to continue its seemingly entrenched contraction phase.

Greek Gift

Fears of a Greek default on the IMF dissipated last night as Greece made good on its E460m repayment instalment on the deadline. Supposed negotiations with Russia appear to have come to nought and Greece has told the IMF it intends to make good on subsequent payment obligations.

As to how this goes down with the Greek people is another matter, given the government was elected on the basis of not kowtowing to the IMF and EU and supposedly the payment to the IMF means wages and pensions will not be paid. Greece has six more days to provide an outline of further austerity measures to be implemented if the country is to receive its next bail-out tranche.

Perhaps Greece is just buying time.

The news provided encouragement for European markets overnight, as did a better than expected German industrial production report, sending the German DAX index up 1.1% into further record territory.

Jobs Focus

In the US the data is even more critical in light of the Fed’s data-dependent policy stance and no data is more important than employment. Weekly new jobless claims are a volatile and potentially misleading barometer until one looks to the underlying trend, as Wall Street did last night.

While new claims actually increased last week, the four-week average has now fallen to its lowest level since June 2000, at 282,250. How that compares on a population basis is by the by, given the result was enough to send the US dollar index surging 1% to 99.00 and the US ten-year bond yield up 6 basis points to 1.96%.

In the stock markets, the volatility of March has given way to a more subdued market in April as traders brace themselves for quarterly earnings results. The season is off to bad start, with the two big names having posted results after the bell on Wednesday night suffering falls last night. Alcoa fell 4% and Bed, Bath & Beyond fell 6%.

Commentators have warned against counting chickens this early nonetheless, and it is next week we start to see the season hot up with the big banks and many Dow stocks reporting.

It is possible Wall Street will hold at its current lofty levels until an underlying trend is clear. The biggest fear is the impact of the strong greenback.

Iran in Doubt

Stock markets are flip-flopping on every little tweak in Fed perception but the for the oil markets at present, Iran is playing the role of the Fed. A deal between Iran and the West, and the subsequent lifting of sanctions on Iran, has been on again, off again and then seemingly settled this week. But last night, according to Iran, it looks like being off again.

Given the lifting of sanctions means the release of Iranian crude supply onto the market, last night Brent rose US$1.61 to US$56.85/bbl having plunged on Wednesday night on record US and Saudi production data. The US record continues to haunt the Nymex nonetheless, with West Texas losing US23c to US$50.75/bbl last night.

The rise in Brent came despite the big jump in the US dollar and indeed base metals also appear to be trading with indifference to the greenback at present. LME traders have perhaps become sick of Fed speculation – my God haven’t we all – and are taking positions based on the rather anachronistic principal of fundamentals.

Remember those?

Last night copper was steady, aluminium lost 0.5% and nickel and tin 1%, while zinc rose 1% and lead jumped over 2%.  

Iron ore fell US10c to US$47.80/t.

Gold is one metal that does often pay attention to the US dollar. It fell US$8.30 to US$1193.80/oz.

The Aussie dollar has drifted a little higher again, to US$0.7696, which is about where it spiked to post the RBA’s “on hold” decision release.

Today

The SPI Overnight closed up 17 points or 0.3%.

China’s inflation numbers for March are out today, but now that the PBoC appears to have joined the “whatever it takes” club of central bankers, or at least the “plenty of room to move” club, the result will not spark any great panic.

Locally, housing finance numbers are out today. A nurse is standing by with Glenn Stevens’ heart pills.
 

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article 3 months old

Will Greece Default?

By Greg Peel

The bottom line is Greece owes E330bn to its international creditors. There is another E240bn forthcoming in the long running bail-out by the “troika” of the International Monetary Fund, European Central Bank and European Commission, but in order to receive the next tranche of this bail-out, Greece must comply with the troika’s conditions.

Those conditions amount to Greece owing the IMF a payment of E448m on Thursday. On top of that payment, Greece also faces E194m in interest payments to private bondholders on April 17, and an E80m payment to the ECB three days later, and will shortly need to rollover E2.4bn in short-term treasury bills which will inevitably attract a higher interest rate. Already, 15% of Greek bank deposits have left the country.

Greece is on the slippery slope. For weeks the Leftist Greek government, elected on a “no more austerity” platform, has been negotiating heatedly with bail-out lenders. Having established its government with a supposed intention to thumb its nose at Brussels, in February Greece’s finance minister pledged the government would “squeeze blood out of a stone” to meet its obligations. But there is a problem.

Were the government to pay the E448m, there’s nothing left with which to pay public service wages and pensions. This is a strongly left-wing, socialist government. How can Prime Minister Alexis Tsipras look the people who voted for him in the eye and say sorry, you miss out?

It is this dilemma, and the fact Greece owes a total of E9.7bn to the IMF this year, which has fuelled market expectations Greece is set to default. If Greece fails to make the payment to the IMF this week it will fall into arrears, which no developed world nation has ever done since the IMF was established post WWII. While other undeveloped nations have fallen into arrears before, no nation has ever actually defaulted on the IMF.

Were Greece to do so, it would be an historical first.

To date, the troika, strongly supported by Germany who, let’s face it, provides the bulk of bail-out funds from the purses of its own taxpayers, has held its ground against Greece. The Greek government’s attempts to negotiate a deal that involves an easing of austerity constraints while not impacting on bail-out funds – a classic “cake and eat it too” – have met blank faces. It is thus little wonder that tonight, Alexis Tsipras will meet with Vladimir Putin.

Given the Greek government is Far Left, Tsipras and Putin are supposedly ideologically aligned. (As to Putin’s socialist credentials, that’s an argument for another day). Russia is Greece’s biggest trading partner, thanks to Greece’s reliance on Russian gas. Reports from Moscow suggest Putin is prepared to offer Greece a lifeline, in the form of loans and a possible discount on gas imports. In return, Russia would expect to take control of certain Greek assets.

It has not been made clear what those assets are, but suggestions include the Greek gas company DEPA, and stakes in rail operator TrainOSE and the ports of Athens and Thessaloniki.

But whether or not such a deal has merit on a standalone basis, the underlying implication is it would create a bargaining chip for both parties. Greece could veto European Union sanctions on Russia with regard Ukraine, and Russia could lift its own tit-for-tat export bans on Europe for Greece alone, such as on food, thus undermining eurozone solidarity. Both parties could turn to Germany and say “What do you want to do now?”

But as to whether Greece receives a lifeline from Russia or not, the question of default remains.

Analysts at UBS are giving a Greek default on its IMF loan 50% probability. If Greece defaults on the IMF, it “by default” defaults on the ECB and EC as well. Similarly, a default on one privately owned bond implies default on all.

Since the whole Greek issue blew up in 2011, commentators have argued the possible ramifications of a Greek exit from the euro. Presumably a default would imply an accompanying “Grexit” or forced departure, one way or the other. Suggestions of the quantum of world financial market impact have ranged from “catastrophe” to “Greece is too small to make an impact”.

Four years later, the additional argument is that everyone has had plenty of time to protect themselves against the financial fallout.

As to which of these arguments is correct is possibly only something that can be determined with hindsight. The wider picture argument is that were Greece to exit the euro, the eurozone itself would begin to unravel. Such an outcome has also been deemed likely catastrophic, without precedence in history given there has never been such a convoluted concoction of monetary and fiscal alliance before.

The good news, if there is any, is that Greece will not “default” this week. Defaults do not occur with such a bang. Greece would initially have 30 days to make good on its payment before then falling into arrears, which then leads to a protracted period of work-out. The arrears process is why no nation, no matter how war-torn or poverty-stricken, has ever actually defaulted on the IMF.

This is of course, another card the Greek government could play.

Stay tuned.


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