Tag Archives: Europe & UK

article 3 months old

The Overnight Report: Earnings In Focus

By Greg Peel

The Dow closed down 5 points while the S&P lost 0.2% to 2071 and the Nasdaq fell 0.1%.

Oops

It is becoming a fair bet that whenever the market convinces itself the RBA is going to do something it doesn’t, or vice versa. That is not to say the central bank is playing games, it’s just that the market whips itself into such a frenzy, the fallout is dramatic.

A month ago, when the RBA cut its cash rate and said “Further easing of policy may be appropriate over the period ahead”, most economists called the next cut in May, post the release of the March quarter CPI data. Yesterday, ahead of the April decision, most economists suggested it might be today, but if not today, next month. In other words, no one should have been terribly surprised.

But they were. The Aussie, which had been drifting lower and lower into the decision regardless of moves in the greenback, shot up over a cent to 77 as short positions scrambled to cover. The stock market, which was up a whopping 83 points ahead of the RBA announcement led primarily by the banks, on the balance of the weak US jobs number (implying no rush from the Fed) and anticipation of an RBA cut, fell straight back to almost flat. Only towards the death did saner heads prevail.

One might argue that the earlier release of better than expected February retail sales numbers, showing 0.7% growth when 0.4% was forecast, was another reason Bridge Street rallied in the morning. But then strong consumer spending would play into the RBA staying put, so you could get into a tangle trying to figure that one out. Meanwhile, a downturn in ANZ’s job ads numbers pointed to rising unemployment, and expansion eased in Australia’s dominant service sector as indicated by a drop in the March PMI to 50.2 from 51.7 in February.

And then there’s iron ore. The collapsing iron ore price claimed its first high profile victim yesterday, as once high-flying Atlas Iron ((AGO)) entered a voluntary trading halt. On the other hand there’s Sydney house prices, which continue to fly.

It’s a tough one, but there is now almost majority expectation of a May rate cut.

Hail the ECB

The European comeback story many an investor is keen to follow played out further last night, with the eurozone service sector PMI showing a rise to 54.2 from 53.7. The zone’s composite PMI, which amalgamates services and manufacturing, rose to 54.0 from 53.3. Either QE is working, or the confidence that the QE safety net provides is working, just as it did in the US.

Last night the German stock market was up 1.3%. The UK stock market was up 1.9%, following a services PMI reading of a surging 58.9, up from 56.7.

Last night was nevertheless the first chance for both markets to respond to the weak US jobs number and Fed policy implications.

Waiting on Wall Street

Wall Street began solidly last night on European strength and news on another major global M&A bid, with the Dow up a hundred points mid-session. But the sellers moved in through the afternoon as traders began to square up ahead of fresh information. The minutes of the last Fed meeting are due out tonight, amidst ever growing confusion and debate over the timing of the first Fed rate hike, and tonight Alcoa’s result release unofficially kicks off the March quarter earnings season.

The combination of a second year of bad weather and the impact of the strong US dollar on exporters and multinationals has Wall Street bracing itself for a weak quarter of earnings. But analysts have downgraded forecasts and investors have prepared for bad news, so one might argue the only way is up.

That said, the usual “time for a pullback” call is again popular, with disappointing earnings cited as a potential catalyst.

Dollar Calls

European traders returned from Easter last night and for some reason decided to sell down the euro, pushing the US dollar index up 0.8% to 97.93. Strength in the greenback helped the Aussie to ease back from its RBA-shock rebound, and thus the Aussie is up 0.7% to US$0.7637 over 24 hours.

However the weak US job number, on top of generally weaker overall US data of late, now has commodity traders assuming the rapid run-up in the greenback may be finding a near-term peak. Recent strength has been all about the assumption the Fed would move sooner rather than later, which has now been reversed.

The LME reopened last night and copper, lead and zinc all saw 1% price increases. Volatile nickel was the odd metal out, falling 2.7% on new of lower US stainless steel consumption.

There was some relief in the iron ore market, with a US90c rise to US$47.60/t, but Atlas’ trading halt locally has now firmly put the spotlight on all junior iron ore miners, particularly those carrying debt.

The oils continued their rebound last night, with West Texas up US$1.19 to US$53.12/bbl and Brent up US58c to US$58.39/bbl.

Gold bucked the trend and fell US$6.70 to US$1207.70/oz on last night’s dollar strength.

Today

The SPI Overnight closed up 13 points or 0.2%. With the dust of yesterday’s wild ride having settled, Bridge Street can now trade on the assumption that May is as good as April.

The Bank of Japan will hold a policy meeting today. Will it counter the ECB and the PBoC?

Rudi will appear on Sky Business' Market Moves, 5.30-6pm and again as host of YMYC 8-9pm.
 

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

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article 3 months old

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

Australia, New Zealand, Singapore, Hong Kong, the UK and Europe are all closed for business tomorrow. US financial markets are closed but banks are open, and US economic data releases continue as scheduled. This means the March jobs numbers will be released tomorrow night to empty exchanges.

Australia, New Zealand, the UK and major European markets are closed on Monday. It’s business as usual in the US. China, by coincidence, is also closed on Monday.

The shortened week next week crams in a lot of economic data releases for Australia. All attention will of course be on the RBA policy decision due on Tuesday, with economists now leaning towards an April rate cut when previously they assumed May.

But next week also sees the service sector PMI, retail sales, ANZ job ads, housing finance and, importantly, the March jobs numbers.

It’s a quiet week in the US data-wise but the minutes of the last Fed meeting, released on Wednesday night, will be closely scrutinised.

The Bank of Japan will hold a policy meeting next week. How long before the BoJ is forced to double-down again on policy as it loses out in the race to the bottom against the ECB? And China for that matter.

China will release inflation data at the end of the week.

The ex-divs have just about fizzled out on the local market but next week sees the beginning of the resource sector’s quarterly production report season. AWE ((AWE)) and ERA ((ERA)) kick us off.
 

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article 3 months old

The Overnight Report: Iron Ore Roars Into The Forties

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P fell 0.4% to 2059 and the Nasdaq fell 0.4%.

Commodity Concerns

Yesterday’s morning session on Bridge Street suggested we might be in for a quiet start to April and June quarter, cementing arguments that a lot of the volatility seen in the last few days of March was as much to do with end-of-quarter shenanigans than anything else. But as the afternoon wore on the ASX200 drifted lower, weighed down by weakness in the resource sectors on the back of falling commodity prices.

For iron ore producers, it won’t get any better today.

Local building approvals slipped 3.2% in January but at 14.3% annualised growth, residential building is still a major driver of an otherwise sluggish economy. And we’re determined to abandon the old quarter acre block dream, given private house approvals are down 1% annually but apartment approvals are up 36.2%.

The strength of that number is encouraging but apartments are a lesser value “trade” for the economy compared to standalone houses, using fewer materials per unit.

More concerning is that house prices in Sydney jumped 3% in March alone, and across the country average prices are up 7.6% year on year. Nice for property owners but a worry for the RBA, and possibly a reason the central bank may hold off next week. But economists don’t believe housing is enough to prevent another cut. Maybe we’ll soon be seeing these macro-prudential controls so long spoken of.

PMI Parade

If housing construction is a bright light for the Australian economy, manufacturing is not. Australia’s manufacturing sector continues to contract despite a lower Aussie, with the manufacturing PMI for March showing a fall to 46.3 from 47.2 in February. I’ve lost track of how many months (years) the sector has now been in steady contraction, but I think it’s since Hills Hoist sales peaked.

The first of the month means manufacturing PMI day across the globe, and there were mixed results. The winners were the eurozone with a rise to 52.2 from 51.0, and the UK with a rise to 57.9 from 56.4. The losers were Australia, Japan (50.3 from 51.6) and the US (51.5 from 52.9).

China cancelled itself out. Beijing’s official result showed a swing into expansion at 50.1 from 49.9, but HSBC’s independent measure showed a swing into contraction to 49.6 from 50.7. Take your pick.

On top of Japan’s weak PMI reading, the March quarter Tankan Survey indicated sentiment among Japanese manufacturers was unchanged over the period, despite the weaker yen.

US Weakness

A survey of US fund managers released last night noted 90% of respondents believe the Fed will raise its cash rate in 2015 and that 85% of those same respondents believe the S&P500 will be higher at the end of the year. This result corroborates what I have been suggesting, that Wall Street has largely factored in a rate rise and just wants to get on with it. There would like be some volatility on the day, but those with a longer term view will not be concerned.

Nor is there a great deal of concern being shown with regard more weak US economic data. Last night featured a weak PMI, a drop in vehicle sales and the disappointing addition of only 189,000 new private sector jobs in March, according to the ADP report – the lowest addition since January 2014. This has curbed expectations for Good Friday’s non-farm payrolls number, but most commentators are quick to blame the first quarter weather, just as they did last year.

And given last year’s experience, they are assuming a rebound in economic growth in the second and third quarters.

The weak numbers did nevertheless mean a weak start to the June quarter for US stocks, with the Dow down 200 points from the opening bell. The buyers came in to trim that to a 77 point close by the closing bell, but a 7 basis point plunge in the US ten-year bond rate to 1.87% suggests not everyone is convinced the data are only weak because of snow.

Similarly, gold was suggesting lower for longer rates last night with a US$20.90 gain to US$1203.80/oz.

The US dollar index fell 0.1% to 98.23.

Ironed Out

Spot iron ore has fallen another US$2.00 or 4%, to a new low of US$49.00/t.

Nickel managed a comeback last night, following its precipitous fall, but the 2.8% rebound was put down to traders taking profits on their shorts and squaring up ahead of the Easter break. Other metal price movements were minimal.

Oil prices also rebounded last night, with West Texas jumping US$2.15 or 4.5% to US$49.68/bbl and Brent rising US$1.54 or 2.8% to US$56.73/bbl.

Weakness in oil prices earlier this week was driven by expectations Iran and the West were about to reach a deal, leading to the lifting of sanctions on Iran and a flood of Iranian oil onto the market. Last night it appeared negotiations had reached a bit of a stand-off, and that a deal was not as close as it had been assumed.

Today

The Aussie seems to have found a pre-RBA level here at US$0.76, with local markets closed until the Tuesday policy meeting.

The SPI Overnight is up an ambitious 23 points despite Wall Street and iron ore price weakness. One might argue that the market cap implications on the ASX200 of lower iron ore miner prices has diminished, assuming the two big players are supported by their dividends.

The trade balance is out today locally and TD Securities will publish its monthly inflation gauge.

Once upon a time, when the ASX actually used to close for lunch, the Thursday before Easter would be a half-day. Not so anymore, officially, but there’ll be tumbleweeds rolling down Bridge Street this afternoon as everyone heads off to their planes, trains and automobiles.

Or the pub.

Have a happy and safe break.

Rudi will appear on Sky Business' Lunch Money, noon-12.45pm.
 

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

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

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

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article 3 months old

The Overnight Report: Flat As A Tack

By Greg Peel

The Dow fell 200 points or 1.1% while the S&P lost 0.9% to 2067 and the Nasdaq lost 0.9%.

Madness

Down 73 points on Monday, up 85 points by midday Tuesday on the local market. What, exactly, changed overnight? Chinese stimulus? That one hardly came out of left field. Sure, there was a clear impact on the resources sectors yesterday – materials led the market with a 2% gain and energy was up 1.3%, both in the face of lower prices – but all the yield stocks that were suddenly out of favour on Monday were, as I predicted, back in favour yesterday.

I think everyone should just have a Bex and a quick lie down. Mind you, we did see the rally fade into the afternoon to provide only a 45 point gain for the ASX200 by the bell, but perhaps that was just book squaring for quarter-end.

If the constant talk from the RBA and APRA (as opposed to action) with regard possible measures to cool the investment housing market are having any impact, you wouldn’t know it from the lending data.  Yesterday’s private sector credit numbers for February showed 0.5% monthly growth for 6.2% annual, with the housing segment up 0.5% for 7.2% annual, Within the housing segment, investor credit continues to run at a growth rate above APRA’s warning threshold of 10%.

Maybe everyone’s trying to get in before the shutters come down. The good news, nonetheless, is that business credit is picking up, rising 0.6% to 5.2% annual. This is the number we want to see grow, as it is a barometer for the much needed economic transition away from mining.

Deflation Eases

Europeans were at least somewhat heartened last night that the flash estimate of eurozone CPI for March showed a “rise” to minus 0.1% annualised on the headline from minus 0.6% in February. This implies a slowing in the rate of deflation, and perhaps a turning point thanks to QE tailwinds.

It was not so pleasing to see core inflation fall back to plus 0.6% from plus 0.7% nonetheless. Deflation on the headline can be put down to the impact of lower oil prices on top of the weak European economy, but oil prices are not included in the core measure. Still, it’s early days for QE.

Confident America

The ups and downs we’ve been seeing on Bridge Street are for the most part mirroring the ups and downs on Wall Street these past few sessions. Last night was another big down, which again was mostly attributed to book squaring for quarter-end.

But there is also rising nervousness with regard the March quarter corporate results season, which will begin in another week. Net earnings forecasts have been marked down to zero growth. Typically, analysts become too pessimistic leading into results seasons and more companies “beat” expectations than “miss”. But this quarter is all about the impact of the strong US dollar, and no one is yet quite sure just how much of an impact that will prove to be.

Then there’s the weather, which just as it did in 2014 has impacted on economic growth and corporate earnings in 2015. We will be talking about the weather effect all the way through to the end of the June quarter.

American consumers, it would seem, have regained their confidence. Economists had forecast the monthly Conference Board measure of consumer confidence to fall to 96.0 from February’s 98.8 but instead it rose to 101.3 – into optimistic territory. The surprisingly positive February jobs number has been credited.

Such confidence is good news for the US economy as it heads into summer. On the other hand, economists had expected the Chicago PMI measure of activity in the busy Midwest to bounce back into expansion territory in March at 51.7, up from February’s 45.8. But instead it came in at a disappointing 46.3.

Such mixed messages simply add to the confusion with regard Fed policy. The spread of opinion with regard just when the Fed might hike was summed up nicely on CNBC this morning with a snap poll of four market participants. Their answers were fourth quarter, late fourth quarter, June and 2016. Four is hardly a viable sample, but you get the picture.

Wall Street basically closed flat for the March quarter.

Metal Malaise

Joy for materials sector investors over Chinese stimulus may prove short-lived today. The iron ore price has tumbled another US$1.90 to US$51.00/t. This is getting serious, specifically for those smaller miners carrying significant gearing.

And the nickel rout continues, with the stainless steel component down another 4% last night. All base metals finished lower, on a 0.3% rise in the US dollar index to 98.34 and also to the same book-squaring affecting other markets. Copper was down 1.2%, but nickel is really getting hammered.

The oils were also lower again last night, with West Texas down US$1.12 to US$47.53/bbl and Brent down US$1.18 to US$55.19/bbl.

Gold is relatively steady at US$1182.90/oz.

Today

The Aussie is down another 0.4% to US$0.7613 as expectations continue to build that the RBA will move again next week, rather than waiting until May and the March quarter CPI result. Yesterday’s credit data illustrate just what a difficult position the central bank is in, but weak employment and economic growth are enough to get the RBA across the line, many economists believe.

The SPI Overnight closed down 32 points or 0.5%, so the yo-yo will be back in play again today. It is, nevertheless, the first of a new month and a new quarter, in case that might make a difference.

Manufacturing PMI data are out across the globe over the next 24 hours, with Beijing releasing both manufacturing and service sector data for China. Locally we’ll see building approvals and house prices.

Jobs will be back in focus tonight in the US with the release of the ADP private sector jobs report for March.

Rudi will appear on Sky Business's Market moves, 5.30-6.00pm.
 

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

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

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

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article 3 months old

The Overnight Report: Baby It’s A Wild World

By Greg Peel

The Dow closed up 263 points or 1.5% while the S&P gained 1.2% to 2086 and the Nasdaq rose 1.2%.

Sell Everything

Surprisingly strong one day, abjectly weak the next. Trying to figure out the local market is a difficult task at present but we can note that despite all the volatility, we’re really not going anywhere. Wall Street is doing the same thing, before a backdrop of endless Fed rate rise discussion, and given last night’s performance we’ll no doubt see a bounce-back on Bridge Street today.

Yesterday featured red across all sectors, with only healthcare missing out on a substantial fall. Energy led the market down with a 4% drop, fuelled by Chevron’s announced sale of its Caltex ((CTX)) stake which saw that stock down 9%. But another big plunge in oil prices on Friday night exacerbated energy sector falls with Woodside Petroleum ((WPL)), for example, down 3%.

The materials sector fell 1% on ever weaker iron ore prices, with BHP Billiton ((BHP)), for example, down 2%, but commodities were not the only game on the day. The banks, the telco and utilities were all down over 1%, suggesting those yield stocks that were once again popular on Friday were not so popular yesterday. That includes BHP. And Woodside.

Is it because Joe Hockey is hinting he’s going to readdress superannuation tax concessions? Possibly, but that story will take a while to play out. End of quarter is another consideration, suggesting fund managers were looking to lock in profits after a strong run, but if we’re up today – the final day of the quarter -- we’ll be citing “window dressing” to make fund managers look good on their quarterly returns.

Whatever the cause, it will all change again today.

We note also that as speculation intensifies for another RBA rate cut as early as next week, the Aussie is now back down to where it was before the Fed statement release a fortnight ago sparked a massive short-covering rally. The Aussie is down 1.4% over 24 hours to US$0.7641.

Never Give Up On China

The world has spent six years worrying about a hard landing in China, post the unprecedented stimulus package delivered by the PBoC in late 2008. But while China’s growth has slowed considerably over the period, as its economy has grown and matured, warnings of a crash have become less and less anxious. The government and central bank have continued to tweak policy to keep China ticking along, if no longer at breakneck speed.

Yesterday the PBoC was at it again. Warning that the US dollar could grow “too strong” and prompt capital flows out of China and elsewhere, as monetary easing by central banks across the globe drives up the greenback, the PBoC governor suggested there was “more room” to ease monetary policy in China if the economy remains soft and inflation continues to weaken.

With that, the Shanghai index shot up 2.6%.

The Europeans are also keen on a bit of stimulus from China, and they were also happy to see German consumer confidence leap up to a 14-year high. This fuelled a 1.8% rally in the DAX, and that sentiment then drifted across the Atlantic.

Wall Street Takes Off

Chinese stimulus and German confidence converged with news of a massive M&A deal in the US health sector last night. With quarter-end only a session away, Wall Street was in buying mode. Never mind that the US dollar – that which is being blamed for forecasts of net zero earnings growth in the quarter – jumped 0.7% to 98.01.

And never mind that personal spending grew by a measly 0.1% in the US in February, having fallen in January. Incomes rose a more healthy 0.4%, but most of that was directed into savings, which have hit their highest level since late 2012. The weather was dragged out yet again as an excuse, but the fact remains lower oil prices are not providing the consumer boost in the US everyone has been forecasting.

On a brighter note, US pending home sales rose 3.1% in February to their highest level since mid-2013.

The Dow powered back to regain the 18k mark last night, rallying almost 300 points before fading slightly at the close. As is the case with Bridge Street, Wall Street has been all over the shop without actually going anywhere.

The US bond market didn’t seem much interested though, with the ten-year yield merely ticking up one basis point to 1.96%.

Iron Ore Woes

The oil markets were steady, for once, last night, with West Texas up slightly to US$48.65/bbl and Brent up slightly to US$56.37/bbl from this time yesterday. There’s a lot going on in oil at present, but you could be forgiven for assuming news of pending Chinese stimulus would provide a boost to commodity prices in general. Well, not so.

Aluminium and copper managed half percent gains last night on the LME and zinc rose 1%, but the slide in nickel continues. Nickel is down another 3%, and tin chimed in last night with a 2.7% fall.

Iron ore fell US$1.20 to US$52.90/t, as post-GFC records continue to be broken.

Gold is down US$12.20 to US$1184.90/oz, on the back of the stronger US dollar.

Today

The SPI Overnight closed up 49 points or 0.8%.

It’ll be whiplash stuff today, and no doubt we’ll see those enigmatic yield stocks that were all on the nose yesterday smelling rosy today.

We’ll see local private sector credit data today, which will bring back into focus the “hard place” to the RBA’s weak economy “rock”, being rising housing investment. We’ll also see new home sales numbers.

The eurozone will see a flash estimate of March CPI tonight and no doubt will be expecting some long awaited improvement. The US will see a monthly measure of consumer confidence which may tell a sorry tale.

On the local stock front, Fairfax Media ((FXJ)) will hold a briefing today with regard its Domain property classifieds business.

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

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

Next week is a short week in markets, with all major centres outside Asia observing Good Friday. It's a convoluted holiday in the US however, where financial markets will be closed but banks will be open, and economic data releases will carry on as usual. It's the first week of the new month, so this means the US non-farm payrolls report will be released on Good Friday.

Given the US does not take an Easter Monday break, US markets will still have a first opportunity for response ahead of other Western markets.

Before we get there we'll see the last revision of US December quarter GDP tonight, just as the March quarter comes to a close. With US data trending down in the March quarter, outside jobs, and corporate earnings being revised down on the stronger greenback, December is now very old news.

Next week's US data releases include personal income & spending, pending homes sales, house prices, consumer confidence, the Chicago PMI, construction spending, vehicle sales, the private sector jobs number and the trade balance, ahead of Friday's official jobs number.

The March quarter closes on Tuesday and Wednesday brings the usual first of the month round of manufacturing PMIs from across the globe. Japan, China and the US will provide service sector PMIs on Friday.

The eurozone will see an estimate of March CPI next week – the first with a backdrop of ECB QE but it's probably a little early to see an influence – along with employment data.

Australia will see private sector credit, building approvals and the trade balance, along with the manufacturing PMI.

The recent steady stream of local ex-dividends will slow to a mere trickle next week.
 

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article 3 months old

The Overnight Report: Show Me The Way

By Greg Peel

The Dow closed down 104 points or 0.6% while the S&P lost 0.6% to 2091 and the Nasdaq fell 0.3%.

Looking For Direction

A choppy session on Bridge Street in a smallish range was indicative yesterday of a market lacking any obvious catalyst at this point, and waiting to see what happens next. The 6000 level on the ASX200 will unlikely be conquered on the back of further gains for overpriced yield plays, which leaves the underperforming resource sector as maybe the only near term driver.

The pullback in the greenback has brought rebounds in base metal and energy prices but not so iron ore (as of yesterday), while a subsequent return to strength for the Aussie is tempering any gains and disappointing other sectors in the market. Those sectors will be hoping, however, the Aussie rebound will hurry up the RBA.

The mood in the resource sector was not helped yesterday by a disappointing PMI estimate out of China. Just when it appeared China’s manufacturing sector may have turned the corner back into expansion in February, HSBC’s March flash estimate indicates a fall back into contraction at a surprise 49.2, down from 50.7.

Mind you, we’re still experiencing the usual Chinese New Year reverberations.

Bad & Good News

Lack of direction on Bridge Street is reflecting a similar theme on Wall Street as investors continue to mull over the implications of last week’s shift in Fed policy. With all three major US indices trading near all-time highs, investors are similarly wondering what it will take to push on further.

Presumably Wall Street will not rally strongly from here on weak US data, despite the “bad news is good news” and vice versa theme currently back in play. Forecasts for the timing of the first Fed rate rise now range from here to eternity but were the Fed to hold off until next year given a tepid US economy, is that cause enough for stocks to rally?

Last night US stocks fell, because good news is bad news.

US inflation rose in February for the first time since October, with the headline CPI posting a 0.2% gain thanks to a rebound in energy and food costs. This was as expected, albeit a similar 0.2% gain for core inflation (ex food & energy) beat 0.1% expectations. The headline CPI is flat year on year, while the core is up 1.7%.

New home sales hit their highest level in seven years in February, increasing by 7.8%. Markit’s flash estimate of the March manufacturing PMI indicated a rise to 55.3 from 55.1 in February when economists were forecasting 54.6.

The downer was a fall in the Richmond Fed activity index to minus 8 from plus 3, but all up Wall Street saw data last night that were more likely to bring forward a rate rise rather than delay it.

You wouldn’t know that from the US bond market however, which saw the ten-year yield fall 4 basis points to 1.88%.

Earnings Await

Whatever the data, the proof of the US economic pudding will be in the earnings. Next week sees the US March quarter corporate earnings season begin and expectations are not upbeat. Forecasts have the S&P500 stocks returning net flat earnings growth, largely due to the impact of the strong US dollar on large cap multinationals.

There has been a lot of whinging going on from the multinational sector of late, as one by one the big boys downgrade their expectations and blame the surging greenback. It’s not hard to see why Wall Street fears a rate rise, particularly at a time everyone else is easing monetary policy.

On that note, an estimate of the eurozone composite PMI (manufacturing plus services) last night indicated a three-year high 51.9, up from 51.0 and beating expectations. Europe is beginning to see the benefits of money printing. The UK has been printing money since the GFC but last year looked ready to beat the Fed to the first rate rise, given economic strength. That has since waned, and last night the UK CPI for February came in at zero, for the first time ever.

Commodities

The US dollar index stabilised last night, rising 0.2% to 97.17. The Aussie is steady at US$0.7876, and gold is largely steady at US$1193.10/oz.

The balance of a weak PMI out of China but solid numbers in the US and Europe had base metal markets undecided last night. Nickel fell 2% but the others were mixed on negligible moves.

The oils were similarly quieter last night, with West Texas little changed at US$47.39/bbl and Brent down US64c to US$55.13/bbl.

One swallow does not a summer make, but iron ore is up US$1.40 to US$55.60/t.

Today

The SPI Overnight closed down 10 points or 0.2%.

US durable goods is the data point to watch tonight, while Germany’s IFO business sentiment index will also be scrutinised.

Before that, the RBA releases its six-monthly Financial Stability Review today. It’s a document that usually doesn’t spark too much in the way of market response but with the banks trading at premiums to valuation, any mention of bank capital requirements and/or macro-prudential controls might have an impact.

Nufarm ((NUF)) releases its interim result today.

Rudi will appear on Sky Business's Market Moves, 5.30-6.00pm.
 

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article 3 months old

The Overnight Report: Greenback Correction

By Greg Peel

The Dow closed down 11 points while the S&P lost 0.2% to 2104 as the Nasdaq fell 0.3%.

Big Figure Shy

As has been noted in this Report over the years, there is nothing different about an index level ending in “000” compared to any other number. “Big figures”, as they are known, are merely psychological levels, and only to the extent an investor might say “I will sell if it gets to 6000”. Rarely will you hear someone say “I will sell if it gets to 6132.98”, for example, unless they are a technical tragic.

Thus it would seem the ASX200 is currently shying away from the big figure level of 6000. We recall that the index had a hard time breaching the 5000 level, which represented the Lehman break-down point in 2008, finally managing in 2013. Last year was all about pushing through a wall at 5500, and a lot of work was required. Now we have 6000 to contend with.

And we are contending with that level at a time when value amongst traditional yield stocks, and popular dividend growth stocks, is difficult to find. The implication from last week’s Fed statement that we may not necessarily see the first Fed rate hike in 2015 has underpinned the value of such stocks, but yield compression (share prices rising to reduce yield for new buyers) is forcing investors to focus more squarely on earnings potential, and not just on dividends per share.

Recent weakness in Australian business and consumer sentiment highlights perception of an uncertain economy being guided by a rudderless government, with a frustrated central bank trying to counter both global money printing and domestic fiscal flip-flopping. Earnings growth for Australian ASX200 companies is becoming more difficult as further cost cutting opportunities diminish. The day may yet be saved, and 6000 breached, were we to see a rebound in commodity prices, significantly iron ore and oil.

We saw a bit of that yesterday, and indeed the materials and energy sectors were the only two sectors to finish in the green. Red elsewhere was more about a lack of enthusiasm for pushing any higher. But it would be a brave forecaster who would suggest the oil and iron ore price slides have ended.

Currency Capers

When the ECB began its QE program early this month, the euro collapsed. Yet this was no surprise announcement – the commencement of QE had been well flagged, bar a few details. By the time the euro was down 25% in 2015 alone, many began to call it “oversold”, at least in the nearer term. And sure enough, since the Fed hinted its rate hike may be a while off yet, a mad short-covering rally has ensued. This down-and-up of the euro is best reflected in the up-and-down of the US dollar index.

EURUSD volatility has exacerbated the greenback’s surge and pullback, which on a standalone basis against any other currency has been due to the turnaround in Fed policy perception. The bad news for Australia is that this currency volatility has sparked another short-covering rally, this time in the Aussie. The Aussie is this morning up another 1.4% over 24 hours to US$0.7882.

It would be ultimate frustration if commodity prices did actually bounce but the Aussie killed the party.

Fedspeak

Janet Yellen had her say at last week’s press conference, and as has become typical in recent years under the Fed’s more open approach to guidance, the other Fed presidents like to follow-up with their own thoughts as well. Guidance? Should be called “confusion”. Last night we had the St Louis Fed president suggesting the dovish Fed statement may have given investors the wrong impression, such that another “tantrum” (a la the “taper tantrum’ in 2013) may ensue when the first hike is announced.

The Fed vice chairman then followed that up with a suggestion the first rate rise is warranted this year, despite the statement hinting perhaps not, but that it would not necessarily trigger a series of steady follow-up hikes (as was the case in the Greenspan years).

Sometimes I long for the days when information was not so immediate, and overwhelming. We could carry on life, and investment, without having to go over and over and over the same old ground every month/day/hour.

Resource Rebound

The US dollar index is down another 0.9% to 96.97, and aside from dollar weakness being reflected in Aussie strength, we’re also seeing ongoing short-covering in commodities on the mathematical adjustment of the dollar denominator.

Last night only aluminium stood still as the rally continued across the LME base metal spectrum. Nickel was up a percent, zinc 1.5%, copper 1.8% and lead and tin around 3% each.

Gold is up another US$7.50 to US$1190.90/oz.

The oils similarly continued higher, with West Texas rolling into the May delivery front month. It’s up US74c to US$47.31/bbl and Brent is up US66c to US$55.77/bbl.

Alas, the denominator effect does not impact as predictably on the iron ore price. Iron ore is down US80c to a new six-year low of US$54.20/t. The situation is becoming dire for many a junior miner balancing debt and/or high operational cost issues. It is believed Fortescue Metals ((FMG)) may now be looking to address its debt issue, having failed to secure convertible bond financing at a decent price, by selling off some of the farm.

Today

Wall Street had a flatter session, for once, last night, bungling along on a small positive for most of the day until some heavy selling came in right at the death. The SPI Overnight closed down 2 points.

With data now front and centre, Wall Street will tonight have February inflation numbers to consider, along with a flash estimate of the March manufacturing PMI.

Locally, HSBC’s similar estimate will be watched closely, while Japan and the eurozone will also be in on the flashing.

Kathmandu ((KMD)) and TPG Telecom ((TPM)) will release earnings results today.
 

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article 3 months old

The Monday Report

By Greg Peel

Rock and Roll

I suggested on Friday morning that the pullback on Wall Street on Thursday night, following Wednesday night’s post-Fed surge, need not be repeated in the Australian market. If the Fed is back to being dovish again, and the first rate rise is no longer assured in 2015, then Australia’s high-yielding stocks are attractive both offshore and locally – the latter enhanced by an expected rate cut ahead from the RBA. And indeed, the ASX200 closed up 23 points.

Not even the energy and materials sectors, both of which faced further falls in relevant commodity prices, could finish in the red on Friday given the big miners and big oil & gas companies pay, or are about to pay, attractive dividends. The question now is: just how expensive can Australia’s yield stocks get? They were expensive during the February reporting season, according to the analyst fraternity, and here we are with the index back near its post-GFC high.

It appears there’s more upside, nevertheless, with Wall Street swinging back into the positive again on Friday night. The last couple of hours of trading post the Fed statement release on Wednesday night saw US stocks and bonds surge and the US dollar tank, then Thursday saw everything reverse almost back to the starting point. After another night to sleep on it, it appears Wall Street decided it was right the first time around. On Friday the Dow closed up 168 points or 0.9%, the S&P gained 0.9% to 2108, and the Nasdaq added 0.7% to 5026, to be just under its all-time 2000 closing high of 5048.

The US ten-year bond yield fell 5 basis points 1.93%, and the US dollar index fell 1.5% to 97.83.

So on that note, the Local SPI Overnight closed up 28 points, or another 0.5%, on Saturday morning. The bad news, however, is that the weaker greenback has sent the Aussie up again, by 1.9% to US$0.7777. But we can only assume a more dovish Fed will force a more dovish RBA.

The good news is that the weaker greenback has also provided a boost for commodity prices.

Copper Surge

Copper is one metal that has suffered from the Chinese economic slowdown yet remains very sensitive to disruptions in global supply. Last week saw workers at Freeport’s Grasberg mine in Indonesia going on strike and blocking access to the mine. Throw in the drop in the dollar on Friday night and short-covering, and copper jumped 3.4%.

The move was matched by lead, which rose 3.9%, while nickel added 2.8% and aluminium, tin and zinc were all up around 1%.

Iron ore rose US50c to US$55.00/t.

Gold gained US$12.10 to US$1183.40/oz.

Another announced decline in the US rig count added to the US dollar influence in sending West Texas crude up US$1.76 or 4% to US$45.72/bbl, while Brent rose US76c or 1.4% to US$55.11/bbl.

Where to Now?

The Fed’s statement, released last week, appears to suggest a significant shift in policy from the world’s most influential central bank. But realistically, a rate rise would have been the “shift” that capped off the end of QE last October, so really we’re just back in stimulus land once more. Is it a long dream or a long nightmare? Across the globe, countries are attempting to devalue their currencies and boost their economies through monetary easing and in the case of Japan, the eurozone and UK, through QE. The more they move to counteract each other, the less effective that easing is.

Let’s call the whole thing off? Maybe they should all get together and agree to equally write off each other’s debts.

Meanwhile, Fed policy has drawn attention away from our old friend Greece, which is still negotiating with its EU creditors to arrive at an acceptable bail-out deal. The EU is standing firm, and according to some commentators, is at the point of no longer fighting desperately to prevent a Grexit. Either as an alternative or as a bargaining chip, Greece has turned to Russia. The Greek prime minister, who we must remember leads a far left political party, has brought forward his meeting with Vladimir Putin.

Imagine Germany’s response were Russia, amidst the ongoing battle in Ukraine, suddenly to “annexe” Greece via debt commitments. It might have a tiny economy but Greece sits at the crossroads of Europe and the East, and to that end has been strategically important from antiquity right through to World War II. It would seem Mr Tsipras has a bit of leverage on his side.

The Week Ahead

The Fed has thrown away the Thesaurus and from now on will let the numbers do the talking. And just when everyone assumed the strong US February jobs numbers were enough to assure a Fed rate rise, Janet Yellen has downplayed those as well. Wage growth has not been kicking any goals, despite consistently solid new hirings. Only when wage inflation is apparent will the Fed consider a rate rise to be necessary.

Interestingly, the March jobs numbers will be released next week on the first Friday of the month as usual. But that’s Good Friday, and US markets are closed. Wall Street will have a whole weekend to think about it on a chocolate high, before responding on Monday. The rest of us have to wait until Tuesday.

Before then, this week brings the Chicago Fed national activity index and existing home sales tonight, and the Richmond Fed activity index, new home sales, FHFA house prices and the CPI tomorrow, along with a flash estimate of the March manufacturing PMI. Wednesday it’s durable goods, Thursday an estimate of the services PMI, and Friday the fortnightly consumer sentiment measure. The final revision of December quarter GDP will also be released on Friday, and the market is forecasting an increase to 2.4% from the previous 2.2%.

Japan, the eurozone and China, via HSBC, will also be flashing PMIs this week, with all the manufacturing numbers due tomorrow. Japan will also deliver monthly industrial production, retail sales and jobs numbers on Friday, while Germany’s influential IFO business sentiment survey is out on Wednesday.

Australia’s week is devoid of major economic releases, but on Wednesday the RBA will release its biannual Financial Stability Review. This might prove significant for the banks, given the yet to be ratified FSI recommendations and ongoing talk of possible macro-prudential controls for the mortgage market.

Thursday is expiry day for quarterly stock options on the ASX, and we’ll see another round of ex-dividends across the week. Their impact is nevertheless beginning to peter out.

But we will see a burst of off-season earnings results this week, including those from Kathmandu ((KMD)), TPG Telecom ((TPM)), Nufarm ((NUF)) and Bank of Queensland ((BOQ)).

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. On Friday, Rudi will participate on Your Money, Your Call. Bonds versus Equities, 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

We knew that the Fed was focused on US data previously in making its policy decisions but clearly the FOMC decided it was time to address the market's obsession with words, eg "patient", and timeframes and just let the numbers speak for themselves. Presumably we will now see Wall Street rise and fall on data releases, but perhaps not respond so dramatically to jobs numbers alone.

Next week's US releases include the Chicago Fed index and Richmond Fed index, new and existing home sales, house prices, durable goods, the CPI, flash estimates of manufacturing and services PMIs, and consumer sentiment. The week will wrap up with the final revision of December quarter GDP, which is increasingly old news.

The eurozone and Japan will also be in on the flashing, while Germany's IFO business sentiment survey will be closely watched and Japan will provide industrial production, retail sales, jobs and inflation data at week's end.

The most anticipated flash will be that of HSBC's China manufacturing PMI.

It's a week largely devoid of data but the RBA's Financial Stability Review may revisit the issues of bank capital and macro-prudential controls.

ASX quarterly stock options will expire on Thursday, there'll be several more stocks going ex-dividend over the week and Kathmandu ((KMD)), TPG Telecom ((TPM)), Nufarm ((NUF)) and Bank of Queensland ((BOQ)) all provide earnings results.
 

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