By Greg Peel

The Dow closed down 106 points or 0.6% while the S&P lost 0.4% to 2098 and the Nasdaq slipped another 0.3%,

Mixed GDP

Australia’s December quarter GDP result came in largely as forecast yesterday, with 0.5% quarter on quarter growth providing a 2.5% growth result for 2014. Notably, this was split as 3.4% growth in the first half of the year and 1.7% in the second, reflecting the plunge in commodity prices, which have not since recovered.

Yet net exports were still the primary driver of growth, alongside household consumption and residential construction. However, growth in sales was offset by the impact of a running down of inventories, suggesting discounting and a lack of confidence going forward.

Indeed, CBA’s economists note nominal GDP came in at a mere 1.7% annual growth, the lowest level since 2009 and a level “you would normally equate with a recession”. What is missing is the business capex growth required to offset the capex wind-down in the resource sectors. Falling commodity prices have dented overall confidence, which leads to curtailed spending and a flow-through to lower wage growth and thus constrained consumer spending.

That the GDP came in as forecast probably disappointed markets yesterday, which were perhaps hoping for a weaker number to hurry up the RBA. Yesterday’s 0.5% fall for the ASX200 looked very much like a follow-on from Tuesday’s rate disappointment, with banks, the telco, utilities and consumer staples leading the index lower. Materials also took a hit, but that was mostly to do with Rio going ex.

Service Sectors

The Aussie didn’t follow down the stock market yesterday and is steady at US$0.7824, as ASIC launches an inquiry into why the currency moved suddenly, in line with the RBA’s rate decision, at 2.29pm both on Tuesday and at the previous RBA release.

It appears the lower Aussie is beginning to offer a benefit to Australia’s service sector, with the February PMI rising into expansion territory at 51.7, up from January’s 49.9.

As was the case with China’s manufacturing sector, China’s rapidly growing services sector bounced off the bottom last month with a rise to 51.8 from 51.0. Japan saw a worrying fall to 48.3 from 51.3, the eurozone was disappointed by a rise to 53.7 from 52.7, having expected more, while the UK saw a drop to 56.7 from 57.2.

The US number inched up to 56.9 from 56.7.

Wall Street Retreat

It continues to appear that Nasdaq 5000 was a sufficient trigger for profit-taking in US stocks ahead of tonight’s ECB meeting and tomorrow night’s US jobs report. The ADP private sector jobs report, released last night, showed 212,000 jobs gained in February. This is down from January’s 250,000, but then the January number was revised up from an initial 213,000, so all rather neutral there.

The market is expecting a non-farm payrolls number of 238,000 tomorrow night, and the jobs numbers are all rather critical given the timing of the Fed’s rate rise will be “data-dependent”. Last night’s anecdotal Fed Beige Book suggested little change to “modest” growth for the US economy, and little impact from heavy winter snow in some regions.

The Beige Book did however give a nod to falling oil rig counts and job losses in the US oil industry, which had a rather bizarre effect on the Nymex fraternity. West Texas crude shot up US$1.33 to US$51.68/bbl as if traders had only been hearing the rig count news for the first time. At least they realised the Fed was only acknowledging old news over on the ICE, where Brent fell US46c to US$60.56/bbl.

ECB Jitters

The euro tanked again last night, sending the US dollar index up 0.6% to 95.96. It would seem that one day ahead of the ECB meeting which will outline Mario Draghi’s plans for QE eurozone-style, improvement in both the zone’s manufacturing and service sector PMIs has markets worried the ECB might back off a bit on the “shock and awe”.

If it did, this would be in contradiction to Draghi’s brutally frank comments that he does not believe QE alone, no matter how significant, is enough to turn the struggling eurozone economy around. That would require support on the fiscal side, and that brings politicians into the game.

Perhaps the Greek drama offers some pointers.

The big jump in the US dollar did not much impact prices on the LME, where lead was down 1%, nickel was up 2% and nothing else moved. Iron ore is down another US20c to US$62.10/t.

Gold responded to the dollar, but merely drifted down US$4.10 to US$1198.80/oz. But having traded back under 1200, gold might just see a few nervous holders wondering whether the Fed may ever raise rates.

Today

The SPI Overnight closed down one point.

Australia’s January retail sales and trade balance numbers are out today, and again markets will assess the implications in light of a possible April rate cut we can spend the next three weeks debating.

The world will hold its breath tonight as the ECB unveils the specifics of its own take on QE.

Rudi will appear on Sky Business' Lunch Money today, from noon till 12.45pm.

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By Greg Peel

The Dow closed up 92 points or 0.5% while the S&P gained 0.3% to 2115 and the Nasdaq added 0.1%.

Local Vertigo?

The ASX200 was up, down and all around yesterday in a choppy session, suggesting a little bit of indecision might be creeping in in the rarefied air of post-GFC highs. The 5900 mark looks like a possible stumbling block at present. Yesterday we were down 24 points, before rallying, falling back, and then rallying again to be up 19. Sector moves were mixed.

It may be possible the market was being cautious ahead of last night’s testimony from Janet Yellen, but as we head into the last few days of the local result season there are some interesting statistics to note.

The FNArena Result Season Monitor has now assessed reports from 184 stocks and there are around 100 to go in the final burst. Having begun the season with a clear “beat” majority, the ratio of beats to misses has now levelled off to around 1.5, or 69% to 47%. This is relatively standard stuff, given companies tend to understate rather than overstate their guidance ahead of results. Misses are typically more severely punished than beats are rewarded.

But the notable statistic relates to the response from stock analysts. To date the season has elicited only 26 ratings upgrades to a whopping 84 downgrades. The vast bulk of those downgrades are a response to perceived overvaluation. Note that a single stock can suffer multiple downgrades.

Who’s right? The market or the analysts?

Mind you, a lot of those downgrades, particularly those to Hold from Buy rather than Sell from Hold, come with the caveat that the analyst appreciates the global search for yield will limit downside for the stock. Which makes for an interesting discussion when we consider whether the RBA will cut again, and whether the Fed is set to raise.

Central Bank Semantics

Last night Fed chair Janet Yellen told the Senate Banking Committee that the timing of the central bank’s first rate rise remained data-dependent. The Fed wants to be confident inflation can move back towards the 2% target and as yet, there remains slack in the US labour market.

However much of the discussion centres around the word “patient”. Having previously, for years, suggested interest rates would stay lower for longer, the Fed last year hinted at the first rate rise now being in view but insisted that the FOMC would be patient in making that decision. As the day gets closer, the FOMC will drop the word “patient”. The market has been assuming that as soon as “patient” is discharged, the rate will be raised by 25 basis points at the subsequent meeting.

Last night Yellen confirmed the word “patient” will soon be dropped from the Fed statement. But she warned that this did not automatically mean a rate rise at the next meeting. The central bank wants the flexibility to make that decision on a meeting by meeting basis, she said.

The markets took this as a “dovish” sign, such that the rate rise should be expected later in the year rather than earlier in the year. That is why US stock markets rallied, and why the US ten-year bond yield fell 7 basis points to 1.99%. But other commentators scoffed, suggesting that in reality the Fed has not changed its tune one iota. There could still be a rate rise between March and June, they believe.

Presumably there are many out there who wish they would just do it so we can stop having to endlessly speculate, but no doubt as soon as the first hike is in the bag, we’ll start another tiresome discussion about when the next one might be.

Playing the Rates

If the RBA cuts, which it could do as early as next week, local yield stocks become more attractive. But how much is priced in? More likely if the RBA doesn’t cut, yield stocks will take a hit.

If the Fed raises, yield stocks, including Australia’s, become less attractive to US investors. They remain, of course, attractive to investors all over the rest of the world where rate cuts and QE are the current trend.

Greek Relief

After all the drama and fears of what might have been, Greece’s creditors last night accepted the government’s reform proposals and in so doing rubber stamped four more months of bail-out funds. The Tsipras government pledged to take a disciplined approach to budgets, spending and tax collection, while remaining committed to relieving the “humanitarian crisis” brought about by years of economic hardship and high unemployment.

Sounds wonderful to me, some might say utopian. Just how Tsipras intends to pull this off is another matter. But a certain Mario Draghi would be relieved, not so much because he was worried about a Grexit but because he has quietly been hinting to the EU that their austerity drive is acting against the ECB’s attempts to revive the European economy, and that perhaps a little leeway might be a good idea.

It might even be possible that the Angela Merkels of this world have begun see beyond Teutonic stoicism and realise that Draghi, and even Tsipras, have a point.

Metals Awaken

The combination of Greek relief and supposed Fed dovishness had the US dollar index down 0.1% to 94.46 last night, but the same combination awoke LME traders from their Chinese New Year funk. The Chinese are back from today, but last night copper jumped 1.8% to lead solid gains across the base metal spectrum.

Without the Chinese, iron ore remains unchanged at US$64.30/t. Gold also remains little changed at US$1201.00/oz.

And it was a rare night in the oil markets – prices hardly moved. West Texas is down a few cents to US$49.15/bbl and Brent is down a few cents to US$58.74/bbl.

The Aussie dollar currently seems to be rushing back and forth between 77.5 and 78.5 without really going anywhere, and last night was an up night, by 0.5% to US$0.7834.

Today

The SPI Overnight closed up 24 points or 0.5%.

Harking back to the RBA rate discussion, today sees the first of the December quarter data releases in the lead up next week’s GDP which, incidentally, is released the day after the RBA meeting. Today sees construction work done and the wage price index.

With China back on board, HSBC will release its flash estimate of the February manufacturing PMI today.

It’s another very crowded day on the local reporting calendar but note also that Telstra ((TLS)) goes ex today, providing an apparent drag on the index.

Rudi will make his usual appearance on Sky Business, Market Moves, 5.30-6pm today and later, between 8-9pm, he will host Your Money, Your Call.
 

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By Greg Peel

The Dow closed down 23 points or 0.1% while the S&P was flat at 2109 and the Nasdaq gained 0.1%

Greek Epic

After a couple of soggy sessions, buying returned to the local market yesterday in concert with a rise on Wall Street as Greek fears eased. Buying was consistent across all sectors except for materials, which fell 0.3%.

The bottom line is, however, that Greek fears have not eased at all. No solution was reached on Friday other than to grant an extension of the same deal for another four months as long as Greece comes up with an acceptable reform agenda. Greece’s creditors are currently waiting for that envelope to arrive, and have decided to convene another meeting of the EU ministers tonight in case it turns out Greece’s suggested reforms are insufficient.

If they are insufficient, and agreement can’t be reached by Friday, then the extension is off the table and we may still be looking at a Grexit.

The euro was weaker last night as the world weighed up the risks once more. The US dollar index is thus up 0.2% to 94.58 and the Aussie has given back most of Friday’s short-covering gains to be 0.6% lower at US$0.7797.

Ceasefire Farce

It would seem Vladimir Putin smiled and shook hands with his German and French counterparts as they all agreed to a Ukraine ceasefire in Minsk a week ago, then went home to order more troops across the border. There has been no cessation of fighting and it would appear the pro-separatists are preparing for an attack on the port of Mariupol.

So now Europe and US are talking about increasing the level of sanctions against Russia. Just what Mario Draghi needs ahead of his QE assault beginning next month.

Meanwhile the German IFO business sentiment index released last night showed a rise to 106.8 from 106.7 last month but economists were pencilling in 107.7 on the basis of assumed QE excitement.

Oil Slumps Again

It was a wild ride in oil markets last night, beginning with a fall in prices on news that while the oil rig count continued to drop in the US last week, the pace of reduction is not as fast as the market was hoping for. Oil thus traded lower until the Nigerian energy minister opened his mouth.

Mr Alison-Madueke told the Financial Times OPEC members had discussed holding an emergency meeting to talk about the impact of ongoing low oil prices, which suggested to the market cracks might be beginning to appear in OPEC’s resolve. On that news, oil prices spiked up.

But it was soon pointed out that Nigeria doesn’t have that much sway, and unless the words are coming out of the mouth of the Saudi energy minister then they’re pretty much meaningless. There was no back-up to the meeting suggestion, and oil prices slumped once more. West Texas fell US$1.55 or 3% to US$49.26/bbl for its new April delivery front month while Brent, which is already trading as April, fell US$1.28 or 2% to US$58.80/bbl.

The fall in oil weighed on Wall Street, as did news US existing home sales fell by 4.9% in January to the slowest pace in nine months. The number is seasonally adjusted, so it’s not about winter snow.

Yellen Testimony

On the other hand, the Chicago Fed national activity index rose to plus 0.13 from minus 0.07 last month when plus 0.05 was expected, so not all the data the Fed is keeping an eye on are slipping.

To that end, over the next couple of nights Fed chair Janet Yellen will testify to the Senate Banking Committee, as she is obliged to do. Weakness on Wall Street last night, following a solid gain on Friday night, is assumed to be as much about oil as it is about traders squaring up ahead of anything unexpected Yellen might come up with regarding interest rate rise timing.   

In the meantime US bonds were sought again last night, which was less about expectations for Fed policy and more about the fact the Greek drama is still in the balance. The ten-year yield fell 7 basis points to 2.06%.

Metal Daze

The Chinese are back tomorrow but there was a whole lotta nothing much going on in metals last night. Nickel rose 1% but all other LME metals were little moved.

Iron ore remains unchanged at US$63.40/t.

Gold is also steady at US$1202.20/oz.

Today

The seemingly ever positive SPI Overnight futures are up 15 points or 0.2%.

The eurozone will release inflation numbers tonight while consumer confidence will be closely watched in the US.

BHP Billiton ((BHP)) is the big ticket reporter today in the local earnings season, along with Oil Search ((OSH)), QBE Insurance ((QBE)) and a parade of others.
 

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By Greg Peel

The Dow closed down 44 points or 0.2% while the S&P lost one point to 2098 as the Nasdaq rose 0.4%.

Local Market

The ASX200 shot up 30 points from the open yesterday on ongoing exuberance but that proved short-lived as traders began to take some money off the table. Energy and materials slid back while the banks were flat, leaving only consumer discretionary and utilities to make some gains.

The results season continues to provide daily alpha moves as individual stocks shoot up/down on beats or misses. We are at the end of the penultimate week of the season but next week sees the largest weekly number of stocks reporting. On the macro front, Wall Street has gone quiet ahead of tonight’s showdown in Europe and the Australian market is no doubt keeping its powder dry as well.

Greece on the Brink

On Wednesday night the ECB extended its emergency liquidity facility to Greece but this is not a sign the EU is bowing to Greek demands. It is simply a means of keeping Greek banks afloat ahead of tonight’s decision by Greece’s creditors on what to do about the problem child. It is suggested that by tonight, Greece might be forced to apply capital controls on the banks, a la Cyprus, which would see limits on deposit withdrawals.

Greece has submitted a request to be considered by its creditors tonight, but that request is for a loan only, not for an extension of the bailout package. Germany says Greece’s request for a six month “loan” extension does not represent a solution to the problem. Greece has made it clear it is not prepared to concede to required austerity measures connected to a bail-out extension so presumably tonight one of three things must happen.

Either the EU/IMF caves, and gives Greece its loan, potentially setting off a train of anti-austerity party election wins across most of the eurozone, or they show Greece the door from the eurozone, potentially setting off interconnection ripples across global financial markets, or they offer up some in-between concession deal which Greece will have to go away and think about.

Nothing is clear at this point and nor does anyone much agree on potential ramifications. Most suggest a “Grexit” would barely be noticed by a global market that’s had four years to adjust to the possibility, but others still warn there remain a lot of financial positions which would collapse were Greece to lose the euro, and resound across the globe.

Wall Street

Wall Street has remained relatively steady all week as it waits to see what transpires in Europe, although there are those who insist the US stock markets go up and down with the oil price, and that’s it. Oil has been up and down a lot this week while ultimately going nowhere, thus nor have the stock markets much.

Last night West Texas plunged early then recovered to be down only US28c to US$51.44/bbl just ahead of the rollover to the April delivery front month, while the spread to Brent continues to widen once more as Brent rises US27c to US$60.39/bbl.

In economic news, the Philadelphia Fed manufacturing index fell to 5.2 from 6.3 in January when economists had forecast 8.0. In November, the index registered 40.8.

The US bond market is far more volatile than the stock market this week, as the Greek deadline approaches. Last night the ten-year yield jumped 5 basis points to 2.11%.

The Dow and S&P have been banging around near their all-time high levels this week and also dealing with the psychological levels of 18,000 and 2100 respectively, but attention is turning to the Nasdaq. It has continued to climb with indifference of macro influences and has now passed over the 4900 mark. Commentators suggest it’s only a matter of time before the Nasdaq reaches 5000 – a level last seen in 2000.

Oh dear. This time it’s different however, they say, given the Nasdaq now represents a far greater diversity of industries and companies than it did in 2000, when it was all about the dotcom bubble and stocks trading on infinite PEs.

And for the record, with all that is going on in Europe – Greece, Russian sanctions etc – last night Germany’s DAX index hit 11,000 for the first time ever.

Muted Metals

There were fireworks in China last night (Gong Hey Fat Choy!) but certainly not in the metals markets the Chinese have vacated for the week. Nickel fell 1.8% on the LME but moves in the other base metals were mixed and small.

Iron ore is unchanged at US$63.40/t.

Gold is also little changed at US$1208.10/oz despite a 0.3% gain for the US dollar index to 94.41. The Aussie is down 0.4% to US$0.7787.

Today

The SPI Overnight is up 5 points.

From the macro point of view the local stock market is unlikely to move much today, a Friday, ahead of tonight’s Greek showdown. From a micro point of view anything could happen, however, when the likes of Cabcharge ((CAB)), James Hardie ((JHX)) and Santos ((STO)) report, among others.
 

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