Tag Archives: Europe & UK

article 3 months old

The Overnight Report: Global Markets Vote Stay

By Greg Peel

The Dow closed up 230 points or 1.3% while the S&P rose 1.3% to 2113 and the Nasdaq gained 1.6%.

Brexit

As I write, the polling stations are not long closed in Britain. I have no idea what the official result will be, but by the time you read this the first regional numbers may well be filtering through.

What I do know is that public exit polling was banned until polling stations were closed. The first exit poll since published suggested 52/48 to stay. Private exit polls were apparently being conducted over the day nonetheless, giving those prepared to pay for the privilege the inside running. Whatever the case, it appears the world decided last night that the “stay” vote would win, and wasn’t about to wait around for confirmation.

Such confidence was not the case in the southern hemisphere yesterday, thus the local market put in another “on hold” session. A 1.6% gain for the materials sector, thanks to a pop in the iron ore price, was about the only reason the index didn’t close completely flat.

Since the release this morning of that first public exit poll, the pound has jumped again, to US$1.49. When Brexit fear was at its peak a couple of weeks ago, the pound traded as low as 1.40.

Prior to the release of any public information, and with polling stations in full swing, the London stock market closed up 1.2%, Germany 1.9% and France 2.0%.

Wall Street then step-jumped higher on the open and largely held its ground for the session before kicking again at the death. The Dow closed above psychological resistance at 18,000. The S&P thundered through psychological resistance at 2100 to close at 2113 – only one percent below the all-time high.

The US dollar index is off another 0.5% at 93.15, on a combination of pound strength but also an unwinding of the safe haven trade. Brexit volatility is playing havoc with the Aussie, which is 1.5% higher at US$0.7632.

With commodity prices relatively stable of late and a belief the RBA may well cut its cash rate again in August still prevalent, the Aussie has managed to rise to 76 from 72 during this whole Brexit episode. Yet if Britain stays, nothing has changed.

And therein lies the rub. Assuming the “stay” vote wins, nothing will have changed. Yet Wall Street, for one, is now higher than it was before anxiety set in a couple of weeks ago. All agree that if by some miracle “go” gets over the line at the last minute, global markets would have apoplexy. But the prevailing view now is that “stay” is more than priced in, thus upside is limited. By tonight we may well be in for a “sell the fact” pullback.

But not on the local market today. The SPI Overnight closed up 60 points. That would take us to 5340 on the ASX200 and put 5400 resistance back in the sights. What could get us there? Global markets only started worrying about Brexit two weeks ago. There was plenty to keep us away from 5400 before then.

With Brexit out of the way, assuming “stay” indeed wins, one obstacle is removed for the Fed. If the June US jobs number is solid, we’ll be back talking Fed rate hikes again. This morning the results of the latest US bank stress tests will be released. Tonight will see the annual rebalancing of the small cap Russell index, which is expected to produce significant volumes and potential volatility.

Spain will hold a general election this weekend. If the UK vote is close, despite a “stay” victory, will this steel the resolve of other EU nations into pushing for an exit of their own? Euro-scepticism is growing across the continent and anti-EU parties are gaining traction.

And there’s that small matter of the presidential election in the US. And someone tells me Australia is also set to have an election in a couple of weeks.

There’s still plenty of fun to be had over the rest of 2016.

Commodities

West Texas crude is up US$1.13 or 2.13% at US$50.13/bbl.

Copper rose 1.7% in London, lead 1% and aluminium 0.5%. Nickel and zinc stood still.

Iron ore is unchanged at US$51.70/t.

Gold is down US$9.60 at US$1256.30/oz. Given the exuberance of other markets one might have expected the safe haven to have seen a lot more selling, but gold does tend to wait until the day after to make its move.

We do note the other safe haven benchmark – the US ten-year bond yield – is up 5 basis points at 1.74% (implying selling).

Today

As noted, the SPI Overnight closed up 60 points or 1.2%. I suspect this morning we will probably step-jump from the open and then hover at that new level at least until an official result is clear. As to whether we’ll then see some profit taking is not clear, but it is a Friday. Riding out the cold and wet with a steak and a good red after an anxious week does seem tempting.

Wall Street can go back to focusing on tonight’s durable goods orders number.

CSR ((CSR)) holds its AGM today.

Rudi will Skype-link with Sky Business today to discuss broker calls at around 11.05am.
 

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article 3 months old

Brexit Implication Fears

By Peter Switzer, Switzer Super Report

This damn Brexit vote could end up smashing bank share prices or sending them spiking higher and that's the big bet that you might have to make this week. Of course, if you are not a high frequency sell and buy type, then you are at the mercy of the Poms, who I hope aren’t all pumped up over their own self-importance after that brave win over the Wallabies on Saturday night.

I’m usually a sore loser — being competitive can do that to you — but even with two crazy penalty decisions from the ref, the Poms still tackled brilliantly and deserved their win. I can’t believe I’m saying that but I guess I can take comfort that they couldn’t have done that without an Aussie coach in Eddie Jones.

But back to Brexit and some polls are now saying it’s a line ball vote but 13% are undecided. However, a YouGov survey this week showed 46% now support leaving the EU while 39% support staying.

Charlie Aitken’s summary last week was enlightening and so was Richard Coppleson’s from Bell Potter who summed it up as:

-The UK stock market smashed

-Interest rates there cut to fight potential recession

-Gold and safe haven currencies spike

-The pound depreciates 15-20%.

But wait there’s more I’d throw in:

-Global stock markets would slump including ours.

-And banks would cop it.

You might ask why, well let AMP Capital’s Shane Oliver enlighten you. My old TV sparring mate says that the real concern globally was that a Brexit could reignite concerns about the credit worthiness of debt issued by peripheral countries.

This would likely lead to a flight to safety out of the Euro into the US dollar, which could in turn put renewed pressure on emerging market currencies, the Renminbi and commodity prices.

"And then we are back in the turmoil we saw earlier this year," Dr Oliver said.

But credit worthy concerns about governments then lead to question marks over banks and that’s where our stock market could get an extra clobbering, with the financials responsible for about 40% of the index.

Citi's chief economist Paul Brennan says Brexit getting up would have a bank effect but since NAB got rid of Clydesdale Bank, we’re less exposed to the UK financial system.

"This resulted in an almost-halving of Australian-owned banks' UK exposures, which would mean that Australian-owned banks are now less exposed to the UK than they are to the US and Europe", he said.

However, if Brexit gets up I reckon banks will be clobbered for no good reason other than that uncertainty will raise question marks over the banks’ balance sheets and exposures, just as we saw when commodity prices fell and miners’ debts to banks were questioned.

And by the way Coppleson says commodity prices could be negatively affected by Brexit and so it implies bank share prices will be as well.

Brexit is serious with Nigel Bolton, the co-head of Blackrock’s equity fund operations in New York telling CNBC he’s positioned his portfolio to low risk assets ahead of the vote. European shares as measured by the Euro Stoxx 50 has shed 7% in five days but if Brexit gets up this might only be a walk in the park compared to how markets respond to the uncertainty.

So, how am I playing Brexit?

I liked how on Friday when Brexit fears actually subsided that bank stocks went up and this shows the relationship. I can’t gamble on what the Poms will do, so I have cash in case Brexit happens and if it does I will wait for the early hysteria to subside and then I will be a bank-buyer.

If Brexit fails I will jump in early to ride a spike in the market but I will miss the first push up.

Of course a fair bit of pre-Brexit bank-selling has already happened. CBA in December was around $85 but by February it was down to $70, helped along by capital raising and home price collapse talk. It then went to around $78 in both March and May until the recent fall from grace to $72.03 on Friday.

I think bad Brexit news will take CBA into the high $60-mark and it has seen $69.79 over the past year but it didn’t have Brexit concerns hurting it.

If Brexit loses out to Bremain, I’d think CBA heading towards $78 is not too far fetched. I think there is a bank buying opportunity either with a Brexit or without it but the timing of the buying will be very different. Do it fast if Brexit fails but if it gets up then it might be slowly, slowly catch a monkey and buy when everyone seems to be the most scared.

That takes guts but it generally works.
 

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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article 3 months old

The Overnight Report: Waiting

By Greg Peel

The Dow closed down 48 points or 0.3% while the S&P fell 0.2% to 2085 and the Nasdaq lost 0.2%.

Waiting

What can I say?

The local market was up and down yesterday before closing flat. Volumes were minimal.

Sector moves were also evenly spread across ups and downs and all were relatively benign. The biggest move was in consumer staples, which fell 0.9% following Wesfarmers' ((WES)) investor day.

And still we wait.

The most notable move on the day was in the Aussie, which is up 0.9% at US$0.7523. No doubt the RBA is frustrated. But currency moves across the globe this week have little to do with anything other than Brexit posturing. Safe havens are the popular parking spaces.

It is assumed a “go” vote in Britain would send the pound crashing, and the US dollar rising not just on the cross-rate, but as a global safe haven. The Aussie is also a popular safe haven at times of anxiety as long as commodity prices aren’t also crashing. A Brexit would send the AUD-GBP flying but the “Aussie”, being the AUD-USD, would likely fall on USD strength.

Conversely, were the Brexit to be defeated, the pound would not crash, nor probably rise too much given it is already leaning to the “stay” side. Presumably the Aussie would go back to pricing in the local economy, vis a vis the US.

But I could talk about this all day, and neither you nor I would be any the wiser.

Waiting

The US dollar index is down this morning, by 0.5% to 93.57, helping the Aussie higher. It was up by the same amount yesterday, and down by the same amount the day before.

The US dollar index is really not telling us anything, other than the polls are fluctuating. European stock markets closed modestly higher again last night, but after the close in Europe a new poll was released showing “go” ahead by a point. The bookies are still favouring “stay” nonetheless.

All we can reliably conclude is that the vote will go down to the wire, and will be determined by the one consistent cohort in every poll to date – the 10% undecided.

The Dow opened higher on the session last night before drifting to a lesser close. Volumes were minimal.

Janet Yellen testified before the House financial committee last night. Her Tuesday night testimony before the Senate banking committee focused on global risks, with Brexit being front and centre, whereas last night she concentrated on domestic issues, suggesting she was hopeful the US economy will have picked up in the June quarter.

No one paid much attention.

US existing home sales rose 1.8% in May to the highest level in almost ten years.

No one paid much attention.

The first regional results of the Brexit referendum are expected around 12.30am London time, which is 9.30am tomorrow morning Sydney time. If the outcome is a coin toss as the polls are suggesting, it may be several hours before a result is known.

Commodities

Weekly US inventory data had West Texas crude down US85c last night to US$49.00/bbl on the new August delivery front month.

The weaker greenback helped sustain base metal prices, but all gains were less than one percent.

Iron ore rose US$1.00 to US$51.70/t.

Gold is steady at US$1265.90/oz.

Today

The SPI Overnight closed down 16 points.

Japan, the eurozone and US will all provide flash estimates of June manufacturing PMIs over the next 24 hours.

Locally, June stock options expire on the ASX but little volatility is expected at this time.

One more sleep.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm.
 

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article 3 months old

The Overnight Report: The World Stalls

By Greg Peel

The Dow closed up 24 points or 0.1% while the S&P rose 0.3% to 2088 and the Nasdaq added 0.1%.

Take Your Positions

Spot the difference:

“Taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.”

“Given these developments, and following the reduction in the cash rate in May, the Board judged that leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.”

Yep, you got it. The first quote, from the June RBA monetary policy statement, says “holding the stance unchanged” while the second quote, from the minutes of that meeting, says “leaving the stance unchanged”.

Is there a difference? Maybe it’s just semantics, but “holding” has more of an implication of “on hold” while “leaving” has more of an implication of “for the moment”. Or maybe I’m trying to read too much into it. Whatever the case, an RBA rate cut in August cannot, at this stage, be either ruled out or ruled in.

The Aussie barely moved at the time of yesterday’s minutes release, but did start rising late in the session to reach a peak over 75 after hours. It then proceeded to come back down again in the US session as the US dollar index rallied back 0.5% to 94.07, leaving the Aussie unchanged over 24 hours at US$0.7459.

Speculating about RBA policy is nevertheless something we’ll have to put off until next week. The local market pretty much stalled yesterday, beyond a bit of position shuffling ahead of Thursday night’s vote. The index rose early, fell back mid-session and then rose again at the close, but nothing was remarkable.

The energy sector dropped back, having posted the biggest gain the day before, and materials also retreated. The banks found further support and healthcare rallied, having missed out on Monday.

There are two more sessions to go.

Not Yellen, Yawnin’

The problem with trying to gauge the Brexit result at this late stage is that there are conflicting indicators. Three polls over the weekend indicated “stay” was in the ascendancy. A poll last night suggested “go” was coming back. Market commentators are ignoring the polls and looking to the betting market, in which bookies have “stay” as a firm favourite.

Global markets have factored in “stay”, with a dash of caution. Last night gold, which has an amazing track record of moving a day later than every other market, decided to fall US$22.30 to US$1267.70/oz. We recall that while all other markets were moving back towards a “stay” setting on Monday night, gold ended the session little changed.

Volumes on US stock markets last night were paltry. This is not something one usually associates with a session that includes a testimony from the Fed chair. Clearly Wall Street, too, is leaving central bank speculation for next week, but the reality is Janet Yellen was sufficiently vague in her testimony last night to the Senate banking committee as to provide no further insight on policy. Rate hikes are still in the offing, she suggested, before grains of salt were handed out.

We might note that the US ten-year bond yield rose 3 basis points last night to 1.70%. The yield fell from 1.70% prior to the Brexit scare to 1.60% at its height, only to now have returned back to 1.70% over a couple of sessions as the scare eases.

The fact that the scare has eased is a worry in itself. When markets were in full panic mode, the downside of a “go” vote was to some extent priced in. The upside was substantial. Now that “stay” appears to be winning, markets have returned to a more positive position. There is thus a risk the Brexit result could spark selling on either outcome – “stay” would be a relief, but to some extent is priced in, while “go” would be catastrophic.

Janet Yellen will testify before the House financial committee tonight. While lower house members are typically more aggressive than their upper house colleagues, no one is expecting any fresh revelations.

Commodities

Gold notwithstanding, given it’s not not really a commodity, commodity markets also went into quiet mode last night. The rise in the greenback had no specific impact.

The West Texas crude July contract expired down US35c at US$48.85/bbl but the August contract, which will be the new front month tomorrow, rose US44c to US$50.26/bbl.

Base metal moves were mixed in London and no move exceeded one percent.

Having fallen US10c on Monday night, iron or was up US10c last night at US$50.70/t.

Today

The SPI Overnight closed up 15 points or 0.3%.

Wesfarmers ((WES)) will hold a strategy day today.

Two more sleeps.
 

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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

The Overnight Report: Poll Dancing

By Greg Peel

The Dow closed up 129 points or 0.7% while the S&P gained 0.6% to 2083 and the Nasdaq rose 0.8%.

What Goes Down

The scene was set for a positive session on the local market yesterday morning following the weekend’s Brexit polls, and perhaps more tellingly a clearer shift in the bookie odds towards a “stay” outcome. In particular, the 4% rebound in the oil price was set to have an impact.

The energy sector duly closed the day up 5.4%. The index had shot up from the open and wavered only slightly through lunch before finishing with positive momentum, up 1.8%. Not all sectors, however, participated.

But then we recall that not all sectors participated on the downside a week ago when it looked like the “go” vote was in the lead. Selling up to now has been concentrated in the big caps, the biggest of which are the banks, which are also supposedly the most vulnerable to a Brexit. Then there’s the big miners and oil names, supermarkets and the telco.

Energy may have jumped 5% but a 2.3% rebound for the banks was most influential. Materials rose 2.3% and the supermarkets rose 1.4% despite a significant drag from a 12% drop in Metcash ((MTS)), which posted its earnings result yesterday. Telcos rose 1%.

Thereafter the sector moves were less impressive. The mixed bag that is industrials rose only 0.5% and healthcare actually closed down 0.4%.

It was an “as you were” session, returning the ASX200 to the middle ground of the recent range at 5250. This could be a pivot point from which to move once the Brexit result is actually known, but for the fact we still have at least three more sessions to go and possibly more if the result is not immediately clear on Friday morning.

To that end, commodity prices were all stronger overnight, with oil up another 2%. Gold is off, but not by a lot. European stock markets surged and Wall Street closed higher. The SPI Overnight is up 24 points.

It all points to more of the same today, depending on to what extent the market sees yesterday’s session as pricing in last night’s offshore moves in anticipation. Australia’s was one of the first markets to respond to the Brexit polls yesterday. Do we go again today or will that suggest double-counting?

There are something like five more polls to be published between now and Thursday night. Presumably the global rebound can continue if those polls continue to suggest a win for the “stay” vote.

Calm Down

Wall Street is not yet ready to count its chickens.

The London stock market surged 3.0% last night, France rose 3.5% and Germany 3.4%. While the European markets have always been volatility-prone, it’s rare to see a move of such magnitude in the FTSE. The pound also surged further ahead, having risen to 1.47 against the US dollar from 1.40 late last week. Again – something you don’t see very often.

The US dollar index tumbled as a result, but that didn’t stop the safe haven of gold crashing to under US$1280 in the London session. The Dow opened up over 250 points from the bell. The S&P500 hit 2100.

But then calmer heads prevailed.

The 2100 level is significant resistance for the S&P. From that point the US indices began to drift back. Gold began to recover. By the close, US indices had given back half their initial gains. Gold is back at US$1290/oz, down US$8.10 from Saturday morning.

Wall Street isn’t quite ready to assume Britain stays in the EU when there’s a week of trading yet to go. Last night saw a shift towards a “stay” outcome, but not definitively so.

There’s also the small matter of Janet Yellen’s testimony to the Senate Banking Committee tonight. The way the Fed has been flip-flopping of late, heaven knows what might come out of the Fed chair’s mouth.

Commodities

Having surged on Friday night, last night the oils kicked on with another 2% gain. West Texas crude is up US94c at US$49.20/bbl. Brent is back over 50.

Commodity prices are mostly being supported via the currency, with the US dollar index down 0.5% at 93.64. Base metals were all 1-2% stronger on the LME.

Iron ore fell US10c to US$50.60/t. China is a world away from Britain.

Today

The SPI Overnight closed up 24 points or 0.5%.

The strong close on the ASX yesterday smacked of some late FOMO – fear of missing out. If the index opens up strongly again this morning there may be a few more initially hesitant investors coming out of the woodwork. Or we may take the lead from Wall Street in not yet getting too carried away.

The minutes of the June RBA meeting are out today. The question is one of whether “one and done” is the case, meaning the May rate cut will be it for the time being.

Yellen will speak tonight, but for the rest of the week global markets will be held captive by Brexit.

As I said yesterday, it’s going to be a long week.

Rudi will Skype-link with Sky Business at around 11.15am to discuss broker calls.
 

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Uncertainty

The local market began strongly on Friday, spurred on by the sudden turnaround in offshore markets as a result of an apparent swing back to the “stay” vote in Britain. But the rally was short-lived, to the point the index was slapped back down almost to square again by midday.

While “stay” may have been looking more likely on Thursday night, the reality is one poll does not a conclusion make. There is talk that the suspension of campaigning until Monday in deference to murdered MP Jo Cox will most likely hurt the “go” camp, which had previously been gaining some momentum. There is also a suggestion the murder may swing voters towards “stay” given Cox was a “stay” campaigner.

The bottom line is it’s still too close for anyone to call. Unless the polls between now and Thursday all line up to predict a definitive result one way or the other, it is likely global markets will swing back and forth on every apparent shift. But if nothing is at all clear, it is most likely investors will remain on the sidelines, having set their hedges, counting down the hours.

It could be a long four days.

Sector moves were mixed on the local market on Friday. The sector most damaged to date by Brexit fears – the banks – managed a 0.7% rebound to mark the biggest sector move of the session. Otherwise it was small moves up or down, with a rare quiet day for the resource sectors.

Fed Shock

It was only a month ago the Fed was talking up its rate hike expectations, surprising Wall Street by hanging onto the concept of perhaps three hikes in the remainder of 2016. Then last week the mood changed, with only one rate now the apparent expectation. On Friday night, St Louis Fed president James Bullard went one surprising step further.

Yes, Bullard said, there will be one rate hike in 2016. But that will be it until 2018, he added.

Come again?

Once upon a time such a comment may have sent Wall Street reeling, in one direction or another – up if the response is “Thank God, the Fed will continue to support the market” or down if the mood is “Omigod, the US economy must be in worse shape than we thought”. But in actual fact, Bullard’s comments had very little impact whatsoever, for two reasons.

One is Brexit – that is dominating all thinking at present. The other is sheer exasperation. The Fed’s credibility has already been brought to question thanks to its apparent flip-flopping all through the year, and what makes Bullard’s comments even more outlandish is the fact he was previously among the most hawkish of FOMC members.

To that end, Bullard managed only to cause a lot of bemusement. And eye rolling.

Indeed, the US ten-year bond rate went up 5 basis points to 1.62% when one would have expected the opposite on such a dovish suggestion. The US dollar index did duly fall 0.5% to 94.15 but both moves are a reflection of faith growing in a “stay” vote in Britain and not anything that happened to come out of a Fedhead’s mouth.

The same was true with oil, which having fallen back from the 50 mark through the week due to rising “go” fears, rebounded 5% on Friday night.

Once upon a time a 5% jump in the oil price would have had US stock indices surging. Not anymore. A period of relative stability for the oil price has meant the close correlation that existed earlier in the year is no longer evident. And no one was going to go on a buying spree before next Thursday.

To that end, Wall Street was quiet on Friday. Closing volumes were enormous due to the quadruple witching expiry and quarterly stock index rebalancing but volatility was lacking. The Dow closed down 57 points or 0.3%, the S&P lost 0.3% to 2071 and the Nasdaq fell 0.9%.

Commodities

West Texas crude rose US$2.21 to US$48.26/bbl.

The weaker greenback may have helped a little but that was not at all apparent on the LME. Nickel decided to have a 2% jump but the other base metals closed mixed on insubstantial moves.

Iron ore rose US50c to US$50.70/t.

Gold dropped back on Thursday night when a UK poll showed a swing towards “stay” but on Friday night the lack of any predictable result was evident in gold rallying back US$20.10 to US$1298.0/oz.

The fall in the greenback means the Aussie was 0.4% higher on Saturday morning at US$0.7394.

The SPI Overnight closed flat.

The Week Ahead

While there’s a lot more going on than just the Brexit vote next week, unfortunately nothing else will matter until Friday morning when, presumably, we’ll know the result.

Please God let it not be so close as to take days to confirm.

Three polls over the weekend all suggest “stay”, but still as a close call.

Janet Yellen will provide a scheduled testimony to the US Senate Banking Committee on Tuesday night. The world will be very interested in what she has to say, particularly following Bullard’s comments on Friday night.

With regard data, the US will see existing home sales and house prices on Wednesday, new home sales, the Chicago Fed national activity index and a flash estimate of the June manufacturing PMI on Thursday, and durable goods and fortnightly consumer sentiment on Friday.

Japan and the eurozone will also flash PMI estimates on Thursday.

Normally the eurozone’s ZEW investor sentiment survey, due Tuesday, and Germany’s IFO business sentiment survey, due Friday, would be closely watched, but given the world might change on Thursday the results are irrelevant.

In Australia, March quarter house prices are due tomorrow along with the minutes of this month’s RBA meeting. Is the RBA really “on hold” or could we yet see further rate cuts? Maybe the minutes might hold some clues.

On the local stock front, Metcash ((MTS)) will release its earnings result today, BHP Billiton ((BHP)) will host an investor day in London tomorrow night and Wesfarmers will hold a strategy day on Wednesday.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls around 11.15am. On Thursday he'll appear for his weekly slot between 12.30-2.30pm and on Friday he'll repeat the Skype-linkup at around 11.05am.
 

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

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article 3 months old

Treasure Chest: ANZ Warns Of Commodity Price Volatility

By Greg Peel

Earlier in the year it appeared as if Beijing’s stimulus measures, both monetary and fiscal, may have been starting to have their desired impact on the Chinese economy. The data began to improve. Mind you, one always has to be wary of misleading Chinese data fluctuations before, during and after the Lunar New Year holiday.

China’s May data now suggest things have taken a turn for the worse once more. Commodity price rebounds out of the February dip have to a degree been driven by stronger Chinese demand for the likes of iron ore, oil, and to some extent, base metals. There have been fears of such demand simply reflecting a re-stocking phase which must eventually come to an end, but analysts have been surprised that this had not yet become apparent.

Reality bit last weekend when Beijing released a weak number for May fixed asset investment, which reflects infrastructure spending. Industrial production was also uninspiring. The weakness in China’s financing numbers for May released earlier this week was notable, ANZ’s commodity strategists point out.

Loan growth was stronger than expected but total social financing was quite subdued, ANZ notes, corroborating the fall in fixed asset investment growth. A decline in the money supply and aggregate finance suggests the Chinese economy has peaked. Yet the data is not so poor as to press the PBoC into more aggressive monetary easing. ANZ nevertheless believes the government will likely launch further fiscal policies and speed up infrastructure approvals.

While the Chinese story is an ongoing one, of more immediate threat to commodity prices is next week’s Brexit vote. A “go” vote will likely send stock and commodity (ex-gold) markets into a tailspin. The impact may only prove temporary, ANZ suggests, but losses could be steep.

Commodity prices should otherwise be supported on the downside now that the Fed has returned to a more dovish stance, in line with market perception. Three anticipated US rate hikes this year have now become one, and that’s not a given either. Rate hikes would have placed upward pressure on the US dollar and thus by default, downward pressure on commodity prices.

It is still likely a Brexit “go” vote will result in US dollar strength as a safe haven for funds following out of the UK and Europe, adding to downside pressure on commodity prices irrespective of general volatility.

The exception is gold, which is more currency than commodity and as a safe haven, can move independently of the US dollar if circumstances warrant. Gold has already challenged the US$1300/oz mark, which will no doubt be breached were the Brexit vote to throw the world into turmoil.

The latest polls have the “stay” vote in front. It will be a nervous week.


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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 big day is upon us. Next Thursday Britain will vote on the Brexit. Late mail has the “stay” vote in front but given the swings and roundabouts of late, polling up to the day may still spark further market volatility.

The vote will be the stand-out event in what is otherwise a relatively quiet week on the calendar.

The US needs to get through the quadruple witching expiry tonight ahead various economic releases later next week. Wednesday sees existing home sales and house prices, Thursday new home sales, the Chicago Fed index and a flash reading of June manufacturing PMI, and Friday it’s durable goods and consumer sentiment.

The two influential monthly sentiment surveys in Germany are due next week, being the ZEW and IFO, but pre-Brexit vote they won’t mean much.

The minutes of the June RBA meeting will be released on Tuesday in a week otherwise largely devoid of local data.  Thursday sees the expiry of ASX stock options.

Metcash ((MTS)) will release its earnings result on Monday, BHP Billiton ((BHP)) will host an investor day in London on Tuesday and Wesfarmers ((WES)) will hold a strategy day on Wednesday.
 

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article 3 months old

The Overnight Report: Swing Factor

By Greg Peel

The Dow closed up 93 points or 0.5% while the S&P gained 0.3% to 2077 and the Nasdaq rose 0.2%.

Ups and Downs

There were several factors at play in the local market yesterday, belied by a flat close. Brexit, central bank policy and the derivatives expiry were all potentially influential.

The index shot up from the opening bell to be 50 points higher at around 11am, peaking just under 5200. Thereafter the session played out as a slow sell, all the way to be as good as unchanged by the closing bell.

The decision by the Fed overnight not to raise its cash rate came as no surprise, but what did surprise is the apparent capitulation form the central bank after having talked up rates rather hawkishly since April. Janet Yellen has decided, about five years after everyone else, that low interest rates may now be “the new normal”. Was it one bad jobs number? Was it zero rates in Germany? Whatever the case, the FOMC has swung from suggesting three rate cuts to come this year to suggesting one, maybe.

If Fed dovishness is now actually entrenched, the pressure is back on the RBA to cut. US rate hikes would drive the US dollar higher and thus the Aussie lower, but now the Aussie is potentially under threat of rising again in its role as a safe haven, high-yield currency.

Thoughts of another cut may have been derailed by the better than expected addition of 17.900 new jobs in Australia last month, if it not for the fact they were all part-time. Not a soul was given a new full-time job last month, according to the ABS. The unemployment rate remains steady at 5.7% but means little, given the year to May has seen net jobs growth of 1.9% made up of 0.8% full-time and 4.4% part-time.

Employment is supposed to put money in consumers’ pockets. Part-time employment puts in far less. If we were able to add together the part-time hours to make a full-time job, how many new “jobs” would the numbers really show?

Thus it was no surprise the Aussie actually fell yesterday on the release of the employment report, rather than rising as a “beat” might otherwise have suggested. The drill-down is supportive of further rate cuts.

And while on the subject of central banks, the Bank of Japan surprised yesterday by doing nothing. The BoJ’s experimental drop into negative rates has had the opposite effect of that the central bank would have hoped for, actually sending the yen higher. Markets anticipated at least a bump-up of QE yesterday, if not a further foray into the negative. But nothing transpired, so the yen shot up again.

It has become apparent, over time, that the BoJ only acts when no one is expecting it and not when everyone is.

Whatever impact central bank shenanigans had on the local market yesterday, the Brexit cloud still hung, and market protection in the form of ASX index options, SPI futures and futures options all expired. Assuming investors are keen to remain protected, positions had to be rolled over by the close yesterday, if they hadn’t been already, putting downward pressure on the market.

The wash-up at the closing bell was a very mixed bag of sector moves. The defensives of telcos and utilities found support but the biggest move up came in consumer discretionary, thanks to the announced Crown Resorts ((CWN)) restructure and subsequent 13% pop. A bounce in base metal prices had materials in the green but a fall in the oil price had energy in the red, and the banks were lower again.

But today is a new day, with expiry now over and overnight developments to consider on a Friday.

Big Ups and Downs

Europe went back into selling mode last night as stock markets and the euro fell, supposedly on ongoing Brexit fear, a lack of any BoJ action and let’s face it – the sort of confusion that tends to keep investors out. The mood carried over onto Wall Street where the Dow fell 170 points from the open.

Euro and pound weakness allowed the US dollar index to surge despite the stronger yen, and as every man and his dog talks up gold, the safe haven traded up to US$1315/oz despite dollar strength. Oil tanked 4%.

There was further confusion on the news a British pro-stay MP had been shot and killed while campaigning, prompting Prime Minister Cameron to call a halt to all Brexit campaigning. Did this mean the vote itself would be delayed? It appears not.

But then another poll was released. It was not quite a week ago the world went into a tailspin on a poll showing 55% of Britons intended to vote “go”. Last night’s poll suggested 65% now want to stay. There’s only one poll that matters of course, as any polly will tell you if they’re behind, but at the very least it now appears a Brexit is a long way from a done deal.

The Dow rallied back to be up a hundred just before the close. The US dollar index came right back to flat at 94.63. Gold crashed back down to be down US$13.50 over 24 hours at US$1278.00/oz. Oil rebounded, but is still down 3%.

Throughout all the confusion, the German ten-year yield is now officially negative at minus 0.02% and the US ten-year has fallen to 1.56%.

And to top things off, tonight is quadruple witching in the US, with June representing the biggest derivative expiry volumes of the year.

The Brexit vote is five more trading sessions away.

Commodities

West Texas crude is down US$1.44 at US$46.05/bbl.

The LME closed with the US dollar at its peak, thus all base metals bar lead are 1-2% lower.

Iron ore is unchanged at US$50.20/t.

The Aussie is down 0.6% at US$0.7362.

Today

The new September expiry SPI Overnight closed up 35 points or 0.7%. Those wondering why the actual price of the futures has suddenly dropped sharply from the June contract must appreciate the futures now need to discount a full three months of carry.

There is very little of note on the global calendar over the next 24 hours, with quadruple witching on Wall Street the highlight at this time of heightened concern.

Rudi will Skype-link with Sky Business at around 11.05am today to discuss broker calls.
 

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

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

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

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article 3 months old

The Overnight Report: Will I Stay Or Will I Go Now

By Greg Peel

The Dow closed down 57 points or 0.3% while the S&P lost 0.2% to 2075 and the Nasdaq fell 0.1%.

Market-Wide

There is not a lot to say about yesterday’s sell-off on the ASX, which simply echoed global fears that have built since Friday night with regard a possible Brexit. The public holiday in Australia meant some catching up was needed.

All sectors were hammered yesterday, and those involving larger caps more so.

Energy led the charge with a 3.9% fall, exacerbated by the lower oil price. The banks had the biggest impact with a 2.2% drop. Healthcare, which has exposure to Europe, fell 2.9%. Telcos, which might otherwise be a defensive but for mega-cap Telstra, fell 2.0%, and ditto the supermarkets, which fell 1.8%.

The true defensive – utilities – was the outperformer on the day in falling only 0.6%.

The index suffered technical damage in falling through 5225 to rest at 5200, which offers up the potential of a move back to 4800. However what we are dealing with here is a binary risk event. Either Britain will vote stay or go. Markets are currently building in “go” risk and if the polls keep swinging that way over the next few days, there may be more such risk to build in. But then the result may be “stay”, which is still the bookies’ tip to date.

“Stay” would take us all the way back again, presumably. And it is possible “go” will have less of an impact now markets have begun to adjust.

Taking a back seat yesterday was NAB’s business confidence survey for May, which was conducted after the federal budget but before anyone started worrying about a Brexit.

Business conditions continued to improve in May, to 10.1 on the index from 9.7 in April. This bodes well for Australia’s economic transition and employment prospects. But business confidence fell, to 2.7 from 5.3, suggesting concern about the future.

This time last year, confidence surged following the Abbott government’s small business friendly budget. This year’s Turnbull government budget is also business friendly, but it would appear there is concern as to whether there will still be a Turnbull government after July, or worst still, some unworkable hung parliament.

Trader’s Market

What is most notable about Wall Street’s response to sudden Brexit paranoia is a lack of major stock market volatility despite a spike in the VIX volatility index. That index is not measuring volatility based on daily market movement, it is measuring volatility implied by the cost of put option protection. Wall Street is covering its backside, but not bailing out in any mad panic.

Having already fallen substantially on Monday night, last night stock markets were down 2.0% in London, 2.3% in France and 1.4% in Germany. The German ten-year bond yield traded into the negative before settling at 0.00%.

Stock market selling rolled across the pond to send the Dow down 130 point in the morning, accompanied by bond buying that saw the ten-year yield heading towards 1.50%. But once Europe closed, Wall Street turned around. The fact the S&P500 closed down only 0.2% when all about were losing their heads suggests US traders believe the panic is overdone and/or if Europe is about to suffer upheaval, the US is a much safer place to be.

The US ten-year yield ultimately returned to 1.61%.

Adding to the confusion was a 0.5% jump in US retail sales in May, beating 0.3% forecasts. While Brexit is dominating the current market psyche, we must not forget the Fed will release a policy statement tonight. If, as many believe, the May jobs number turns out to be a statistical blip, then the positive retail sales number plays back into Fed rate hike possibility.

But not tonight. Maybe next month, after the Brexit result is known.

Commodities

West Texas is down another US$1.36 at US$47.90/bbl. Of all commodities, oil is most closely linked to the global economy as a whole.

Less so are base metals, which continue to play individual games dependent on actual supply-demand balances, inventories, China and currency moves. The US dollar index has risen 0.6% to 94.93 and copper and lead fell 1.5% and zinc 3%, but aluminium and nickel held steady.

Iron ore fell US$1.00 to US$50.80/t.

Gold is steady at US$1285.50/oz.

Reflecting the stronger greenback, the Aussie is down 0.6% at US$0.7346.

Today

The SPI Overnight closed down 9 points.

Was yesterday’s hundred point wipe-out enough to price in the Brexit factor, ahead of next week’s actual outcome? We are poised at 5200.

Today sees the Westpac confidence survey for June.

Tonight the Fed will release a policy statement, and update its forecasts, and Janet Yellen will hold a press conference.

Nib Holdings ((NHF)) will host an investor day today.
 

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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