Tag Archives: Europe & UK

article 3 months old

The Monday Report (On Tuesday)

By Greg Peel

Friday

The SPI futures suggested a 27 point opening to the downside on Friday morning but instead the ASX200 dropped 50 points in the first half hour, which again looked like computers gone mad. This assumption was backed up by an immediate attempt to rally back such that within the subsequent half hour, the index was only down 30.

But this time what might otherwise have been another session of grafting back towards square turned into a “just sell and get out of here by lunchtime” session. The index declined again to be down 50 points once more by midday and there it stayed all afternoon as offices emptied for the long weekend.

Word is a couple of large lines were sold in the futures market early in the session, so maybe it wasn’t all the computers’ fault this time.

Aside from the desire to square up ahead of a holiday, we may also point to the fact the index had tried on about three occasions now to break up through 5400, without success. Typically if markets find they just can’t go up, they go down instead. Friday did look like a bit of a capitulation on that front.

And as it transpired, a prescient one.

Commodity price weakness and accusations against BHP Billiton had materials falling 2.3% on Friday but a 1.0% fall for the banks was the standout, and did the bulk of the index damage. Energy dropped 1.3% but thereafter, sector falls were not as significant.

If a proprietary desk made the market for the lines of futures and was hit on the bid, that desk then has to sell “the index” of stocks to hedge their position. One need only slap the big caps – even just the top ten – to have the bulk of the market cap covered. The first thing one thus does is hit the banks, the big miners and so on.

It may have been that come this morning, the market would be ready to regain some of Friday’s lost ground on a bargain hunting basis, assuming nothing came out of left field overseas on the weekend.

But it did.

Friday Night

A new poll was published on Friday night suggesting – for the first time – that more British are in favour of leaving the EU than staying. Prior polls have indicated the opposite balance but Friday night’s poll showed not just a slight bias, but a 55/45 leave/stay split.

The London FTSE fell 1.9%, the French CAC 2.2% and the German DAX 2.4%. Hardest hit were the British and European bank stocks. However, by the time the UK and European markets were closed on Friday night, that Brexit poll result had not yet been published.

Weakness was a reflection of the rolling tide of bond buying in Europe, ahead of next week’s Fed meeting and the following week’s Brexit vote, turning into a torrent. The German ten-year yield traded as low as 0.01%. Ahead of the weekend, European investors were getting out of risky stocks and into safe haven bonds.

Wall Street opened lower as a result but was beginning another familiar graft back again when the poll news hit the wires. The Dow subsequently closed down 119 points or 0.7%, having been down as many as 173 points. The S&P closed down 0.9% at 2096 and the riskier Nasdaq fell 1.3%.

The British pound fell 1.4% against the greenback on the poll news, sending the US dollar index up 0.6% to 94.65.

The US ten-year bond yield closed down 4 basis points at 1.64%.

In the US, it was also the banks that suffered most on the day. The US banks had previously been leading Wall Street back to all-time highs on Fed rate hike expectations, but then along came that May jobs numbers, and now this.

The LME had already closed on Friday night before the Brexit news and greenback rally, and moves among base metal prices were minimal.

Oil was still open nonetheless, and West Texas crude fell US92c to US$49.53/bbl. Aside from the impact of the stronger greenback, the weekly US rig count showed another slight tick up.

Despite the stronger greenback, gold rose $3.80 to US$1273.30/oz as a safe haven.

The SPI Overnight closed down 61 points or 1.2% on Saturday morning.

Sunday

May data released by Beijing on Sunday showed Chinese industrial production rose 6.0% year on year as expected, and retail sales rose 10.0% as expected. The concerning result was fixed asset investment, which fell to a growth rate of 9.5% in the year to May, down from 10.5% in the year to April. Economists had forecast 10.5%.

Within that fixed asset number, private sector investment rose only 3.9% compared to 22.3% growth from the state. This is the figure that has economists worried, as it suggests China’s economy is almost solely been driven by government stimulus at present.

It is nonetheless assumed Beijing will need to bump up that stimulus to offset a weak private sector if year-end GDP growth targets are to be met.

Monday Night

While Orlando provided the shock, the focus of attention for markets across the globe was still the Brexit poll. While there is more than one poll being conducted on a regular basis, and others have a much closer outcome at this stage, suddenly the world is realising the vote is only ten days away and the result is unclear. Previously the “stay” vote was winning in the polls, leading to a level of complacency.

That has now changed.

Having already closed to the downside on Friday night before the latest poll was published, the London FTSE fell another 1.2% last night, while the French CAC fell 1.9% and the German DAX 1.8%.

Wall Street attempted a recovery from the open, prompted by news Microsoft had made a takeover bid for LinkedIn. The bid sent LinkedIn shares soaring 50% and floated all similar boats, while Microsoft (Dow) shares came off around 2%. But it wasn’t long before the mood returned to Brexit concerns.

There is also, of course, a Fed meeting and press conference this week, and meetings for the Banks of Japan and England.

While no one expects a Fed rate hike, the market is simply unsure now whether the Fed will be back in dovish mode or remaining in hawkish mode since the May jobs numbers were released. The Fed is also even less likely now to do anything ahead of the Brexit vote and on that score, nor is the BoE.

It could be a different story for the BoJ nevertheless, who again through no fault of its own is being faced with a surging yen. Seen as a “safe haven” currency, then yen has risen on the poll news as carry trades are reversed in the face of increased volatility. Will this force the BoJ to move further into the negative, or at least step up QE?

That volatility was reflected in the VIX index on the S&P500 last night, which rose 23% to 21 as investors moved to hedge their positions. The sidelines seemed a safer place to be, resulting in the Dow closing down another 132 points or 0.7% last night, the S&P falling 0.8% to 2079 and the Nasdaq dropping 0.9%.

It is going to be an interesting two weeks.

The US dollar index actually managed to slip back a bit last night as the yen became flavour of the month, down 0.3% to 94.38 despite ongoing weakness in the pound and euro. There was therefore no reason not to buy the other safe haven – gold – which is up US$10.50 to US$1283.80/oz.

Having been quiet on Friday night, base metals were mixed last night. Copper rose 0.7% and aluminium and lead both rose 1.5% but nickel and zinc slipped slightly.

Iron ore is down US30c at US$51.80/t.

West Texas crude is down US97c at US$48.56/bbl.

The SPI Overnight closed down 40 points or 0.8% this morning. That equates to a net 101 points down since the ASX closed on Friday for the long weekend.

The Week Ahead

The Fed statement and press conference are due on Wednesday night. The BoE and BoJ meet on Thursday night.

The US will see retail sales and business inventories tonight, industrial production, the PPI and Empire State activity index on Wednesday and the CPI, housing sentiment and the Philadelphia Fed activity index on Thursday.

On Friday it's housing starts and if there were not enough volatility on offer this week already, Friday is the quadruple witching derivatives expiry for the June quarter.

In Australia we’ll see the NAB business confidence survey today and the Westpac consumer confidence survey tomorrow. On Thursday the May jobs numbers are due.

Investor days will be held this week by nib Holdings ((NHF)) tomorrow and Goodman Group ((GMG)) and Graincorp ((GNC)) on Thursday.

Rudi will appear on Sky Business today, via Skype, to discuss broker calls around 11.15am. He'll return on Thursday, twice. First from 12.30-2.30pm and then again, between 7-8pm, for an interview on Switzer TV. On Friday he'll Skype-link again to discuss broker calls 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

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

China will release May industrial production, retail sales and fixed asset investment numbers on Sunday.

Australian markets are closed on Monday.

The short week will see the NAB business and Westpac consumer confidence surveys and the May jobs numbers.

The Bank of Japan will hold a policy meeting on Thursday. Rates further into the negative? The German ten-year yield has now almost hit zero. The Bank of England will also meet on Thursday but nothing will happen ahead of the Brexit vote.

The Fed will hold its policy meeting on Wednesday, with expectations for a rate hike now near zero. What will be important is the language of the statement and Janet Yellen’s press conference.

US data releases pick up again next week, and feature retail sales, inventories, industrial production, inflation, housing sentiment and starts and the Empire State and Philly Fed activity indices. Friday is a quadruple witching expiry of equity derivatives.

While local companies continue to hold investor days, corporate news is now thin on the ground as we approach year-end.


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article 3 months old

The Overnight Report: Slow Grind

By Greg Peel

The Dow closed up 66 points or 0.4% at 18,005 while the S&P gained 0.3% to 2119 and the Nasdaq rose 0.3%.

Flat

The ASX200 yet again suffered one of its first-half-hour plunges yesterday before immediately being bought back up again, to be only down slightly by midday. The futures only signalled down 18 on the open, so the rest was up to the computers.

The morning saw the release of the local housing finance numbers for April.

While the number of loans to owner-occupiers increased in April to be 4.6% higher year on year, the net value of those loans fell 1.8% to be 4.4% lower year on year. Meanwhile, loans to investors fell 5.0% in the month to be down 20.8% from a year ago, cycling a comparable reading ahead of the RBA/APRA clamp-down on investor lending mid-2015.

This is the housing market that has been offsetting the impact of weak commodity prices. Just as well commodity prices have rebounded, and China is buying greater volumes to offset the impact of weaker prices.

China’s net imports nevertheless fell 0.4% in May year on year but this was a better result than the 6.0% drop forecast, and the 10.9% fall in April. Exports fell 4.1% -- more than the 3.6% forecast and worse than the 1.8% April decline.

It was a mixed result which saw the ASX200 take another stumble at midday before grafting back again in the afternoon to a flat close.

Higher oil prices ensured a 2.1% gain for the energy sector yesterday so there needed to be an offset to square up the index. The banks were only a little weaker so it required materials to fall 0.6% due to weaker base metal prices, and despite a stronger iron ore price, and telcos to fall 0.9%.

Two sectors that have really been bouncing back and forth for no major reason these past few sessions have been telcos and consumer staples – both sectors one would normally expect to be plodders. Seems no one can make up their mind.

The index is poised at 5370, a number which is neither here nor there on a technical basis. We’re heading into a long weekend locally.

Muted Cheers

The Dow chopped around last night in an insignificant range before finally closing above 18,000 for the first time since April. But no corks were popped. The S&P 500 is within 0.6% of its all-time high, but no one is particularly excited.

It has been described as the unloved rally – a slow graft higher without any real impetus beyond the rebound in oil prices, which may yet fade, and central bank policy. A lot of attention is being focused on Europe at present, where the German ten-year yield (0.06%) continues to fall to reflect a step-up in corporate bond issuance. That step-up is all about the ECB.

The ECB’s latest QE upgrade included the addition of corporate bond purchases, on top of purchases of government bonds issued by eurozone members. Corporate Europe knows it has a willing buyer, and rates have never been so low. Why not borrow, even to buy back shares, as has been all the rage in the US. Deutsche Bank did it recently and in so doing, halted its share price slide and turned all European banks around.

Meanwhile on Wall Street, all discussion is about the Fed. Occasionally there is mention of actual corporate earnings, but they’re just a sub-text. The markets are being controlled by the central banks. In such an environment, the only real explanation many can come up with for the stock market rally on Wall Street is the TINA trade – there is no alternative investment one can make to provide any sort of positive real return.

At this rate the S&P will likely hit a new all-time high next week, possibly when the Fed puts out its statement on Wednesday night and no sign of the next rate hike is provided.

But there will likely be little excitement. An interesting element of last night’s trade was that oil rallied again, but the energy sector actually closed weaker.

Commodities

Amongst those Chinese May trade numbers was an indication of increased oil imports. US crude inventories fell again last week. There has been another pipeline attack in Nigeria. The US dollar index is down 0.3% at 93.56.

Add it all up and West Texas crude is up US$1.10 at US$51.53/bbl.

China was also importing buying base metals in May. Seems like the commodity funds picked the wrong day to bail out on Tuesday. In a session smacking of short-covering, lead rose 1%, aluminium 2%, zinc 3% and nickel 4%. Only copper stood still.

Iron ore fell US20c to US$52.10/t.

Having stalled for three days, gold appears to have decided the dip in the US dollar last night was enough reason to buy once more. It’s up US$19.30 at US$1262.50/oz.

The Aussie is up 0.4% at US$0.7485.

Today

The SPI Overnight closed up 9 points.

Presumably yesterday’s selling in the materials sector will turn into buying today on base metal and gold strength.

Chinese inflation numbers for May are due today.

ECB president Mario Draghi will speak tonight.

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

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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

The first revision of US March quarter GDP will be released tonight. Wall Street is hoping for some improvement on the first estimate of a disappointing 0.5%. Janet Yellen will also speak tonight. Recent Fedspeak has been far more hawkish, suggesting the Fed is preparing the market for a June rate hike.

Will Yellen typically kill the mood with her more dovish tone? Otherwise, trading is sure to be thin on Wall Street tonight ahead of the Memorial Day long weekend. The US is closed on Monday.

Across next week the US will see house prices, consumer confidence, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, the Fed Beige Book and the manufacturing and services PMIs. Most importantly, the May US jobs report will be released on Friday – likely the final swing factor in the June rate hike decision.

Wednesday is the first of the month and that means manufacturing PMIs across the globe, and both the official Chinese manufacturing and service sector PMIs. The rest of the world releases services PMIs on Friday.

The ECB will hold a policy meeting on Thursday.

Australia will be included in the PMI releases, and we’ll see monthly data for building approvals, retail sales and trade. We will also see March quarter numbers for company profits, inventories and the terms of trade ahead of Wednesday’s release of March quarter GDP.

ALS ((ALQ)) will release its earnings report on Monday but thereafter, corporate events begin to thin out as we head into EOFY.


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article 3 months old

The Overnight Report: Encore

By Greg Peel

The Dow closed up 145 points or 0.8% while the S&P rose 0.7% to 2090 and the Nasdaq gained 0.7%.

Green on Screen

After two wavering and nervous-looking sessions for the ASX200 on Monday and Tuesday, yesterday saw a return to the type of buying we saw last Friday – index wide. Thanks to a sudden return to exuberance in Europe and on Wall Street, Australia joined in the risk-on flurry.

As oil prices push up towards the 50 mark, energy led the charge with a 2.7% gain. At the other end of the scale, the defensives of utilities and consumer staples dragged the chain somewhat, only managing gains of around half a percent. Every other sector posted uniform gains of around 1.5%, and thus so did the ASX200 by the close.

There was a slight fade at the end – the index almost raised its bat to the crowd around lunchtime before settling up 76 – but otherwise yesterday’s “rally” mimicked that on Wall Street in being a step-jump from the opening bell and thus not much of a “rally” per se.

However while Wall Street traders were suggesting on Tuesday night it was all about a short squeeze and little else, Australia’s level of short positions are as low as they’ve been for a long time. And shorts in the Big Caps are minimal. Thus we can’t call yesterday a short squeeze downunder. We may, nevertheless, call it jumping on the bandwagon.

The volume of construction work in Australia declined by 2.6% in the March quarter, yesterday’s data revealed – worse than the 1.5% decline forecast. Engineering construction fell 4.2% to be down 13.7% year on year, balanced by a rise in residential construction of 1.5%, up 5.7% year on year. The housing boom is not finding the support elsewhere to overcome rapidly declining resource sector investment. The Australian economy is struggling in its transition.

Not that anyone cared yesterday. And besides, Glenn’s got our backs.

The construction data feed into today’s more influential capex numbers. Could they take the wind out of the sails?

Same Again

On Tuesday night global markets were encouraged by easing Brexit fears. We recall that the tag “Brexit” had its origins in something we all used to worry sick about in previous years – a possible “Grexit”.

Last night eurozone finance ministers agreed to release E10.3bn of bail-out funds to the still-struggling member, despite Germany’s opposition, two days after the Greek parliament voted to enact a further round of spending cuts and tax increases. The ministers also agreed to offer Greece further relief in 2018 if required.

While not in the class of a Brexit in terms of possible global turmoil, staving off renewed Grexit fears is still a mild positive for the risk-on players. And we won’t have to all go on and on about it again.

Otherwise another day of rallying on Wall Street was simply a follow-on from Tuesday. And while volumes were a little better last night than the night before, they still weren’t the stuff of buyer conviction. Again traders declared the rally to be driven by little more than short-covering, and advised their clients to sell into to it.

Last night’s monthly trade data released in the US showed an increase in both exports and imports, further fuelling a sudden belief the US economy is actually doing pretty well. Positive data continue to feed into June rate hike expectations, and thus into strength in the US financial sector. Tonight all eyes will be on durable goods. Another gain for oil prices, almost to the 50 mark, also helped drive a second session of market gains.

On Monday night, Wall Street barely moved, uncertain as to what might transpire with the UK and with Fed policy. Since then, the Dow is up 358 points.

Commodities

West Texas crude is up US63c at US$49.74/bbl and Brent is up US77c at US$49.90/bbl.

Aside from playing off supply numbers, oil is looking at stronger US data as a positive sign. The trade-off is a stronger US dollar a Fed rate rise implies. Base metal markets should also see stronger data as a positive, but are more fearful of the greenback at present and unsure over demand-supply, given China is yet to show any real rebound.

The US dollar index has slipped 0.2% to 95.40 but aluminium, lead and nickel are down 0.5-1.5%. Copper is up a percent.

Iron ore fell US20c to US$50.00/t.

Stability in the greenback means gold has also stabilised at US$1224.00/oz.

The Aussie is 0.2% higher at US$0.7199.

Today

The SPI Overnight closed up 34 points or 0.6%.

If accurate, that would take the ASX200 over the 5400 mark. The question is as to whether we will see profit-takers come in at that level, or whether a breach will bring in fresh buying.

As noted, the US sees durable goods data tonight but before that, the local release of March quarter private capex and capex intentions numbers today will be very closely watched by the RBA.

Aristocrat Leisure ((ALL)) will post its earnings result today.

Rudi will make his weekly appearance on Sky Business, 12.30-2.30pm and tonight he shall entertain a small group of subscribers who signed up for the Sydney "An Evening With Rudi" event.
 

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: Oh Won’t You Stay

By Greg Peel

The Dow closed up 213 points or 1.2% while the S&P gained 1.4% to 20176 and the Nasdaq jumped 2.0%.

Reprieve

Had I been writing this Report yesterday evening I would have suggested the local market looked very vulnerable. Last Friday we saw a market looking very much like it wanted to go up, supported by recent developments in monetary policy. On Monday we plunged from the open but immediately the technical buyers stepped in.

But that rebound faded in the afternoon. Yesterday we saw another attempt to recover from early sogginess before a sharp fall towards the closing bell. That drop ensured a close under 5300, and that is technically weak. Markets that want to go up but can’t find support tend to swiftly become markets that go down.

Had the Dow been down two hundred points this morning it would have been Goodnight Irene. But the Dow is up two hundred points so the local market is in for a reprieve. The futures are up 75 points this morning.

Yesterday saw only healthcare and utilities hold up against a tide of weakness elsewhere. Energy saw the biggest fall of 1.3% on a lower oil price, but oil is strong this morning. Materials responded to a weaker iron ore price and that was weak again overnight, albeit the two big miners rallied in London.

The telcos finally caved with a 1.0% fall and it's surprising that hadn’t happened earlier, given Telstra’s outage woes.

All of the above will prove academic today.

More enduring is RBA governor Glenn Stevens’ suggestion in a Q&A yesterday that inflation in Australia is too low, and that RBA still wants to see it back above 2%. This implies another rate cut is on the cards, and as such the index did jump higher, briefly, at lunchtime yesterday, before selling again overwhelmed.

The Aussie also dutifully dropped on Stevens’ comments, despite the fact the market has already baked in another rate cut and that’s what had us down at 72 in the first place. Strength in the greenback overnight had the Aussie falling as low as 71.4 before it stabilised, down 0.6% over 24 hours at US$0.7184.

Risk On

There’s been a lot of concern of late about the upcoming Brexit vote, much Chicken Little commentary and speculation the Fed will remain on hold until after the referendum just in case the world goes to hell in a handcart. Polling, up to now, has favoured the “stay” vote, but inconclusively so.

The latest poll released last night has inspired confidence in there being no Brexit. It showed “stay” at 55% and “go” at 42% -- the widest margin to date. Importantly, the poll only recorded the intentions of those who definitely plan to vote, and for the first time the “stay” vote outweighed the “go” vote in the over-65 cohort.

The fear has been that the “goers” would be more likely to come out to vote than the “stayers”, and that there would be a greater nationalistic fervour among older Britons. Last night’s poll eased those fears.

And subsequently eased market fears, both in London and across the Channel. The FTSE jumped 1.4%, the German DAX 2.2% and the French CAC 2.5%.

That sense of relief then flowed across the Pond. But if that wasn’t enough, data released before the opening bell on Wall Street revealed US new home sales jumped 16.6% in April, the biggest monthly jump in 24 years.

(Keep an eye on those Aussie stocks with a finger in the US building materials pie today.)

For US home building stocks, it was off to the races. And for the rest of the market, the result was the same. But hang on…surely the strong home sales numbers give the Fed more reason to hike in June, and an easing of Brexit fears removes that particular barrier? Shouldn’t Wall Street crumble on rate hike fears?

Many believe this will likely still occur in the short term, were the Fed to hike next month. But in the wider scheme of things, such a solid new homes sales result suggests the US economy is actually at lot stronger than many had assumed – particularly those who up to now could see no economic reason why the Fed should feel the need to hike. And on a global scale, if there is to be no Brexit then that takes out a major concern that would otherwise have investors hiding on the sidelines.

Two sectors stood out last night – banks and tech. Rate hikes are good for banks. Tech represents the epitome of the “risk on” trade, being for the most part very speculative. But “tech” includes names like Apple, and when the biggest stock in the market rallies hard, there’s a big impact on the indices.

Yet it wasn’t really a “rally”, per se. The Dow shot up 200 points from the opening bell and stayed there all day. Volumes were not particularly heavy. It is thus most likely, commentators agreed, that last night was more about short-covering than anything else.

Commodities

It also didn’t hurt that West Texas is up US$1.00 or 2% after a couple of soggy sessions, to US$49.11/bbl, and Brent is up US76c at US$49.13/bbl – as good as parity. The strong home sales data feeds back to expectations of stronger oil demand.

Base metal prices could fare no better than mixed in London nevertheless. Copper and nickel are up around half a percent and aluminium, lead and zinc are down around half a percent.

Iron ore fell another US$2.50 to US$50.20/t.

The US dollar index is up 0.4% to 95.59 on rate hike expectations, thus gold is down US$21.30 at US$1226.90/oz.

Today

The SPI Overnight closed up 75 points or 1.4%.

Locally we’ll welcome the numbers for March quarter construction work done today, which feed into tomorrow’s capex data. Otherwise, it’s quite a busy day on the local stock front.

Programmed Maintenance ((PRG)) will release its earnings result. Investor days will be held by all of Boral ((BLD)), Suncorp ((SUN)) and WorleyParsons ((WOR)), while Perpetural ((PPT)) will provide an update on its investment division.

Adelaide Brighton ((ABC)) and G8 Education ((GEM)) are among a handful of companies hosting AGMs 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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article 3 months old

Next Week At A Glance

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


By Greg Peel

The Fed would have us believe a June rate cut is likely unless the data in the interim suggest otherwise. Many believe the Fed will wait to July, post the Brexit vote, and others believe the Fed is simply trying to ensure the market does not become complacent in believing there will not be a rate hike at all this year.

Whatever the case, the supposedly “data dependent” Fed can chew on next week’s US releases, which include new and pending home sales, house prices, trade, durable goods, the Richmond Fed index, flash PMI estimates and consumer sentiment. On Friday, a revision of the March quarter GDP result will be released.

Speculation the RBA is set to go the other way again soon will ensure plenty of attention when Glenn Stevens speaks on Tuesday. Next week’s Australian data releases include quarterly numbers for construction and capex, ahead of the following week’s GDP result.

On the local stock front, next week will see earnings results from Technology One ((TNE)), Programmed Maintenance ((PRG)) and Fisher & Paykel Healthcare ((FPH)) while Boral ((BLD)), Suncorp ((SUN)) and WorleyParsons ((WOR)) will all hold investor days.

There will also be another handful of AGMs.
 

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article 3 months old

Next Week At A Glance

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


By Greg Peel

The US will release April retail sales numbers tonight which might go some way to confirming whether US consumers simply aren’t buying, or just not buying from bricks & mortar, given a very weak run of chain store quarterly earnings results this week.

Tonight also sees the eurozone’s March quarter GDP result.

Tomorrow Beijing will release Chinese retail sales, industrial production and fixed asset investment numbers for April.

Japan will release its March quarter GDP result next week, in a busy week for US data.

They include numbers for housing sentiment, starts and existing home sales, industrial production and inflation, as well as the Empire State, Philly Fed and Chicago Fed activity indices. The minutes of the April Fed meeting are also due.

The minutes of the May RBA meeting are out on Tuesday but between last week’s rate cut and the Statement on Monetary Policy, the market has a pretty clear idea of where the RBA is headed.

Australia’s jobs numbers are also out next week and the release of the March quarter wage price index kicks off the run-down to the GDP result in two weeks’ time.

Next week will see earnings results from Elders ((ELD)), DuluxGroup ((DLX)), James Hardie ((JHX)) and Oxforex ((OFX)) while Woodside Petroleum ((WPL)) will hold an investor day and several more AGMs are scheduled.
 

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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

Tonight’s US jobs report should serve to help tighten up assumptions of whether the Fed will or will not hike in June, albeit there will be one more jobs report before that meeting. The market is forecasting 200,000 jobs. If that is accurate, we probably can’t draw any real conclusion.

US data releases are thin on the ground next week until Friday, when retail sales, inventories, the PPI and consumer sentiment numbers are due.

China will release inflation numbers on Tuesday.

The Bank of England will hold a policy meeting on Thursday but one assumes monetary policy must now be on hold ahead of the Brexit vote in June.

The eurozone will release a first estimate of March quarter GDP on Friday.

Locally, ANZ will release its jobs ads series next week and Westpac its consumer confidence survey. Housing finance numbers are also due.

Commonwealth Bank ((CBA)) will follow up this week’s bank results with a quarterly update while Orica ((ORI)), Incitec Pivot ((IPL)) and AusNet Services ((AST)) will report interim earnings over the week.

QBE Insurance ((QBE)) will hold an investor day and there will be a handful of AGMs held throughout the week, including AMP ((AMP)) and Oil Search ((OSH)).
 

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The Overnight Report: Buy In May

By Greg Peel

The Dow closed up 117 points or 0.7% while the S&P rose 0.8% to 2081 and the Nasdaq gained 0.9%.

Westpacked

Westpac ((WBC)) reported its interim result before the opening bell yesterday morning and when the bell rang, the market proceeded to plunge 70 points without a blink. But it was all about the banks. When the market closed down only 9 points it was still all about the banks -- the only sector to finish in the red.

Westpac reported a miss on earnings due to an increase in bad debt provisions for some high-profile companies that have gone to or very close to the wall over past months, such as Arrium ((ARI)) and Slater & Gordon ((SGH)). Investors were relieved the dividend remains intact, albeit it’s the first time in a while Westpac has not raised its dividend (from the previous six month period).

Westpac is not, of course, alone in its exposure to high-profile names. Thus while Westpac shares closed down 3.5% yesterday, shares of the other three all closed down around 2%. Yet while Westpac’s earnings result missed analyst forecasts, the one unknown analysts were at pains to cite in their result previews was such corporate exposure, as well as more general exposure to loans in the mining states and also the NZ dairy industry. In other words, it was a “miss” but not entirely a surprise.

Which is possibly why the financials sector closed down 1.6% yesterday having been down around 3% at the 11am nadir. Meanwhile, Telstra’s ((TLS)) announcement it was going to spend millions to end constant outages in its mobile network was well received, as were its buyback plans, sending the telco sector up 2.8% and offering those selling banks another yield stock alternative to switch into. Materials rose 1.4% on another jump in the iron ore price but beyond that, all other sectors posted only modest gains.

Bank problems are not macro problems. ANZ Bank ((ANZ)) will report today (it has by now - see below) and National Bank ((NAB)) on Thursday. In these two cases, dividends will be critical.

Another bank will also take the spotlight later today. Will the RBA cut? Half the market says yes and half says no. Employment is strong, the terms of trade is looking a lot healthier, house prices continue to rise, as yesterday’s data confirmed, and business confidence has dipped but remains robust, as yesterday’s NAB survey revealed, but the Aussie remains elevated on the weaker greenback and inflation is going backwards.

I believe the question will come down to whether or not the RBA believes another 25 point cut will make any difference. Notwithstanding the fiscal side of the equation, which could all change tonight. Has the central bank been allowed a look at the budget ahead of today’s meeting? Not sure how that works. The budget is a week early. My tip is no cut, but I will not be shocked if I’m wrong.

Around the Grounds

Australia’s manufacturing PMI dropped to 53.4 in April from 58.1 in March. Japan’s hit a three-year low 48.2, down from 49.1, the eurozone ticked up to 51.7 from 51.6, and the US fell to 50.8 from 51.8, On Sunday Beijing’s China result was published as 50.1, down from 50.2, and the UK and Caixin China numbers are out tomorrow.

Buffeted

On a weak close to April trading on Friday night, Wall Street traders came in late to set themselves long ahead of the weekend. Typically traders square up ahead of a weekend, but this weekend saw the annual Berkshire Hathaway shareholders meeting. The Oracle has a history of rallying the troops, and sure enough those traders were right. All agreed last night’s hundred point rally in the Dow was all down to Warren Buffet.

Apart from the historical precedent, traders noted that the rally lacked any real investor conviction. Volumes were low, and pretty much have been for some time now in this rally no one’s all that convinced about. It is nevertheless worth noting that oil prices fell in the session, so we can say that the direct correlation no longer stands.

Unless oil prices fall back out of bed, which some are expecting.

After seven days of falls, the Nasdaq finally rose last night, and indeed outperformed the other indices. Again this was attributed to Buffet, who talked up Amazon and the FANG stocks while admitting he doesn’t understand the new-tech sector. That’s why his fund is in IBM and Amex and did rather poorly last year. Buffet still couldn’t help Apple last night nonetheless, which was down for an eighth straight session – its worst run in 18 years.

Commodities

Data suggest OPEC has now boosted its production levels since the failed meeting in Doha. Each monthly increase represents a new record. The suggestion is OPEC producers want to squeeze production as hard as they can to set the highest record they can before the regular June OPEC meeting, at which point they can then agree to freeze.

West Texas is down US$1.10 at US$44.89/bbl and Brent is down US$1.41 at US$45.96/bbl on the new July delivery contract.

There is also some fear in the market that oil’s April rally was very much supported by Chinese government stockpiling, as Beijing took advantage of low prices. There is only so much storage space, and at some point Chinese buying will stop.

Then there’s the issue of how much further the greenback can fall, and whether it’s due a bounce. The dollar index is down another 0.5% at 92.57 and greenback weakness has also been very supportive of commodity prices this past month.

Gold is the classic case in point, although it is relatively steady this morning at US$1290.90/oz having briefly traded up to 1300 overnight.

The LME was closed for the UK public holiday, so no base metal trading last night.

The holiday in Singapore also means iron ore is unchanged at US$65.20/t.

The drop in the greenback means the Aussie is up 0.8% at US$0.7664. The forex cowboys will be oiling their saddles prior to 2.30pm.

Today

The SPI Overnight closed up 12 points or 0.2%.

Late Breaking News: ANZ has just announced its first drop in profit in seven years and has cut its dividend by 7%.

On the local economic front, we have building approvals this morning, the RBA statement this afternoon and the federal budget tonight.

On the local stock front, beyond ANZ, Woolworth’s ((WOW)) will release quarterly sales numbers today, Goodman Group ((GMG)) will issue a quarterly report, Transurban ((TCL)) will host an investor day and omigod what a stupid name media ((OML)) will hold its AGM.

Rudi will skype-link with Sky Business to discuss broker calls around 11.15am today, then appear as guest on Thursday (12.30-2.30pm), re-appear on Switzer later that same Thursday (between 7-8pm) and then Skype-link again on Friday, probably around 11.05am.
 

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