Tag Archives: Europe & UK

article 3 months old

The Monday Report

By Greg Peel

Risk On

As expected, it was a relatively quiet day on the local bourse on Friday ahead of the US jobs report and following a strong recovery week. However sector moves were not all that quiet.

The banks only posted a 0.2% gain following a very strong run over the week, but apparent recovery in oil and iron ore prices, along with strength in base metals prices, saw the energy sector up another 0.4% and materials 1.4%. Investors appear to be undertaking a “risk-on” sector switch, drawing on the defensive sectors of healthcare (-1.2%) and utilities (-1.2%) for funds.

Normally telcos would be included in that group but Telstra has been trading more like a cyclical of late. Having taken quite a hit recently, the telcos were up 1.1% on Friday and similarly consumer staples posted a 0.7% gain. The downer was consumer discretionary, which lost 1.0% due to a disappointing January retail sales result.

Retail sales grew 0.3% in January, short of 0.4% expectation. This follows the strong December quarter GDP result for the consumer spending component, and at 4.0% annual growth, spending looks reasonable compared to last year’s 3.5% and the decade average 4.5%. Bear in mind that 4.5% includes a couple of pre-GFC years of growth around the 6% mark.

Still, the market didn’t like Friday’s result. Aside from an unsurprising trend of the non-mining states spending more than the mining states, the other takeaway of note is that we are spending a lot more on services than we are on goods.

Something for Everyone

The US added 240,000 jobs in February, beating 190,000 expectations and continuing a trend of surprising strength in the US labour market. This might be a concern for those fearing the Fed may yet look to hike again in March, but there is always more to a US jobs report than just the headline number.

The unemployment rate remained steady at 4.9%, implying the participation rate fell. But most importantly, after a very strong burst of wages growth in January which heightened Fed rate rise fears at the time, wages fell back 0.1%. Annualised wage growth is running at a below-trend 2.2% -- healthy enough considering lingering recession fears, but not enough to force the Fed into action next week.

June remains the current target date for the next Fed move.

Wall Street initially dipped on the jobs report release on Friday night but quickly resumed its rally once more. Simultaneously, the Dow crossed over the 17,000 mark and the S&P500 crossed over the 2000 mark. These numbers offer resistance merely on a “round number” psychological basis, and as such the sellers moved in. But a late rally at the death ensured another assault.

The Dow closed up 62 points or 0.4% at 17,006, the S&P gained 0.3% to close on 2000, and the Nasdaq rose 0.2%.

Proving further support, and risk-on confidence for Wall Street, was yet another rise in oil prices. A 4% gain for WTI meant the second consecutive weekly 6% gain for the global benchmark. Friday’s strength was driven by another drop in the weekly US rig count, suggesting next week’s weekly crude data may show a third week of falling production.

Commodities

West Texas crude rose US$1.37 to US$35.99/bbl and Brent rose US$1.62 to US$38.72/bbl.

Australia’s May budget is beginning to look a lot healthier. It will be interesting to see whether Scott Morrison does the right thing, and warns that a smaller deficit must be treated with caution given forecasters are not convinced the recent rally in the iron ore price will last, or plays the idiot politician, and gloats.

Iron ore was up another US70c to US$52.40/t on Friday.

The “risk-on” trade is now well and truly on show in base metal markets. When prices were heading towards their lows, commodity funds were bailing out rapidly. Now that the supply-demand balance across many a commodity is looking a little healthier – including global production cuts for base metals, particularly in China – the commodity funds are piling back in again, lest they be left behind.

Copper, nickel and tin all rose 3% on Friday night. Aluminium managed 0.7% and zinc was a wood duck.

Gold was relatively steady at US$1262.30/oz with the US dollar index down 0.2% at 97.36.

There’s no stopping the Aussie at present, which may be reaching a short-covering crescendo. It was up 1% on Saturday morning at US$0.7427.

The SPI Overnight closed up 36 points or 0.7% on Saturday morning.

The Week Ahead

The US goes into a bit of a data vacuum this week so the focus this week will be on the ECB, which holds a policy meeting on Thursday night. December’s extension to ECB QE has made little impression on the eurozone economy, which has also had to fight a pullback in the US dollar (ie stronger euro) as Fed rate rise expectations have been tempered.

The market is expecting something from Mario Draghi this week, but it’s not quite sure what.

China will be in the frame this week. Economists were disappointed with the Chinese government’s performance at the weekend’s national conference, at which it appeared Beijing’s focus is now back on reviving growth rather than addressing debt and further reforms. That should mean further stimulus from the PBoC, but Beijing has lowered its 2016 GDP growth target to 6.5-7.0% from 2015’s 7.0%.

The 2015 result was 6.9%. Perhaps by switching to a range rather than a single figure, Beijing is making it easier for its number crunchers to orchestrate an expected result.

This week China will release trade numbers tomorrow, inflation numbers on Thursday, and results for retail sales, industrial production and fixed asset investment on Saturday.

Australia will see ANZ job ads today, NAB business confidence tomorrow and Westpac consumer confidence on Wednesday. We’ll also see the construction PMI today and housing finance numbers on Wednesday.

As the ASX200 appears set to push further away from the gravitational pull of 5000 as the week begins, from tomorrow it will be fighting a large number of ex-divs throughout the week. These include BHP Billiton’s ((BHP)) dividend on Thursday, what there is of it.

Rudi will appear on Sky Business via Skype-link on Tuesday, 11.15am, to discuss broker calls. Next he'll appear twice on Thursday, from 12.20-2..30pm and between 7-8pm for the Switzer Report. On Friday he'll repeat the Skype-link performance at 11.15am.
 

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

Tonight’s US non-farm payroll release will be last before the Fed meets mid-month. Recently the actual quantum of jobs added and the unemployment rate have taken a back seat in importance for Wall Street behind wages growth, which feeds into inflation.

Next week’s US data releases are thin on the ground.

China will be in the spotlight nonetheless, releasing February trade data on Tuesday and inflation data on Thursday.

The ECB will hold a policy meeting on Thursday. Since the ECB beefed up stimulus in December, eurozone data have been disappointing. Fading expectations of consistent US rate rises have also led to a weaker greenback, undermining sought after euro weakness. Mario Draghi has persistently pledged he will do “whatever it takes”.

Australia will see the TD Securities inflation gauge, ANZ job ads, and the NAB business and Westpac consumer confidence surveys next week.

With the local reporting season now behind us, everything grinds to a halt for the time being on the local stock front. But next week is the biggest in the calendar for the number of stocks going ex-dividend, including BHP Billiton ((BHP)). Not that BHP’s downgraded offering is anything to be excited about.
 

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article 3 months old

The Overnight Report: Déjà Vu

By Greg Peel

The Dow closed down 188 points or 1.1% while the S&P fell 1.3% to 1921 and the Nasdaq lost 1.55.

Reversal

It started well – the ASX200 was up over 30 points around 11am thanks to a positive lead from Wall Street and jumps in oil and iron ore prices. BHP Billiton ((BHP)) shares had closed up 6% in London. But then the wheels fell off, and we closed the session down 21 points.

Commodity prices may have jumped overnight but it happened to be the day BHP reported a $7.8bn first half loss and, contrary to assurances from the company’s CEO, abandoned its sacred progressive dividend policy for a 50% payout ratio. The move did not come as a shock, and as it was BHP still closed up 2.6% on the session, helping the materials sector to a counter-trend 0.9% gain.

The Qantas ((QAN)) CEO waxed lyrical about just how wonderful his team was in turning the airline around from steep losses to steep profits but the company kept all the money for itself. No dividend? Qantas shares nosedived 5%.

Aside from the earnings reports on the day which had some influence in stalling the market’s attempts to head north from 5000 once more, news that the PBoC had devalued the renminbi by the most in six weeks sent Asian markets scurrying from the open and turned the tide locally.

Adding to the turnaround were falling oil prices in the Asian session. The 200 point rally in the Dow overnight and the 6% rally for BHP in London had a lot to do with a supposed big jump in the oil price overnight. But it was expiry day for WTI, everyone was short, and an ensuing short-covering scramble on the rollover was quite simply the only reason for the pop. I made note of this yesterday and suggested we wait to see what happens overnight. Well, WTI’s down 5%.

Square the two sessions and oil’s gone nowhere. The stock market has been led around on a chain.

The turnaround saw the local energy sector close down 0.5%, albeit Oil Search ((OSH)) joined the LNG loss-makers club and was hit 3%. Telstra ((TLS)) copped another hammering as the gloss continues to rub off that leviathan and a 0.7% fall for the banks after a reasonable recovery cemented a weak session.

And speaking of banks…

Oil was up on Monday night and back again last night and US stock markets have followed suit. So nothing much has changed. Admittedly, oil’s overnight fall was helped by a comment from the Saudi oil minister who suggested “there’s no sense wasting our time seeking production cuts”.

Really? So perhaps from now on you might just shut the **** up and stop playing your juvenile little games.

Last night’s weakness on Wall Street also lent itself to that other subject du jour – global banking weakness. Standard Chartered was the latest of the EU banks to report substantial losses which, while simply an echo of peer results to date, served to again highlight the impact of weak oil prices and slowing emerging market economies, particularly that of China, on the European banking industry.

On the back of Standard Chartered’s result came JP Morgan’s trading update, at which CEO Jamie Dimon admitted the March quarter to date has been a shocker, fees are down 25%, trading profits are down 20%, and hundreds of millions in provisions have been taken against loans to the energy and commodity sectors. Were oil to trade around the US$25/bbl level for some time, up to US$1.5bn would need to be taken as provisions, Dimon revealed.

It’s a bit of an eye-opener but not completely a shock, and not enough to derail the US banking industry once more. JP Morgan (Dow) shares fell 4%.

The Conference Board’s monthly measure of US consumer confidence showed a fall to a seven-month low 92.2 from January’s 97.8 when 96.9 was expected. That’s not good news for an economy that’s 70% consumption driven.

The reality is the usual correlation between US consumer confidence and actual consumption has faded of late because no matter how confident consumers feel, they’re not spending. They’re buying cars and they’re buying houses (existing home sales were up 11% year on year in January) but that’s all about cheap finance. Still rattled from the GFC, US consumers are taking the windfall gain of lower petrol prices and pocketing it.

And that’s where a big part of the problem lies. Low oil prices would not lead the world into another recession if only the rest of the global economy would provide a spending offset.

Commodities

The new April delivery contract for West Texas crude is down US$1.58 or 4.7% at US$31.81/bbl. April Brent is down US$1.41 or 4.1% at US$33.25/bbl.

Iron ore is up another US20c to US$50.50/t.

While one can never quite be sure who is following who, base metals fell back again last night having rallied on Monday night, following the same oil-stock market path. Aluminium and zinc closed down 2%, nickel and lead down 1% and copper down 0.5%.

Mention weakness in banks and you’re likely to see a pop in gold. Gold is up US$14.80 at US$1223.70/oz.

The US dollar index is a tad higher at 97.47 and the Aussie is 0.2% lower at US$0.7214.

Today

The SPI Overnight closed down 31 points or 0.6%.

Locally we’ll see the first of the December quarter GDP component releases today, being construction work down and wage prices.

How Bridge Street finishes its session will likely again have a lot to do with earnings reports, and today is a biggie in terms of volume. Highlights include Asciano ((AIO)) and Qube Holdings ((QUB)), which are very much in the spotlight at the moment, Fortescue Metals ((FMG)), Wesfarmers ((WES)), Westfield ((WFD)) and WorleyParsons ((WOR)).

Note also that as the reporting season builds towards its crescendo, the ex-divs are beginning to come thick and fast, acting as a natural drag on the index. Today’s ex-div highlight is Rio Tinto ((RIO)).

Rudi will be hosting Your Money, Your Call Equities on Sky Business tonight, 8-9.30pm. Rumour has it, he's invited a special guest. I think most of us know what this means...
 

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

Friday

After another volatile week which saw the ASX200 rebound back towards to 5000 mark, Friday’s trade had a very “Friday” feel about it. We opened lower on a weaker Wall Street and oil prices, stalled over lunch, and then fell away further in the afternoon.

The sectors that led the late fall were those which had posted strong gains during the week – energy, materials, financials and consumer discretionary. In other words, it looked a lot like traders squaring up ahead of the weekend. Telstra continued to fall in the wake of a somewhat disappointing earnings report, while other sector moves were mixed up and down.

The Australian market has been largely following the global trend over the month to date but there have been some significant individual stock moves within that trend as well thanks to result season. We are now entering the final week of the month-long season but around half of the major stocks on the market choose the last week to report, so there is plenty of scope for some more alpha fun and games this week.

We will also see the first of the December quarter data releases this week that build us up to the GDP result next week.

Poised

Friday’s trade in New York was interesting in that the oil price fell 3% but the S&P500 closed flat, and ditto the January CPI showed its biggest jump since 2011 but the S&P500 closed flat.

It would appear the US markets are now coming to terms with the fact the oil price is weak and will remain so for the foreseeable future, and that any talk emanating from OPEC with regard production curtailments is just that – talk, being used as a tool to force a bounce back in oil prices just as they appear destined to drop to new lows.

Perhaps fearing their strategy will ultimately reach a “cry wolf” point of ineffectiveness, last week did see an actual figure being out on curtailments, but “only if everyone else does the same” and “we understand that Iran needs to catch up”, which basically means no curtailments.

Wall Street is braced for lower for longer oil prices and braced for the financial fallout that will follow as marginal US producers hit the wall. The big US banks are carrying minimal exposure to energy sector loans so there is no great panic on that front.

The US headline CPI for January came in at 0.0%, it was revealed on Friday night, when economists had expected a 0.1% decline. Low fuel prices and a bout of food deflation are keeping headline inflation in check. But the core (ex food & energy) CPI showed a 0.3% gain – the biggest move since August 2011. Headline CPI is up only 1.4% on an annual basis but core CPI is up 2.2%, which exceeds the Fed’s target rate.

So we’re back to talking March again for the next Fed rate hike. Or are we? Were that the case, we would have expected to see Wall Street sold off heavily on Friday night. But we didn’t. The Dow closed down 21 points or 0.1%, the S&P closed unmoved on 1917 and the Nasdaq rose 0.4%.

The bottom line is the Fed does not pay a lot of attention to inflation as measured by the consumer price index. The FOMC’s preferred measure of inflation is the personal consumption & expenditure (PCE) measure, the January result of which is due this Friday. The PCE has been running behind the CPI and has yet to return to the Fed’s target of 2%.

Meanwhile, the Nasdaq also went some way to balancing out the equation on Wall Street on Friday. The new world tech names and biotech names that clutter up the Nasdaq are the “momentum” stocks of the market, often trading on astronomical PEs or no PE given no E. They are bought up in a scramble when the mood is positive and then amongst the first to be jettisoned when the mood turns sour. As we were crashing earlier in the month, the Nasdaq was “outperforming” to the downside and on the rebound, has been outperforming to the upside.

Having crashed to oversold levels earlier in the month and now posted a rebound representing the fastest move up in years, Wall Street is poised, both technically and fundamentally. What will happen next? Well, there are a lot of US data releases this week and right through next week, when the February jobs number is due.

Commodities

West Texas crude fell US89c to US$29.84/bbl on Friday night and Brent fell US89c to US$33.26/bbl.

It was a positive night on the LME but traders are not reading too much into it, noting volumes remain low. Many Chinese participants create a two week annual holiday around the week-long New Year shutdown so this week is expected to see a return to more normal activity. Aluminium, nickel and zinc all rose 2% on Friday.

Iron ore rose another US50c on Friday to US$47.00/t. Through all the turmoil experienced in the local materials sector recently, an 8% rebound in iron ore has almost gone unnoticed. Probably because no one can quite figure out why.

Gold is very much in the headlines of the popular press at the moment, so be warned. If your cab driver tells you he’s just bought a gold bar, sell! Gold fell US$8.80 on Friday night to US$1236.20/oz.

The fall came despite weakness in the US dollar index, down 0.3% at 96.66.

We have subsequently seen significant weakness in the pound this morning following the weekend’s announcement the British will go to the polls in June to provide an opinion on whether the UK should exit the EU. An exit is not favoured in financial and commercial circles given the myriad trading agreements and relationships that have been established over the past 40 years.

The Aussie continues to consolidate and is sitting at US$0.7147 this morning, while being a percent up against the GBP.

The SPI Overnight closed down one point on Saturday morning.

The Week Ahead

The highlights of this week’s local data will be December quarter readings on wage prices and construction work on Wednesday and private sector capital expenditure on Thursday, ahead of Wednesday week’s GDP result.

The US will see the Chicago Fed national activity index tonight, the Richmond Fed index, the Conference Board’s monthly consumer confidence measure, existing home sales and Case-Shiller house prices tomorrow, and new home sales on Wednesday. Thursday it’s durable goods and FHFA house prices, and Friday brings personal income & spending (including the aforementioned PCE), Michigan Uni fortnightly consumer sentiment, trade numbers, and a second revision of December quarter GDP.

On the latter front, the market is expecting a revision down to 0.5% growth from the previous 0.7% estimate.

The US will also see flash estimates of February manufacturing and services PMIs tonight and Wednesday, and Japan and the eurozone will also provide flash estimates of manufacturing PMIs today.

As noted, the final and most crowded week of the local results season is upon us. Special mention can be made of the much anticipated BHP Billiton ((BHP)) result due tomorrow, but thereafter please refer to the FNArena calendar for listings.

No one will be paying much attention to BHP’s profit result, just its dividend policy.

Rudi will appear on Sky Business on Wednesday between 8-9.30pm to host Your Money, Your Call Equities and on Thursday between 7-8pm for the Switzer Report.
 

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

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

article 3 months old

Next Week At A Glance

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


By Greg Peel

While the local market has been influenced by the macro backdrop during the month, reporting season has thrown up plenty of substantial micro moves. With around a third of companies covered by FNArena database brokers having reported to date, the beat/miss ratio (FNArena’s own assessment) is running at 2.4 to 1 and broker ratings upgrades have outnumbered downgrades by 1.6 to 1.

It’s one reason why we’ve pushed our way back towards the 5000 mark on the ASX200.

But next week sees the other two thirds of companies reporting. So realistically, it’s still early days. From an economic data standpoint, next week’s December quarter wage index and private sector capex numbers remind us that the quarter’s GDP result is nigh.

It’s a busy week for US data next week, just to add further to the tedious Fed debate. We’ll see new and existing home sales, house prices, consumer confidence, durable goods, personal income and spending and trade numbers and the Chicago Fed and Richmond Fed indices. There will also be flash estimates of February manufacturing and services PMIs and a revision of the December quarter GDP result.

Japan and the eurozone will also provide flash PMIs next week, while Japanese inflation will be in the spotlight by week’s end.

Highlights among next week’s reporting companies are far too numerous to list, so please refer to the FNArena calendar (link above).
 

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article 3 months old

The Overnight Report: Oversold Scramble

By Greg Peel

Wall Street was closed for a public holiday last night.

Rolling Thunder

Arguably it started in the European banking sector on Friday night. The announcement that Deutsche Bank would buy back its own bonds finally sparked a rebound in European bank stocks and sent European stock markets surging.

That surge continued into Wall Street, where US banks also rebounded in spectacular fashion, aided by an announced purchase of US$25m of shares of JP Morgan by the bank’s CEO.

At the same time, the oil price bounced up 12%. The trigger here was yet another suggestion from OPEC of possible production cuts. No one actually believes the suggestion, but given the long weekend in the US it was better to be safe than sorry. The Dow jumped 300 points.

As to whether market movements would have been less frantic were it not for the US long weekend, it doesn’t much matter. Bank shares across the globe have been hit hard, fuelled by weak profit results out of the European sector and exacerbated by negative rates being imposed on the Japanese sector. Resource stocks have been hit hard by falling oil and metals prices. For the banks in particular, calls of “oversold” have been loud. Not so loud have been the “oversold” calls in the commodities space, but then the carnage has been extreme.

In such circumstances, traders start looking for “the bottom”. And when they do, severe snap-back rallies, exacerbated by short-covering scrambles, often follow.

Yesterday Australia’s materials sector rallied 4.4%, for no particular reason other than it has been sold down a long way. At least the energy sector’s 3.1% jump can be explained by the oil price rebound. The banks managed a 1.6% gain, although in the global contest this was a pretty half-hearted effort. With the exception of telcos (-2.1%), all non-resource sectors rallied around the one percent mark.

Telstra ((TLS)) copped a beating thanks to its record-breaking “free data day”, offered as an apology for last week’s substantial outage.

Bad is Good?

Here’s a headline you will not often read:

Japan’s economy posted an annualised 1.4% contraction in the December quarter, it was announced yesterday. The Nikkei rallied 7%.

The GDP result was actually worse than forecasts of 1.2% contraction. But yesterday it didn’t matter. The Japanese stock market has been hammered since the BoJ moved to negative rates last week, which not only represents an impost on Japanese banks but also failed to provide any initial currency relief due to the crashing US dollar. Yesterday the Japanese stock market simply bounced back. Hard.

Also bouncing back hard was the renminbi.

Here’s another headline you won’t read every day:

Chinese exports fell 6.6% in January when a rise of 3.6% was forecast. Imports fell 14.4% when a rise of 1.8% was forecast. In response, the Chinese currency soared.

The world was already worried that the Chinese stock market might collapse again yesterday, given China has been on holiday in a week when global markets have gone to hell in a hand cart. The Shanghai index did close lower but only slightly, which realistically is just about as positive as a 7% gain for the Nikkei. The week also saw the US dollar tumbling, and hence the response in the renminbi was significant. Significant enough to wipe out the PBoC’s prior devaluation efforts.

Put those Chinese trade numbers in US dollar terms and exports fell 11.2% and imports 18.8%. These are very bad numbers. So bad, it would seem, that the Chinese market assumes the PBoC has no choice but to provide further stimulus.

The Australian stock market hovered for a while on the news out of Japan and China – the country’s two biggest trading partners – after having dipped back from an initial surge. But when nothing untoward happened, the buying resumed once more.

Europe picked up where it left off on Friday night, with major European stock markets rising another 2-3% overnight. There was some help from Mario Draghi who trotted out another one of his familiar “whatever it takes” speeches, but realistically Europe was already rallying well before Draghi spoke.

Commodities

I’ve been warning that the rally in the iron ore price running up to the Chinese New Year break should be treated cautiously, as there was always a possibility it would go straight back down again when China returned. Well, more fool me. Iron ore has jumped 5% or US$2.40 to US$45.60/t.

Never mind that steel prices continue to fall. Iron ore is one of the more beaten-down commodities so last night it bounced back.

As did the other most beaten-down of commodities – nickel, which jumped 6.7% on the LME. Why? Simply because it had been sold down so far, to 2003 levels. Copper rose 1.7% despite the Chinese data recording the first decline in copper imports since October. The other base metals were flat to slightly weaker.

Oil had its day in the sun on Friday, so in the absence of the US last night the oil markets were quiet. West Texas still managed to rise US72c to US$29.71/bbl in electronic trading, while Brent was steady at US$33.34/bbl.

The big moves in commodity prices overnight came in defiance of the US dollar index, which also reversed its recent trend in rising 0.9% to 96.79. Of course, something had to give. Joining the reversal theme, gold has fallen US$29.70 to US$1208.80/oz.

And following very weak Chinese date and a big jump in the greenback, the Aussie is up 0.5% at US$0.7141.

Funny old world.

Today

And that funny old world makes it very hard to be an investor at present. This is not a rational market. In the centre of the irrationality are the central banks, fighting it out to be the most effective in their market interference. Meanwhile, politicians across the globe just sit back and bicker.

The SPI Overnight closed up 27 points or 0.6%. The snap-back is not over yet, it would appear.

We are now deep into the local results season, and from here the micro stories will have to have some impact. Today’s slew of results includes that of CSL ((CSL)), while National Bank ((NAB)) will provide a quarterly update.

Note that Commonwealth Bank ((CBA)) goes ex 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

The Monday Report

By Greg Peel

Capitulation?

It was a very choppy session on the ASX on Friday, which is not typical of a Friday. The index plunged 60 points from the open but immediately found buyers, who pushed the ASX200 back to the 4800 mark which signals the supposed bear market threshold.

The rebound didn’t hold, and we were down again mid-morning, before another brave assault was mounted and 4800 was again hit at lunchtime.

But it wasn’t to be. The index closed almost back at its lows again in what appeared to be a level of capitulation ahead of the weekend.

The banks (-1.6%) were hardest hit, and the biggest influence on the index, reflecting general bank selling across the globe. There is genuine, if not misplaced, fear that the likes of a Deutsche Bank could go down and send ripples across the global banking world a la 2008.

Given Friday night’s action in the northern hemisphere, it will be interesting to see how the local banks fare today.

The consumer sectors were among the bigger losers on Friday, both down 1.3%, while a coin toss decided Friday was a day to sell, rather than buy utilities. Telcos found some support and energy, for once, played no part.

If there were speculative buyers in energy on Friday, they’ve done well.

Bank on it

It was mid-week when Deutsch Bank threw up the idea of buying back its bonds but it wasn’t till Friday night when the bank’s intentions were truly translated into a market response. There had been a brief interruption in what might have been an earlier bank rebound in Europe when French bank SocGen posted a shocker of a result.

But the European banks all surged back on Friday night to send the relevant stock indices surging as well. The London market is usually the less volatile of the big three but it closed up 3%, with Germany and France both notching 2.5% gains.

It is typical for such a mood to carry across the pond but just to fan the flames, news came through that JP Morgan CEO Jamie Dimon had bought US$25m worth of the bank’s shares with his own money. The Dow component jumped 12% on the session and the US banking sector as a whole enjoyed a spectacular rebound.

Square-Up

Markets are closed in the US tonight for the Presidents’ Day holiday, and typically Wall Street traders are not inclined to want to take vulnerable positions home over a three-day break. The weekend, and tonight, bring with it potential for any sort of market-moving development.

So there was some surprise when traders piled into the US banks on Friday night. There may have been an element of short-covering, but banks aren’t usually popular stocks to short. On the other hand, oil futures are a very popular short trade.

On Thursday night West Texas crude hit a new thirteen-year low and threatened to drop through US$26/bbl. Then lo and behold, an OPEC oil minister chimes in with fresh talk of possible production cuts. It was also at that point, would you believe it, the S&P500 was threatening to breach important technical support at 1810.

Wall Street turned on a dime. Interestingly, the oil price stopped falling but didn’t post much of a rebound, unlike the US stock markets. But while every trader and his dog laughed off the UAE minister’s timing as being more than coincidental, no one wanted to carry heavy oil shorts through the long weekend. Just in case.

So on Friday night, WTI jumped 12%. Traders suggest the bulk of the rally can be put down to short-covering, but there were also some genuine bottom-pickers in there too. The oil price eased back a bit in electronic trade after Wall Street had closed but the move over the session, combined with the rebound in the banks, was enough to send the market as a whole on a flyer.

Wall Street broke a five-day losing streak in style as the Dow bounced 313 points or 2.0%, the S&P jumped 2.0% to 1864 and the Nasdaq rallied 1.7%.

The US ten-year bond yield, which had fallen like a stone all week to be as low as 1.53% at one point, jumped 10 basis points to 1.75%

The US dollar index rebounded 0.5% in the session to 95.96, sparking some profit-taking in high-flying gold. It fell US$9.80 to US$1238.50/oz.

Friday night basically saw a sharp reversal of everything that was going on all week. The question is: How much of that reversal can simply be put down to the fact the US is closed tonight?

Strong endorsements from the Deutsche Bank board and from the JP Morgan CEO corroborate a widespread call that bank selling across the globe has been overdone. No one, on the other hand, is willing to believe the veracity of any OPEC supply reduction talk. But there’s also the technical aspect. A bounce off 1810 for the S&P500 suggests a double-bottom has been established, and that can be a bullish sign.

Commodities

The late easing back in Friday night’s oil price rally meant that in the 24 hours from Friday morning to Saturday morning, West Texas crude gained US$2.16 or 8% to US$28.99/bbl and Brent gained US$2.08 or 7% to US$32.76/bbl.

Base metals had had a tough week but joined in the reversal trade to some extent on Friday night, ahead of the return of China today. Beaten-down nickel managed a 2% rebound while aluminium and copper both rose 1%, with tin and zinc missing out.

The Chinese were buying up iron ore ahead of the New Year break and it would appear the market is worried this will be followed up by selling as Chinese traders return today. Iron ore fell US$1.30 to US$43.20/t.

Gold has been noted above.

Despite wild fluctuations all week in the US dollar index, the Aussie has completely stalled. It is again steady at US$0.7103, reflecting a balance of cross-currency translations and a trade-off between the China connection and solid carry trade yields on offer.

The SPI Overnight closed up 87 points or 1.9%.

The Week Ahead

All eyes will be firmly fixed on the Shanghai stock market when it opens today around lunchtime local time. While the dragons have danced and the fireworks exploded, global markets have tanked.

To add fuel to the fire, Beijing will release China’s January trade numbers today.

Japan will release its December quarter GDP result today.

The US is closed tonight but the week follows up with housing sentiment and the Empire State index tomorrow, housing starts, industrial production and the PPI on Wednesday, leading economic indicators and the Philadelphia Fed index on Thursday, and the CPI on Friday.

Wednesday will also see the release of the minutes of the January Fed meeting.

The minutes of the February RBA meeting will be out tomorrow. Other than vehicle sales today, the only other economic highlight this week will be the jobs numbers on Thursday.

In the meantime, the local corporate reporting season shifts into top gear this week, and the next two weeks will see an avalanche of reports. Today’s highlights include Amcor ((AMC)), Aurizon ((AZJ)), Bendigo & Adelaide Bank ((BEN)) and Newcrest Mining ((NCM)).

There will be no appearances on Sky Business by Rudi this week.
 

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 be back in business next week, which may prove interesting for metals prices. The iron ore market all but shuts down in China’s absence but base metal markets suffer extreme volatility due to thin volumes, as has proven the case again this week.

Beijing will immediately hit the market with January trade numbers on Monday, followed by inflation numbers on Thursday.

The eurozone will report December quarter GDP tonight as will Japan on Monday.

It’s a long weekend for the US due to the Presidents’ Day holiday on Monday and all markets will be closed. This would suggest some squaring up on Wall Street ahead of the break but in the current volatile environment, anything can happen.

US data releases next week include housing sentiment and starts, industrial production, inflation and the Empire State and Philly Fed activity indices. The minutes of the January Fed meeting are due on Wednesday.

The minutes of the February RBA meeting are due on Tuesday, ahead of Australia’s employment numbers on Thursday.

Next week sees the local reporting season shift into top gear as the week progresses. The volume of reports means there are just too many from which to select highlights, so please refer to the FNArena calendar (link above).

Please note also the calendar is compiled on a best endeavours basis. Australian companies are under no regulatory obligation to publish reporting dates and three different brokers often provide three different date assumptions for the same company. Other companies simply report when they’re ready, leading to apparent calendar omissions.
 

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article 3 months old

The Overnight Report: Oil Talk And No Action

By Greg Peel

The Dow closed down 254 points or 1.6% while the S&P lost 1.2% to 1829 and the Nasdaq fell 0.4%.

Alpha Bravo

It was a stuttering start for the ASX200 yesterday morning. An early attempt to push back over the 4800 level and thus, in theory, escape from bear market territory failed. By midday the index was sitting on the flatline wondering what to do next. But if the macro story was uncertain, there were several micro stories to consider.

And thus by the close, we were up 45 points and back above 4800. Credit goes to positive individual earnings results from the likes of Goodman Group ((GMG)), Mirvac Group ((MGR)) and Suncorp ((SUN)), and in particular Cochlear ((COH)). Cochlear shares jumped 14% to take the stock into the hundred dollar a share club.

The high-flying healthcare sector has copped a lot of selling this week as investors cash in their winners in order to compensate for their losers. But yesterday healthcare was the standout sector with a 2.7% gain, backed up telcos (+2.1%) following a good day for Telstra and some bargain hunting among the banks  and consumer sectors, each up a percent and change.

It was a day in which “alpha” took precedence over “beta” – the former referring to stock-specific or micro risk and share price movement and the latter referring to the the market as a whole, or macro risk and index price movement.

The question now, as we eye off another weak lead-in from Wall Street and Europe, is whether such a positive theme can continue. Realistically the local earnings season has only just begun. Unfortunately from today’s perspective, we had a result from Rio Tinto ((RIO)) aftermarket which has seen those shares down 3% in London, and thereafter today’s reporting calendar is very thin.

CoCo Dependency

SocGen was the latest European bank to report earnings last night, and it wasn’t pretty. SocGen shares fell 12% in France and took all the big European banking names down yet again, ensuring falls of 2% for the UK stock market, 3% for Germany and 4% for France.

Nor did it help that the Swedish central bank elected to take its bank deposit rate further into the negative. Many European central banks, including the ECB, now have negative rates. This is the rate normally paid to banks by the central bank for parking excess capital reserves. Negative rates mean banks have to now pay for the privilege, which is a move intended to force them to go out and lend into the economy.

The economy is not a warm and cosy place at the moment, and if banks do elect to continue to park funds, they will now incur a cost. Meanwhile, there is also concern over CoCos.

Contingent convertibles are hybrid debt instruments that arose post GFC and became particularly popular in Europe. A typical convertible bond converts into equity when the stock price rises to a trigger level. CoCos work the other way, forcing bond holders into equity on some systemic trigger. The idea is to prevent bank defaults by ensuring an injection of capital when needed, also known as a “bail in”.

With many a European bank share price down 20-30% in 2016 on elevated fear, who would like to be converted?

The Oil Game

US banks were hit again from the open last night on a flow-on from Europe. It seems it doesn’t matter how many commentators come out and scream that European bank capital is still leveraged up to 25 times in the post-GFC era when US banks have brought theirs down from as high as 40 to around 10 times, thus ensuring a substantial capital buffer.

It doesn’t seem to matter how many times the “oversold!” call is made.

But on Wall Street it’s not just about the banks, which are down some 18% for the year, it’s about oil, although the energy sector is only down 12%.

At one point last night, West Texas crude was threatening to drop through US$26/bbl, the US ten-year bond rate was down 17 basis points at 1.53%, gold was up US$66 and the Dow was down 400 points. The S&P500 hit 1810, below a major technical support level of 1812. Then an announcement hit the wires.

The UAE oil minister announced he was ready to talk coordinated production cuts.

Yeah, we’ve heard it all before. Every time oil drops to a new low there are vague suggestions from OPEC and or Russia that they are prepared to talk about reducing supply. Then the oil price bounces, and nothing actually happens. The reason the world took notice last night is because up till now, the UAE has been dead against production cuts. So on that basis, oil rebounded.

But not by much. West Texas is still down 3% on the session. The real bounce came in the US stock markets, where the Dow halved its losses in the space of fifteen minutes as traders piled into the Exxons and Chevrons. The S&P shot back up from its support level and the Nasdaq briefly snuck into the green.

The reason the Dow still closed down 250 points, aside from a bad night for Boeing, is that the rebound did not extend to the banks.

And on the subject of possible OPEC production cuts, all agree that nothing will ever be achieved without Saudi Arabia, who has not yet said anything and in fact upped production in January.

Commodities

West Test Texas crude is down US90c at US$26.83/bbl. Brent is down US54c at US$30.68/bbl.

Gold pulled back but is still up US$54.90 at US$1248.30/oz. The US dollar index is down 0.5% at 95.49 and the US ten-year yield has rallied back to be down only 6 basis points at 1.64%.

Yesterday I noted nickel’s fall to under US$8000/t for the first time since 2003. Last night, still in the absence of China, technical and distressed sellers drove nickel down another 4% on the LME. Other metals were mixed, with copper down 0.5% but lead up 2%.

Iron ore is unchanged at US$44.50/t.

The Aussie is relatively steady at US$0.7094.

Today

The SPI Overnight closed down 36 points or 0.8%.

Aside from the aftermarket result from Rio Tinto, there are no big name stocks reporting today to provide another potential alpha offset.

The RBA governor will provide a regular testimony to parliament today. Local housing finance numbers will be released.

The eurozone will provide its first read on December quarter GDP tonight, and the US will see retail sales and consumer sentiment numbers.
 

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: Each Way Bet

By Greg Peel

The Dow closed down 99 points or 0.6% while the S&P closed flat at 1851 and the Nasdaq gained 0.4%.

Growl

Yes, it’s “official”. When the ASX200 dropped through 4800 early yesterday it was down 20% from last April’s near 6000 peak, and thus we were “officially” in a bear market. No one’s quite sure who these “officials” are, but they tend not to mention the number of times markets drop 20% before turning around and going back up again.

Perhaps it explains why the index proceeded to drop like a stone through the morning to mark another fall well in excess of a hundred points for the second day running, despite there not having been a weak lead from Wall Street as there had been on Tuesday. Sheer panic, it would seem.

Then as the index neared 4700, the buyers finally emerged from their hiding places. The ultimate 56 point drop to 4775 still leaves us amongst the bears, but if this morning’s close in the futures is any indication, we may yet be looking to leave the den.

Yesterday was also a day when some individual stories picked a bad time to emerge. Computershare’s ((CPU)) poorly received result meant info technology (-4.5%) was the worst performing sector on the day, albeit it’s a very small weighting in the index. Hints that Telstra ((TLS)) might be considering moving into electricity retailing saw the telco sector down 3.0%, while news from Woolworths ((WOW)) that you’ll soon be able to pick your groceries up from the train station ensured consumer staples fell 2.1%.

Thereafter, sector moves were more around the 1% mark, with the “outperformers” on the day being utilities, again (flat), and the banks (-0.7%), thanks to post result buying in Commonwealth Bank ((CBA)). Mind you, a 0.7% move down in the financials sector still has a big influence on the index.

A doomsday warning or a capitulation session? It remains to be seen.

Meanwhile, Australian consumer confidence rebounded 4.2% in February to its highest level since November. Go figure. Although the survey was conducted prior to this most recent bout of financial market panic.

Testimonial

Wall Street was poised last night to hear what Janet Yellen had to say to the House Financial Committee. The punters were hoping for confirmation as to whether there will or will not be a March Fed rate hike, without much confidence in such clarity. As it was Yellen provided something for everyone, which simply adds to the confusion.

US jobs growth is strong, the Fed chair noted, and inflation is still expected to reach 2%. But it will get there more slowly than previously assumed. The level of volatility in global markets at present is weighing, and the Fed will not hike rates until things calm down. But the next move is still going to be up, Yellen insisted, not down, as many in the market are beginning to predict.

The take-out is that a March rate hike now seems very unlikely. On that note, the Dow rallied almost two hundred points early in the session. But June still looms large, and that is not good for those hoping for no hikes, or even a cut, or even negative rates, despite June being a long time away.

Throw in another dip in the West Texas crude price and the Dow closed down a hundred. But here, too, we saw some big names with weak individual stories on the night. The broad market S&P500, on the other hand, closed flat. The Nasdaq bounced back 0.5%. So it was a very mixed bag last night, and more of a stock picker’s playing field.

US banks were supported by the news, as I noted yesterday, that Deutsche Bank is looking to buy back its bonds. Deutsche shares rose 6% last night and floated all global big bank boats.

It may be that the dust is about to settle on the European bank collapse story, as such banks actually fail to collapse. The market is clearly haunted by ghosts of 2008. Wall Street, on the other hand, is still very much beholden to the oil story, and it will be some time before oil prices can rebound.

Commodities

Brent crude actually rallied last night, and is up US44c at US$31.22/bbl. But West Texas is down another US67c at US$27.73/bbl and the market fears a breach of the earlier low below 27.

Choppiness continues on the London Metal Exchange. Last night nickel fell 1.7% to close below US$8000/t for the first time since…wait for it…2003. In 2003 the expression “commodities super-cycle” had yet to be coined. Copper fell a percent and zinc rose a percent.

Iron ore fell US20c to US$44.50/t.

Gold remains relatively steady at US$1193.40/oz with the US dollar index down only 0.2% at 95.96. But the Aussie is up 0.7% at US$0.7106.

Today

The SPI Overnight closed up 20 points or 0.4%.

China remains on holiday but Japan also takes a break today.

Janet Yellen’s Congressional testimony moves across to the Senate Banking Committee tonight, but there is unlikely anything new she can add.

Rio Tinto’s ((RIO)) earnings result will prove a highlight today. Other reporters in the crowd include the ASX ((ASX)), Cochlear ((COH)), Mirvac ((MGR)), Suncorp ((SUN)) and Virgin Australia ((VAH)).

Rudi will be on Sky Business twice today. First at noon, for Lunch Money, then again between 7-8pm for his first interview in 2016 by Peter Switzer.
 

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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