Tag Archives: Iron Ore

article 3 months old

Brokers Question Rio Tinto’s Guidance

-Is the new CEO under promising?
-Subdued outlook for iron ore prices
-Will prices offset lower shipments?
 

By Eva Brocklehurst

Iron ore remains the key commodity in terms of the outlook for Rio Tinto ((RIO)), brokers maintain. The company has held onto its 2016 Pilbara guidance, expecting shipments around 332mt, but has pulled back its 2017 guidance to 330-340mt from 350mt -- the main change noted in the March quarter production report.

March quarter iron ore shipments were up 11% on the prior March quarter but down 12% on the December quarter. This did not surprise brokers as port export data pointed to the weakness. Bauxite and copper output were largely better than expected in the quarter, while thermal coal output was down 9%. Copper and coal guidance for 2016 are unchanged.

The company attributed the reduction in Pilbara guidance to the AutoHaul (driverless trains) project, but Deutsche Bank suspects the new CEO may just be re-setting expectations. The broker struggles to envisage how shipments will not exceed 340mt in 2017, considering an additional 20mtpa will be on line from Silvergrass and there is 8mtp of “creep” from other mines.

The suggestion that AutoHaul has encountered technical/implementation issues - if this is the case - puts into question the viability of the project, in the broker's view, given testing has been going on for years. Hence, Deutsche Bank suspects the new CEO may be under promising. The impact of lower production on iron ore price sentiment could be significant, and the broker observes Rio Tinto has the flexibility to beat the new guidance. This will not be known, however, until late 2017, the broker points out.

Credit Suisse believes the stock has reasonable discounted cash flow support but, with iron ore prices forecast to weaken in the second half and into 2017, the valuation metrics increase. The broker considers the valuation is fairly full and, given the subdued outlook for iron ore prices, some caution is warranted.

The Namuldi contribution to iron ore production should increase by 5mt in the December quarter as the second phase of incremental tonnes is delivered, Morgan Stanley observes. An investment decision on Silvergrass is also slated for later this year. Having allowed for construction to start in the second half of 2016, the broker suspects the timing of capital expenditure may need to be adjusted. Still, Morgan Stanley envisages this project will support Hamersley Iron's contribution to iron ore output.

The negative impact on earnings from lower shipments in 2017 should be more than offset by a positive price impact on the business, Ord Minnett contends. The broker cites recent Chinese data which suggests the near term outlook continues to improve.

Ord Minnett is in Deutsche Bank's camp on the AutoHaul technology, suspecting that there is more likely to be either a deliberate “value over volume” strategy or other potential production issues. The broker believes its 2017 iron ore price forecast of US$42/tonne now has upside potential after the company's report and incorporating the positive Chinese numbers.

Macquarie was not surprised at the reduced Pilbara guidance for 2017 and assumes peak production of 341mtpa from 2018. The broker lifts 2016 earnings estimates by 2.0%. Stronger-than-expected iron ore prices are expected to maintain some earnings momentum for Rio Tinto over the course of 2016 and drive material upgrades to consensus earnings forecasts. Macquarie continues to prefer the stock to BHP Billiton ((BHP)).

UBS was also unmoved by the 2017 guidance reduction, having already downgraded estimates on expectations the company would focus on value over volume. The broker suspects this may mean market sentiment turns more positive on price, especially if BHP Billiton downgrades its FY16 guidance in the quarterly report.

Citi is the least hopeful of those brokers monitored daily on the FNArena database, having recently downgraded the stock to Sell because of an ongoing bearish view of iron ore prices in the years ahead. There are four Buy ratings, three Hold and one Sell (Citi) on the database. The consensus target is $50.03, suggesting 2.1% downside to the last share price. Targets range from $42 (Ord Minnett) to $56.30 (Deutsche Bank).
 

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article 3 months old

The Overnight Report: Quiet Achievement

By Greg Peel

The Dow closed up 42 points or 0.2% while the S&P rose 0.1% to 2102 and the Nasdaq gained 0.2%.

Wall of Worry?

On Tuesday the ASX200 gave up an 82 point rally to close up 51 and yesterday gave up a 44 point rally to close up 27. The rally from 4900 to 5200 has been driven almost entirely by the energy, materials and financials sectors due to rallies in oil and iron ore and subsequent loan relief for the banks.

This two steps forward, one step back increase suggests not everyone’s convinced in its sustainability. You would be hard pressed to find an analyst who believes the rally in oil represents any more than short-covering which must soon end, and the rally in iron ore a seasonal upswing which must soon be followed by a downswing.

Yesterday the materials sector led the charge with a 2.1% jump and energy chimed in with 1.1%, but both moves represented slips back from early highs. Financials closed flat yesterday after initially rising, thanks to the government’s decision to make the banks pay for increased funds for ASIC to keep a closer eye on them. Industrials decided to make a move yesterday, up 1.2%, but there was little happening in other sectors.

If the rug were pulled out from under commodity prices then there is nothing else holding up the local market at present. But last night oil was up another 4% and iron ore another 4% and the futures are suggesting up 36 from the open this morning.

Softly Softly

The US earnings season to date has so far registered earnings beats for 71% of reporting S&P500 companies. But it’s still early days and numbers for the big industrials are only just beginning to flow. Last night’s highlight was Coca-Cola (Dow), which missed on revenue and fell 4%. This morning American Express (Dow) posted a beat after the bell, and is up 6% in the aftermarket.

In US economic news, existing home sales jumped a better than expected 5.1% in March. It’s one bright data point in what has generally been a pretty weak run of late, underscoring expectations the US economy barely grew in the March quarter. But hey, the Fed’s got Wall Street’s back.

Which just leaves oil.

Weekly US data last night showed a 2.1m barrel increase in US crude inventories when 3.1m was expected. US production fell by 24,000bpd to 8.9mbpd, marking the six consecutive weekly decline. Forget Doha, this is where the real supply freeze is going on.

WTI is thus up 4% this morning. It’s a bold play to push oil higher still when most of the market believes the only thing holding prices up at present is the Kuwaiti strike, which must eventually resolve, unless prices were never going to fall after Doha anyway. It could just be ever more short-covering, but one day the shorts may be right if the post-Doha world means stepped up competition for market share between OPEC members.

On that point, Saudi Arabia, who scuttled Doha, is now considering the unthinkable – putting a stake in its state-owned Aramco energy company up for IPO. Saudi Arabia has always maintained it can endure lower oil prices until production declines in the US, but clearly the kingdom needs the money.

The Dow gave up a hundred point gain at 3pm to post another modestly positive session. Trading was quiet and volume was light, as it has been over the week. If Wall Street is to reach to new all-time highs in the next few sessions, it won’t be without some level of nervousness, it would seem.

But where else are you going to put your money?

Commodities

On the expiry of the May delivery contract, West Texas crude closed up US$1.67 or 4.1% to US$42.63/bbl. Brent, already trading June, is up US$1.51 or 3.4% at US$45.57/bbl.

Right now commodities are not paying a lot of attention to the US dollar, which last night rebounded 0.5% on its index to 94.55. On the LME, talk is of Beijing preparing to announce a ramp-up of infrastructure stimulus (hence the jump in the iron ore price) and of production cuts in China and elsewhere, which have at least been announced if not yet delivered.

A fall in inventories saw aluminium jump 2.5% last night in another generally positive base metal session in which only zinc slipped a bit.

Iron ore is up US$2.50 at US$64.30/t.

The rebound in the dollar has gold off US$6.00 at US$1244.30/oz but the trade-off of a stronger greenback and stronger commodity prices means the Aussie is only down 0.2% at US$0.7797.

Today

As noted, the SPI Overnight closed up 36 points or 0.7%.

The ECB will hold a policy meeting tonight, but there is no expectation of anything new at this stage.

Before that, it will be a very busy day on the Australian corporate front.

The quarterly production reports come thick and fast today and include numbers from Alumina Ltd ((AWC)), Iluka ((ILU)), OZ Minerals ((OZL)) and South32 ((S32).

Quarterly updates will also be provided by Brambles ((BXB)) and Challenger ((CGF)), while Wesfarmers ((WES)) will report quarterly sales and Ten Network ((TEN)) will report first half earnings.

Cimic ((CIM)) and Woodside ((WPL)) will hold AGMs and Nufarm ((NUF)) will host an investor day.

Bring on the long weekend.

Rudi will make his usual weekly appearance on Sky Business today, 12.30-2.30pm, and re-appear for a verbal wrestle with Peter Switzer at around 7pm.
 

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article 3 months old

The Overnight Report: Just Like Old Times

By Greg Peel

The Dow closed up 49 points or 0.3% while the S&P gained 0.3% to 2100 and the Nasdaq fell 0.4%.

Well Resourced

It was all about commodities and the resource sectors on the local market yesterday thanks to a jump in the iron ore price and no drop in oil prices. We recall that on Monday, energy names were sold down following a lack of agreement coming out of Doha, perhaps not so much as a panic trade but more of a safety trade.

Given oil prices fell initially but ultimately recovered on Monday night, yesterday saw those same energy names bought back again. The banks had similarly seen some squaring up for safety on Monday on the energy sector loan link, and they, too, recovered yesterday.

The ASX200 was up 82 points early in the session before some profit-taking emerged after the solid run up from 4900 in the past few sessions. The close of up 51 points was led by energy (3.8%) and materials (3.3%) with some help from the banks (0.8%).

But interestingly, the resource sectors were the only cyclicals to join in the spoils as the index briefly breached 5200. Industrials actually fell 0.6% and the consumer sectors were flat while the defensives of telcos and utilities each rose 1%. If we are to push upward towards 5400 as the technicals suggest, we cannot be confident in a rally driven by defensive yield and fickle commodity prices.

There is much focus at present on Wall Street and the potential of quarterly earnings results to push the US indices back to all-time highs. But locally we are now entering an important quarterly season of our own – not in the form of official earnings results but in the form of quarterly updates from both resource sector and non-resource sector companies, as is increasingly becoming the norm. By next week we will start to see a flood of AGMs being held by calendar year-reporting companies.

In other words, we are entering a period of micro influence that in aggregate should help paint a macro picture for the Australian economy. The macro has taken a back seat in other developed economies given safety nets provided by central banks. As to whether the Australian central bank can also provide some support is now a subject of heated debate.

RBA governor Glenn Stevens spoke in New York last night and I suggested yesterday it probably wasn’t the forum to discuss currency issues downunder. And it wasn’t. Stevens made it clear he wasn’t there to discuss Australia but to provide his take on the current international economic climate.

Yesterday the minutes of the RBA’s April policy meeting were released, and provided no new insight. The word “complicate” was used in the official statement following that meeting and appeared again in the minutes:

“Oil and iron ore prices had risen noticeably since earlier in the year. The rise in commodity prices had been accompanied by an appreciation of the Australian dollar, which also partly reflected the expectation that US monetary policy would be more accommodative over the coming year than had been anticipated earlier. Members noted that an appreciating exchange rate could complicate progress in activity rebalancing towards the non-mining sectors of the economy.”

We might note that in early April the Aussie was trading around US$0.75 and on the strength of commodity prices and further weakness in the US dollar, is up 0.8% over the past 24 hours to US$0.7812.

A lack of any further hints about a possible rate cut to address the “complication” is likely why the consumer and industrial sectors were held back yesterday. More than one economist is tipping a May rate cut, although you wouldn’t pick one from the RBA’s current rhetoric.

Here We Are Again

With OPEC having failed to agree to a production growth freeze on the weekend it’s perhaps ironic that right now OPEC supply is under restraint thanks to the strike in Kuwait, significant production outages in Yemen, South Sudan and Iraq and pipeline outages in Nigeria. These restraints are helping to support oil prices, which were up a couple of percent last night.

But strikes and outages are usually temporary so the real focus is on US production, and the US weekly numbers are out tonight. Ongoing weakness in the US dollar is also supporting oil prices and indeed commodity prices across the board.

The weaker greenback is also supporting Wall Street. The current focus is on March quarter earnings and whether they’ll be less bad than forecast, and a lot of the weakness built into forecasts reflects a strong US dollar over a quarter in which assumptions were for routine Fed rate rises. Now that those assumptions have evaporated and the greenback has steadily fallen, Wall Street can also look ahead to some better earnings numbers from multinationals in the June and September quarters.

Last night the S&P500 closed smack on the psychological level of 2100. The broad index did reach as high as 2104 early in the session as the Dow shot up 100 points on the open, but there is some nervousness beginning to creep in. It’s only 300 more Dow points to the all-time high and 30 more S&P points. The average PE ratio is starting to test the top of its typical range.

And next month is May. But the “Sell in May” adage usually only works if Wall Street has rallied through the first quarter and into the second, and this year we’re still not yet at the old high as May approaches. The S&P last saw 2100 in November and first saw 2100 in February of last year. The earnings result season has only just begun.

Last night’s earnings results were not that flash. “New tech” Netflix saw its shares down 13% after the company eased back subscriber growth forecasts, which goes a long way to explaining why the Nasdaq bucked the trend last night. “Old tech” IBM (Dow) saw its shares fall 5.5% following yet another drop in revenue. Further old tech disappointment was provided by Intel (Dow) after the bell, and its shares are down 2% in the aftermarket, while Yahoo shares are up 1%.

Commodities

West Texas crude is up US91c at US$40.96/bbl and Brent is up US$1.13 at US$44.06/bbl.

Base metal prices have been given a kicker by the stronger oil price, or perhaps the not weak oil price, and also by the weaker greenback. The US dollar index is down 0.4% at 94.11 and aluminium, nickel and tin all rose on the LME last night, 1% while copper, lead and zinc all rose 2%.

Iron ore’s surge continues. It’s up another US$1.90 at US$61.80/t.

The dollar index briefly breached the 94 support level last night which has the gold bugs excited. Gold is up US$17.80 at US$1250.30/oz.

Today

Hard to ignore commodity price strength. The SPI Overnight closed up 31 points or 0.6%.

BHP Billiton ((BHP)), Newcrest Mining ((NCM)) and Woodside Petroleum ((WPL)) all report quarterly production and sales numbers today.

Rudi will host Your Money, Your Call Equities tonight. Tune in from 8-9.30pm.
 

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article 3 months old

The Overnight Report: Doha Indifference

By Greg Peel

The Dow closed up 106 points or 0.6% at 18,004 while the S&P gained 0.7% to 2094 and the Nasdaq rose 0.4%.

Playing it Safe

The primary talking point across financial markets over the last 24 hours is Doha, and genuine surprise that oil prices did not collapse in the wake of a lack of agreement at the meeting. But given no one believed there would be an agreement reached, why the surprise?

The Australian market had to make the call yesterday before northern hemisphere oil trading provided direction. I had noted yesterday that the Aussie had plunged over a cent on the Doha news but immediately recovered more than half of that drop, and suggested that might just be a hint as to what would happen in other markets.

Sure enough, the ASX200 fell 39 points from the open yesterday, led down by the energy sector, and it looked like we might be in for an ugly session. But no, by late morning the index was back to square.

We drifted off again in the afternoon to a close down 20 points, and the energy sector closed down 2.9%, suggesting it might be a good idea to square up ahead of what no one was sure was going to happen in oil markets last night. But the energy sector had fallen well over 3% initially.

The banks took a similar tack, given the market is tying in the energy sector loan factor at present. The financials sector fell 0.7%. Materials fell 0.9% on a pullback in the iron ore price.

Those losses were nevertheless offset by two other sectors – healthcare, which rose 1.1%, and telcos, which rose 1.5% after analysts all agreed a share buyback will likely follow Telstra’s ((TLS)) asset sale last week.

It was not the stuff of disaster. And just as well, given what did actually eventuate in oil markets and on Wall Street overnight.

Doha Schmoha

The WTI price plunged 6% on the open last night, hitting US$37.61/bbl. The fall most likely reflects buyers standing aside to see what would happen rather than sellers going in hard. When the price found a bottom, the buyers came in and steadily pushed the price back again throughout the session, to only a modest drop.

US energy stocks all opened lower from the opening bell, sending the Dow down 50 points, but as soon as the oil price found a bottom, so did Wall Street. Not only did energy stocks recover, they quickly became the leaders in a rally which took the Dow up to the 18,000 mark for the first time since last July. The suggestion is the market had set itself short oil and short oil stocks ahead of Doha, expecting a big plunge when no agreement was reached. As soon as buying appeared, a short-covering scramble was triggered. Oh no, we got it wrong.

I don’t buy that argument. I believe nobody expected an agreement in Doha and on that basis, WTI at 40 was already pricing that reality in. All that happened last night is that buyers stood aside in the oil and stock markets to let a few wood ducks make fools of themselves early, providing an opportunity for the smarter money to take advantage. WTI is at 40 because US production is on the decline. It’s got nothing to do with OPEC.

There is also a suggestion a strike by oil workers in Kuwait overnight was actually oil’s saviour. Nah.

Meanwhile, in US economic news, an index of housing sentiment held steady at 58 for the third month running, suggesting modest but consistent optimism. In earnings news, Morgan Stanley became the fifth major US bank to release a less-bad-than-expected earnings result. Pepsico also beat on earnings, while Disney had a strong session following solid weekend box office on the release of its Jungle Book remake.

I remember going to see the original when knee-high, at the Sky studios in North Ryde. Of course back then it was a drive-in.

On last night’s rally the Dow is now a mere 300-odd points shy of its all-time high. The S&P, which is the “real” market, is about 40 points shy. The Dow has reclaimed the psychological level of 18,000, while the S&P only needs a few more points to retake its psychological level of 2100, above which traders see only upside.

With the Yellen Put in place, and on the assumption the less-bad theme continues throughout the US earnings season, traders are feeling pretty confident. This week is an important one for earnings as the first of the big multinational industrials release their numbers.

Commodities

West Texas is down US37c at US$40.05/bbl and Brent is down US13c at US$42.93/bbl.

An increasingly more volatile iron ore price has bounced back a solid US$2.40 to US$59.90/t.

Aluminium, copper and zinc all rose around 0.5% on the LME and nickel managed 2%, while tin fell 1%.

Gold is relatively steady at US$1232.50/oz despite the US dollar index being down 0.3% at 94.46. The Aussie is nevertheless up 0.3% as a result to US$0.7749 – above where it was before Doha.

Today

The SPI Overnight closed up 53 points or 1.0%.

Presumably today we’ll see a recovery in the local energy sector after the safety game played yesterday. We should also see a reversal in the materials sector’s fortunes thanks to iron ore. And Dow 18k will likely in itself provide optimism the local market might just now have the capability to push through to the 5400 mark chartists have been adamant about for some time. Although it will depend on further US earnings reports.

And last night it was all but confirmed Australia is headed to, as the Brick would call it, a “double dis-allusion” election. While history shows stock markets are indifferent to political stripe, the prospect of a government being able to govern without the hindrance of senate cross-benchers resembling a bowl of mixed nuts should be a positive for sentiment, if that’s how things play out.

Back in the real world, Rio Tinto ((RIO)) and Oil Search ((OSH)) both report quarterly production today, Burson Group ((BAP)) hosts an investor day and Recall ((REC)) hosts an EGM with regard the Iron Mountain takeover offer, which has now been given the green light by the FIRB.

The minutes of the April RBA meeting will also be released today, with the market wondering what the central bank might ultimately do about the Aussie. Glenn Stevens will speak tonight in New York, which probably won’t be a forum for offering currency hints.

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

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article 3 months old

Whitehaven Coal: Offering Value Or Facing Financial Distress?

By Greg Peel

Whitehaven Coal’s share price bottomed out in mid-February at around 37c but a stuttered recovery since then sees a current price of around 75c. The rally is not so surprising given all resource sector stocks have rallied in that time from arguably oversold, panic levels. What is surprising is that while the prices of oil, iron ore, base metals and gold have rallied over the period to justify the resource sector rebound, the price of coal has not.

Does Whitehaven Coal, therefore, offer value to investors?

If there is one thing brokers agree on, it is that Whitehaven is one of the most efficient and quality managers of coal assets in Australia. The company’s March quarter report showed a better than expected 7% increase in production and a further reduction in cost per tonne. FY16 production guidance has been maintained despite a planned shutdown over May and June as the Narrabri mine undergoes a longwall change-up. Analysts assume inventories will be drawn upon to make up the difference.

The jewel in Whitehaven’s crown is the recently commissioned Maules Creek mine, which continues to ramp up at a solid pace. High grades at Maules Creek ensure Whitehaven should receive a premium for both the thermal coal (used for electricity production) and the metallurgical coal (used for steel-making) produced at the mine. Met coal offers the better margins of the two, which is why analysts have lauded an ongoing increase to the percentage of semi-soft and PCI met coal production, now at 16% but expected to reach 20% next quarter.

It took a long time for the Maules Creek mine to gain approval and in so doing it became a bit of game-changer with regard Whitehaven’s future. Due to the quality of the coal and the subsequent premium pricing the company was expected to achieve, it was assumed Whitehaven would have no trouble in rapidly paying down some $1bn of debt required to fund the project on or before the 2020 deadline.

But premiums aside, benchmark coal prices have been falling steadily and have not rebounded alongside the prices of other heavily sold-down commodities. Whitehaven received an average US$51.56/t for its thermal coal in the March quarter, down from US$54.60/t in the December quarter. The average price for met coal received was US$61.77/t, down from US$65.00/t, and below the company’s own guidance range of US$62-65/t.

To compound the issue, the Aussie dollar has jumped sharply over that period.

The good news is that moving into the June quarter, benchmark met coal prices have begun to improve. Thermal prices remain subdued but most analysts believe that they, too, will eventually see improvement. This is why most brokers in the FNArena database are positive on the stock. Price rebounds are critical for Whitehaven given despite solid efforts in reducing costs, at an average US$57/t across the board, cash flow is still treading a fine line. Positive cash flow is critical for debt reduction.

To account for the heavy debt burden, and for the fact Whitehaven’s earnings are highly sensitive to a combination of benchmark coal price, price premiums, product mix and the currency, analysts have applied valuation discounts. Yet five of the eight brokers in the database have set share price targets of $0.90-1.00, suggesting plenty of value still remains in a stock trading at $0.75.

These five brokers all rate Whitehaven a Buy (or equivalent). The fifth is Morgans, who in light of Whitehaven’s March quarter report has decided improving fundamentals make the stock a compelling prospect and has subsequently upgraded to Add (equivalent of Buy).

Morgans does add a caveat to its upgrade to Add nonetheless, suggesting Whitehaven Coal “suits assertive investors”.

While suggesting everything is moving the right way for Whitehaven, except for near-term thermal prices which may yet fall further, Ord Minnett retains a Hold (Higher Risk) rating on the stock due to the debt issue. Credit Suisse is also on Hold but is yet to update post the quarterly report.

The lone Sell rating in the database belonged to Macquarie, until Citi downgraded to Sell on Monday morning.

Macquarie believes Whitehaven’s operational skills “cannot transcend a structural weakness in coal markets”. The broker expects the weak trend in thermal coal prices not to ease but to continue due to weak overall demand. And the broker further notes the premium achieved by Whitehaven for its superior thermal coal in the March quarter fell to 8% from 11% in the December quarter.

Macquarie points out that the value behind the Maules Creek project originally lay in the assumption the mine’s thermal coal would be priced at a premium to the benchmark and that its met coal would be well received, thus enabling the rapid pay-down of Whitehaven’s large debt burden. These two hypotheses are now in question, as far as Macquarie is concerned.

The broker’s Underperform rating reflects a concern over Whitehaven’s ability to tackle its debt issue before 2020. Macquarie has set a share price target of 35c. Citi too remains cautious because of the debt, but its revised price target was set at 66c.

Not that the company lacks other options, other brokers point out. Morgan Stanley (Overweight) acknowledges that Whitehaven’s debt burden is holding back investor sentiment, but suggests that given the debt is being serviced, the company has the option to restructure before it is due. Deutsche Bank (Buy) suggests Whitehaven could sell a partial stake in its Maules Creek or Vickery assets, or in the royalty streams from Maules Creek of Narrabri to repay debt.

Whitehaven Coal is therefore not doomed, and according to five of eight major brokers, the stock offers a compelling investment argument. Critical to that argument is nevertheless the direction from here of coal prices.

Is the world simply moving away from coal?


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article 3 months old

The Monday Report

By Greg Peel

No Deal in Doha

Shock horror. The meeting of OPEC and non-OPEC oil producers in Doha last night has failed to reach any agreement on a coordinated production freeze. The first market to respond this morning to the stunning news is the Aussie dollar, which fell from around US77.2c to under US76c in a heartbeat.

But in almost as short a space of time, the Aussie is currently back at US76.6c.

As to why the meeting in Doha even went ahead is a mystery. All year Saudi Arabia has said it will only freeze production if all relevant oil-producing nations, including Iran, freeze production, and all year Iran has said no. Heading into the meeting, Saudi Arabia maintained its position. As it turned out, Iran didn’t even bother to attend.

The question now is as to whether, heading into the meeting, oil and other markets had accepted the fact the whole thing was going to be a farce or whether today will bring substantial moves in response, in particular a plummeting oil price. Perhaps the Aussie has provided a clue. Were the initial response in oil prices to be a plunge, the buyers may well be ready to jump on the opportunity and damage will be limited.

There can hardly be any excuse for being surprised.

And then there’s China

Notably, the only sector not to finish in the green on the local market in Friday’s trade was energy. A slight dip suggested squaring up for Doha.

The banks and the materials sectors both had quieter sessions after their solid runs last week, up 0.5% each. This left the rest of the market, which had mostly taken a back seat last week, to pick up the ball and have a run. The consumer sectors, healthcare, telcos and utilities all posted gains of around 1% or more, with industrials just off the pace. It was a choppy session, but in the end the 0.8% gain for the ASX200 was mostly a market-wide effort.

The highlight of the day was the release, mid-session, of Chinese economic data.

China’s GDP grew by 6.7% in the March quarter, smack on expectation. That’s down from 6.8% in December, and, as the headlines in the populist press will be quick to point out, the slowest pace of growth since 2009. It may be a fact but it’s also an ignorant comparison. China’s economy has grown substantially since 2009, such that to achieve the dollar value of additional GDP represented by 6.7% growth today would have required a growth rate in 2009 well into double digits.

In the month of March, Chinese industrial production grew by 6.8% year on year, up from 5.4% in February and ahead of 5.9% forecasts. Retail sales grew by 10.5%, up from 10.2% and ahead of 10.4% forecasts. Year to date fixed asset investment grew by 10.7% over the same period last year, beating expectations of 10.3%.

While drawing upon the usual grain of salt, we may conclude from the data that the stimulus measures undertaken by Beijing last year and into this year are finally starting to see some results. But once again the caveat is the impact of volatility around the Lunar New Year break.

The Chinese numbers helped lift a wobbly ASX200 to a stronger close on Friday but it was not the sort of performance one might have expected in times past when China reported Street-beating numbers. The local resource sectors had a muted session.

Wall Street

Wall Street’s session on Friday was mostly about waiting for Doha. The WTI price fell a dollar to sit poised near the US$40 mark in anticipation. US oils stocks similarly saw a square-up.

Citigroup was the last of the major US commercial banks to report on earnings on Friday and just as had been the case for its counterparts throughout the week, Citi reported a result that was weak but not as weak as forecast. All up Wall Street finished slightly lower on Friday night but higher for the week, led by the rebound in bank stocks.

On Friday night the Dow closed down 28 points or 0.2% while the S&P fell 0.1% to 2080 and the Nasdaq lost 0.2%.

US data releases for the session were weak. Industrial production fell a greater than expected 0.3% in March to mark the sixth monthly decline in seven. The Michigan Uni fortnightly measure of consumer sentiment showed a fall to 89.7 from 91.0 at end-March, suggesting a fourth consecutive month of decline.

Bucking the trend, The Empire State activity index rose to 9.6 from 0.6 last month, to post its strongest reading since January 2015. But this series has become increasingly volatile, and could just as easily be negative next month.

Either way, Wall Street is currently supported by the Yellen Put. Weak data only serve to push out the expected timing of the next Fed rate hike.

Commodities

On Saturday morning, West Texas crude was sitting at US$40.42/bbl, down US$1.03 from Thursday night, and Brent was down US81c at US$43.07. We await tonight’s reaction to Doha.

We can say the same for base metal prices, given the direction of oil has this year been a significant factor in sentiment on the LME. Moves were mixed on Friday night, with zinc’s 1% gain the standout as copper fell 0.7%.

Iron ore fell US$1.10 to US$57.50/t.

The US dollar index had slipped 0.2% by Saturday morning to 94.70, which helped the Aussie up 0.4% to its pre-Doha level of US$0.7726. Gold rose US$6.50 to US$1234.10/oz.

The SPI Overnight closed down 4 points on Saturday morning, but that’s no longer relevant.

The Week Ahead

The US earnings season steps up a gear this week, as a range of Dow components across all sectors take centre stage. Morgan Stanley and Goldman Sachs will round out the investment banking performance, while everything from Johnson & Johnson to Google, Caterpillar and General Electric will offer a more widespread indication of the state of the US economy.

Economic data releases will come thick and fast as well, but as suggested, they lack any real clout above the Fed’s safety net.

Tonight sees housing sentiment, tomorrow housing starts and Wednesday existing home sales, while Thursday brings house prices, leading economic indicators, the Philadelphia Fed activity index and the Chicago Fed national activity index. Friday will see a flash estimate of April’s manufacturing PMI.

Japan and the eurozone will also flash on Friday. The ECB will hold a policy meeting on Thursday but no one is expecting anything new.

It’s a quiet week for Australian data, but the RBA will be in the frame nonetheless. The central bank’s Financial Stability report, released on Friday, suggests concerns over Australia’s apartment construction bubble. Glenn Stevens will speak on Tuesday, and the minutes of the April RBA meeting will be released.

There’s plenty of action on the local stock front this week. The resource sector quarterly production report season ramps up in earnest, with highlights this week featuring Oil Search ((OSH)) and Rio Tinto ((RIO)) tomorrow, BHP Billiton ((BHP)) and Newcrest Mining ((NCM)) on Wednesday, OZ Minerals ((OZL)) and South32 ((S32)) on Thursday and Santos ((STO)) on Friday.

Outside of resources, quarterly reports will be forthcoming from Transurban ((TCL)) today and Brambles ((BXB)) and Challenger ((CGF)) on Thursday. Wesfarmers ((WES)) will report quarterly retail sales on Thursday.

Cimic ((CIM)) and Woodside Petroleum ((WPL)) will hold AGMs on Thursday.

Watch the price of Woodside this morning.

Rudi will appear on Sky Business on Tuesday around 11.15am, via Skype-link, then again on Wednesday, to host YMYC 8-9.30pm, then twice on Thursday (12.20-2.30pm and Switzer TV between 7-8pm), and then again via Skype-link on Friday, usually 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

The Overnight Report: Banging Against The Ceiling

By Greg Peel

The Dow closed up 18 points or 0.1% while the S&P was flat at 2082 and the Nasdaq was flat.

Escape Velocity

Take what you will from yesterday’s local jobs lottery. A net 26,100 new jobs were added, more than forecast, and the unemployment rate fell to 5.7% from 5.8% on an unchanged participation rate. Sounds pretty encouraging, and the reason why the Aussie is up half a percent at US$0.7692.

The Aussie actually traded higher on the release, but closer inspection reveals 26,100 jobs represents the addition of 34,900 part-time jobs and the loss of 8,800 full-time jobs. This makes more sense, given high profile closures at the likes of Dick Smith and Masters along with Queensland nickel and any other resource sector business you’d like to name which should in theory be pushing the unemployment rate up, not down.

The definition of a part-time job is a minimum one hour’s work per week.

The jobs report probably gave a boost to the local consumer staples sector on the ASX yesterday, which posted a market-leading 2.6% gain. Otherwise, the supermarkets have been sold down heavily of late and thus it’s no surprise that in the “risk on” zone above 5000, “value” should be sought. Materials kicked on from Wednesday with another 2.3% gain while energy took a breather, and yet again the banks added most of the market cap clout to the index in rising 1.5%.

Once again the defensives were left on the sidelines.

Iron ore is the talk of the town this week, and the major reason behind strong rebound rallies in the big mining names. But you’d be hard pressed to find an analyst who does not believe the iron ore price will shortly come down again once the Chinese restocking phase swings seasonally into the destocking phase, sending prices back down from 60 to anywhere between 40 and 30, depending which analyst you choose.

It is likely investors were happy to again buy the banks yesterday on a lead from Wall Street, where JP Morgan set the scene for better than expected (or less worse) US bank results. Last night it was the turn of Bank of America and Wells Fargo.

Inflection

Both posted solid results, at least in the context. The US financials sector again led the indices higher last night but having already jumped in anticipation on Wednesday night, taking JP Morgan as a bellwether, upward moves were less dramatic. Citigroup reports tonight.

A little bit of squaring up in other sectors following two strong positive sessions ensured a quiet day on Wall Street and little net movement. Traders are watching the 2085 level in the S&P500. Break above that level and Wall Street has officially broken up out of the trading range it’s been stuck in now for many months. The S&P closed last night at 2082, basically unchanged.

As to whether Wall Street can indeed break to the upside or rather fall back down towards the bottom of the trading range (1810) once more, as it has done so many times of late, will depend on the avalanche of earnings numbers to come in the next couple of weeks. The banks have lifted the S&P to the inflection point and now it just depends on the numbers from other sectors.

The Fed debate has died down for now. Janet Yellen has made herself pretty clear, and last night’s March inflation data showed a lower than expected 0.1% gain for the CPI. And most of that was due to a higher oil price. Take out food and energy, and the core CPI also gained 0.1%, but fell back on its annual rate to 2.2% from 2.3% in February.

No reason to lock in a June Fed rate rise out of those numbers, although the Fed eschews CPI inflation data and prefers the PCE.

Commodities

Ahead of Doha on Sunday, oil prices were steady last night. West Texas is down a tad at US$41.45/bbl and Brent is down a tad at $43.88/bbl.

Base metal prices also consolidated last night after a couple of days of decent gains. Lead and zinc fell a percent and nickel rose half a percent, with other moves less significant.

More significant was a US$1.30 fall in the iron ore price to US$58.60/t.

The US dollar index also seems to found a new level for now, in this case lower. It’s up 0.1% at 94.91 and the gold bugs are again frustrated. Gold is down US$14.80 at US$1227.60/oz.

Today

The SPI Overnight closed up 14 points or 0.3%.

Today is that time in every quarter when the world tunes into Ripley’s Believe It Or Not, or as it’s otherwise known, China’s GDP result.

Month of March numbers for Chinese industrial production, retail sales and fixed asset investment will also be released.

Industrial production numbers will also be closely watched in the US.

And on Sunday, it’s Doha.

Rudi will skype-connect with Sky Business this morning, probably around 11.05am, to talk broker calls.
 

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(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

Fortescue Metals’ Rally At Risk

-Iron ore prices unsustainable
-But cost reductions are
-Potential for debt reduction
 

By Eva Brocklehurst

A rally in iron ore prices over the March quarter was fortuitous for Fortescue Metals ((FMG)) but many brokers question whether these prices can be maintained into the second half of 2016. Prices achieved for iron ore in the quarter were much better than expected, being US$45.94/dmt, effectively at 95% of the benchmark in absolute terms.

The company shipped 42mt of iron ore, benefitting too from a benign wet season. Production is running ahead of target, brokers observe, with the potential for upside to guidance of 165mt for FY16.

Morgan Stanley doubts the iron ore price can be sustained and has an Underweight rating on the stock, expecting the price will decline in the second half of the year. Support for this view is gained from investors who consider the rapid rebound in iron ore prices untenable, as this could lead to suspended mining operations being re-started.

The broker acknowledges the recovery in the steel price is creating some uncertainty as to how pronounced the decline in the second half will be during the seasonal de-stocking of iron ore inventory. Yet Citi is also bearish, with a Sell rating, convinced that the steel re-starts and re-stocking will come to an end as iron ore supply growth resumes.

If the price decline is indeed more muted, Fortescue Metals could make further inroads on its debt reduction and Morgan Stanley accepts this could be a risk to its view. The broker's calculation centres on each month the iron ore price index is at US$50/t, the company can hike its debt reduction ability by US$160m.

Yet one development that reduces the impact of early debt repayment is that debt is no longer trading at a large discount to face value. Macquarie also notes this fact, and considers Fortescue Metals is a victim of its own success in that debt holders are now more comfortable with the outlook.

On Deutsche Bank's calculations the asset base can now generate free cash flow even at US$35/dmt. The company had US$2.5bn in cash at the end of the quarter while net debt fell to US$5.9bn. Deutsche Bank expects debt levels to be US$5.4bn by the end of FY16 and US$3.1bn by the end of FY18.

Morgan Stanley also points out that the recently announced joint venture blending agreement with Vale, potentially leading to first sales in the second half, could bolster sentiment. On this subject the company has indicated its super special fines would be blended with Vale's Carajas fines and it expects to conduct a bulk trial over the next month with a view for sale in the second half.

The latest rally in iron ore is based on short covering and there is little evidence of an improvement in demand as yet, UBS maintains. Should demand fail to lift then this rally is likely to fade. On the other hand, UBS does not expect prices to revert to the low to mid US$30/t range over any length of time and supply should respond in order to preserve margins. The broker forecasts US$45/dmt in FY16 and US$47/dmt in FY17.

Ord Minnett is in the same camp, expecting a material fall in iron ore prices (25%) over 2016. Should the iron ore price hold up around US$59/t for an extended period then the broker expects Fortescue Metal's share price will continue to rise because of the significant free cash that will be generated and the de-leveraging that will occur.

Macquarie agrees the price premium is unlikely to be maintained but points to the company's success in bringing down costs despite unfavourable currency movements. The broker believes efforts in this regard should be sustainable for the remainder of the decade. Unit costs fell to US$14.8/wmt although the company has signalled that the higher Australian dollar is pressuring its FY16 US$13/wmt exit rate target.

The push down on costs should mean these are maintained in the low to mid teen rates, UBS agrees, provided oil prices stay around US$40/bbl and the Australian dollar around US70c until 2020. At this point Fortescue Metals would need to start investing in its first replacement mines.

FNArena's database shows one Buy (Macquarie), four Hold and two Sell ratings. The consensus target is $2.65, signalling 19.3% downside to the last share price.Targets range from $1.50 (Citi) to $3.30 (Macquarie).
 

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article 3 months old

The Overnight Report: Short Squeeze

By Greg Peel

The Dow closed up 187 points or 1.1% while the S&P gained 1.0% to 2082 and the Nasdaq rose 1.1%.

Material Gains

Strong rallies overnight in oil, iron ore and base metals set the scene for yesterday’s market-leading 3.4% gain for Australia’s materials sector. Underscoring renewed interest in this beaten-down bunch were China’s surprisingly positive March trade numbers, released late morning.

The headlines in this morning’s papers are suggesting that after throwing loads of liquidity and stimulus into the system, Beijing has finally succeeded in reviving China’s “old economy”. “Old” being the economy of manufacturing and export – the economy Beijing is attempting to wind back from overcapacity -- with “new” being an economy based on services and domestic consumption.

In US dollar terms, Chinese exports rose 18.7% year on year in March after falling 25.4% in February. Economists had forecast a 2.5% rise, Imports fell 7.6% after falling 13.8% in February. Economists had forecast a 10.2% fall.

The sighs of relief across Australia’s mining industry were notably audible yesterday. We won’t mention, nevertheless, that every year Chinese data are volatile and distorted in the months around the New Year break and as such, usually misleading.

Such a consideration did not faze Fortescue Metals ((FMG)) yesterday, which having picked a good day to chime in with a production report showing even further astonishing cost cuts, saw its shares jump 8%. BHP Billiton ((BHP)), which drew upon the rallies in both iron ore and oil, rose 6%. Rio Tinto ((RIO)) gained 4.5%. On the base metal front, one of the most shorted stocks in the market – Western Areas ((WSA)) – enjoyed a 4% rally, as did Independence Group ((IGO)), which has also been popular among the shorters.

The energy sector was the next best performer yesterday, posting a 2.6% gain. But the real clout in market cap terms, helping the ASX200 up 1.6%, was a 1.8% rally in the banks. How are those resource sector loan exposures looking now? Not as bad as they were a week ago, when bank investors were heading for the hills.

We might suggest that every time the index heads north through 5000, it is a “risk on” trade. Telcos and utilities comparatively sat on the sidelines yesterday and healthcare managed only a modest gain. Consumer staples did post a 1.0% gain, but only after having been hammered this week thanks to the Target scandal.

Today’s session will be interesting. Iron ore and base metal prices are again up strongly overnight. Oil is off, but only by a tad. And on Wall Street, the banks were the big winners on the day.

Chase JP Morgan

Well you could knock me down with a feather, but apparently when asked whether an agreement on an oil production freeze was likely to be reached in Doha on Sunday, the Saudi oil minister last night responded with “Forget about this topic”.

One wonders, thus, just what the meeting is for.

I suggested yesterday that after a couple of days of sharp rallies, you wouldn’t want to be standing under an oil price on Monday if nothing was to come out of Doha. And to top things off, last night’s weekly US crude inventory numbers showed a build of 6.2 million barrels when analysts had forecast 1 million. By rights, oil prices should be down about 10% this morning.

But they’re not. They’re only off a smidge. There are two reasons we can consider.

WTI is not back over 40 due to any false sense of hope an agreement can be reached in Doha. Nobody ever actually believed one would be. Which leads into the second point, WTI is back over 40 because the trend of US production is heading in the right direction, ie down, notwithstanding weekly inventory fluctuations. The weekly US crude data also showed that production has now fallen below the 9 million barrels per day mark. And gasoline inventories fell more than expected in the week, as is the current trend, suggesting growing demand.

The fact that oil prices held up when they had every right to tumble was supportive of the rally on Wall Street last night, but not the driver. The driver was JP Morgan’s (Dow) March quarter earnings report. The talk leading into the US earnings season has been of forecasts being marked so far down as to skew the odds heavily in favour of upside surprise. All that was needed was some confirmation.

JP Morgan’s result was not a good one, but it wasn’t as bad as had been forecast. JPM shares jumped 4%, and subsequently floated all US bank share boats. Tonight sees results from Bank of America and Wells Fargo.

US bank stocks have been very much out of favour in 2016 for a number of reasons: sluggish US economic growth; ultra-low interest rates, crimping earnings potential; volatile markets, hitting trading profits; and credit exposure to the stricken energy sector. It is said that a bull market on Wall Street is not possible unless led by the banks. The fact Wall Street has been stuck in a range for many months now can to a great extent be explained by bank underperformance.

Maybe this earnings season will prompt a bank comeback. But as many a trader has pointed out, the short interest on US stock markets is currently as high as it was in 2009, and market scepticism surveys have been hitting peak levels. Wall Street is rife for a break-out rally, but does it have substance? Volumes have been on the tepid side, including last night, suggesting a lack of buying conviction. Retail investors remain absent. The conclusion as to why Wall Street rallied last night was simply one of “short squeeze”.

And short-covering rallies tend to be ephemeral.

Commodities

West Texas crude is down US8c at US$41.56/bbl and Brent is down US36c to US$43.90/bbl.

Harking back to the strong Chinese data released yesterday, all base metals are up 1-1.5%.

Iron ore is up another US$1.40 to US$59.90/t.

While the strong Chinese data are good news for the Australian resource sector, they are not good news for the Aussie dollar. It jumped sharply on yesterday’s release. So the RBA will be very relieved to see that last night’s bank-led rally on Wall Street was accompanied by a 0.8% bounce-back in the US dollar index, to 94.82.

The Aussie is subsequently down 0.3% over 24 hours to US$0.7652. Gold is off US$13.30 to US$1242.30/oz.

Today

The SPI Overnight closed up 38 points or 0.8%.

The Aussie will be very much in focus today when the local March job numbers are released.

The Bank of England will hold a policy meeting tonight, but no one much cares ahead of the Brexit referendum.

US CPI numbers are out tonight, following disappointing retail sales and PPI releases last night.

Whitehaven Coal ((WHC)) will release a quarterly production report today, Transurban ((TCL)) was to provide a quarterly update but postponed it until Monday, Bendigo & Adelaide Bank ((BEN)) will hold a strategy day and tonight, Rio Tinto will hold its UK AGM.

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

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: Could Pigs Fly?

By Greg Peel

The Dow closed up 164 points or 0.9% while the S&P gained 1.0% to 2091 and the Nasdaq rose 0.8%.

Bank on it

The prime minister has ruled out a royal commission into the Australian banking industry. ASIC has declared there is no need. Having been sold down steadily in recent sessions, yesterday the banks led the ASX200 up 0.9% single-handedly.

The financials sector finished the day up 1.7%. Daylight took both second and third, ahead of consumer discretionary with a 0.6% gain. Consumer staples again dragged, down 1.0%, as sellers continued to target Wesfarmers ((WES)). Moves in every other sector were negligible.

The ASX200 is once again closing in on 5000. On the strength of commodity prices and Wall Street overnight, along with the indication from the futures, we’ll be back over that mark today.

Again.

If we consider predictable pre-election bank bashing and dodgy accounting at a discount retailer to be micro stories isolated from the current macro environment, we’ll be back at 5000 because quite frankly there’s nowhere else to go. There is nothing going on at present to suggest the market should go meaningfully up or meaningfully down.

If anything, sentiment is leaning to the positive. Yesterday’s NAB business sentiment survey suggested that Australian businesses currently believe conditions are the best they’ve been since the GFC. The conditions index rose 4 points from February to plus 12. The long-run average for conditions (since 1989) is plus 1.

Confidence, which is the tomorrow indicator as opposed to the today indicator, rose 3 points to plus 6, a tick above the long-run average of plus 5.

The good news is capacity utilisation is now at its highest level in over five years and business profitability posted a strong increase, boding well for ongoing jobs growth. The bad news is the forward orders sub-index remains in the negative. An overall healthy picture nevertheless belies the December quarter private sector capital expenditure numbers released a month ago which were decidedly dour on the intentions front. Maybe the next quarterly numbers will be less negative.

Which is a problem for the RBA. It might be a good problem to have in terms of Australia’s economy in isolation, but it does suggest no chance of another rate cut in domestic terms. In international terms, everyone else is cutting (or not raising) which means by default, the RBA has effectively hiked just by standing still.

Economists have pointed to the weaker Australian dollar (as in, no longer up around parity) as a major driver of improving local business conditions and confidence. On a combination of the NAB survey results (which also indirectly suggest the March jobs numbers, due tomorrow, might be strong as well) and sharp overnight rallies in commodity prices, the Aussie is up 1.1% at US$0.7678 over the past 24 hours. We’re almost up US10c from the January low.

That’s the problem for the RBA.

Commodities

Last night the IMF lowered its global economic growth forecasts for the fourth time in twelve months. The IMF also tipped the Australian swimming team to do poorly at the London Olympics. Anyone who remains misguided enough to believe IMF forecasts have any impact on global financial markets might care to note risk assets surged across the globe last night, while bonds were sold.

West Texas crude is up another US$1.28 or 3.2% at US$41.64/bbl and Brent is up US$1.41 or 3.3% at US$44.26/bbl.

On Sunday, OPEC and no-OPEC members meet in Doha to discuss an oil production freeze. Saudi Arabia has always said it would not freeze if Iran doesn’t freeze and Iran has always said it will not freeze. Yet unlike a planned meeting in Moscow last month that was ultimately scrapped for this very reason, Doha is still going ahead.

Which goes a long way to explaining oil’s 10% jump this past few sessions. And the word last night is that Saudi Arabia and Russia now intend to meet prior to the meeting to agree to a production freeze whether Iran agrees or not.

The oil markets are taking this as a further positive. All I can say is you wouldn’t want to be standing under an oil price on Monday night if no Doha agreement is reached.

Oil sentiment is currently a benchmark for commodity sentiment in general. Last night in London, aluminium, copper and lead rose 2%, nickel 3% and zinc 5%.

In Singapore, iron ore rose again by US$2.60, to US$58.50/t.

The gains were achieved without any real movement in the US dollar index, which is little changed at 94.03. Gold is therefore little changed at US$1255.70/oz.

Wall Street

The US stock market rose 1% last night. See: oil.

The US ten-year bond yield rose 6 basis points to 1.78%. See: above.

Tonight JP Morgan (Dow) will report March quarter earnings. The major US banks are tipped to average around 20% earnings declines in the March quarter and indeed their share prices are all down by around that percentage in 2016. If the results aren’t quite so bad, look out. Data suggest net short interest in the S&P500 is currently above 4%, at the highest level since 2009.

Tomorrow night the fun really begins.

Today

Today’s fun will be led by a close in the SPI Overnight of up 42 points or 0.9%.

As business confidence has improved locally, consumer confidence has been declining. Mind you, that’s not unusual heading into a federal budget. Westpac will release its April consumer confidence survey today.

Then we'll see Chinese trade numbers for March.

In the US, retail sales numbers will be the highlight tonight, along with the PPI and Fed Beige Book.

Fortescue Metals ((FMG)) will release its quarterly production report today. IOOF Holdings ((IFL)) will hold an investor day.

Rudi will appear on Sky Business this morning, 10am-noon.
 

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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