Tag Archives: Iron Ore

article 3 months old

The Monday Report

By Greg Peel

The Wow Factor

It was another choppy session on Friday to wrap what was the last big day of the local result season, notwithstanding a handful of latecomers reports due today. When the dust settled it was another flat close featuring a mix of red and green among sectors.

The resource sectors were always in for a bad day given overnight falls in the oil and iron ore prices, and the fact the big names have now all published their disastrous results and ended speculation over dividend policies. But there was one big name to report on Friday, and its influence was clear.

It was the first loss in decades for Woolworths ((WOW)), thanks to the Masters write-off, although the underlying result was nothing to smile about either. The size of the loss sent Woolies shares crashing a further 6% on release, but the key here is the word “further”.

Woolies’ share price has been falling through 2016 on a combination of food price deflation, a failure to make a dent in rival Coles, and ultimately the decision to bail out of the train crash that was the Masters foray. Woolies shares were even dragged down further still last week when Wesfarmers ((WES)) posted a disappointing result, even though that was all about coal and not about Coles. So in a classic case of “sell the rumour, buy the fact”, Woolies shares bounced immediately and powered back through the day to a 2% gain.

The ASX200 chart shows a pretty well correlated picture.

Consumer staples finished up on the day but not so consumer discretionary, which suffered due to a poorly received result from Harvey Norman ((HVN)). The banks were off a little but falls in the resource sectors were balanced out by a rare strong day for Telstra ((TLS)), a mega-cap that has been much maligned of late.

Aside from the aforementioned handful of companies to report today, attention in the local market now turns to the economy. Before a backdrop of what has been a disappointingly directionless debate over tax reform, this week will see an RBA policy meeting ahead of Wednesday’s December quarter GDP result. Economists are predicting annualised 2.6% growth, up from the September quarter’s 2.5%.

Fed Follies

Meanwhile, the equivalent US GDP result was revised for the second time on Friday night. Economists had expected a downgrade to a mere 0.5% growth from the previous 0.7% revision, so there was some shock when the number came in at 1.0%.

Suddenly fears were rekindled of a Fed rate hike. However the disparity between the result and forecasts came down to an inventory build. Inventory builds are two-edged swords – in a strong economy they can reflect a deliberate attempt to get on top of growing demand, but in a weak economy they can reflect a misreading of weak demand, and herald possible discounting ahead.

Economists have suggested the latter in this case. The US economy grew 2.4% in 2015, as it did in 2014, again failing to reach the 3% average rate. There is nothing here to suddenly spark the Fed into action.

Inflation might be a different matter. I noted last week that while a rise in the US CPI was another reason Fed fears had again become rekindled, it is well known the FOMC prefers to ignore price inflation and use the personal consumption & expenditure measure as a more realistic gauge of overall inflation. Well, January’s PCE reading of 1.3% was a big jump on December’s 0.7%.

It’s still a long way from the Fed’s 2% target, but the FOMC itself has suggested that while it may yet take a while to get to 2%, if the trend is rising then inflation becomes a risk if monetary policy does not respond in anticipation. Is this enough to secure a March Fed rate hike? Probably not in isolation. The Fed remains “data dependent”, which is code for “no idea at this stage”, and most data readings have been on the weak side of late, particularly the PMIs.

This week sees a raft of US data releases, including the PMIs, and culminating with the February jobs report on Friday night.

Whether or not the PCE reading had much of an impact on Wall Street on Friday is unclear, as at the end of the day the Dow basically tracked the oil price yet again. Oil popped early on another weekly reduction in the rig count, but fell away as the session progressed. Ditto the Dow, which closed down 57 points or 0.3%. The S&P500 fell 0.2% to 1948, splitting the difference on a 0.2% gain for the Nasdaq.

Commodities

West Texas crude was down US10c at US$32.96/bbl on Saturday morning and Brent was up US15c at US$35.35.

Iron ore fell US20c to US$49.00/t.

The flip-flopping base metal market decided on a flip on Friday night, largely due to the better than expected US GDP result and the fact oil was up during the LME session and fell back after the exchange had closed. Copper jumped 2%, lead 3%, zinc 1.5% and nickel 0.5%.

Prices rose despite the offset of the implications of a stronger US GDP result being the US dollar, which rose 0.8% on its index to 98.08. The PCE number would also have been an influence.

Greenback strength meant gold fell US$12.50 to US$1223.50/oz.

And there was some relief for the Aussie on US dollar strength. It suddenly dropped 1.5% to US$0.7131, suggesting there might have been a build-up of long positions heading into this week’s RBA meeting and local GDP release.

The SPI Overnight closed up 7 points on Saturday morning.

The Week Ahead

It is the last day of the month today – Happy Birthday to all those who look 60 but are really only 15 – which can always bring some book squaring argy-bargy. The last few straggler earnings reports will include Slater & Gordon ((SGH)), which is not set to be pretty.

Today’s local economic releases include December quarter company profits and inventories and monthly private sector credit. Tomorrow is manufacturing PMI day across the globe and Beijing will additionally release the official Chinese service sector PMI. Australia will see the December quarter current account, including the all-important terms of trade.

Wednesday it’s the GDP result, and it’s service sector day across the globe, other than the official Chinese result. Australia’s January trade balance is due, followed by retail sales on Friday.

The RBA will meet tomorrow but no change is expected. It will all come down to the language of the statement.

The US will see the Chicago PMI and pending home sales tonight, the manufacturing PMI, construction spending and vehicle sales on Tuesday, and private sector jobs along with the Fed Beige Book on Wednesday.

Thursday it’s the services PMI, chain store sales and factory orders, and Friday it’s non-farm payrolls.

It will be the last US jobs report the Fed will see before its March 16 meeting.

Note that the local market is entering a period in which a number of companies go ex-dividend, dragging on the index. There are quite a few today.

Rudi will appear on Sky Business on Thursday afternoon under the revised program formula & scheduling.

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: Flying Pigs

By Greg Peel

The Dow closed up 212 points or 1.3% while the S&P gained 0.8% with the Nasdaq up 0.4%.

Choppy

Alas poor Dick, I knew him well.

The ASX200 headed south again from the open yesterday, with Wednesday’s trashed names coming in for further selling, including the banks. But once the opening rotation was complete, buyers emerged to begin a choppy, bungling ride back towards square by lunchtime.

As the index fell into the low 4800s it’s possible technical buying was in play, and let’s face it – every time we get down this far we eventually end up back at 5000. But when the Shanghai index started sliding in the afternoon, we went with it. Around 2.30pm, someone placed a big buy order and we quickly shot back to a small gain on the session.

The Chinese stock market is a circus best viewed from the bleachers, offering little in the way of correlation to the Chinese economy. While China’s collapsing market was giving everyone a scare in August, by now it’s been largely dismissed as a joke and not something to lose too much sleep over.

The Australian government may nevertheless lose some sleep over yesterday’s December quarter private sector capex numbers.

The good news is capex actually rose 0.8% in the quarter when economists had forecast a decline. There was enough spending outside of mining and manufacturing to overcome ongoing falls in those sectors. The bad news is, capex intentions over 2016-17 dropped by 19.5% from a quarter ago. This implies that “non-mining” will not have sufficient firepower to overcome ongoing spending cuts in mining (and energy), thus providing a negative influence on the GDP.

And the housing construction boom is expected to end, or at least ease, in 2016. This has been the main offset to declining resource sector capex these past couple of years.

But is the bad news good news? Yesterday’s numbers provide more fodder for an RBA rate cut.

When the dust settled on Bridge Street yesterday, the banks had squared up, higher oil sent the energy sector up, and a mixed bag of earnings reports saw industrials up a percent. The big loser on the day was once again consumer staples, as the selling continued in Wesfarmers ((WES)) and impacted on Woolworths ((WOW)).

Woolies reports today.

Seriously?

In Wednesday night’s trade, oil fell from the open in the wake of the Saudi oil minister’s dismissal of any thought of production cuts. It then bounced into positive territory when it was revealed US production might actually be starting to fall.

Last night saw oil fall again from the open, and once again bounce back into positive territory. And while the US stock markets didn’t have much of a chance to follow oil down before it was dutifully following it up, the reason why oil rebounded is a case of back to the same old pie in the sky.

Venezuela has announced plans to meet with Russia, Saudi Arabia and Qatar next month to talk production cuts.

I wonder if the OPEC members have decided to take turns. Each time oil looks like slipping dangerously below US$30/bbl, someone comes out and talks “meeting” and the oil price rebounds, temporarily. Last night must have been Venezuela’s turn. Each time commentators scoff and suggest it’s all just brinkmanship, or at the very least a bet to nothing. But each time the oil price has a Pavlovian rebound. As does Wall Street.

Traders are just too worried that this time, maybe it might actually be true. Better to be safe than sorry. Particularly if you’re short oil.

Last night’s major US data release was January new durable goods orders, which posted their biggest gain in ten months. But take out lumpy aircraft and auto orders, and the gain was much more modest. Zero in on core capital goods – the component considered the true indicator of business investment – and orders are down 3% year on year.

Nothing there to ensure a Fed rate hike in March.

Commodities

West Texas crude is up US88c at US$33.06/bbl and Brent is up US74c at US$35.20/bbl.

Is iron ore’s little run now over? Iron ore fell US$1.00 to US$49.20/t.

Base metal prices continue to chop around and traders admit there’s no real direction evident at this point. Daily movements have been volatile but metal prices have basically been stuck in clear ranges. Last night aluminium, copper and lead all fell around a percent while nickel and zinc fell close to 3%.

The US dollar index is 0.2% lower at 97.30 and gold is US$6.80 higher at US$1235.80/oz.

The Aussie is 0.4% higher at US$0.7238.

Today

The SPI Overnight closed up 32 points or 0.7% -- about the same as it did yesterday. Yesterday the ASX200 fell 30 points from the open.

US personal income and spending data will be closely watched in the US tonight as these included the Fed’s preferred measure of inflation, the PCE. The US December quarter GDP result will be revised once more.

On the local stock front, it is with unimaginable pleasure I can announce that effectively, today is the last day of the results season. There are a few reports to come on Monday, being the last day of the month, but the avalanche ends today.

Today’s highlights include Harvey Norman ((HVN)), Super Retail ((SUL)), Tatts Group ((TTS)) and – brace yourselves – Woolies.
 

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article 3 months old

Material Matters: Iron Ore, Sugar, Thermal Coal, Zinc, Nickel And Bauxite

-Sustained demand required for iron ore
-Further gains in sugar prices likely
-LNG surplus may hasten thermal coal demise
-Macquarie calls substantial zinc deficit in 2016
-Indonesian ore supply may run down prices
 

By Eva Brocklehurst

Iron Ore

Prices for iron ore have rallied over the past week, against expectations of many in the market, and are now 25% above the lows of US$38/tonne reached in December. UBS asks the question: where to now?

Better steel prices and margins in China have boosted mill sentiment and driven a more substantial re-stocking, the broker maintains. Seaborne supply has remained tighter too, as Australia's exports had a soft start to the year and Roy Hill shipments languish.

UBS notes Chinese steel output tends to peak in May-June, and given the larger-than-expected re-stocking under way, prices may hold up in the near term. Further out, a more sustained lift in demand is required and the structural drivers remain bearish. UBS makes no change to its price forecasts for US$45/t in 2016 and US$47/t in 2017.

Deutsche Bank observes that for the first time, Rio Tinto ((RIO)) became the world's largest producer of iron ore in the December quarter, with an annualised rate of 346mtpa. Vale, previously top producer, was affected by the Samarco outage. This is typically the lowest seasonal quarter for Vale and Rio Tinto may, therefore, only hold the top spot temporarily.

Production for the top nine producers all up was 1.25mt in the quarter, down 3.0% on the prior quarter. The broker notes limited reductions are evident from the bigger producers, with Cliffs being the main exception, and they appear to be comfortable letting attrition do the work for them. The broker expects a 3-5% attrition rate in the industry.

Sugar

A large bounce in the sugar price has given some much-needed confidence to the bulls, ANZ analysts maintain. Sugar, up until the sudden surge this week of 10%, has been one of the worst performing commodities in 2016.

Even with the latest rebound the analysts believe 2016 and 2017 sugar futures are undervalued and the current weakness presents a buying opportunity. A global deficit in the market ranging from 4-8m tonnes is estimated by the end of the year. This will be the first such deficit in five years.

For Australian producers the changing fundamentals present a chance for a return to prices of $450-500/t. The analysts maintain that if the deficit ends up being as high as 8mt and the Australian dollar falls to the mid US60c levels, prices greater than $550/t are plausible into 2017.

Thermal Coal

Macquarie contends the bear case for thermal coal is in well in train, underpinned by a global drive towards cleaner energy, falling power intensity in economic growth and increasing power plant efficiency.

The seaborne market has been contracting since 2013, the broker observes, stemming from Chinese protectionism and India being able to supply more of the coal it needs domestically. Macquarie retains price forecasts for thermal coal out to 2020 which are below current spot prices.

The broker's oil & gas researchers have concluded that the LNG market will be in surplus for the foreseeable future, rising to a peak of 70mtpa by 2019. This peak is a thermal coal equivalent of 190mtpa, or over 20% of the current seaborne market. If a meaningful portion of this LNG manages to displace coal in regions with spare capacity, such as Europe, the broker suspects the demise of thermal coal may be even more severe than currently anticipated.

Zinc

Tightening concentrates markets suggest to Macquarie the outlook for zinc is the brightest of all the London Metal Exchange (LME) metals on fundamentals. Investors appear to be deciding whether to back further zinc upside or submit to global macro fears.

Prices have reversed the January weakness and zinc is now up 4.0% year to date, with only tin doing better. Macquarie observes the key reasons for the turnaround were strong zinc imports into China in December and the closure of the Horsehead smelter in the US.

The broker does not consider the tightness in raw materials is speculative, having conducted analysis shortly after the Glencore closure in November, which pointed to the market being short around 400,000 tpa of contained zinc.

The broker continues to call a substantial deficit in zinc concentrates in 2016, which is expected to drive an equally significant metal short fall. The situation is set to persist until 2020 on the broker's current estimates.

Nickel Ore/Bauxite

A report has surfaced that Indonesia's mining minister may relax the ore export ban, as part of a broader review of mining law to be completed this year. UBS notes the ore ban of nickel and bauxite disrupted a trade that, up until that point, accounted for around 15% of global annual supply.

The policy was designed to encourage downstream processing investment but the broker observes this has only been partially successful. Rather, it has actually facilitated bauxite mine investment in Malaysia and lifted the nickel trade from the Philippines. Current spot prices are not helpful to major capital works investment either, UBS notes.

A resumption of supply for Indonesia could widen the surplus which has been in place for three years for nickel and the broker observes this is usually bad for prices. Nevertheless, it is far from assured that Indonesian exports could reclaim their old export run rates.

In terms of bauxite, the broker believes the export ban actually induced residual market tightness for an otherwise abundant resource. Hence, there is downside price risk here as well.
 

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article 3 months old

The Overnight Report: Oil Gets Real

By Greg Peel

The Dow closed up 53 points or 0.3% while the S&P gained 0.4% to 1929 and the Nasdaq rose 0.9%.

Four Horsemen

Typically when we see a one hundred point fall in the ASX200 on a session it is as the result of market-wide fear on a macro level and selling is widespread across the sectors. All the ducks line up, with maybe the defensive sectors not faring quite as badly.

Yesterday’s hundred point fall was very different – it only occurred in four of ten sectors. Six sectors saw negligible moves by comparison.

There was one macro influence – the PBoC again devalued the renminbi. But otherwise the drivers were sector-based at the global level or individual stock-based at the micro level. Wall Street provided a weak lead as the oil price fell back from its artificial expiry day rally and major US bank JP Morgan admitted it was having a dreadful March quarter. We therefore saw the local energy sector down 3.4%, albeit such moves are becoming rather commonplace, both down and up, and we saw the banks down 2.5%. The latter provided the bulk of the 2.1% index drop.

Otherwise, it appeared a lot of BHP Billiton ((BHP)) investors, no doubt including those offshore, took a day to think about whether owning a stock offering little growth and exposure to ongoing commodity price volatility, but now paying only three-quarters of its previous dividend, is worth owning. An 8% shellacking – the worst day for BHP since 2008 -- provided the answer. The materials sectors closed down 3.6%.

And finally, investors in Wesfarmers ((WES)) were hit with the stark reality that when you invest in Coles, you get coal. On the release of the company’s earnings result that stock fell 5%, and the consumer staples sector closed down 3.4%.

Info tech fell 1.8% but is tiny by market cap, and beyond that a 0.4% drop for healthcare was as bad as it got.

It’s another very big day for results season today.

Comeback

The Saudi oil minister’s admission that there’s no sense in seeking OPEC production cuts was still ringing in the ears of oil traders last night as they sent the WTI price down 4% from the open. The US stock markets dutifully followed suit, and in the first half hour the Dow was down 266 points.

But then the weekly US inventory data were released. The week’s crude inventory build proved to be only half of that previously assumed. Importantly, crude production fell over the week. To date crude production has been growing even as the rig count falls as desperate marginal producers try to squeeze out as much cash as possible in a vain hope to stave off the inevitable. And gasoline inventories fell, suggesting there may finally be some sign of demand growth thanks to lower prices.

It was enough to turn the oil price around and send it into the green by the close. Maybe oil futures traders, and Wall Street traders in general, will finally now realise that listening to OPEC and Russian rhetoric is a fool’s errand that is only serving to inflate volatility. If the oil price is ever to rise, the basis for that rise must begin in the US.

On that note, the first ever LNG cargo to leave mainland USA is about to set sail to Brazil. America’s fledgling LNG exporters also have Europe and Asia in the sights.

As oil turned, so did the US stock markets, all the way back to a 50 point gain for the Dow.

Somewhere in the background were a couple of disturbing US economic data releases. Sales of new homes plunged in January to their lowest level since October. A flash estimate of the February service sector PMI suggested a collapse into contraction territory for the first time since the US government shutdown of 2013. The US service sector far outweighs the manufacturing sector.

Of course, we are still in “bad news is good news” mode, so any weak data only serve to stave off the next Fed rate hike.

Commodities

West Texas crude is up US37c at US$32.18/bbl, while Brent is up US$1.21 at US$34.46/bbl.

Inventory data helped aluminium and zinc to 2% gains on the LME last night while the other metals trod water.

Iron ore fell US30c to US$50.20/t.

The US dollar index is steady at 97.48 but gold is up US$5.30 at US$1229.00/oz.

The Aussie is steady at US$0.7210.

Today

The SPI Overnight closed up 31 points or 0.6%.

On the back of yesterday’s weak local December quarter wage growth numbers, today sees all-important private sector capex.

Today’s earnings calendar includes high-flyers Blackmores ((BKL)) and Seek ((SEK)) along with Perpetual ((PPT)), Ramsay Health Care ((RHC)) and South32 ((S32)).

Rudi will appear on Switzer TV, tonight on Sky Business, between 7-8pm.
 

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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

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...
 

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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

The Overnight Report: Cheering Defaults

By Greg Peel

The Dow closed up 228 points or 1.45 while the S&P gained 1.5% to 1945 and the Nasdaq rose 1.5%.

Result

And guess where we are now thanks to yesterday’s rally. Yep, right back at 5000. Again.

At the risk of stealing a colleague’s analogy, we have to concede that the 5000 level has become the ASX200’s Hotel California.

Yesterday’s rally was not inspired by Wall Street, unless Wall Street not meaningfully falling can be considered a positive. Oil prices were lower, but only marginally in the context. The iron ore price is rapidly gaining attention, having made a surprising comeback in recent weeks. While Chinese New Year is cited every year as a driver of iron ore volatility, this year we’ve seen the unusual situation of the iron ore price rallying both before and after the break.

The iron ore price is providing the materials sector with ongoing support following its bounce from oversold levels. It’s a big day for the sector today because BHP Billiton ((BHP)) will publish its earnings result. The iron ore price has jumped 7% overnight to over US$50/t. What will BHP’s dividend be?

Yesterday BHP’s two steel spin-offs delivered positive news – BlueScope ((BSL)) posted a surprisingly good result under the circumstances and Arrium ((ARI)) appears to have been saved from oblivion by private equity white knights.

But materials’ 1.9% rally was outstripped by a 2.2% gain for the diverse industrials sector yesterday. Here we can point to a strong result and 8% rally for Brambles ((BXB)), and even make mention of an 11% jump for one-time market dog UGL ((UGL)), the company formerly known as UGLy.

News late last week that Westpac ((WBC)) is in a better capital position than expected has provided some more comfort for the banks sector, which yesterday rose 0.9%.

Amidst all the commodity- and bank-related volatility of the past month, the local results season has to be considered a net positive one to date. There is a big chunk of companies yet to report in this final week, but as of last Friday, FNArena’s Reporting Season Monitor showed a beat to miss ratio of 2 to 1 with 150 stocks reported. Earlier in the month the number of resultant ratings upgrades from brokers was well outpacing downgrades, but last week brought that back into line, indeed, to 37-37.

For the most part, these up/downgrades have been related not to shocks but to value calls – oversold or overbought, at least by the brokers’ assessment.

Oils Well?

The WTI crude price jumped 7% last night which goes a long way to explaining why US stock markets resumed their rally. Oil is back above US$30/bbl and the S&P500 has recovered all the ground lost in the early February sell-off.

On Friday the US rig count was noted as having dropped by another 26 rigs to 413 to mark the ninth straight week of declines. But fewer rigs does not by default imply lower production. US crude inventories are sitting at over 500m barrels following another increase last week – another record level. Those rigs still standing are pumping as fast as they can to generate what cash they can in an attempt to survive.

But surviving, they are not. Up until last week, three US energy companies had defaulted on their debt. Last week alone saw three more. Across the globe, the number is 19. One is reminded of a line in the Big Short – “it’s happening”.

No one puts any faith in OPEC organising coordinated production curtailments but still OPEC keeps talking about it, including just this morning after the US energy markets had closed. So things are heading sufficiently in the right direction for traders to be more and more confident the oil price has seen a bottom, not that anyone would stake their life.

As for last night’s 7% jump in WTI, it was the expiry of the March delivery contract and that clearly brought about a short squeeze on the rollover into April. Let’s see what happens tonight.

Meanwhile, a flash estimate of US manufacturing PMI for February last night suggested a fall to 51.0 from 52.4 in January when economists had forecast 52.5. This didn’t seem to deter Wall Street, but then bad news is good news on the data front.

Commodities

West Texas crude is up US$2.00 or 6.7% to US31.84/bbl on the March expiry. Brent, already trading April, is up US$1.40 or 4.2% to US$34.66. The disparity confirms a short squeeze on expiry.

Iron ore has jumped US$3.30 or 7% to US$50.30/t.

Since Turnbull came to power, all talk has been of the enormous budget black hole that will be left by collapses in commodity prices. Suddenly, talk is of the spectacular windfall the government will enjoy on iron ore’s recovery.

Let’s not count our chickens.

Commodity funds were reported to be back in the base metal markets last night, either buying or short-covering. While lead still managed a 1% fall, aluminium and copper each rose more than 1% while zinc jumped 2% and nickel 2.5%.

It’s a commodity comeback! Buy the Aussie! Our currency is up 1.2% at US$0.7231 despite the US dollar index rising 0.7% to 97.37.

The US dollar has impacted on gold nevertheless, which is down US$18.50 at US$1208.90/oz.

Today

The SPI Overnight closed up 39 points or 0.8%, incidentally at 5000. While that might seem to make sense, there’s still a month of “carry” to go in the March contract, so the futures market is suggesting better things to come.

US data releases tonight include home sales, house prices and consumer confidence.

As noted, BHP is among the highlights of reporting companies today, as are Oil Search ((OSH)), Qantas ((QAN)) and QBE Insurance ((QBE)).
 

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.

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article 3 months old

The Overnight Report: Take A Breath

By Greg Peel

The Dow closed down 40 points or 0.3% while the S&P lost 0.5% to 1917 as the Nasdaq fell 1.0%.

All is Forgiven

The best day on Bridge Street so far this year had several drivers. Primarily, we opened higher on strength overnight on Wall Street which was a lot to do with strength in the oil price, which also affects our market directly.

Extreme volatility continued in the energy sector yesterday, which finished up 5.3%. In three days energy has been up 4%, down 4%, and up 5%. Not sure where that’s getting us but one thing is certain – there will be no output reduction stemming from OPEC or anyone else by virtue of agreement.

The materials sector just seems to fall into lockstep with energy now as if the oil price is the global indicator. Iron ore took its first dip in a while and base metal prices were mixed overnight but materials was up 3.8%, mostly because investors cannot overcome the mindset of buying the market means buying BHP.

The next driver yesterday was a solid result from wealth manager AMP ((AMP)), the shares of which rose 10%. Buying the market also means buying the banks, but the financials sector has not been anywhere near as volatile as the resource sectors over February. AMP is part of financials and the banks count among major wealth managers so that sector was up 2.3% yesterday and represented a big chunk of the ASX200’s 2.3% gain.

Then we had the January unemployment numbers. We must recall that the minutes of the last RBA meeting, released on Tuesday, included a new statement, “Over the period ahead, new information would enable the Board to assess whether the recent improvement in labour market conditions was continuing,” implying the RBA was not sufficiently convinced the strong jobs numbers to date looked accurate in the face of weak GDP growth.

Well yesterday we saw the unemployment rate tick back up to 6.0%. Such bad news is wonderful news as it supposedly suggests the RBA will now be more inclined to deliver a rate cut.

It’s all just statistical noise of course, and by the ABS’ own admission, the increase represents the make-up of the different sample set surveyed in January as compared to December. Smoothing out the numbers over time, we find the unemployment trend rate fell to 5.8% in January from 5.9%. But don’t tell that to investors who piled into the consumer discretionary sector yesterday (+2.6%), or to traders who sold the Aussie (down 0.3% to US$0.7156).

So we had a strong lead from Wall Street, a big jump in the oil price, some positive earnings results and well-received weak economic data all conspiring yesterday to drive the ASX200 back towards – you guessed it – 5000. We only fell a handful of points short.

Not all earnings results were positive yesterday. A weak report from new kid on the block Estia Health ((EHE)) put the frighteners through the high-flying aged care space and ensured the healthcare sector did not participate in yesterday’s buy-fest.

When I returned from my summer break late in January my first remark was “well here we are, back at 5000”. In that case, we’d had to come down from where we were in December. And now I can say it again. Here we are back at 5000, this time having rallied back from oversold levels. Through all the carnage, we’ve gone nowhere.

Pause

It’s not surprising that after three consecutive up-days in excess of 1%, Wall Street should take a breath last night. Basically the US market went very quiet, outside a bit of micro influence. Dow dinosaurs IBM and Wal-Mart traded profit guidance upgrade/downgrades but largely cancelled each other out.

St Louis Fed president James Bullard suggested it would be “unwise” to further raise rates in the current conditions, but by now Wall Street has baked in an expectation there will not be a March hike.

Oil prices had pushed higher from the open last night but they came back to earth following comments from the Saudi foreign minister, who in the context of supposed attempts to agree to a production level freeze among OPEC and non-OPEC members, insisted that Saudi Arabia had no intention of actually cutting production.

Why the market pays attention to this stuff is anyone’s guess but the comments were enough to bring oil prices back down to where they started the day.

Outside of a solid weekly new jobless claims number last night, US economic data releases were weak. The Philly Fed index posted its sixth consecutive month of contraction and the Conference Board’s leading economic indicators measure came in negative for the second month running, which has not happened for some time.

It’s all good news of course, vis a vis Fed policy.

Commodities

James Bullard’s comment was at least enough to spark the gold bugs into action again. Gold is up US$25.60 at US$1236.20/oz despite the US dollar index being up 0.1% at 96.93.

West Texas crude is up US14c at US$30.73/bbl and Brent is down US18c at US$34.15/bbl.

Base metals were little moved last night but for an inventory-related 2% jump for zinc.

After one session’s dip, iron ore is back in the green with a US70c gain to US$46.50/t.

Today

The SPI Overnight closed down 22 points or 0.4%.

US inflation data is out tonight, to add more fuel to the Fed rate debate fire.

The local earnings season rolls on in earnest with another big day today and more than half of all companies reporting across next week.

Today’s highlights include Fairfax Media ((FXJ)), James Hardie ((JHX)), Medibank Private ((MPL)) and Santos ((STO)).
 

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: Three Day Reprieve

By Greg Peel

The Dow closed up 257 points or 1.6% while the S&P gained 1.7% to 1926 and the Nasdaq jumped 2.2%.

Stock Picking

The ASX200 was all over the shop yesterday, reflecting on the one hand indecision from a macro level as to where to go to next and on the other hand, mixed sector moves based on individual earnings reports.

The index opened down 40 points, was up 16 after lunch and closed down 27. There was very little consistency among sectors, with the consumer sectors, banks and industrials registering minimal change. The big downside move was in energy, which fell 4% having rallied 4% the day before. I’m not sure what Tuesday’s buyers of Woodside Petroleum ((WPL)) were looking for, given a “beat” on profit and, importantly, on dividend, sparked a 7% thumping yesterday.

Materials was down 1.5% in sympathy while healthcare (-1.3%) was also weak despite a 20% pop for one of the most shorted stocks in the market, Primary Health Care ((PRY)).

It was not a session from which one could derive any sense of market direction. It was the biggest day to date in the earnings season in terms of number of reporting companies but today will be one of the biggest all up, before the final and most crowded week of the season.

Triple Crown

The weekend’s energy market news was a supposed agreement between Saudi Arabia, Qatar, Venezuela and Russia to limit monthly oil production to January levels as long as other major oil producers followed suit. I noted that this was a clear finger point at Iran.

Last night’s news was that Qatar and Venezuela got together with Iraq and Iran in the hope of extending the agreement and the great news is that Iran is in full support of the idea. That is, as long as it does not include Iran.

The other OPEC members expressed sympathy for a country trying to emerge from years of sanctions. As to where Iraq stands on the matter is unclear, but I would assume Iraq’s stance would be “We will if Iran will”. So if Iran won’t, then presumably none of Saudi Arabia, Qatar, Venezuela, Russia and Iraq will either, as the deal had a caveat of “as long as the others do too”.

West Texas crude jumped another 5% last night.

No doubt the oil market is still very short, as this sort of news is hardly concrete. Maybe the oil market believes that while such a road is a long and difficult one, moves are being made in the right direction with regard global supply curtailment. But until the US joins in, there will be no real impact. And the US will never join in.

Oil market volatility has been the predominant driver of general market volatility in 2016, and this has worried the Fed. The US economy is not showing the signs of growth the FOMC expected it to show back in December. On that basis, the majority of FOMC members are in favour of waiting for more data indications before making another move on rates, as was evident in the minutes of the January policy meeting, released last night.

This implies no rate rise in March and thus a more dovish stance from the Fed, unless of course US economic data suddenly turn very positive in the next month. While last night’s measure of January industrial production showed a 0.1% gain when a 0.2% decline was expected, one swallow does not a summer make. And housing starts were down a worse than expected 3.8%.

So Fed dovishness, and another short-covering jump in the oil price, sent Wall Street rallying strongly form the third day in a row. It is the first time in 2016 the S&P500 has put together three consecutive up-days, and the first time since 2011 those up-day gains were each in excess of 1%.

The S&P bottomed out at 1810 support, broke through 1880 resistance and ploughed on to 1925 resistance, where it currently sits. Technically, a move through 1950 suggests a sustained rally. But just how much of the rally to date in stocks is also short covering? A lot, it is assumed. There is not a great deal of confidence on Wall Street that this week’s action is anything more than a blip in what is still a fundamentally weak market.

Something is needed beyond OPEC fantasies and Fed caution.

Commodities

West Texas crude is up US$1.50 or 5.2% at US$30.59/bbl and Brent is up US$2.06 or 6.4% at US$34.33/bbl.

Base metal trading remains directionless. LME traders are also looking for a sign. Last night saw copper and nickel up 1%, tin up 2%, but lead down 2%.

The iron ore price has finally taken a dip, down US30c to US$45.80/t.

The US dollar index was steady last night at 96.82 but gold clawed back US$7.50 of this week’s losses to US$1210.60/oz.

It looks like someone piled into the Aussie overnight and sparked some short-covering there as well. It’s up 1.1% at US$0.7182.

Today

The Dow was up a couple of hundred points on Tuesday night and yesterday morning the SPI Overnight was up 6 points. The Dow was up a couple of hundred points last night and this morning the SPI Overnight is up 66 points, or 1.4%.

Australia’s January unemployment numbers are due today. Beijing will release Chinese inflation data.

A very big day in the local earnings season includes reports from AMP ((AMP)), Origin Energy ((ORG)) and Telstra ((TLS)).
 

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: Pull The Other One

By Greg Peel

The Dow closed up 222 points or 1.4% while the S&P gained 1.7% to 1895 and the Nasdaq jumped 2.3%.

Afternoon Delight

The local market appeared not particularly keen to go on with it from the open yesterday following Friday’s rally, with no lead from Wall Street possibly suggesting some caution. A stuttering morning session saw ups and downs before the ASX200 was down around 30 points at midday.

There began a very steady rally through the afternoon, culminating in what was an almost 20 point pop at 3.59pm to close us up 66. These last minute moves are becoming disturbingly frequent.

Sector-wise, the two big movers were again the resource sectors. Materials starred on Monday with energy riding shotgun but yesterday energy led the way with a 4.8% rally, followed by materials with 2.1%. These numbers look pretty big, but we must remember these sectors have fallen a long way this year and now only represent around 10% of market cap.

Which leaves the banks as the biggest market cap sector by a margin. They rallied 1.0% yesterday but had to account for CommBank going ex, while the other big market cap name – Telstra – stalled after two sessions of outage-related selling. Utilities, up only 0.2%, was the other sector not to really join in the fun yesterday afternoon.

Was the afternoon rally a result of the morning’s release of the minutes of the RBA’s February meeting?

Back in December the RBA considered the outlook to be sufficiently balanced to suggest the current cash rate is appropriate, while adding “that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand”.

February’s minutes concluded with an identical paragraph but for the addition of one new sentence:

“Over the period ahead, new information would enable the Board to assess whether the recent improvement in labour market conditions was continuing and whether recent financial market turbulence presaged weaker global and domestic demand”.

It sounds like the board is beginning to wonder whether last year’s strength in employment can be maintained in 2016 and, in line with major central banks around the world, is worried about the markets. Market turbulence is enough to keep the Fed on hold and to prompt the ECB into reiterating it will do “whatever it takes”, and now it appears the RBA is singing from the same song sheet. If needs be, the RBA will cut again. It’s as simple as that. And that is enough to encourage stock market strength.

But we won’t think about what might have to happen to prompt the RBA into action.

Crying Wolf

The global rally either side of the weekend came full circle last night when Wall Street re-opened for business and kicked on with what began with Thursday’s late market turnaround. That turnaround commenced off the S&P500 technical support level of 1810 and traders suggested resistance would kick in at the technical level of 1880. Last night the S&P went through that level and subsequently pushed higher still.

Most notably, the US stock indices rallied despite a fall in the oil price. The stock market-oil correlation has otherwise been running at 98% this year. Indeed, the US energy sector rallied despite a fall in the oil price.

We recall that it was oil’s turnaround on Thursday which prompted the turnaround in the US stock indices. The WTI price had just hit a new low when, blow me down, the UAE oil minister announced OPEC was ready to talk production cuts. WTI rallied 12% -- not because anyone believed the minister, but because no one wanted to be caught short over the long weekend.

Scepticism turned to surprise last night when there was, indeed, an announcement about an agreement on supply curtailment having been reached between OPEC members Saudi Arabia, Qatar and Venezuela and non-OPEC Russia. Oil opened higher as a result. But then began falling back rather swiftly.

Firstly, the four nations have not agreed to cut production, merely to freeze production levels at January rates. Saudi Arabia, for one, posted record production in January. And what’s more, they will only do so if other major oil producing nations do the same.

This caveat clearly points the finger squarely at Iran. Good luck with that.

So WTI is down 2% on the session but Wall Street is nonplussed. The OPEC-Russia fun and games have worn thin, leaving investors to concentrate on the reality of global oil production cuts ultimately being achieved through sustained lower oil prices and subsequent defaults and bankruptcies amongst marginal US producers.  

This expectation implies the oil price has a definable bottom, and judging by moves in global energy sectors these past couple of sessions (US energy up last night despite lower oil, Australian energy up 4.8% yesterday), many believe that bottom is in.

Commodities

West Texas crude is down US62c at US$29.09/bbl and Brent is down US$1.07 to US$32.27/bbl.

London base metal traders are relieved the Chinese didn’t return from holiday and slam prices, but there is no great sense of optimism on the LME. Oil price moves are also making their presence felt in base metal prices but last night it was a mixed bag, with aluminium and nickel up over a percent and lead and zinc down over a percent.

Iron ore continues to push higher, up another US50c to US$46.10/t.

Goldman Sachs must have been caught short gold because the bank has put out a note to suggest clients should short gold for this recent rally is but a blip. Gold is down US$5.70 at US$1203.10/oz. To be fair to Goldman, they’re not Robinson Crusoe.

The US dollar index is relatively steady at 96.86 but the Aussie is down 0.6% at US$0.7101 thanks to the RBA.

Today

Futures traders are clearly sceptical of the local market putting in a third big rally today. The SPI Overnight closed up a mere 6 points.

Just as the RBA minutes were scrutinised by the market yesterday, tonight’s Fed minutes will be poured over.

And what does happen in the local market today could well come down to what is the biggest day on the earnings calendar to date in terms of volume of reports. And there are bigger days yet to come.

Today’s highlights include Coca-Cola Amatil ((CCL)), Domino’s Pizza ((DMP)), Insurance Australia Group ((IAG)), Lend Lease ((LLC)) and the Healthcare duo Primary ((PRY)) and Sonic ((SHL)). The biggest headline will nevertheless be saved for Woodside Petroleum ((WPL)).
 

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.

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