Tag Archives: Iron Ore

article 3 months old

The Overnight Report: Oversold Scramble

By Greg Peel

Wall Street was closed for a public holiday last night.

Rolling Thunder

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

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

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

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

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

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

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

Bad is Good?

Here’s a headline you will not often read:

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

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

Also bouncing back hard was the renminbi.

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

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

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

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

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

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

Commodities

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

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

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

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

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

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

Funny old world.

Today

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

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

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

Note that Commonwealth Bank ((CBA)) goes ex today.
 

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article 3 months old

BlueScope’s Outlook A Little More Rosy

-Accelerated cost reductions
-Challenges for NZ iron sands
-Positive price momentum slows
 

By Eva Brocklehurst

BlueScope Steel's ((BSL)) outlook appears a little more rosy. The company has upgraded guidance for the first half by 28% and for the second time since the August results.

The upgrade relates to better profitability in Australia, particularly in the Colorbond division, as well as the earlier delivery of cost reductions stemming from the company's restructure announcement last October.

For brokers, the upgrade does not signal the end to problems posed by low prices in the steel industry. Renewed price pressure is expected as supply returns to the market after the Chinese New Year.

Management will increase the carrying value of its Northstar business by $700m, reflecting the price paid in October for the buy-out of its joint venture partner. This will be offset by a $570m impairment covering steel manufacturing operations, including $350m for New Zealand and Pacific Steel.

Ord Minnett commends the early delivery of cost savings and considers the outlook is now heavily dependent on the price direction for steel post the Chinese New Year. East Asia hot rolled coil spreads fell 28% in 2015, the broker notes, but have rebounded 18% from their lows to reach $225/tonne recently.

Positive momentum has now eased, the broker adds, with spreads coming back over the past three weeks as negative inputs from currency and raw materials have coincided with flat steel prices.

Macquarie suspects the extent of the NZ impairment means there could be a change in the wind for the iron sands operation. The broker's focus is now on the cost reductions and how much can be obtained now the pace has quickened. The fundamental change instigated by the new enterprise agreement at Port Kembla could have a substantial impact over time. The company is considered to be doing well in a tough market.

Credit Suisse was also pleased with the upgrade but finds the announcement short on detail. The $200m target for cost reductions previously supplied could now be conservative and subject to revision. The broker suspects the restructure could set the business up to generate earnings once steel pricing spreads improve, noting spreads recently deteriorated and this will require additional cost reductions to be found and implemented.

The broker does not believe the Australian steel making is generating cash as yet, but Port Kembla's break-even point has been reduced further. Credit Suisse agrees NZ is deeply challenged by low steel and iron sands prices and was not surprised at the impairment sum.

As steel prices have declined by more than iron ore prices, and the NZ iron sands price is transferred at cost not market, the business is considered to be structurally challenged. Credit Suisse hopes to glean more information at the first half results on the potential for reductions in NZ iron sands exports.

Around half of this latest upgrade is sustainable into FY17, Morgan Stanley contends. The movement in the stock broadly reflects the upgrades that are probable and, should further momentum in cost cutting and the improvement in Colorbond profitability continue, earnings upside is considered likely.

The company seems to be targeting a debt/earnings ratio of 1.0 for FY17, the broker calculates, and this should be achieved without any asset sales. Nevertheless, further upside is envisaged should asset sales be forthcoming, or the iron sand business is closed. Alternatively, the broker believes a higher pay-out ratio could be initiated above the current 20%.

Morgan Stanley derives its FY17 forecasts off East Asian spreads of $205/tonne and evaluates that, after the latest asset adjustments, the stock is still trading at a 40% discount to book value.

UBS recently upgraded to Buy from Neutral, believing the recent rebound in spreads is sustainable in the near term. While acknowledging it was too early to call a bottom in the market the broker expects BlueScope will benefit from an improvement in pricing spreads.

In sum, there are six Buy ratings on FNArena's database with a consensus target of $5.60 that suggests 10.5% upside to the last share price. The target compares with $5.46 ahead of the upgrade. Targets range from $5.30 (Credit Suisse) to $5.90 (Macquarie).
 

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article 3 months old

The Monday Report

By Greg Peel

Capitulation?

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

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

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

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

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

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

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

Bank on it

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

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

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

Square-Up

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

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

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

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

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

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

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

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

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

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

Commodities

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

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

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

Gold has been noted above.

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

The SPI Overnight closed up 87 points or 1.9%.

The Week Ahead

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

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

Japan will release its December quarter GDP result today.

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

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

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

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

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

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

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article 3 months old

The Overnight Report: Oil Talk And No Action

By Greg Peel

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

Alpha Bravo

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

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

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

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

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

CoCo Dependency

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

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

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

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

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

The Oil Game

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

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

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

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

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

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

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

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

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

Commodities

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

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

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

Iron ore is unchanged at US$44.50/t.

The Aussie is relatively steady at US$0.7094.

Today

The SPI Overnight closed down 36 points or 0.8%.

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

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

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

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

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article 3 months old

Material Matters: Commodity Markets, Gold, Resources & Energy Stock Previews

-Substantial downside risk priced in
-Gold re-rating crucial to bull market
-Miners to maximise cost efficiency
-Focus on value vs volume for diversifieds
-Large impairments in energy expected
 

By Eva Brocklehurst

Commodity Markets

Commodities remained weak in January, despite a short-lived firming in crude on hopes OPEC and Russia may co-ordinate supply cuts. Iron ore prices also strengthened late in the month.

ANZ commodity analysts continue to believe these two markets remain most susceptible to further weakness, given ongoing supply issues and iron ore also witnessing a structural decline in demand. Sentiment has also worsened on suspicions Chinese demand is likely to be constrained by ongoing structural reforms.

The analysts acknowledge concerns may be overdone, as China recorded strong import volumes in December as a result of opportunistic buying, and inventories did not materially rise. The analysts suspect quite a lot of downside risk is now priced in but remain unsure of whether January signalled a nadir.

Goldman Sachs has revised forecasts and, marking to market, highlights a broad downward movement across most commodities. The broker notes major monthly price falls of 3.0% in copper and nickel, while gold is up 2.0%.

The analysts revise metallurgical coal forecasts down for 2016-18 by 12-18%. Lower prices among most commodities have had a negative impact on most stocks, with the broker downgrading targets for Rio Tinto ((RIO)), BHP Billiton ((BHP)), South32 ((S32)), Western Areas ((WSA)), Independence Group ((IGO)), Alumina ((AWC)), Sandfire Resources ((SFR)), BlueScope ((BSL)) and Sims Metal Management ((SGM)).

Gold

Macquarie observes many things have gone right for gold this year but the rally is most easily explained by changes in US financial variables rather than any re-rating of gold against these variables. While further gains are possible, the broker believes the yellow metal is vulnerable to any shift in macro sentiment.

Gold traded to a peak of nearly US$1,160/oz on February 5 [1190 since] , up 9.2% for the year to date, which made it the best performer so far in 2016. Macquarie expected the rally but asks whether there is more to come?

The broker suspects that an actual re-rating of gold is crucial for a lasting bull market. On present evidence, a shift in macro sentiment which brings a US Fed tightening closer is likely to end the rally abruptly, Macquarie asserts.

Morgan Stanley also observes the indifference gold showed to the metal markets slump in 2015. The broker also believes the lift in the gold price in the year to date is mainly based on persistent US dollar weakness, which is the outcome of a belief that global growth will stay subdued.

Morgan Stanley forecasts a US$1,080/oz price in 2016 and longer-term expectations are generally flat with a peak at US$1,200/oz in 2018.

Resources Previews

UBS expects a number of Australian miners will use the lower inputs – FX and oil prices – to maximise cost efficiency. Bulk miners will benefit from lower sea freight rates while those with higher strip ratios and owner operator fleets will realise operational expenditure savings.

The broker also suspects estimates may surprise on the upside if the market has not correctly anticipated the FX impact on US dollar revenue and non-US dollar denominated costs. Miners with development projects and high sustaining costs may also witness deflation in capital intensity.

For diversified miners the broker expects the focus to be on value over volume. OZ Minerals ((OZL)) will be scrutinised for its 2016 guidance and the dividend. Guidance will also be key at Newcrest Mining ((NCM)), which switches to US dollar reporting in this financial result.

Energy Previews

Goldman Sachs is keen to hear from Santos ((STO)) and Origin Energy ((ORG)) regarding debt levels and cash conservation efforts. Both face financial stress due to the timing of their investment cycles as they reached peak debt as the oil market turned. The broker considers Origin Energy better placed of the two, but both are likely to continue cutting costs and seeking divestment.

In oil, Goldman prefers InterOil ((IOC)) on its attractive valuation and Caltex ((CTX)) for earnings momentum and capital management potential. The broker expects large impairments across the sector which, in most cases, should not have a material impact on valuation.

DUET ((DUE)) is the preferred utility for strong yield and growth. The broker looks for updated guidance on new acquisitions by both DUET with Energy Developments and Spark Infrastructure ((SKI)) with Transgrid.
 

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article 3 months old

The Overnight Report: Each Way Bet

By Greg Peel

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

Growl

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

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

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

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

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

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

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

Testimonial

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

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

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

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

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

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

Commodities

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

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

Iron ore fell US20c to US$44.50/t.

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

Today

The SPI Overnight closed up 20 points or 0.4%.

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

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

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

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

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Claret Run

Back last century in the days when the ASX actually used to close for lunch for a full hour and a half it was typical for market types to head out to a restaurant on a Friday, polish off a couple of bottles of red, rev each other up, and then come back for the afternoon session intent on buying. It was known as the Friday afternoon “Claret Run”.

If it weren’t for the fact the ASX no longer closes for lunch, and lunching is not as ubiquitous a sport as it once was in the stock market, one might have assumed the ASX200’s sharp turnaround from down 58 points at 2pm on Friday to close almost square was a Claret Run in action. Or in this day and age, perhaps a Shiraz Run.

Or maybe it was triggered by technical trading or simple dip-buying as the index again approached 4900 when it really wants to be at 5000. The big miners, which have fallen a long way, were again heavily sought after, no doubt aided by the week’s rebound in iron ore prices. The materials sector rose 2.9%.

Thereafter it was a very mixed bag among sectors, with the other resource sector – energy – up only 0.8%, the banks down 0.7%, healthcare down again and the week’s most popular trade – utilities – also down by 1.0%.

There may also have been an element of squaring up ahead of Friday night’s US jobs report.

Something for Everyone

Wall Street is currently in “bad is good” mode because the market does not believe the US economy is strong enough to cope with higher interest rates. A weak jobs number on Friday night was thus expected to evoke a positive response from the stock markets, and vice versa.

The result of 151,000 jobs added – missing forecasts of 189,000 and representing only around half of the December number – was therefore a good result. Briefly, Wall Street rallied. But there’s more to a monthly jobs report than just the raw measure of jobs added.

It might have been a low number but when one considers the big jump in December, the average is still strong. Indeed, the three month average of 231,000 jobs added per month is above average and thus potentially no reason to ensure the Fed will not hike again in March. And the unemployment rate fell to 4.9% from 5.0% to mark its lowest level since 2008.

But the number that ultimately startled Wall Street was wages growth. All through 2015, as US jobs growth numbers came in on the positive side, Wall Street expected the Fed to hike rates. A hike was possible in March, more expected in June, and considered baked in in September. But the Fed did not hike until December, and one important reason was a lack of any real wages growth until right at the end of the year.

Wages growth equals inflation. Earlier last week there had been talk that US inflation was running lower than the Fed had anticipated, and this was enough to send Wall Street into rally mode. But US wages suddenly jumped 0.5% in January. Averaging over six months, wages growth is now at its fastest pace since the GFC.

It was this number that spooked Wall Street, and suggested a March Fed rate hike is by no means off the table. There are also two more jobs reports to come before the Fed’s next meeting. Down went US stocks.

And up went the US dollar, by 0.6% on its index to 97.04. Commodity prices were weaker on the threat of more dollar strength to come, and the Dow finished down 211 points or 1.3% and the S&P lost 1.9% to 1880. But the big move was in the Nasdaq, which fell a full 3.3%.

There is little correlation between the tech-heavy Nasdaq index and oil prices, so this particular index has really been playing its own game these past couple of months. And within the index are all those new world, high-flying companies involved in everything from social media to electric cars, which boast PEs at fantasy land levels because it’s all about potential monetisation down the track and not about any E to speak of right at the moment.

On Friday night one of this group – LinkedIn, known as Facebook for grown-ups – posted a quarterly earnings report which fell short of expectation. It was not a shocking miss, but Wall Street sold the stock down 44% just the same. In a case of omigod, the Emperor’s not wearing any clothes, the market decided that maybe the PEs of some of these more esoteric of businesses are just a little over the top.

After Friday night, many are not so over the top any more.

Commodities

The jump in the US dollar on the night, and the implications of what in essence was a “strong” jobs report, was not good news for commodity prices.

West Texas crude fell US80c to US$30.87/bbl and Brent fell US38c to US$34.01/bbl.

In thin trading ahead of the Chinese New Year break, in which metals markets go very quiet, base metal prices tumbled following what had otherwise been a solid week. Copper fell 1.5%, aluminium and lead fell 2%, zinc fell 2.5% and nickel was thumped by 5%. Only tin held its ground.

Iron ore was steady at US$44.70/t and will likely remain so for all of this week.

Gold’s run continued, with the rejuvenated metal rising another US$17.40 to US$1173.00/oz.

And the good news is that the Aussie, which had shot up during the week as the US dollar had tanked, fell 1.8% to US$0.7070 on Saturday morning.

The SPI Overnight closed down 56 points or 1.1% on Saturday morning.

The Week Ahead

Further US data releases are thin on the ground this week until Friday, when retail sales, inventories and consumer sentiment numbers are released.

The highlight, however, will be Fed chair Janet Yellen’s scheduled testimonies to Congressional committees on Wednesday night and Thursday night. While it is likely she will be non-committal, Wall Street will be closely watching for any little hints of dovishness or hawkishness.

China will be closed all week for the New Year holiday. New Zealand is closed today and Japan is closed on Thursday.

RBA governor Glenn Stevens will also provide a parliamentary testimony this week, on Friday, following ANZ job ads today, NAB business confidence tomorrow, Westpac consumer confidence on Wednesday and housing finance numbers on Friday.

The local results season steps up a gear this week. Today’s releases include those from Ansell ((ANN)) and JB Hi-Fi ((JBH)), while throughout the week highlights include AGL, ((AGL)), Commonwealth Bank ((CBA)), Cochlear ((COH)), Rio Tinto ((RIO)) and Suncorp ((SUN)).

Please note the first FNArena Results Season Monitor for this February season was published on Friday and will now be added to each day as the month progresses.

Rudi will appear on Sky Business on Thursday at noon and again on that same day 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: Reality Bites For Oil

By Greg Peel

The Dow closed up 79 points or 0.5% while the S&P managed only 0.2% with the Nasdaq up 0.1%.

Hope Restored

It does get a bit silly sometimes, doesn’t it? Down a hundred one day and back up a hundred the next. What changed? The oil price went up and the US dollar went down.

The oil price has every chance of going back down again, although in USD terms it will find some support from what now appears to be a greenback set to trade lower as the market abandons the idea of a Fed rate hike in March, or even possibly in 2016. But unfortunately for the Australian market, hopes of an Aussie dollar in the mid-sixties now seem premature at best.

I noted that Wednesday’s sell-off was fairly orderly and relatively uniform across sectors, other than concentrated selling in the resource sectors and not so much selling in genuine yield stocks. Yesterday’s rally was also fairly orderly, but not so uniform across sectors.

The energy and materials sectors both jumped 6.2%. On Wednesday everyone was worried about dividends and yesterday it seemed all was forgiven. It must be noted that valuations for these sectors have fallen so far, their index-weighting impact is nothing like it used to be. Thus yesterday’s 2.2% rally in the banks – another beaten down sector – had greater clout.

If the Fed is now on hold then Australian yield stocks are once again more valuable to offshore investors, assuming the RBA is also on hold for a while. Utilities (+2.5%) were again an outperformer yesterday. But thereafter, other sectors that were sold down on Wednesday did not necessarily pick it all back up yesterday. Indeed, healthcare was down 0.8%, suggesting traders sold the winners to buy the losers, and consumer discretionary was down 0.6%. Outside of your big-name chains, there have been some high flying retailers of late as well to offer up profit-taking opportunities.

One stock that didn’t join in the spoils yesterday was Macquarie Group ((MQG)), which lost 5% after revealing the earnings impact of recent market volatility. Macquarie is nevertheless in exalted company, with Goldman Sachs suffering a similar fate earlier this week in the US and what can only be described as carnage being suffered by European investment banks, with the likes of Deutsche Bank, UBS and Credit Suisse all posting huge losses and write-downs of late.

It appears European banks have been relatively larger lenders to the energy sector than US banks. And as for wealth management, well, everyone has been hit hard there. Everyone saw the US ten-year yield going to 3% (it’s now 1.86%), the US dollar soaring (it’s down 3% just this week), and the US economy picking up (a mere 1.8% for 2015). No one saw thirty dollar oil.

And on the subject of oil…

After rallying 8% on Wednesday night, West Texas crude took off again early in last night’s session, putting on another dollar per barrel. But at that point the dip-buying and short-covering appeared to exhaust itself. As Wile E. Coyote stood there in mid-air, a few feet from the cliff edge, he contemplated Wednesday night’s US crude inventory data, showing more stored oil than ever in history, and the fact data show US production is continuing to rise, not fall. Gravity did the rest.

Another 0.8% drop in the US dollar index to 96.51 was not enough to prevent a mid-session plunge in oil prices, to close down 2% on the day.

US production continues to rise because smaller producers, running cash flow negative, will not turn off the pumps until all hope of a price rebound is lost. Just like Saudi Arabia and Russia, they have to keep pumping oil as fast as possible to at least minimise the cash burn. The irony is, of course, that the oil price will only rebound when enough producers finally bite the bullet.

We’ve seen this happen among Australian nickel producers, but unfortunately Australia alone does not produce enough nickel to make much of a global difference.

And a shudder went through Wall Street last night on the announcement from US energy major ConocoPhillips of a cut in dividend. Though not exactly a shock, it was still a case of reality bites.

Meanwhile, last night’s US data releases showed a 3% fall in productivity over the December quarter – the biggest decline in a couple of years – and a 2.9% fall in factory orders in the month of December.

The Dow was up a hundred points on the oil rally mid-morning, back to flat by midday on the oil turnaround, and up again late in the session on a bump and grind. Weak data, let’s not forget, is good at the moment.

Commodities

West Texas crude is down US66c or 2.0% at US$31.67/bbl and Brent is down US67c or 1.9% at US$34.39/bbl.

Base metal prices continued to rise on the LME last night, quietly, on the ongoing theme of squaring up ahead of Chinese New Year and with some help from the weaker greenback. There were 1% gains across the spectrum except for lead (0.5%) and nickel (0.3%).

Iron ore is up another US70c at US$44.70/t.

Gold’s revival continues on the weaker US dollar. It’s up US$15.20 to US$1155.60/oz.

The Aussie is up another 0.4% at US$0.7200.

Today

The SPI Overnight closed down 14 points or 0.3%.

The RBA will release a quarterly Statement on Monetary Policy today following releases for all-important December retail sales, and the January construction PMI.

Tonight is non-farm payrolls night in the US.

The local earnings season will today feature results from Genworth Mortgage Insurance ((GMA)), News Corp ((NWS)), REA Group ((REA)) and Whitehaven Coal ((WHC)).
 

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: Midnight Oil

By Greg Peel

The Dow closed up 183 points or 1.1% while the S&P gained 0.5% as the Nasdaq fell 0.3%.

Hope Abandoned

The carnage was relatively uniform across the local market yesterday and the sell-off was quite orderly. Having opened lower on Wall Street’s influence, the ASX200 just kept sliding away all day to a 2.3% loss.

Weaker oil prices assured the energy sector (-3.9%) was the worst performer as speculation mounts ahead of results season that the likes of Woodside Petroleum ((WPL)) will cut its substantial dividend and that the other gas majors will not be paying dividends ahead that had previously been assumed.

The dividend story extended into the materials sector (-2.8%), where lower iron ore prices and downgraded credit ratings are expected to force the big miners into dividend cuts they have tried so hard not to have to implement. The ongoing rally in the iron ore price this week has been lost in the wash.

The resources sectors received no respite from yesterday’s December trade numbers, which showed a much bigger than expected deficit. It was all down to commodity exports, of course, but once again it’s interesting to note the volume of iron ore and coal being shipped to China is not wavering, just the prices.

There was nowhere much to hide yesterday, although the “outperformers” on the day, being utilities (-0.8%) and telcos (-1.1%) showed that yield is still king when dividend values are not under threat.

With mining in the mire, the RBA appeared pleased this week to note the non-mining sectors of the economy are beginning to carry the can. We’ve seen ongoing expansion in manufacturing but that sector is now tiny compared to the services sector. Yesterday’s services PMI result showed a plunge into steep contraction at 46.3 last month from 48.2 in December.

The major issue is the retail sector, reflected in ongoing rampant discounting. Didn’t do Dick much good. Meanwhile, health again starred as the fastest grower.

I noted on Tuesday that the world’s morbid obsession with a weakening Chinese manufacturing PMI fails to take into consideration the fact Beijing is forcing that sector to contract, while trying to boost the Chinese services sector. Beijing’s official services PMI showed a slight slowing in January but ongoing expansion (51.4), while yesterday Caixin’s independent PMI came in at 52.4, up from 50.2.

On any other day that might have been good news.

Around the Grounds

January service sector PMI results in other major centres included a rise for Japan to 52.4 from 51.5 and a tick up in the UK to 55.6 from 55.4. Losers included the eurozone, which disappointed with a fall to 53.6 from 54.3, and the US, which saw a drop to 53.5 from 55.8.

Rock and Roll

That US services PMI sparked a bit of a straw and camel effect. The US manufacturing result earlier this week had also been disappointing, but the US services sector is much, much bigger. Down went Wall Street, and down went the US dollar. Big time.

ADP’s measure of private sector jobs added in January came in at 205,000, down from December’s 267,000. The US dollar index is currently down 1.6% at 97.29 but had been lower earlier in the session.

The fall in US stocks took the S&P500 down to the technical support level of 1870 in the first hour, and at that point the buyers stepped in. Technical support notwithstanding, it was not lost on Wall Street that the weak data only served to increase the likelihood the Fed will not be raising again in March.

The ensuing rebound was relatively half-hearted until someone pointed up at the screens and said “Look at oil!”. West Texas crude was suddenly screaming upwards.

It was screaming upwards because, yet again, there were murmurs out of Russia about another meeting with OPEC to discuss potential production cuts. The growing belief on Wall Street is that every time WTI slips below US$30/bbl, Vlad starts talking about cutting supply. He has no intention of actually doing so of course, but as last night’s 8% oil price rebound suggests, it’s a ploy that tends to work.

The Dow had been down around 200 points at its low and as trading entered the last hour, was up around 200. A bit of wavering at the end led to a close of up 183.

Commodities

West Texas crude is up US$2.37 or 7.9% at US$32.33 while Brent is up US$2.35 or 7.2% at US$35.06.

Oil prices were also clearly helped by the plunging US dollar, as were commodity prices across the board. LME traders also cited the strong Chinese services PMI (although I’m not really sure how this translates into copper demand) and, again, squaring up ahead of Chinese New Year. All base metals rose 1.5-2.5%.

Iron ore gained another US90c to US$44.00/t.

Gold is up US$12.00 at US$1140.40/lb.

Every silver lining has a cloud. The Aussie is up a whopping 1.8% at US$0.7175 thanks to the greenback.

Today

The SPI Overnight closed up 32 points or 0.7%.

NAB will summarise its December quarter business confidence surveys today while tonight the Bank of England will hold a policy meeting and while nothing new is expected, recent central bank manoeuvres suggest one should not be too certain.

Downer EDI ((DOW)) and Tabcorp ((TAH)) will post earnings results today while Macquarie Group ((MQG)) will provide an update on whether this latest round of global volatility has dented trading profits.

Rudi will appear on Sky Business at noon, Lunch Money.
 

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: Don’t Mention the R-Word

By Greg Peel

The Dow closed down 295 points or 1.8% while the S&P lost 1.9% to 1903 and the Nasdaq fell 2.2%.

The Lucky Country

The euphoria generated by the drop in Japan’s cash rate into the negative, representing boosted stimulus, has clearly worn off. Global investors have perhaps realised that while stimulus has seemed like a saving grace since the GFC, one might just want to focus on why the BoJ was forced to take such a drastic measure.

Meanwhile, China continues to slide, particularly if one focuses on manufacturing, the numbers out of Europe have proven disappointing despite beefed up ECB stimulus, and the US growth rate fell to 0.7% from 3.9% over the last six months of 2015.

It’s not a rosy picture. And one would assume that the flow-on of above problems into Australia would prove rather dire, given the important trading partnerships involved. But…

“In Australia,” noted RBA governor Glenn Stevens in his monetary policy statement yesterday, “the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued. Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average. The pace of lending to businesses also picked up.”

That statement was worth over 30 ASX200 points to the downside last yesterday. The market had opened lower but by 2pm was steadying and perhaps looking for a reason to rally. Any hopes of the RBA joining in a monetary race to the bottom in order to further stimulate the Australian economy have been dashed, at least for the time being.

But at least inflation remains low, as the governor noted. Thus there remains “scope for easier policy”, should that become appropriate.

In the market proper it was another tough day for the resource sectors. The overnight plunge in oil prices unsurprisingly sent the energy sector down 3.2%, while any hopes of a positive day for materials thanks to a dollar jump in the iron ore price gave way to the news Standard & Poor’s had downgraded the credit rating of BHP Billiton ((BHP)) and put the company on negative watch.

Oh how the mighty have fallen.

Getting it Wrong

US forecasters made two major calls at the beginning of 2015. One was that lower oil prices will boost consumer spending. The other was that the US ten-year bond yield will run up towards 3% as the Fed begins to raise its cash rate.

US consumer spending remains tepid at best. Last night the US ten-year yield fell 10 basis points to 1.86%. It’s a far cry from the 2.30% seen around the time Fed rate rise speculation was at its peak. Forecasters have underestimated the impact of an oil price that is 70% lower over two years. The impact is not just on oil producer bottom lines but on the many and various industries that service the vast US energy sector, and on the thousands of jobs therein, and, quite simply, on sentiment.

Last night two of the biggest energy names – Exxon and BP – posted earnings result shockers. And announced mass lay-offs. Independently, West Texas crude fell another 5% last night. Global supply cuts? Forget it. And for the second session in a row, the US natural gas price fell 6%.

Those incorrect forecasts have weighed heavily on the US financial sector. Wealth management divisions (and the issue is the same in Australia) are having a very rough time of it. Banks make money when interest rates rise, and late last year investors piled into the US financial sector on the expectation of higher rates, courtesy of the Fed. In 2016 to date, the US financial sector has actually performed worse than the energy sector.

Last night Goldman Sachs also posted a shocker of an earnings result.

Weakness has been exacerbated by selling from sovereign wealth funds across the globe. The funds of oil producing nations, in particular, have been rapidly seeking cash. Even Australia’s Future Fund has shifted to a record level of cash. Such weight of capital is hard to fight against.

The low US bond rate reflects not only a weaker US economy in isolation, but the differentials between major global economies. The benchmark German bond rate is heading south again. Japan’s cash rate is now negative. It’s no wonder Australian economists are assuming the RBA will simply have to cut eventually. But clearly, not soon.

If there is good news, it would be that the liquidation underway will be finite and take global stocks down to levels of greater perceived value. In other words, the dip-buyers will be on the lookout. In the meantime, talk of a global recession is growing in popularity on Wall Street.

Commodities

West Texas crude is down US$1.47 or 4.7% at US$29.96/bbl. Brent is down US$1.433 or 3.9% at US$32.71/bbl.

LME movements continue to be mixed ahead of the Chinese New Year break. Last night aluminium, copper, nickel and tin were down 0.5-1.5% while lead and zinc rose 0.5-1.0%.

[Did you watch Catalyst on the ABC last night? Zinc might be an interesting call for the future.]

Iron was higher once more, up US60c to US$43.10/t. Again, we need to take the New Year effect into account before getting too excited.

Gold is steady at US$1128.40/oz with the US dollar index down 0.2% at 98.82.

The interesting move over the past 24 hours has been in the Aussie. One would assume Glenn Stevens’ rather hawkish monetary policy statement would have sent the Aussie higher on the assumption any rate cut is a while off. Indeed, the Aussie did spike up at 2.30pm yesterday, but only for a blink. It then proceeded to fall sharply and is now down 0.8% at US$0.7049.

Perhaps the forex market has focused on “…new information should allow the board to judge…whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand”, in the last paragraph of yesterday’s statement.

Perhaps the forex market is saying “Yes it will”.

Today

The SPI Overnight closed down 68 points or 1.4%.

It’s service sector PMI day across the globe today, including Caixin’s read on China’s number.

Australia will also see building approvals and trade numbers.

In the US, the ADP private sector jobs report will be closely watched ahead of Friday’s non-farm payrolls release.

Rudi will make his first appearance for the year on Sky Business tonight, hosting Your Money, Your Call Equities, 8-9.30pm. He's bringing along a special guest.
 

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