Tag Archives: Iron Ore

article 3 months old

The Overnight Report: Caution

By Greg Peel

The Dow closed up 6 points while the S&P lost 0.1% to 2050 and the Nasdaq was flat.

Optimistic

It was an extraordinary day on Bridge Street yesterday considering just how weak markets were locally, and globally, heading into last weekend. It would be easy to say the 2.3% surge was a typical rebound out of the prior terror-related panic sell-off, but there was no such sell-off. The ASX200 traded down on Monday but recovered the 5000 technical level by day’s end.

There followed flat markets in Europe and a strong session on Wall Street and somehow the Paris attacks have acted counter-intuitively – as a reason to buy. But yesterday was not just one simple surge on the open for the ASX200. There was an opening pop but thereafter it was a steady upward trajectory throughout the session, aided by a round of local economic optimism.

The minutes of the November RBA meeting, released yesterday, were decidedly, if not cautiously, upbeat. “Moderate economic expansion had continued,” the board noted, and “the prospects for an improvement in economic conditions had firmed a little over recent months”.

The board also seems now quite content that the housing bubble has subsided but did give a nod to the “relatively high unemployment rate” as suggesting spare capacity in the economy would linger. The meeting was of course held before the release of the startling October jobs numbers.

The hawkishness contained in the minutes would appear to put paid to any rate cut speculation, although the board did reiterate that the inflation outlook still offered “some scope for further easing”. Call that the put option that provides the downside hedge for an upside trade on the Australian economy.

At Commonwealth Bank’s AGM, held yesterday, the CBA chairman declared the bank was optimistic about the transition away from the mining investment boom, albeit acknowledging it would take some time. ANZ’s chief economist weighed in, on the release of the weekly ANZ-Roy Morgan consumer confidence survey, suggesting that the recent trend provided “a good sign ahead of the critical Christmas season”.

And of course overnight, oil prices had rebounded strongly. There was thus a little bit for everyone yesterday – energy rallied 3.7% (although oil prices were right back down again last night), the banks rallied 2.3% and consumer discretionary rallied 2.7%. But gains were solid across all sectors nonetheless. It was a session in which the most popular stocks were the least popular of the previous weeks and months – the likes of BHP, Santos, Woolies and Telstra.

While there was an Australia-specific element to yesterday’s local surge, the macro influence of post-Paris buying nevertheless underscored and flowed across the globe. The Japanese and Hong Kong markets were both up 1.2%. London was up 2.0%, Germany 2.4% and France, the centre of attention, jumped 2.8%.

In Europe there is no doubt an expectation that if the ECB had harboured any doubt about extending QE, Paris snuffed those out. News of French fighter planes launching an all-out attack on IS, with Russia now also redirecting its attention to IS, is also likely a source of revenge-fuelled optimism.

Jittery

But none of the above means Europe, and the world, is not on edge. Wall Street opened strongly again last night, buoyed by a positive CPI reading, but when the Dow was up over 100 points news came through after the close of the European markets that a football stadium in Hanover, where Germany and the Netherlands were set to play a friendly in front of Angela Merkel, had been evacuated and the game cancelled.

It was all about a suspicious suitcase and came to nought, but it was enough to turn Wall Street around and send the indices back to flat closes. Oil prices fell back again, which also helped to sour the mood.

The US CPI rose in October for the first time in three months, up 0.2%. The annual rate remains a paltry 0.2% but that’s all about oil prices. The core CPI, ex food &energy, also rose 0.2% in the month but is up 1.9% annually, just shy of the Fed’s 2% target.

There is nothing in these numbers that would stop the Fed raising next month.

Wall Street was also surprised by some very strong earnings results from Dow components Wal-Mart and Home Depot. We might say Wal-Mart is a supermarket on steroids and Home Depot is Bunnings on steroids, and given the sort of crowds one sees at such hardware-houses on weekends we could arguably call both consumer “staples”.

The 4% share price jumps both stocks enjoyed would reflect some return to confidence in the US consumer in the wake of shocking results from US department stores, representing consumer “discretionary”, but also representing “obsolete model”.

Overhanging Wall Street is nevertheless the rising US dollar, which was up another 0.2% last night to 99.59 on its index as the euro continued its fall.

Commodities

It appears the geopolitical element which sparked a rally in oil prices on Monday night was no more than a short-covering snap-back. Last night oil markets were back to worrying about just what the upcoming weekly US inventory data would reveal and prices fell all the way back from where they had bounced to. West Texas is down US$1.33 or 3.2% to US$40.73/bbl and Brent is down US$1.29 or 2.9% to US$43.58/bbl.

The US CPI data did nothing to gladden the hearts of metals traders, given Fed rate rise and strong greenback implications. On the LME, only aluminium was spared last night as copper, lead and tin fell around half a percent while nickel fell 2% and zinc fell 3%.

Iron ore fell 3% as well, down US$1.50 to US$45.80/t.

Gold fell US$10.30 to US$1071.60/oz.

The Aussie did not much move during yesterday’s session, so its 0.4% increase from this time yesterday to US$0.7119 is not about the RBA minutes and is in defiance of the stronger US dollar. Maybe offshore forex traders took over the RBA trade.

Today

The SPI Overnight closed down 24 points or 0.5% which is to be expected given yesterday’s surge and the fall in commodity prices overnight.

Locally we’ll see September quarter wage price data today in the lead-up to our GDP result in early December. Tonight it’s the Fed’s turn to release minutes.

Orica ((ORI)) will release its FY15 result today amidst a very busy day of AGMs.
 

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article 3 months old

The Overnight Report: Aujourd’hui Je Suis Un Parisien

By Greg Peel

The Dow rose 237 points or 1.4% while the S&P gained 1.5% to 2053 and the Nasdaq added 1.2%.

Resilience

Wall Street was accelerating to the downside when it closed on Friday night and commodity prices were all again mostly lower in that session, ensuring the local market would be under pressure yesterday morning. The Paris attacks added an additional level of expected downside.

But the world, it seems, has become inured to terrorist attacks and no longer reflects global fear through stock market sell-offs. History shows that such terror events initially prompt market sell-offs before recoveries that are swift and solid. This time around the world has decided the initial sell-off is the unnecessary part.

The ASX200 plunged 72 points from the open yesterday. The SPI futures had closed down 37 points on Saturday morning so the balance could be considered the Paris effect, but the index very quickly rebounded.

On a technical basis, the breach of 5000 brought in the buyers at least to some extent, with almost all sectors ultimately finishing in the red. The industrials sector (-1.3%) was one of the hardest hit, as therein lies all manner of companies connected to overseas travel and tourism. But a large part of the rally back to a less ominous close can be attributed to energy (+1.6%). On expectation the war against IS will intensify in the Middle East, buyers were no doubt anticipating a bounce in oil prices.

The index closed right on the pivot point of 5000, waiting to see what might transpire overnight.

Meanwhile Japan released its September quarter GDP result yesterday which showed a 0.8% year on year contraction, confirming that Japan is yet again in technical recession. The June quarter saw 0.7% contraction. While the result is another thorn in the side of Abenomics, and underscores just how significantly Japan’s earlier sales tax increase has hit an economy 60% reliant on consumption, economists are confident the December quarter will provide a bounce-back given improvement in more recent data releases.

Defiance

Tourism represents some 7% of French GDP, and already airlines and travel companies are offering refunds to those having planned trips to France. Fashion and high-end retail are also a major beneficiary of tourists to Paris. The French stock market plunged on the open last night but very quickly recovered to a flat close. Ditto the German market, while the London market fell briefly before rallying 0.5%.

Wall Street never blinked. It was a stumbling start, but buyers came in on a steady trend all session to a solid close. Commentators were surprised, expecting at least some fearful reaction in the country most likely to see terrorist events. The response was made even more surprising by the two steep falls on Thursday and Friday and Friday’s very weak close, which suggested the US indices could be in for more selling this week.

Wall Street also shrugged off another weak reading for manufacturing in the New York Fed region, with the Empire State index coming in at minus 10.7 from minus 11.4 last month when economists had forecast improvement to minus 6.5.

Traders also ignored a stronger US dollar, which is up 0.5% on its index to 99.39 on a typical safe haven trade. The strong greenback is a major factor in US September quarter earnings showing negative growth for the second consecutive quarter and negative revenue growth for the third. The stronger dollar also impacts on commodity prices, and for the US the most important commodity is oil.

Trouble in the Middle East? Oil would typically rally. But then IS has been in operation for some time now and oil prices have been retesting lows. Thus oil prices actually fell on the open on Nymex last night.

Then news came through US air strikes had begun targeting IS oil truck convoys. West Texas crude turned around on the news and rallied strongly, supporting stock indices.

Commodities

West Texas is up US$1.29 or 3.2% at US$42.06/bbl and Brent is up US$1.26 or 2.9% at US$44.87/bbl.

In earlier times one would expect a rally in gold as the haven against all things geopolitical. Those days are gone however, and if anything gold tends to be sold off at times of crisis in order to cover margin calls on plummeting stock positions. But stocks did not plummet and while gold did see some buying earlier on, it is currently flat at US$1081.90/oz.

The stronger greenback provided a headwind, as it did for base metal prices.

Sentiment is already at a low ebb on the LME. The Paris attacks, the stronger greenback, the Japanese recession and a weaker than expected reading on US manufacturing did nothing to brighten the mood last night. Copper was slammed, down 2.2%. Zinc fell 2%, aluminium and nickel fell 1.5% and lead and tin fell 1%.

Iron ore fell US10c to US$47.30/t.

The Aussie is down 0.5% to match the greenback’s rally, at US$0.7093.

Today

The SPI Overnight is up 66 points or 1.3%. We shall overcome.

The minutes of the November RBA meeting are out this morning and economists will be looking for clues, but the meeting pre-dated the astonishing October jobs report.

The US October CPI is out tonight, playing into Fed speculation.

AusNet Services ((AST)) will report interim earnings today while a large number of AGMs will take place across the country, including that of Commonwealth Bank ((CBA)).
 

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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

Sims’ Warning Shocks Brokers

-Medium term under scrutiny
-Lack of short-term catalysts
-Well placed for eventual turnaround
 

By Eva Brocklehurst

The going appears to be getting even tougher for Sims Metal Management ((SGM)). The company has issued a warning for first half earnings to only break even, also announcing a $230m write down at the AGM. The company expects earnings to return to FY15 levels by the end of FY16.

The AGM address was used to significantly re-base guidance to account for a materially weaker earnings outlook, Credit Suisse observes. This not only represents a material downgrade from just three months ago but also triggers alarm bells for brokers.

The severity of the downgrade is one such alarm, in Credit Suisse's view, as management appears to have been caught on the hop. While there is no denying declines in scrap prices exceeded expectations, the broker points out that evidence of the weak market was readily available at the results in August, when the company reiterated its guidance and earnings targets.

Moreover, Credit Suisse is frustrated by the lack of detail in this update, with the blame for the downgrade seemingly being attributed to the decline in ferrous prices, despite non-ferrous prices also being weak. What has occurred so far in FY16 is a large drop in ferrous prices and volumes to what the company calls "the new norm".

No comment was made about divisional or geographic performance. The broker's cautious outlook is based on the difficulty of identifying where a scrap recovery will come from in the near term.

JP Morgan now believes the medium term will come under scrutiny, especially as management did not reiterate its earnings target of $321m by FY18.  Management this time has opted to refer to making an acceptable return on capital. JP Morgan calculates this to mean earnings in FY18 will be more like $200m. The broker reduces its earnings estimates by an average of 51% for the next three years.

In the absence of scrap price appreciation or any other near-term catalysts, JP Morgan downgrades to Neutral from Overweight. Target is lowered to $8.65 from $11.90. Citi has followed suit with a downgrade to Neutral from Buy, and a target cut to $8.30 from $12.20.

Other brokers have also severely trimmed targets on the news. Macquarie observes the significant reduction in intake volumes on the back of sharp falls in scrap prices was expected to some extent, but the impact on Sims Metal has been worse than expected. In the current environment Macquarie believes the company's strong balance sheet and network are key differentiators and as 2016 gets underway its outlook should improve, aided by better conditions in the US market.

Feedback from the ground suggests to Macquarie that many US traders are choosing to retain full yards as they await better markets.The main challenges in that regard the broker foresees is that export markets from the US will depend on the displacement of Chinese exports of steel. There would be a benefit to scrap dynamics if this supply was curtailed in any way but the broker is not confident enough to factor this into its base case.

A more positive aspect of low prices for Sims is that small players have no incentive to collect scrap and larger players are better placed to offer services to large industrial scrap suppliers. Macquarie is content to retain an Outperform rating while lowering its target to $8.90 from $12.60. Deutsche Bank believes the negatives are factored into the current share price and, despite the disappointing downgrade, sticks with a Buy rating.

Deutsche finds some evidence of delivery on improvements in operations but does not believe this is the last of the asset write downs and more might come from the central region of the US. The closure of some of the facilities in this region makes sense to the broker as the company should be focused on the more profitable export markets.

The forecast bottoming of the iron ore price at US$45/t implies a scrap price of US$153/t, the broker calculates. Historically, Deutsche Bank highlights the correlation between iron ore and scrap prices is 92%.

UBS understands that two facilities in Chicago have already been shut in with restructuring to be completed by June next year. The company expects after its latest restructuring initiatives it will finish FY16 at an annualised earnings run rate equivalent to FY15. This implies earnings of $240m, in UBS' calculation. The broker's FY18 estimates are more around $145m, which assumes no improvement in scrap volumes or ferrous prices over the next two years.

UBS finds little visibility in the future earnings capacity of the company, given the tough conditions, but retains a Buy rating on the basis that Sims Metal is net cash and well placed for an eventual cyclical turnaround in earnings.

Morgan Stanley notes that the central American region remains the most challenged and likely driver of the downgrade. The broker expects this is the area where the majority of closures and write-downs are occurring. As management is now talking about an acceptable return on capital rather than a FY18 earnings target, on the revised asset base, Morgan Stanley calculates this equates to a 15% downgrade to consensus expectations.

The broker expects any improvement in demand or supply side metrics should drive out-performance and, should scrap prices stabilise in the next few months, supply side weakness may ease.

Ahead of the announcement the consensus target on FNArena's database was $11.97. It is now $8.91, suggesting 25% upside to the last share price. Targets range from $8.36 (Deutsche Bank) to $10.45 (Morgan Stanley). There are five Buy ratings and two Hold.
 

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article 3 months old

The Monday Report

By Greg Peel

Central Bank Tango

Wall Street was upset on Thursday night that Janet Yellen did not take the opportunity in a speech to provide more clarity on a December Fed rate hike in the wake of the very strong US jobs numbers. So stock markets were sold off on uncertainty and frustration.

But commodity markets are more certain and see a real threat in the dichotomy that is opening up across the globe regarding monetary policy. Commodities are traded in US dollars, and the Fed is set to raise, thus boosting the US dollar. With the exception of the UK, where the BoE is still holding back on a rate rise, every other major economy is looking at further stimulus. The eurozone will extend QE in December, China will continue ongoing stimulus measures and the BoJ is expected to be forced into extending QE anytime soon.

Thus we have the problem of commodity prices falling both on weaker demand from struggling economies, a rising US dollar, and on overriding global oversupply issues.

Falling commodity prices were always going to be the factor for the local resource sectors on Friday and so it was materials fell 2.2% and energy 3.5%. Within those sectors we also have the individual issues of BHP, the tragedy in Brazil and its share price being front page news, and Santos, its balance sheet issues and just what the company is planning to do.

A stronger US dollar means a lower Aussie dollar and that is good news for the Australian economy but not for offshore investors in the near term. If the Fed does start raising then the Aussie is destined to head into the sixties. As US investors lose on the falling currency, they are best to get out now and get back in when the currency has adjusted and yields are even more attractive.

Every sector took a beating on Friday.

Euro Woes

The attacks in Paris were yet to occur when the first estimate of eurozone September quarter GDP was released on Friday night. It showed a slowdown in the pace of growth to 0.3% from 0.4% in June, missing expectations of a steady 0.4%. Year on year growth is 1.2%.

The “miss” was blamed on Germany, which posted the same 0.3% growth when 0.4% was expected. France managed 0.3%, as expected. For major exporter Germany, the slowing Chinese economy is having a significant impact.

Expectations that the ECB will announce an extension to QE in December are already largely baked in, and this GDP result only serves to underscore that assumption. The euro did fall on Friday, pushing the US dollar index up 0.3% to 98.93, and most believe the falls will continue toward parity.

European stock markets were also weaker on Friday night as the whole world adjusts to monetary policy imbalances, but as noted, the terrorist attacks in Paris were yet to come. European markets will have their first chance to respond tonight.

Retail Woes

The problem for the Fed is that the data in the US, outside of jobs, are not looking flash.

Retail sales grew only 0.1% in October when economists had forecast 0.4%. Lower oil prices were a factor, as were a drop-off in auto sale value from the month before, suggesting discounting. Ex of autos and energy, sales rose 0.3%.

Within the sector, the death of bricks & mortar retail continues. In the wake of an earlier poor result from Macy’s, Friday night saw a similarly weak result from JC Penney and a profit warning from Nordstrom, sending both share prices down 15% each.

US producer prices fell 0.4% in October when a 0.3% gain was expected. The core PPI, ex of food & energy, fell 0.1%.

Looking at these numbers in isolation, one would not be expecting the central bank to be considering tightening policy. Yet in contrast, the Michigan Uni fortnightly consumer sentiment index showed a rise to 93.1 from a previous 90.0.

Retail and resources led Wall Street lower on Friday night, in a continuation of the US dollar-related selling across the week. The Dow fell 202 points or 1.2% while the S&P lost 1.1% to 2023 and the Nasdaq fell 1.5%.

The broad market S&P500 has broken down through its 200-day moving average – a bearish signal – as Wall Street posted its worst week since early September. The S&P is now back to being down for the year.

Commodities

On Friday night the International Energy Agency published a forecast for global oil demand growth of 1.2m barrels per day in 2016, down from the 1.8mbpd run rate for 2015 to date. This year’s demand growth actually represents a five-year high, which just goes to show the impact of oversupply.

On that note, the US rig count rose by 2 last week, to 574. Doesn’t seem earth-shattering, but it is the first time in eleven weeks the count had risen rather than fallen. With oil markets already suffering weakness, it was no surprise that Friday night saw West Texas fall another US92c to US$40.77/bbl and Brent fall US66c to US$43.61/bbl.

WTI’s 8% price fall over the week is the biggest since March.

The LME opened on Friday night with yet more selling. If Chinese weakness and prospects of a rising US dollar aren’t enough, weak US retail sales and inflation numbers didn’t help either. But base metal prices have fallen low enough for some to start risking the contrarian trade. Prices recovered from session lows by the end of the day. Aluminium, copper and lead still closed mildly weaker but nickel, tin and zinc posted modest gains.

The slight tick-up in the iron ore price on Thursday night proved but a blip. Iron ore fell US40c to US$47.40/t on Friday night.

Gold was relatively steady at US$1182.50/oz.

The Aussie was also steady at US$0.7125 on Saturday morning.

The SPI Overnight closed down 37 points or 0.7% on Saturday morning.

The Week Ahead

Then came Paris.

The G20 leaders may be steeling their resolve in Turkey but the next 24 hours will indicate just what dent to global confidence the attacks will precipitate. On the 37-point SPI fall alone pre-attacks, the ASX200 will be looking closely at the psychological 5000 support level.

Japan will release its September quarter GDP result today. The Bank of Japan will hold a policy meeting on Thursday and the world is still assuming an extension to QE must be a possibility as a counter to Europe and China, with a Fed rate hike being the swing factor.

The US will see the Empire State activity index tonight, housing sentiment and industrial production tomorrow night, and housing starts on Wednesday. The minutes of the October Fed meeting will also be closely scrutinised on Wednesday, ahead of the Philadelphia Fed activity index and Conference Board leading economic index on Thursday.

Australia sees vehicle sales today followed by the minutes of the Cup Day RBA meeting tomorrow. At that point the ridiculously strong October jobs numbers were yet to be released.

On Wednesday the September quarter wage price index will be released, commencing the countdown to our own GDP result due in early December.

The AGM season sees a second big wave this week, with meetings to be held by the likes of Commonwealth Bank ((CBA)) and a shell-shocked BHP Billiton ((BHP)), along with a struggling Myer ((MYR)) and a whole lot of others to boot.

AusNet Services ((AST)) will report interim earnings tomorrow, Orica ((ORI)) releases full-year earnings on Wednesday followed by interims for James Hardie ((JHX)) and Programmed Maintenance ((PRG)) on Thursday.

Rudi will appear on Sky Business on Thursday at noon and again between 7-8pm for the Switzer Report, and potentially again on Friday's Your Money, Your Call - Bonds (not confirmed as yet).
 

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: Clueless

By Greg Peel

The Dow fell 254 points or 1.4% while the S&P lost 1.4% to 2045 and the Nasdaq dropped 1.2%.

Seriously?

There are lies, damned lies and statistics. Economists are not quite sure which category yesterday’s local October jobs numbers fit into.

“While a positive update on the labour market is welcomed,” said ANZ, “we are very cautious about taking this month’s number at face value”.

“We are always wary of reading too much into the monthly labour force ‘lottery’,” said Westpac, “but even looking through the noise it’s hard not to conclude that current labour market conditions in Australia are strong”.

“Believe it or not,” said CBA.

The ABS suggests 58,600 new jobs were added last month, which would make it one of the biggest monthly job increases since Federation. Economists are being polite, but really the mood is one of this result being about as likely as a rank outsider winning the Melbourne Cup with a girl in the saddle.

Oh wait…

CBA puts forward a largely consensus view that this big jump represents a statistical swing following a couple of months of weakness, and that if we smooth out the numbers we’ll find Australia’s job growth trend to running at around 17k-20k per month. The unemployment rate fell to 5.9% in October but CBA expects it to oscillate around the 6% mark for a while yet.

Either that, or five minutes into the job Scott Morrison has proven to be an absolute genius.

Skittish forex traders are always prepared to take anything at face value, nonetheless. The Aussie is up 0.9% at US$0.7125 on the assumption any notion of another RBA rate cut was put to the sword yesterday. They could just as quickly change their minds tomorrow.

Yesterday’s flat close for the ASX200 also reflected the same assumption. Utilities, telcos and consumer staples – all yield stocks – finished in the red. The banks were up because although they are yield stocks, banks benefit from rising rates. Elsewhere it was a bad day for resources, with energy capitulating 3.2% and materials down 1.1%.

The story for those two sectors did not get any better overnight.

Commodities

ECB president Mario Draghi last night told the European parliament he did not see eurozone inflation recovering to the central bank’s target zone in the time previously assumed. Markets took this comment as code for “We will be extending QE in December”.

By rights such a comment should spark weakness in the euro, but the euro has already largely adjusted for such an expectation and last night no less than five Fedheads were providing their two bob’s worth across the Pond. Of the five, two were hawkish, two were dovish and one said nothing at all about a December rate hike or otherwise.

That was Janet Yellen. Is it any wonder Wall Street is in a pique of frustration over a central bank that publically spouts disagreement or clams up when the world is expecting some guidance? The lack of commentary from Yellen was taken by the market as a sign that perhaps there won’t be a rate rise in December. At every other public outing recently, Yellen has reiterated her expectation of a rate rise “this year”.

Thus the US dollar index pulled back a bit last night, down 0.3% to 98.65. But whatever the timing of said rate rise, commodity markets know it will eventually come. They also know the ECB will ease further. Put the two together and they both mean a strong US dollar ahead, and that means that without any noticeable pick-up in global demand, commodity prices must go lower.

Zinc fell 1% on the LME last night, aluminium, copper and tin all fell around 1.5% and nickel fell 3%.

Iron ore actually rose US10c to US$47.80/t. There is likely some support being offered by the tragedy in Brazil and subsequent loss of production.

West Texas crude fell US$1.39 or 3.2% to US$41.69/bbl and Brent fell US$1.65 or 3.6% to US$44.27/bbl.

Gold has already taken the hit, so it’s only down another dollar to US$1083.50/oz.

Stay Out

Weakness in commodity prices, particularly oil, was a major driving force behind Wall Street’s fall last night. But so was the Fed.

Many a commentator has been perplexed of late as to why Wall Street has been going either up or down on rate rise/no rate rise speculation of late and simply not being consistent. Is good news bad news or is good news good news? The answer seems to be different each time.

The real answer is that Wall Street simply does not care about a paltry 25 bip hike. Good God Almighty, can they just make up their minds and end the uncertainty. Uncertainty is the enemy of stock markets. Commodities aside, that is why the Dow fell 250 points last night.

Today

The SPI Overnight closed down 69 points or 1.3%.

The eurozone will see a first estimate of September quarter GDP tonight.

Retail sales will be the major release in the US, along with consumer sentiment and the PPI.

Spare a thought for Santa, who one minute is packing all the presents in the sleigh and the next minute is taking them out again.

The original “Santa Rally”, when first coined, referred specifically to a tendency for Wall Street to rally after Christmas Day and into the new year. These days the Santa Rally seems to have been extended to begin in November. We’re certainly not getting one right now, but will we get one at all this year?

We recall that 2013 was a year in which Wall Street spent the whole time agonising over Fed tapering – when it would begin. Sound familiar? Many a commentator suggested in 2013 that the then long awaited Wall Street correction would surely come the day the Fed announced a start date.

Commentators have spent all of 2015 suggesting a correction would come when the Fed announced its first rate hike, but we had a correction anyway. The day in December 2013 when the Fed announced the commencement of tapering, Wall Street initially fell. The next day it started rocketing, and did not stop until early 2015.

Santa no doubt has a big circle around December 16 on his calendar. Let us only hope the Fed brings the egg nog.
 

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: Armistice

By Greg Peel

The Dow closed down 55 points or 0.3% while the S&P fell 0.3% to 2075 and the Nasdaq lost 0.2%.

Confident

The local market opened yesterday on news Australian consumers are feeling rather confident. Westpac’s consumer confidence index for November showed a 3.9% lift to 101.7, the highest level since May.

Within the components of the index, the biggest rise came from expected economic conditions in the next five years. Is this the so-called Turnbull Factor at play? The weakest result was in family finances compared to a year ago, but this is likely the impact of the banks’ out-of-cycle mortgage rate increases.

Whatever the case, retailers will be relieved to know confidence is on the optimistic side of the ledger as we head into Christmas. The most relevant sector here is consumer discretionary, which we recall on Tuesday fell heavily following the apparent tip-over of housing finance growth numbers. Consumer discretionary was up 0.6% on the session but this was not a stand-out result, merely in line with the overall index movement.

It was a very choppy session on Bridge Street yesterday, highlighting indecision amongst investors as we head towards the summer break. Twice the index rallied before turning tail and threatening to go negative, until finally the buyers won on the day. The BHP factor still hangs over the materials sector, which was down 1%, but otherwise all other sectors posted roughly similar gains.

It should have been a session in which China’s monthly data dump played a part, but for some reason Beijing decided it would release those numbers not at midday, our time, as has always been the case, but at 4.30pm, after Bridge Street’s closing bell.

Tentative Signs

China’s October industrial production showed 5.6% year on year growth, down from 5.7% in September and missing expectations of 5.8%. Fixed asset investment rose 10.2% year to date, in line with September but below 10.3% forecasts.

That was the bad news, before a backdrop of Beijing’s stimulus measures to date.

The good news was 11.0% growth in retail sales, up from 10.9% in September and marking the fastest pace of growth since December 2014. It is no secret China’s industrial sector is still struggling from overcapacity that Beijing seems reluctant to address, but given Beijing’s goal of swinging the Chinese economy around into one of consumption, this retail sales number seems a positive step down that path.

Further evidence of the rise of the Chinese consumer was provided yesterday by much talked about “Singles Day” – a reference to the date, 11/11. Singles Day is an online shopping spree along the lines of Cyber Monday in the US when online retailers offer discounts on their products and shoppers go nuts. It was introduced by Alibaba, China’s eBay, in 2009, and the closest thing we can compare it to in Australia is the bricks & mortar Boxing Day frenzy.

Singles Day turned over US$14bn yesterday, up from US$9bn last year.

Thin

By contrast, US department store icon Macy’s posted its quarterly earnings result last night and missed on the revenue line, resulting in a 14% share price shellacking. The company blamed the strong US dollar for lower sales to tourists and an unseasonably warm autumn crimping winter-wear sales, but failed to acknowledge the slow demise of the bricks & mortar department store globally.

There is little likelihood the digital age will usher in the death of beer, so the positive news on the night was an agreement between Anheuser-Busch InBev and SABMiller, two of the world’s biggest brewers, to merge, no doubt pending approval from relevant competition regulators.

These were about the only talking points last night in a session where US banks and the bond market were closed for Veterans Day and stock and commodity market attendance became optional. There were no data releases to speak of, volumes were thin, and without any particular incentive at present, the indices drifted lower. Mostly on lack of interest.

Commodities

Oil markets are “surprised” every week by weekly US inventory data, and I think John D. Rockefeller was the last person to actually make a correct forecast. But last night two separate surveys had the oil markets expecting a 500,000 barrel increase in US crude supplies or a 1.1m barrel increase, so when the number came in at 6.3m barrels the only way for oil prices to go was down.

West Texas is down US$1.15 or 2.6% at US$43.08/bbl and Brent is down US$1.59 or 3.4% at US$45.92/bbl.

The oils fell despite some respite from the US dollar, which has pulled back 0.3% to 98.95 on its index.

The weaker dollar was welcomed on the LME, which was otherwise disappointed in the weak Chinese industrial production and fixed asset investment numbers. The market remains very short, so gains were actually seen in all bar lead, while zinc recovered a percent having fallen two percent the night before.

Iron ore is again unchanged at US$47.70/t.

A combination of the strong local consumer confidence numbers and a weaker greenback has the Aussie up 0.5% at US$0.7060.

Today

The SPI Overnight closed down 17 points or 0.3%.

The local October job numbers are out today, providing the first opportunity for new treasurer Scott Morrison to test out his spin credentials.

Amidst another flurry of AGMs, Graincorp ((GNC)) will release its full year result.

Rudi will make his weekly appearance on Sky Business, Lunch Money, noon-1pm.

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article 3 months old

Incitec Pivot Running On Ammonia

-Project economics attractive
-But fertiliser market is weak
-As is explosives demand 
 

By Eva Brocklehurst

Brokers have sniffed ammonia in the wind as Incitec Pivot's ((IPL)) outlook hinges on the plant currently being constructed in Louisiana, US. The company dodged mounting challenges in FY15, delivering earnings growth of 11%, with fertiliser a key contributor as production volumes at Phosphate Hill stabilised, while the weaker Australian dollar lent a hand.

The company has confirmed its Louisiana facility is on budget and on track for first production in September 2016. The project economics remain attractive, brokers believe, as weakness in global ammonia prices is offset by a sharp fall in US gas prices. To Citi, despite the challenges in the company's end markets, this project and the potential cash flow is what the game is all about.

The underperformance of the share price following the results announcement is driven by the cautious outlook management offers, JP Morgan maintains. In particular,  with regard end markets for explosives in both the Americas and Asia Pacific. The domestic fertiliser distribution market also faces heightened competitive dynamics.

Still, JP Morgan remains positive on the stock, given the Louisiana commissioning will mark an end to a long period of elevated capital expenditure and generate a significant increase in cash flow.

Credit Suisse considers the company executed well in FY15 in the face of difficult markets for explosives and fertiliser. A tailwind from the Australian dollar helped, admittedly. The broker notes the company's improved disclosure allows the inclusion of a derivative offset to foreign currency denominated debt in its valuation for the first time and upgrades its rating to Neutral from Underperform.

The broker acknowledges that nitrogen and phosphate market fundamentals will become more difficult in the near term, and only correct on the back of additional supply cost inflation. Meanwhile, explosives earnings are not expected to improve in the near term as coal fundamentals remain weak.

The outlook is fraught, in Morgan Stanley's view, with an Underweight rating upheld. The broker maintains that core earnings drivers are deteriorating, overshadowing the falling currency and the upcoming start of the Louisiana plant. The broker expects downgrades to consensus earnings expectations will be forthcoming across FY16-18 and place pressure on the stock.

The pressure on the explosives industry is structural, Morgan Stanley also contends. Ammonium nitrate (AN) demand may now be in a permanent state of decline, as global growth shifts and pressure builds on bulk commodities and metals. Longer term, the broker surmises, new technologies have the potential to displace explosives and reduce bulk commodity demand. Meanwhile, supply of AN continues to grow.

On the fertiliser front, conditions are also weak and the broker expects the El Nino weather pattern in the Pacific will result in poor agricultural conditions in Australia in FY16. The risks for both urea and diammonium phosphate (DAP) prices and volumes appear biased to the downside. Morgan Stanley expects the economics of the Louisiana plant, while screening well, will offer little offset to the weakness until at least FY17.

With management commenting that it will pursue capital management, Morgan Stanley incorporates a $500m buy-back across FY17-18 ,with the impact largely offset by increased net interest costs. Macquarie estimates a 10% buy-back would be 6.0% accretive at the current share price and considers November 2016 the most likely timing for such an announcement.

Macquarie also considers the positives outweigh the negatives and believes Louisiana should drive a step-change in earnings and related cash returns to shareholders. The main earnings growth driver in FY16 is likely to be the weaker Australian dollar, and one quarter's contribution from Louisiana. Earnings growth is then expected to accelerate to 37% in FY17 as Louisiana contribute for a full year.

The broker acknowledges that fertilisers were weak in FY15 but cites the company's expectations of a partial improvement in margins, given urea stock levels are back to normal. That said, Macquarie concurs that the El Nino development makes guidance for volumes optimistic but also believes the impact is likely to be small.

The outlook may be challenging but for Deutsche Bank the key earnings drivers are intact while UBS also finds value in the medium term as the stock offers an annual free cash-flow yield of 12% and a 5.0% dividend yield on forecasts two years out.

The result was weaker than Morgans expected, the market conditions challenging and earnings forecasts have been revised lower. Still, the cash cow promised at Louisiana and the prospect of capital management keeps the broker on a Hold rating.

FNArena's database contains five Buy ratings, two Hold and one Sell (Morgan Stanley). The consensus target is $4.20, suggesting 14% upside to the last share price. Targets range from $3.45 to $4.50. Thedividend yield on FY16 estimates is 3.6% and on FY17 5.1%.
 

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article 3 months old

The Overnight Report: Deliberation

By Greg Peel

The Dow closed up 27 points or 0.2% while the S&P gained 0.2% to 2081 and the Nasdaq fell 0.2%.

House of Cards

Much has been made in the popular press of the OECD’s downgrade of its forecast GDP growth rate for Australia in 2016 to 2.6% from a previous 3.0%, reflecting slower Chinese growth. The reality is that organisations such as the OECD, IMF and World Bank tend to run a good six months behind the curve. Last week the RBA tightened its own forecast for FY16 to 2.25% from an earlier forecast band of 2.0-3.0%, and tightened its FY17 band to 2.75-3.75% from an earlier 2.5-4.0%.

Give it another six months and the OECD might catch up. Local economists are constantly reviewing their forecasts so the bottom line is yesterday’s OECD numbers would have had little impact on the market.

Critical to Australia’s GDP growth, ahead of the impact of the lower Aussie dollar finally flowing through to benefit non-mining sectors of the economy, is the housing construction boom. It alone has kept Australia out of recession over the past two years as mining investment and commodity prices have collapsed. Therefore yesterday’s housing finance numbers were something the market did pay close attention too.

The value of housing loans fell by 1.6% in September, to a lower annual rate of 12.4% growth. Owner occupier loans rose by 3.0% to be up 23.1% but the critical segment of investor loans fell by a whopping 8.5% to turn negative annually at minus 2.1%.

The party is over.

It is easy to point to tighter regulatory controls on investment lending, implemented by APRA, encouraged by the RBA and responded to by the banks with mortgage repricing, as the reason behind the peak in Australia’s investment housing boom. But realistically the tide was already turning, given property prices have been running away but rents have not been keeping pace. Mortgage repricing was just the straw that broke the camel.

Negative gearing might be the Holy Grail in Australia but it’s called “negative” because it simply means losing money. As the gap from rental yield to debt servicing obligation widens, the capital value increase required on the property to recover that negative cash flow becomes unrealistic. Either rents must rise (can you see the Chinese coming in and renting everything in Sydney?) or debt costs must fall (currently at historic lows, banks now in tightening cycle) or the investment is not economically viable at the price.

It is telling that the worst performing sector on the local market yesterday (outside a 2% fall for tiny info tech) was consumer discretionary, down 0.9%. The banks also came in for punishment, down 0.6%. The ASX200 did manage to stage a solid comeback on late buying, having been down 72 points mid-afternoon to close down only 20, but most of that buying was seen in the beaten-down resource, telco and consumer staples sectors. Consumer discretionary has very close links to Australia’s housing market.

It was a bumpy ride for the index yesterday, punctuated by the midday release of China’s October CPI. It fell to 1.3% annual from 1.6% in September, which had fallen from 2.0% in August. That’s bad news, but good news if bad news implies expectations of more concerted stimulus measures from Beijing. Bridge Street struggled to make up its mind over the implications, evidenced in index rocking and rolling through the afternoon but at least one big buy order late in the day reflected a mind made up.

The actual good news is Australian businesses otherwise believe conditions are very positive at present, thanks to low interest rates and a lower currency. NAB’s October business survey showed the conditions index steady at plus 9 – well above the long-run average of plus 1 and the best reading since the GFC. Confidence fell from the long-run average of plus 5 seen in September to plus 2.

Interestingly, the survey was conducted in the final week of October when substantial profit warnings were being issued by the likes of Dick Smith and Woolies, and the banks were posting disappointing earnings results and guidance. Home sales data was also released showing the first drop in however long. No wonder confidence was dented.

Yesterday’s late rally, which took us from an onerous looking 5050 back to a 5100 close, may indicate a willingness from buyers to pick up stocks above the 5000 level, but we’ve seen this movie before. Further weakness, and a drop through 5000, can take us down fast.

Whole lotta not much

There was not a lot going on on Wall Street last night beyond a few micro-specific issues. Traders are still trying to figure out if a December Fed rate hike is good or bad.

Lacking anything much else to focus on, traders were glued to the gripping saga that was McDonalds’ investor day. How is the all-day breakfast going? OMG, they’re going to change the recipe for the Egg McMuffin. (How does one fiddle an egg, and a muffin?) And they’re not going to spin off McDonalds’ property portfolio into a REIT, a la Woolies and Bunnings for example, downunder. Mickey D’s stock price went up and down all day with each new revelation.

Just goes to show what a lacklustre session it was. The other news was that Apple component suppliers were experiencing a slowing in demand. Apple shares thus kept a lid on the indices, despite this hardly being a surprise given aficionados always barrel in on Day One to buy new iThings, and sales always slow thereafter.

Tonight is promising to be even more lacklustre on The Street, given the Veterans Day quasi-holiday has US banks and the bond market closed and stock and commodity markets open.

Commodities

A technical breach was blamed for a sudden 2% price fall for zinc on the LME last night, while otherwise base metal movements were mixed and small. Copper fell half a percent and tin rose a percent.

Iron ore was unchanged at US$47.70/t.

The oils are both up US28c, to US$44.22/bbl for West Texas and to US$47.51/bbl for Brent.

The US dollar index is up 0.3% at 99.26 so gold is US$2.90 lower at US$1087.80/oz.

The Aussie is down 0.4% at US$0.7023, reflecting those weak housing loan numbers.

Today  

The SPI Overnight closed up 3 points.

Westpac’s local consumer confidence survey is out today but around midday we will see Chinese industrial production, retail sales and fixed asset production numbers for October, which will likely determine the direction of afternoon trade.

As noted, it’s a quasi-holiday in the US tonight.

On the local stock front, there are quite a few AGMs booked in for today while DuluxGroup ((DLX)) will report full-year earnings and Westpac ((WBC)) goes ex.
 

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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: Iron Ore, Major Miners And Thermal Coal

-Samarco impact on iron ore price muted
-Are major miner dividends sustainable?
-Upside for thermal coal in Japan limited
 

By Eva Brocklehurst

Iron Ore

The Samarco disaster confronting BHP Billiton ((BHP)), which has a 50% interest in the Brazilian joint venture with Vale, has put the spotlight on iron ore and raised further speculation as to what it might take to prop up prices.

Commonwealth Bank analysts note the bulk of Samarco pellet production is sold into the Atlantic basin where the pellet premium is more than twice that of China. They expect it will likely support pellet premiums, particularly in basin.

Otherwise, the impact in terms of the benchmark iron ore price is expected to be muted. Information remains scarce on when operations will return to production and the analysts suspect the idea that the market will lose 30mt may be premature. The larger issue, in the analysts' view, is if the accident leads to a broader review of mining practices in Brazil and/or the delay of the Vale S11D project, scheduled to come on line in September 2016.

Other catalysts which could drive iron ore prices are China's steel exports, which fell materially in October. If this leads to a greater reduction in steel production, prices could be supported but, equally, if output is resilient, prices may descend further. The analysts note, in any case, statistics suggest the mills are procuring less imported iron ore.

Delays to new projects could also be supportive. Iron ore from Australia and Brazil is likely to be the primary contributor to additional volumes next year. If the additional output is delayed this could support prices but the analysts also believe sticky local supply from China may counteract this.

A reduction in high-cost Chinese iron ore needs to be considered as capacity continues to exit on the back of low prices. Nevertheless, the analysts suspect this could be mitigated or delayed by a lower Chinese currency.

Eventually, Chinese product is expected to fall to around 150m tonnes, from current levels of 200-300mt, which would represent state-owned capacity or production that is integrated with Chinese steel mills.

Broad-based stimulus measures are considered unlikely, such as the Chinese government committed to in 2008, the analysts maintain. This is because of its strategy to broaden the economic base towards consumption and services.

Major Miner Dividends

Further to the iron ore supply story, speculation has also circled the sustainability of the major miners' dividend policies. Goldman Sachs contends that BHP Billiton and Rio Tinto's ((RIO)) policies are sustainable in the short term, out to 2018. Longer term, a re-basing of the level may be required.

The broker's analysis suggests the dividends are sustainable at around 20% of earnings, implying US60c a share for BHP and US$1.40 a share for Rio Tinto. This implies sustainable yields of 3.6% for BHP and 3.8% for Rio Tinto, broadly in line with the long-term average of 2.9%.

BHP is able to cover its dividend as long as oil remains above US$50/bbl and iron ore above US$50/t, the broker estimates, assuming a US$7bn capex bill. For Rio Tinto, the figures are iron ore above US$50/t and aluminium above US72c/lb on the basis of capital expenditure of US$4bn. Goldman estimates that capex could run below these levels over the medium term without significantly affecting production volumes, in order to pay the dividend.

Thermal Coal

Changes to Japan's energy policy have the potential to affect global demand for energy inputs, given Japan as a major economy has lacked the resources necessary and must import commodities to fuel its electricity and industrial sectors.

After the Fukushima disaster the nuclear sector is now re-starting and two reactors are in operation. The Ministry of Economy, Trade and Industry considers nuclear is currently the lowest cost generation technology in Japan. The government's new energy plan for 2030 spreads electricity generation broadly equal across LNG, coal, renewables and nuclear.

National Australia Bank analysts observe the scale of thermal coal demand in Japan is unclear, given differing views about long-term electricity requirements, and the optimistic official view of the nuclear sector. The analysts consider it unlikely any further reactors will be brought back on line soon but Platts analysis suggests between five and seven could re-commence in 2016.

Japan remains the major market for Australian thermal coal exports, accounting for around 40% in the 12 months to August 2015, and the analysts suspect growth prospects are likely to be limited. The Australian Department of Industry forecasts a fall in the volume of Japanese thermal coal imports to 2020.
 

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article 3 months old

The Overnight Report: Rough Take-Off

By Greg Peel

The Dow closed down 179 points or 1.0% while the S&P fell 1.0% to 2078 and the Nasdaq fell 1.0%.

Tragedy

A dismal day on the local stock exchange was led out by BHP Billiton, which posted a 5.6% drop on news of a fatal disaster at a BHP-Vale-owned iron ore mine in Brazil. Early estimates suggest the mine may be closed for several years and cost US$1bn in clean-up and legal costs.

It was never set to be a good day for the materials sector anyway, as evidenced by falls in iron ore mining stocks across the board. The weekend’s Chinese trade data showed a big fall in imports in general and iron ore imports in particular. To date the sector has seemed not too concerned over the gradual fall in the iron ore price to below US$50/t as this has been largely anticipated and costs have been cut in preparation. But the weak Chinese numbers have crystallised the reality. The materials sector fell 3.7% yesterday.

The energy sector saw a 2.5% fall but elsewhere across the index, the other concern is that of rising US interest rates. Friday’s strong US jobs number has led to expectations the Fed will definitely raise in December, and attention now turns to just how fast the pace of subsequent hikes will be.

For years the Australian stock market has largely been a story of yield, given the fall in commodity prices. The banks, telco and utilities and any stock paying a solid dividend have been supported by those seeking a return in a low interest rate environment. Rates don’t get much lower than zero, hence Australian stocks have been very attractive to US investors. As the interest rate differential between Australia and the US begins to narrow, that attraction is incrementally eroded.

Yesterday saw the banks and telcos each down 1.6% and utilities down 2.2%. Only one sector managed to close flat on the session and that’s healthcare – defensive more so from its undeniable growth story than from its yield.

A US rate rise also alleviates some of the pressure on the RBA to cut its own rate, given the subsequent impact on the Aussie dollar, which will disappoint those sweating on further RBA support.

The ASX200 was technically damaged yesterday. The close below 5140 and the promise of further weakness today suggests, on the charts, that 4700 is the next target.

Adjustment Period

History tells us that a period of “normalisation” – lifting rates back to more normal levels – following a period of easing is typically accompanied by a stock market rally over the first four rate hikes. While normalisation implies the winding down of central bank support, that winding down is an indication the economy is growing again and, in normal circumstances, that is good for a stock market. But that does not mean the initial adjustment is not a difficult one.

It has been over ten years since the Fed commenced a tightening cycle – 2004, following the tech wreck and 9/11. Many commentators have alluded to the fact that not only is there a large cohort of younger market participants who can’t conceive that “social media” used to mean one landline telephone on the hall table, and who can’t read analogue time, they have never experienced a rate rise. Thus if the first move in a tightening cycle requires a bumpy period of portfolio adjustment and a rethinking of strategies, this time around that adjustment may be even more bumpy.

Throw in the fact that the UK is still hesitating on a wind-back of its QE program, Japan may yet increase its QE program, the eurozone is certain to extend its QE program in December, and China is all but certain to enact further stimulus measures, including a potential further devaluation of the renminbi, and there is only one way the US dollar can go.

The stronger US dollar is already impacting on large US multinationals, as this latest round of earnings reports confirms. The US manufacturing sector had been managing to get back on its feet post GFC but it is now faced with less competitive pricing power. In short, a Fed rate rise may imply a stronger US economy but a surging US dollar means the economy is dragging a heavy weight along with it.

Wall Street was somewhat stunned on Friday night by the shock jobs number, and its implications. With the weekend to think about it (and throw in the weak Chinese data), last night saw the Dow fall by as many as 243 points by midday. The combination of the stronger dollar (albeit last night the dollar index came back off a tad to 98.96) and further signs of weak Chinese demand sent all commodity prices lower again.

Stocks have managed to regain some ground to the close, falling an even 1% across the major indices. The S&P500 has broken support at 2100.

Santa? Please phone home.

There had been talk, in the wake of Wall Street’s 8% rebound out of the August depths, back to the level from which it had fallen, that perhaps this year the Santa rally came early. That rally was aided by a return to stability in Chinese markets, boosted by ECB QE, and confirmed by two weak US jobs reports for August and September that left Wall Street certain the Fed would not be raising in 2015.

Now that all has to be rethought. Once the difficult adjustment period is over, perhaps then can Santa hop back on the sleigh.

Commodities

The US dollar index was slightly lower last night but the weak Chinese trade data ensured falls across the board on the LME. Aluminium, lead, nickel and zinc were all down over 1% while copper and tin posted smaller falls.

A sad reality of the tragedy in Brazil is that prolonged closure of the mine reduces global iron ore supply, and hence is supportive for the iron ore price. Iron ore is up US30c to US$47.70/t.

Weakness in oil prices continued, with West Texas down US49c to US$43.94/bbl and Brent down US37c to US$47.23/bbl.

There was some respite for gold thanks to the dip in the greenback. It’s up US$3.40 to US$1090.70/oz.

The Aussie is relatively steady at US$0.7052.

Today

The SPI Overnight is down 52 points or 1.0%. If accurate this implies a fall through 5100 for the ASX200 and a move towards tenuous support at 5000.

Australian housing finance data – a hot topic at present – will be released today. NAB will publish its October business confidence survey.

Beijing will post China’s October inflation numbers later today.

The local market will see earnings reports from Incitec Pivot ((IPL)) and Eclipx ((ECX)).
 

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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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