Tag Archives: Iron Ore

article 3 months old

The Monday Report

By Greg Peel

Struggling for support

Last week on Bridge Street was a week in which the ASX200 opened to the downside, before bouncing off 5150 and rallying strongly to 5300. That wasn’t to last, and down we came again, culminating on Friday in an early fall back to 5150.

Energy led the selling on the day, closing down 1.2%, while materials and the telco closed slightly weaker. But a recovery rally from mid-morning saw all other sectors finish in the green. Last week the index found support at the previous breakout level of 5200 but now it appears the number is 5150.

Friday was also a day of squaring up positions ahead of the weekend release of the US jobs report and Chinese trade data.

Job Shock

August was a shock, September was an even bigger shock, but nothing had prepared Wall Street for the shock to come in the October non-farm payrolls result. The difference was it was a shock to the upside. The US added 271,000 jobs in the month, some 100,000 more than consensus forecasts.

That’s the biggest increase in 2015 to date. The US unemployment rate fell to 5.0% from 5.1% in September, its lowest level since April 2008. But the big news was a sudden jump in wage growth to an annual rate of 2.5%. That’s the fastest pace since July 2009.

It is that number which now has Wall Street locking in a December rate hike from the Fed. The Fed appears to be itching for an excuse, and would have been rocked by the criticism it received for not raising in September. There is still the November jobs report to come, and October’s number may yet to subject to revision, but the futures market now has a December hike at a 70% chance.

The US dollar index jumped 1.3% to 99.17 on Friday night, so forex markets are pricing in a rate hike. Ditto the US bond market, where the ten-year yield rose 9 basis points to 2.33%.

As for the US stock market, well, confusion still reigns apparently. Not about whether or not the Fed will raise but about whether that’s a good or bad thing. The Dow closed up 46 points or 0.3% on Friday night and the Nasdaq was up 0.4%, but the broad market S&P was flat at 2099.

We recall that when the Fed did not raise in September, Wall Street fell sharply. Not because the market necessarily wanted to see a rate hike but because it simply wanted to end the uncertainty. Then when we saw two consecutive jobs reports that were shockingly bad, Wall Street decided it was now certain the Fed would not raise, and thus started buying on the basis of ongoing easy policy.

By rights thus, Friday’s jobs number should have had Wall Street selling again. But it didn’t. Why not? Probably because Wall Street would still just like to see this damned rate rise debate over and done with so we can move on. And at the end of the day, a good jobs report is economically positive. Thus there was a level of trade-off, and the best the S&P500 could do was nothing.

China Woes

There’s still not a lot of economic positivity coming out of China.

Yesterday’s October trade data from Beijing showed a 6.9% year on year decline in exports, down from -3.7% in September, and an 18.8% fall in imports – better than September’s -20.4% but still pretty bad. Within Beijing’s initial 7% GDP growth forecast for 2015 was a growth forecast for trade of 6%. Year to date trade is down 8%.

That’s in dollar terms, it must be noted, and so also reflects the big falls in commodity prices. Indeed by volume, imports fell only 2.6% in October. However raw materials were the hardest hit segment within that number, such that by volume, iron ore imports fell 12.3% and coal 21.4%.

The good news, if we can call it that, is that commodity prices really tanked towards the end of 2014. Thus the year on year numbers China will cycle from now should not look quite so bad.

Commodities

The Chinese trade release was yet to come when commodity markets closed for the week on Friday night, so it was all about US jobs and the big jump in the US dollar. In the end, nevertheless, falls were not that dramatic.

Base metal prices have been weak for some time on a slower Chinese economy and the prospect of a Fed rate rise, so the market has been well shorted. Copper fell 0.6% on the LME on Friday and nickel 1%, but the other metals were flat to higher and beaten-down aluminium posted a 1.3% gain.

The story is not dissimilar for the oils, although an US80c fall for West Texas to US$44.43/bbl again puts the benchmark below the long-running 45-50 range. Brent fell US37c to US$47.60/bbl. There was other news to consider for the oil markets nonetheless.

President Obama announced on Friday night the proposed Keystone pipeline from Canada all the way to US refineries on the Gulf would not be built due to environmental concerns. It is a blow to Big Oil’s hopes of creating a major US oil exporting industry. Aside from environmental issues, the question of America’s energy security is a consideration, as is the desire to keep domestic energy prices contained.

Coming back to the US dollar impact on commodity prices on Friday, the big loser was gold. It fell US$17.40 to US$1087.40/oz.

The Aussie dollar was the other big “loser”, falling 1.3% to US$0.7047.

And the iron ore price is down yet again, by US30c to US$47.40/t.

The SPI Overnight closed down 25 points or 0.5% on Saturday morning, ahead of yesterday’s Chinese data release. If the Fed is indeed going to start raising US rates, Australia’s yield plays start to become less attractive to US investors, and the RBA is under less pressure to cut its own rate.

The Week Ahead

China’s October data will continue to roll in this week. Tomorrow sees inflation data and Wednesday sees industrial production, retail sales and fixed asset investment.

It’s a quiet week for US data until Friday, and on Wednesday the Veterans Day holiday sees US banks and the bond market closed while stock and commodity markets remain open, albeit with lower volumes. Friday sees the PPI, retail sales, inventories and fortnightly consumer sentiment.

The eurozone will provide its first estimate of September quarter GDP on Friday.

In Australia, today brings the ANZ job ads series and tomorrow NAB’s business confidence survey along with housing finance data. Wednesday it's Westpac’s consumer confidence survey and on Thursday our own October jobs numbers.

After a brief dip in activity, the local AGM season starts to hot up again this week ahead of a rush towards the end of November.

On top of the AGMs, Incitec Pivot ((IPL)) will release full-year earnings tomorrow followed by DuluxGroup ((DLX)) on Wednesday and Graincorp ((GNC)) on Thursday.

Rudi will appear on Sky Business on Thursday at noon.
 

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: Waiting For Jobs

By Greg Peel

The Dow closed down 4 points while the S&P lost 0.1% to 2099 and the Nasdaq lost 0.3%.

Banked

Commonwealth Bank released its quarterly earnings report yesterday just as RBA governor prepared to warn bank shareholders at that upcoming global banking regulation is a “juggernaut” that is still growing in strength, threatening to undermine future bank returns. If the market thought this recent round of big bank capital raisings is the end of it, it is possibly in for disappointment.

Critical to bank capital requirements is the potential loss of the capacity to internally model loan book risk and set appropriate capital weightings, which seem set to be determined by international regulations. Locally, clarity is being sought on the Financial Systems Inquiry’s vague suggestion that the banks should be “unquestionably strong”.

It was not a good day for the banking sector yesterday, down 1.3%, albeit NAB went ex. The consumer sectors also fell over 1%, likely on a kick-on from Wednesday’s uninspiring retail sales numbers and a shrugging off by Glenn Stevens in his Melbourne speech of any need for the RBA to counter bank mortgage repricing with rate cuts. Meanwhile, the materials sector  (down 1.0%) is beginning to fear iron ore is not going to rise above US$50/t again.

Yesterday’s sharp sell-off for the ASX200 began from the bell and accelerated as the index again passed back through the 5200 support level, before a bit of late buying righted the ship just a little. The index still closed under support at 5193, suggesting “support” is rapidly becoming the wrong word to use. Wednesday’s failed rally was enough to keep buyers in their boxes for the most part.

Booked

In contrast to the RBA’s reluctance to cut rates at this stage, across the ocean the story is a different one with the Fed still trying to prepare the market, it would appear, for a December hike. Critical to that decision will be two months of jobs reports prior to the December FOMC meeting, and tonight sees the October numbers.

Wall Street thus all but shut down last night, having rallied back to near previous highs following the China scare of August to once again be poised where it had been when the year began, waiting for direction from the central bank.

With little else going on, last night’s centre of attention was Facebook, which rallied 5% after posting an earnings beat in Wednesday night’s after-market. This took the stock into illustrious company at a market cap of over US$300bn – bigger than General Electric.

CNBC had some interesting stats this morning: In 1995, the three biggest US companies were General Electric, AT&T and ExxonMobil. In 2015 its Apple, then daylight, then more daylight, then Google and Microsoft. Exxon comes in fourth. Facebook’s not far behind.

New world.

Commodities

On Wednesday night the talking point on Wall Street was confirmation by both Fed chair Janet Yellen and New York Fed president William Dudley that a rate rise in December is a “live possibility”. The US dollar subsequently rallied strongly, but most of the action occurred after the LME session had ended. Hence it was last night when metal traders were able to fully respond.

Copper fell 2.3%. Tin also fell over 2% while lead, nickel and zinc fell over 1% and aluminium managed to hold firm.

The US dollar has since held steady at 97.94.

Iron ore fell another US60c to US$47.70/t. How long before we begin seeing consolidation in the iron ore market, a la energy?

Oil prices also continued to slide last night. West Texas fell US$1.26 to US$45.23/bbl and Brent fell US79c to US$47.97/bbl.

Gold is also lower, down $3.20 to US$1104.70/oz.

It appears commodity markets are locking in a December Fed rate hike.

The Aussie is slightly lower at US$0.7142.

Today

The SPI Overnight closed down 11 points or 0.2%.

Now that we’re back below the 5200 mark and looking shaky, 5000 looms once again as support at the bottom of the previous range.

The RBA will release its December quarter Statement on Monetary Policy today, which will be one of the more closely read statements for a while.

Australia’s October construction PMI is out today.

China will release trade data on Sunday but before that, it’s the US jobs report tonight.

More AGMs today, REA Group ((REA)) will provide a quarterly update and ANZ Bank ((ANZ)) goes ex.
 

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

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

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article 3 months old

The Overnight Report: A Live Possibility

By Greg Peel

The Dow fell 50 points or 0.3% while the S&P lost 0.4% to 2102 and the Nasdaq closed flat.

Drift Off

The local market behaved yesterday as if it had just had a huge day out at the races and woke up still feeling a little drunk, before the inevitable hangover set in and by the afternoon it was time for a snooze on the couch.

The ASX200 was off to a flyer, well overshooting the small rise anticipated by the overnight futures. But 5300 appears to be the level to trigger selling at the top of this rebound rally, and so it was the index mostly drifted lower as the afternoon wore on and traders just looked forward to getting home for a sleep.

The surprise winner on the day was materials with a 0.9% gain despite iron ore prices now being entrenched under US$50/t, while at present each day seems to be one in which you either buy the telco or sell it and yesterday was a sell-day, with telcos down 1.2%. Other sectors all closed mostly flat.

There was a slight recovery from the drift around midday when Caixin’s take on China’s October service sector PMI showed a rise to a healthy 52.0 from September’s 50.5, implying there may finally be some signs of Beijing’s stimulus measures having an impact. But then the drift began again.

Australia saw a mixed bag of data releases yesterday.

September retail sales saw 0.4% growth, as was forecast, but there was disappointment in a revision of August growth down to 0.4% from a previously reported 0.7%. The annual rate of sales growth in September was 3.7% -- down from 4.5% in August and well below the long run average of 5.2%.

The September trade deficit was lower than expected, with exports rising 3.4% and imports rising 1.7%. Unfortunately the difference came down to higher iron ore prices in the month, and they have since fallen back again. But Queensland LNG is now beginning to contribute to the numbers, with plenty of upside ahead, and the signs are a long awaited recovery in tourism is underway thanks to the currency.

Australia’s service sector PMI fell to 48.9 in October from 52.3 in September, suggesting a flip back into contraction from expansion. Australia’ PMIs are nevertheless notoriously volatile.

All up the data did not really provide a reason to get excited, but the smaller trade deficit is probably another reason for the RBA to hold off for now.

Around the grounds, Japan’s services PMI rose to 52.2 from 51.4, the eurozone rose to 54.1 from 53.7, the UK rose to 54.9 from 53.3, and the US jumped to a surging 59.1 from 56.9.

The global service sector is alive and well, it would seem.

Going Live

The other major US data release of the day was the ADP private sector jobs report for October, which showed the addition of 182,000 jobs. The September ADP number was revised down to 190,000 from 200,000.

The result confirms a belief US jobs growth is now slowing from a more robust pace earlier in the year. Economists are forecasting 177,000 new jobs to be announced in the October non-farm payrolls release tomorrow night, up from 142,000 in September but below the 200,000 plus trend that has prevailed for the bulk of 2015.

The jobs numbers nevertheless took a back seat on Wall Street last night behind Janet Yellen’s testimony before the House Financial Services Committee. In her testimony the Fed chair reiterated that the risk to the US economy posed by slowing growth offshore had now diminished, and hence December will be a “live” meeting as far as a potential rate hike is concerned.

Once again we come down to the rift across Wall Street between those who do believe current US economic growth justifies a rate rise, those who don’t believe a rate rise is justified and thus don’t expect a rise, those who don’t believe it is justified but really hope the Fed just gets it over and done with, and those who do believe it’s justified but assume the Fed will vacillate yet again.

Take your pick. Wall Street’s response last night was to drift lower with a lack of conviction, on smaller volumes than the past two sessions which produced reasonable rallies.

There was a clearer move in the US dollar index nonetheless. Not only was Yellen sounding hawkish last night, Mario Draghi was reiterating his dovishness by defending the ECB’s willingness to extend QE. Both influences mean a lower EURUSD, hence the US dollar index is up 0.8% to 97.92.

Subsequently the Aussie is back down 0.6% to US$0.7152, post the RBA’s on-hold decision.

Commodities

A day after they were up 3.5% on global supply disruptions, oil prices were back down 3% last night on a combination of the stronger greenback and a sixth consecutive rise in weekly US crude inventories. West Texas fell US$1.33 to US$46.49/bbl and Brent fell US$1.79 to US$48.76/bbl.

Only tin managed to rally on the LME in the face of the stronger greenback, up 1%, while lead, nickel and zinc fell 1% and aluminium and copper fell 0.5%.

Iron ore fell another US40c to US$48.30/t.

Gold never stood a chance against the stronger dollar given the current mood, and it fell US$9.40 to US$1107.90/oz.

Today

The SPI Overnight closed down one point.

RBA governor Glenn Stevens will deliver a speech in Melbourne today ahead of tomorrow’s release of the central bank’s quarterly Statement on Monetary Policy.

The Bank of England will hold a policy meeting tonight but nothing exciting is expected.

Commonwealth Bank ((CBA)) will today wrap up the big bank reporting season with its quarterly update and there is once more a handful of AGMs to get through.

National Bank ((NAB)) goes ex today.

Rudi will make his weekly appearance on Sky Business today, Lunch Money, noon-1pm, to return later on Switzer TV, between 7-8pm.
 

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

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

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article 3 months old

The Overnight Report: All Is Forgiven

By Greg Peel

The Dow closed up 89 points or 0.5% while the S&P gained 0.3% to 2109 and the Nasdaq rose 0.4%.

Got Your Back

In October, the final paragraph of the RBA’s interest rate decision statement read:

“Further information on economic and financial conditions to be received over the period ahead will inform the Board's ongoing assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

Yesterday’s equivalent paragraph read:

“At today's meeting the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

The computers initially sold the ASX200 at 2.30pm yesterday, then bought it, and then the humans pushed the index a little higher towards the close. The close was nevertheless not the high of the day, which was achieved on the opening rally.

On a day in which such things are appropriate, the RBA seems to have given the market an each way bet. Economic conditions have “firmed a little”, which is positive, but there is “scope for further easing”, which is comforting too. We can all go long with an embedded put option.

Hence the market did not much respond to the RBA’s lack of rate cut yesterday, which was not expected anyway. The rally occurred from the opening bell, pushing back through the 5200 mark with only a slight stumble. We can perhaps conclude that it was those pesky Mexicans selling the market down on Monday, given in their absence yesterday everything sold down on Monday was bought back, albeit on lighter volume.

The banks led the selling on Monday but they were up 1.6% yesterday, and ditto the telco which rallied back 1.8%. The winner on the day was nonetheless energy, which jumped 2.6% despite oil prices being slightly lower overnight. Energy stocks had rallied around the globe on Monday night, so yesterday Australian names were also well sought after.

We’re now back over the 5200 break-out level and the futures are this morning predicting further gains, so perhaps we can write off Monday’s dour session as an aberration. Oil prices actually shot up last night.

The Chinese president provided further detail of the government’s new five-year plan yesterday, reiterating a goal to achieve no less than an average 6.5% annual growth. The only difference here from what was suggested last week is that the extra decimal point is missing. Last week it was 6.53%.

Xi Jinping also intends to have a fully-floating renminbi by 2020, and will open up more state-dominated sectors to the market, including utilities and telcos. The Chinese will also now be allowed to have two kids instead of one.

Xi did not provide a specific 2016 GDP growth target, but the assumption is that number would be more like the 6.5% general target than 2015’s 7.0%, which at the current rate likely will not be achieved.

High Tide

It’s hard to believe that the S&P500 is now within only 1% of its all-time intraday high, following last night’s positive session. The Dow still needs to push back over the 18k mark.

Last night’s rally was led by energy yet again, this time with the backing of a solid jump in oil prices. Oil rose on news militants were blocking supply in Libya and striking workers were blocking supply in Brazil.

Beyond energy, last night’s slew of US earnings results proved nothing to be excited about and factory orders were revealed to have fallen for the second straight month, by 1.0% in September. Data released in the last hour showed October to have been yet another record month for US auto sales, but Wall Street had already posted its rally by then and indeed drifted off towards the close.

The good news is the small cap index has begun to join in the rally in November, having worried traders all through October by remaining stubbornly weak. The bad news is the rally back to the highs is again evoking talk of an overbought market and stretched PE multiples.

But it’s November, and there follows December, so the mood remains one of “It’s meant to go up, isn’t it?”

Always dangerous of course.

Commodities

West Texas crude is up US$1.68 or 3.6% to US$47.82/bbl while Brent is up US$1.76 or 3.6% to US$50.55/bbl.

Another mixed session on the LME saw aluminium, copper and zinc all up around a percent while nickel and tin fell over a percent. Nickel is now below the psychological US$10,000/t mark once more, having last been this low in August when China growth fears were heightened.

Iron ore fell another US40c to US$48.70/t as its quiet slide continues.

The US dollar index is only 0.3% higher this morning at 97.18 but last night gold took a turn for the worse, having come under pressure this past week. It’s down US$17.30 at US$1117.30/oz.

An RBA rate cut was not widely expected yesterday yet the Aussie still shot up at 2.30pm, reaching well above the 72 level. Greenback strength overnight ensured the net gain over 24 hours is 0.8% to US$0.7194.

Today

The Mexicans are back today with hangovers so we’d best watch out.

It’s service sector PMI day across the globe today, including in Australia. Locally we’ll also see retail sales and trade numbers for September.

Tonight in the US sees the private sector jobs report for October.

The AGMs fire up again locally today after yesterday’s hiatus, while CSR ((CSR)) will report its half-year result.
 

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

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

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article 3 months old

The Overnight Report: Follow The Stats

By Greg Peel

The Dow rose 165 points or 0.9% while the S&P gained 1.2% to 2104 and the Nasdaq jumped 1.5%.

Breach

A weak lead from Wall Street and disappointing Chinese PMI numbers over the weekend ensured the dour mood prevalent at the end of October carried into the new month on Bridge Street yesterday. The Chinese numbers could have been worse – the manufacturing PMI was flat but still below 50 while the PMI for the larger services sector was weaker but still above 50 – but the market was hoping Beijing’s stimulus efforts might have started to produce results by now.

The mood did not improve when Westpac released its profit result and warned of tough times ahead in Australian banking. The banks led the index lower from the bell and when support was breached at 5200, the selling became more widespread.

Australia’s data releases on the day were not so encouraging either. Our own October manufacturing PMI fell to 50.2 from 52.1, the rate of house price growth cooled in the month, and TD Securities’ core inflation gauge remained flat at 1.7%, providing no additional impetus for the RBA to cut today.

The good news is building approvals grew by a better than expected 2.2% in September, although analysts are expecting that pace to start cooling soon as well.

There was also some good news in the form of Caixin’s independent Chinese manufacturing PMI, released around midday, which showed an increase to 48.3 from 47.2. This is still sub-50 but at least heading in the right direction.

It was around this time the index decided it had been sold down far enough on the day. It was down around 1.4% at lunchtime and there it basically remained through to the close.

By the closing bell the banks had provided the stand-out weakness with a 1.9% fall, backed up by the telco with 1.6%. Other sector falls were less dramatic but no sector finished in the green, confirming market-wide selling on the technical breach.

A day is a long time on the market and we see the SPI Overnight up over 60 points this morning, suggesting we could rally all the way back today.

Going around the grounds on manufacturing PMIs, Japan saw an increase to 52.5 from 51.0 to mark its strongest pace in a year, the eurozone saw a better than expected rise to 52.3 from 52.0, and the UK shot to 55.5 from 51.8 when economists had forecast a decline.

All these regions appear to be benefitting from lower currencies, the offset of which is the US dollar. Thus the only disappointing global PMI result was the US figure of 50.1, down from 50.2, although that was still above a consensus forecast of 50.0.

Merger Monday

Interestingly, the Fed has never raised rates when the manufacturing PMI is this low.

Positive earnings reports and a slew of announced M&A deals provided a positive opening for November on Wall Street, and the major indices rallied steadily throughout the session. The S&P500 is now back above 2100 for the first time since the August break-down and hence back inside the trading range that dominated Wall Street all year up to that point.

The China scare has now been erased.

Investors are no doubt fired up about the current obsession with November-December typically being positive for stocks. Last night’s popular historical statistic was that if October is positive, November-December sees a further rally 78% of the time.

The mood may nevertheless change later in the week when the all-important non-farm payrolls data are released. Just how Wall Street will respond is never quite clear. A strong jobs number would put a December Fed rate rise back in focus.

Commodities

The US dollar index was flat last night at 96.93.

Trading on the LME was again subdued, with nickel rising 1%, zinc falling 1% and all other metals barely troubling the scorer.

After one day’s respite, iron ore is down US40c at US$49.10/t.

The oils were marginally lower, with West Texas falling US30c to US$46.14/bbl and Brent falling US72c to US$48.79/bbl.

Gold fell US$7.10 to US$1134.60/oz. It is interesting to note the US ten-year bond rate is now back at 2.19%, following a 4 basis point gain last night. This is where it began 2015 – a year expected to bring the first Fed rate rise. First it was maybe March but there was too much snow so it became June, then it was September, and now it’s December, maybe. Gold traders don’t seem keen to be caught out.

The Aussie is flat at US$0.7136 ahead of today’s RBA decision. The odds of a rate cut have now slipped according to consensus expectation.

Today

The SPI Overnight closed up 62 points or 1.2%, which if accurate means we would not only erase the best part of yesterday’s fall but also return to above the 5200 mark.

Victoria is closed today, so trading may be a little thinner, and will certainty thin out from lunchtime on. As it’s Cup Day, no local corporate is foolish enough to hold an AGM or release a result today, although there’s plenty more to come in the month.

The RBA will nevertheless release its statement at 2.30pm.

My tips for today: no cut and, given all the M&A going on both locally and abroad, The Offer.
 

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

Material Matters: Oz East Coast Gas, Chinese Steel, Nickel And Copper

-Capital shortfall looms for east coast gas
-Tough winter ahead for steel
-Large rebound in nickel unlikely
-Demand recovery needed in copper
 

By Eva Brocklehurst

East Coast Gas

Credit Suisse takes a look at the capital needs of the LNG market, given funds are being pulled out of the domestic market and there is a large share of unsanctioned resources in the hands of those with no capital to invest. The broker suspects further mergers, equity and demand destruction may be needed to balance the market.

Based on the broker's assumptions of a drop in domestic demand and costs of developing new gas, the required capital needed from 2016-2020 falls short by $16.5-20.5bn. As a result the broker envisages four potential outcomes.

M&A may bring better capitalised businesses to eastern Australia, with equity raised to fund development by those retaining the assets. Also, domestic demand destruction could occur and/or LNG projects export less than contracted volumes. Lastly, gas could be brought from other regions, namely the NT pipeline.

Competition regulator, the ACCC, may be looking at whether there is adequate competition in the market but Credit Suisse maintains a market needs to be created before worrying about whether it is orderly. The largest issue, in the broker's view is the supply problem. The broker expects the NT pipeline will go ahead but will not provide enough gas to resolve the shortfall.

Clearly, if new volumes are not added the demand has to be removed. Ultimately, the broker believes the oil price trajectory, and whether it is mutually beneficial for both offtakers and sellers of LNG to agree on volume reductions, will be critical.

What is vexing is that all companies covered by Credit Suisse have competing areas for what limited capital they have and, on a national and global cost curve, the east cost market does not stack up well. Moreover, further impairments are likely to be unavoidable if crude stays lower for longer and debt levels will remain a constraint.

Chinese Steel

On most measures, Macquarie observes Chinese steel mills are sustaining the worst profit margins since the global financial crisis. A solvency and liquidity crisis is developing, the broker suspects. Moreover, there has been no sign of steel prices stabilising, or the rate of decline ebbing.

Macquarie acknowledges it may appear irrational for Chinese mills to continue producing, but concerns over the difficulty of resuming production or re-capturing market share, as well as expectations of a cyclical recovery as the government continue to pump the economy, are prevailing.

This could also mean that shut-downs are merely a matter of time, the broker contends. This northern winter may be particularly bleak because of cash flow difficulties. This also increases the likelihood of government intervention as a last resort for the industry. However, Macquarie observes the central government, in contrast to impressions, has not been that keen to prop up the steel industry, in that it has imposed various restrictive measures in the areas of environmental protection and financing.

Nickel

Nickel inventories are now very high after five years of surplus. Macquarie observes the market is getting back towards balance and a deficit may be looming for 2016. The broker calculates that nickel prices are now at levels where around 60% of global production is negative on cash flow.

Over the last month prices have stabilised and London Metal Exchange stocks have started to fall but, the broker contends, until China's growth rebounds, or a major cut to production is announced, the size of any deficit will be small. Macquarie concedes it was wrong regarding forecasts for a move to deficit in 2015. This was because demand remained very weak and there was ongoing high production of Chinese nickel pig iron.

Still, an end to de-stocking and reduced secondary nickel availability should lead to a small improvement in demand in the current quarter and further improvement early in 2016. Macquarie warns that a massive price recovery is unlikely although speculative re-stocking by stainless steel buyers is a risk factor, as that caused prices to overshoot in the previous rally in early 2014.

Copper

Freeport-McMoran will reduce copper mining at its Sierrita mine in Arizona by half and is considering a full shutdown of operations. Morgan Stanley estimates this equates to 45,000 tonnes per annum in 2016. By itself, the broker believes reduction will not make a significant impact on global supply/demand balances but adds to the tally of production cuts so far this year.

Around 825,000t of cuts or cancellations to production have been announced in 2015, which the broker notes has been largely driven by the 20% decline in the copper price.

If Glencore's Mopania and Kantanga operations and Freeport's American assets remain closed in 2016, a total of around 2.5% of 2016 forecast global production will be removed from the market. Yet, price related production cuts are not the only issues for copper supply. There is unrest at two of the largest new copper mines, in Peru, drought conditions affecting Ok Tedi, as well as power shortages in Zambia. Despite this, Morgan Stanley still forecasts copper mine production to grow by nearly 5.0% next year.

Declining output is likely contributing to the drop in LME stockpiles and in bonded warehouse stocks in Shanghai. While the production cuts and supply pressures support better market conditions, Morgan Stanley believes a recovery in demand is also required for a sustained lift in prices. The broker's base case 2016 copper price forecast of US$6,118t assumes just a modest recovery in demand.
 

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article 3 months old

The Monday Report

By Greg Peel

Support

While September is historically the weakest month for stock markets, October is the month for crashes. Just not every year. This year saw the ASX200 break above what had been stiff resistance at 5200 early in the month, before falling back to bounce off 5200 again, before rallying to 5350.

Since then it’s been all downhill back towards 5200 again, and indeed on Friday the index opened in the same mood it had closed on Thursday and promptly fell 62 points, but only made it as far as 5204 before bouncing to a less significant fall for the day. The supermarkets, iron ore miners, banks and the telco all saw ongoing selling but on the last trading day of the month, traders moved into industrials and healthcare.

Technically it’s been text book stuff – a break-out of a well-established range, a sharp rally, and fall back to that breakout level which, having previously been resistance, is now support. The market is consolidating, preparing for whatever it wants to do next. If next is a rally into Christmas, technically the signals are favourable.

September private sector credit data were released on Friday, and the good news is that the result of 0.8% growth represents the strongest month since the GFC. The better news is that it was not all about investor mortgages. Lending for housing was flat in September at an annual rate of 7.5% but business lending grew 1.2% to an annual rate of 6.3%.

The bad news is these data are a major setback for those convinced the RBA will cut tomorrow. Forex traders now appear less convinced. The Aussie was up 0.9% to US$0.7136 on Saturday morning.

The big news globally on Friday was no news at all. The Bank of Japan surprised markets by not only announcing no change to its existing QE program, but by not even hinting that an increase might be contemplated. Many assumed the BoJ would simply have no choice but to counter Chinese rates cuts and a QE extension from the ECB at the end of the year if its own program was to remain supportive.

Perhaps the BoJ is banking on a Fed rate hike in December. Either way, the Japanese stock market didn’t seem to mind, as it rose 0.8%

Early Santa?

As noted, October is typically the scariest month of any year, if not actually the weakest on average. Oh the horror, the horror. But despite falls on Wall Street on Friday night, the S&P500 posted a rally in excess of 8% in the month, which, funnily enough, was its best month since October 2011.

On Friday night the Dow closed down 92 points or 0.5% while the S&P lost 0.5% to 2079 and the Nasdaq dropped 0.4%.

The major indices are now back to where they were before the big August sell-off. Except for the small cap Russell 2000 index which has lagged behind. This has worried many a trader who would like to see all the ducks line up in a row, and has them nervous maybe the rally is not sustainable.

And then there is the issue that December is typically the best month of the year, and November right up there too, to provide for a frequently seen Santa Rally. But Santa Rallies typically follow weak September-Octobers. This time we’ve seen a strong October. Have we already seen the Santa Rally?

Before you ask, October 2011 was indeed followed by a rally.

US data releases on Friday included September personal income & spending, which each rose 0.1%. For incomes it was the slowest month of growth since March, and for consumer spending the lowest month of growth since January. The personal consumption and expenditure (PCE) measure of core inflation also rose only 0.1%, to be up 1.3%.

This is the number the Fed wants to see moving towards 2% before it considers a rate hike. You wouldn’t be backing December on these data.

And Michigan Uni’s fortnightly index of consumer sentiment fell to 90.0 from a previous 92.1 when 92.5 was expected. The number corroborates the Conference Board’s monthly confidence index released earlier in the week which also saw an unexpected drop, just as the world’s biggest consumer economy heads into Christmas.

The only good economic news on Friday was that the Chicago PMI rocketed back into expansion at 56.2 from a contractionary 48.7 last month.

But neither the data nor the day’s earnings reports seemed to make much difference to Wall Street as a whole on Friday. The indices bungled along through the session before late selling came in at the close, likely representing profit-taking on the last day of a very strong month.

Commodities

It was another largely dreary session on the LME, where moves were again mixed. Nickel took a 2.7% tumble while copper was 0.3% lower, and aluminium rose 0.7%.

Iron ore rose US50c to US$49.50/t, representing the first gain in about two weeks.

A drop in the weekly US rig count helped the oils quietly continue their rebound. West Texas rose US66c to US$46.44/bbl and Brent rose US91c to US$49.51/bbl.

The US dollar index was 0.3% weaker at 96.97 and gold lost US$2.90 to US$1141.70/oz.

The SPI Overnight closed down 25 points or 0.5% on Saturday morning.

China

Beijing released China’s official October PMIs yesterday. Manufacturing came in at 49.8, unchanged from September. Given all the government has thrown at the economy, it was a disappointing result, representing the third straight month of sub-50 results. Economists had forecast 50.0.

But at least it wasn’t a worse result. The services PMI came in at 53.1, down from 53.4, but at least remained in expansion.

The Week Ahead

The rest of the world will release manufacturing PMIs today, including Australia, Japan, the eurozone, UK and US, along with Caixin’s take on China’s PMI. Then it’s same again on Wednesday for service sector PMIs.

The US will also see construction spending tonight, factory orders and vehicle sales tomorrow, the trade balance and ADP private sector jobs report on Wednesday, and chain store sales and productivity on Thursday. On Friday it’s the big one – non-farm payrolls.

The Bank of England will hold a policy meeting on Thursday. Japan has a public holiday today.

It is a busy week all up for Australian data.

We start with the manufacturing PMI, building approvals, house prices and the TD Securities inflation gauge today. Tomorrow televisions will be switched on in every household and office across the land to watch the RBA not announce a rate cut.

That’s my tip anyway.

Wednesday sees the local services PMI, trade balance and retail sales, Thursday RBA governor Glenn Stevens will make a speech in Melbourne, and Friday the RBA will release its quarterly Statement on Monetary Policy. The construction PMI is also due.

Westpac ((WBC)) will release its full-year result today and Commonwealth Bank ((CBA)) will provide a quarterly update on Thursday. CSR ((CSR)) will release its interim result on Wednesday, and the AGM season rolls on.

Rudi will appear on Sky Business on Thursday at noon and again between 7-8pm for the Switzer Report.
 

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article 3 months old

The Overnight Report: Slow Going

By Greg Peel

The Dow closed down 23 points or 0.1% while the S&P was flat at 2089 and the Nasdaq lost 0.4%.

Down, Down

Yesterday’s session on Bridge Street started with a good deal of promise. The Dow had closed up 200 points and oil prices had surged. Iron ore had fallen below US$50/t, which was not good news, but an oil price rebound suggested some balance between the resource sectors. The futures were suggesting a 40 point rally for the ASX200.

But we closed down 68 points. Indeed, the index only managed to rise around 20 points on the open before the selling began and throughout the session, built upon itself.

The issue was a micro-specific one, namely domestic earnings. The main culprit on the day was Woolies, which delivered a September quarter trading report full of smiles and upbeat banter, and a shocking profit guidance downgrade. Oh how the mighty have fallen. Woolies is still one of Australia’ biggest companies, hence its 10% fall alone had a sizeable impact on the index.

There was no back-slapping going on over at Coles, nonetheless. The market saw the issue not just as an individual problem but a problem for Australia’s under-attack supermarket duopoly. Wesfarmers shares fell 4% and the consumer staples index finished the day down 5.4%.

From the wider retail perspective, the Woolies’ profit warning came only a day after electronics retailer Dick Smith similarly issued a substantial profit warning, which on Thursday had wiped over 30% off Dick’s share price. There is not a lot of pre-Christmas excitement in retail land at the moment.

Then there were the banks. National Bank’s slightly disappointing profit result released on Wednesday had prompted a 2% fall, as investors mulled over the offset of the bank’s life insurance sale. Yesterday ANZ Bank came out with a result that was also slightly disappointing, and its shares fell 2%. Having looked more closely at NAB, investors yesterday sold the bank down another 4%. A delay in the carving off of NAB’s UK business is also disappointing.

The financials index fell 1.0% yesterday, adding to ASX200 weakness. Materials fell 1.5% as one might expect following another big drop in the iron ore price, but energy also fell, by 1.3%, despite a 6% jump in the West Texas crude price overnight.

Then there were the new home sales data. HIA’s numbers showed a 4% drop in new home sales in September, following a 2.3% rise in August. Is this the peak brokers have recently been lining up to warn about? The booming housing market has, to date, been about the only sector of the economy offering a growth offset to the impact of tumbling mining investment and commodity prices.

It was a bit of a mood-shift day, following on from the earlier excitement of global central bank stimulus and the break-up through the top of the previous trading range. Once the selling had begun it just carried on through to the close.

Except in Blackmores. The snake oil pedlar hit $200 briefly yesterday before dumbfounded profit-takers moved in.

Moderately Prosperous

The Chinese economy needs to grow at an average 6.53% over the next five years for the country to remain “moderately prosperous”, the Chinese prime minister declared last night ahead of the wrap-up of the Plenary Session. This suggests Beijing will lower its growth forecast in 2016 from 2015’s 7.0% target, which likely will be missed if the September quarter’s 6.9% year on year result is any guide.

And given the number in question runs to a second decimal point, we might conclude someone has actually crunched some numbers this time – some forward estimates as we would call them – rather than starting with a desired result and working backwards.

The prime minister also threw cold water on any suggestion of a big step-up in monetary policy stimulus, suggesting a move to some form of QE would only flood the economy with too much money. This implies that if we are to see anymore stimulus coming out of China other than incremental interest rate and RRR fiddling and a further move towards a floating currency, it would have come from the fiscal side.

On the subject of QE, the Bank of Japan holds a policy meeting today at which the impact of more ECB QE, Chinese rate cuts and, on the other hand, a possible Fed rate hike in December on Japan’s position in the global export economy will be discussed.

Destocking

The jury is still out on whether Wednesday night’s Fed statement assures a December rate hike or not. Certainly the Fed’s language is suddenly more specific, but I’m yet to see anyone on US business television suggest other than there definitely won’t be a rate hike in December.

Yet it seems the gold market, and the overbought US bond market, are not going to wait to find out. Last night gold fell another US$11.70 to US$1144.60/oz despite the US dollar index pulling back 0.4% to 97.24 after Wednesday night’s jump. The US ten-year yield rose 8 basis points to 2.17% following Wednesday night’s 6bps gain. And yet, last night’s first estimate of US September quarter GDP disappointed.

Having grown at an annual pace of 3.9% in the June quarter, the US economy grew at only 1.5% in the September quarter on first estimates. The main issue was a lack of inventory restocking, which suggests businesses lack confidence in sales growth.

But drilling down showed some positive aspects. Consumer spending rose 3.2%, suggesting cheaper fuel prices are finally starting to have an impact. Business investment in equipment rose 5.3% to more than offset a 4.0% drop plant investment, such as in oil rigs. Home construction spending rose 6.1%. All of these positives were offset by weak inventories.

And we must remember that this first estimate is merely an extrapolation across three months of the numbers crunched so far for the first month of the quarter. That’s why subsequent revisions of the GDP result can often be quite substantial.

One interesting number among the GDP data was the personal consumption expenditure (PCE) measure of inflation for the quarter. It came in at 1.2%, and we recall that (a) the Fed wants to see inflation rising to the 2% target if it is going to raise in December and (b), the Fed prefers the PCE measure over the CPI measure as a guide.

US pending home sales fell 2.3% in September to mark the second monthly drop in a row. This result surprised Wall Street given other home sale data have been positive of late.

All up, one might have expected these weak data releases to prompt selling on Wall Street, particularly after Wednesday night’s 200 point Dow surge. Indeed, the Dow was down almost a hundred points mid-morning, but the afternoon saw the buyers fighting back. Perhaps they see weak data as reason why the Fed will not raise in December.

Commodities

Last night provided the first opportunity for the LME to respond to Wednesday night’s Fed statement, and as might be expected the result was negative. If the Fed starts raising this means a stronger greenback, so all base metals fell 1-2%.

Iron ore fell another US50c to US$49.00/t. I think that’s now twelve days of falls in a row.

The oils came back a tad after Wednesday night’s rally. West Texas is down US17c to US$45.78/bbl and Brent is down US43c to US$48.60/bbl.

The Aussie is 0.3% lower at US$0.7076.

Today

The SPI Overnight closed down 14 points or 0.3%.

Australia’s September quarter PPI is out today, following on from Wednesday’s CPI number which fuelled much Cup Day rate cut expectation.

The BoJ will meet today as noted, and will have September inflation data to contemplate.

The US will see personal income & spending and consumer sentiment data tonight.

On the local stock front, another round of AGMs will wrap up the busiest AGM week of the year while there remains a final handful of quarterly production reports to get through. Macquarie Group ((MQG)) will report interim earnings.

Beijing will release its October manufacturing and services PMIs on Sunday.

And Summer time ends in the US on Sunday morning, so from Tuesday morning the NYSE will close at 8am Sydney time and the SPI Overnight session will also close at 8am.

I could say Happy Halloween but I don’t go in for that Seppo commercial crap. I shall be hiding inside tomorrow night with the lights off as usual when the greedy little sugar freaks come around.

Rudi will appear on Sky Business' Your Money, Your Call - Equities versus Bonds, tonight, 7-8pm.
 

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article 3 months old

The Overnight Report: December Looms Larger

By Greg Peel

The Dow closed up 198 points or 1.1% while the S&P rose 1.2% to 2090 and the Nasdaq rallied 1.3%.

Cup Favourite?

The tenor of the minutes of the RBA’s October policy meeting was one of a board reasonably satisfied with the progress of Australia’s difficult economic transition, and happy that both the currency had come down to more realistic levels and that regulatory tightening had resulted in an easing in the housing bubble. The assumption one could make from those minutes is that the RBA is not going to cut its rate next week, nor even in December.

But since then we’ve seen the major banks reprice their mortgage rates, affecting a tightening of monetary policy for Australian households without the RBA’s involvement. This act of blind treachery, as the populist media and politicians have effectively labelled it, will now force the RBA to cut next week, most have suggested.

Why?

Mortgage repricing directly addresses the RBA’s concerns. The central bank was this month relatively happy with how things are progressing, but still concerned about the housing bubble. Now it doesn’t need to be concerned.

And then along came yesterday’s September quarter CPI result. The headline number came in at 0.5% quarter on quarter growth, missing economist consensus of 0.7%, for a 1.5% annual rate. There you have it, said all and sundry – now the RBA will cut rates on Tuesday. The CPI is well below the 2-3% comfort zone.

Except that it isn’t. One can say it until one is blue in the face but no one ever seems to listen. The RBA’s comfort zone is based on core inflation, ex-food & energy, as represented by the trimmed mean, not on the headline number. This measure rose only 0.3% in the quarter but is up 2.2% year on year – smack bang inside the comfort zone.

What dragged down the September headline CPI? Falls in food and energy prices.

So will the RBA cut on Tuesday? Not everyone is on that bandwagon.

The forex market is clearly backing a Cup Day cut. The Aussie is down a cent over 24 hours to US$0.7096. It was a game played in two halves. First came the weak CPI number and then came the latest Fed statement and a subsequent US dollar rally overnight.

The stock market also backed a rate cut yesterday, despite another soggy but immaterial close. Three sectors finished one percent or more in the green to balance out general sogginess elsewhere. They were healthcare, utilities and telcos. Defensives and yielders. Most of the offset came from falls in the resource sectors yet again.

How to paint oneself into a corner

All through 2015, Fed policy statements have declared that the FOMC “would determine how long” to keep its rate at zero, without ever putting a timeframe on it. Last night’s statement declared the FOMC would determine “whether it will be appropriate to raise the target range at its next meeting”. It is the first time a specific meeting has ever been referred to officially, despite Janet Yellen constantly repeating that a rate hike this year looks likely.

As for “appropriate”, the statement declared the FOMC would assess the progress, “both realised and expected”, towards its dual objectives of maximum employment and 2% inflation. In other words, neither goal actually has to be achieved, it just has to appear as if both are on track to be achieved.

Throw in an apparent easing of concerns from the Fed over global markets and Wall Street has now lifted the odds of a December rate hike to 50% from 30% beforehand.

But how does Wall Street react to this turn of events? That’s the hard part.

We recall that all year commentators were warning that the first Fed rate hike would trigger a correction on Wall Street. We didn’t get a rate hike in June when it was expected, but we had the correction anyway, thanks to China. Then everyone expected a rate hike in September, but it was not to be, thanks to China.

So Wall Street sold off, which seemed counterintuitive on the assumption it would be a rate hike, not lack thereof, that would spark a sell-off. Wall Street sold off because of the uncertainty the Fed was perpetuating. The market really just wanted to get a rate hike out of the way.

Then came two surprisingly weak US jobs reports in succession. Following the September report, Wall Street decided there was not going to be a rate hike in 2015. Thus uncertainty evaporated, and hence it was time to start buying stocks again.

However, last night’s statement suggested December is still goer. So what did Wall Street do? The Dow was up a hundred points ahead of the Fed release, largely due to the well-received earnings result from Apple. On release, the Dow fell back into the negative, driven by computers. Immediately it bounced and rallied two hundred points. Computer programmers were left scratching their heads.

Wall Street has just seen a 10% rally from the correction lows because it seemed there would be no rate cut in December. Now that it seems there will be, surely that must be negative? At least that’s what the computers assumed.

The bottom line is Wall Street is now split into two camps. One camp suggests the Fed now feels it should have raised in June, and, in retrospect, could have raised in September, so to end the criticism of its indecision and to end uncertainty it simply has to raise in December. Last night’s statement all but confirmed this.

The other camp believes the Fed won’t raise in December, and will likely wait until at least March. The Fed needs to be satisfied its two goals of employment and inflation are close to being achieved. We’ve seen two shocking jobs reports in a row. Inflation, thanks to the stronger greenback, is more likely to fall than rise into the end of the year. Ergo, by the Fed’s own measure, there will be no rate rise in December.

The confusing point is that we could put the 200 point Dow rally down to either camp’s view being right. A December rate rise would end uncertainty, so that’s positive. No December rate rise means stocks remain the only place to invest, so that’s positive.

We can, nevertheless, look to other markets to gauge Wall Street sentiment. The US dollar index is up 0.8% to 97.66. That says December rate rise. The US ten-year bond yield rose 6 basis points to 2.09%. That says December rate rise. But then, the Fed futures market is pricing December at 50/50.

And that about sums it up.

Commodities

The LME is always closing just ahead of Fed releases so while base metal prices saw small falls last night, we’ll need to wait until tonight to see a Fed response.

The iron ore market doesn’t really pay much attention to outside influences, so its fall of US$1.30 last night to US$49.50/t likely has nothing to do with the Fed.

On the strength in the US dollar, and on an increase in US weekly inventories, we would expect the oils to have gone the same way as iron ore. But no, West Texas is up 6.3% or US$2.73 to US$45.95/bbl and Brent is up 4.6% or US$2.17 to US$49.03/bbl.

The suggestion is that when WTI fell through 45, the market got itself very short on the assumption this break-down from the range meant the next stop would be in the thirties, rapidly. While WTI has been a little weaker this week, it has not been dramatically weak. Thus, someone decided to cover their shorts last night and suddenly the scramble was on.

And now we’re back inside the 45-50 WTI range once more.

Gold is saying December rate hike. It’s down US$10.20 to US$1156.30/oz.

Today

The SPI Overnight closed up 42 points. Somewhere in that number will be allowance for an expected bounce-back for the energy sector but likely weakness for the materials sector.

Locally we’ll see new home sales data today, and tonight we’ll see the first estimate of US September quarter GDP, just to add fuel to the fire.

ANZ Bank ((ANZ)) will report full-year earnings today and Woolworths ((WOW)) will report September quarter sales amidst another busy round of AGMs and production reports.

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

 

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article 3 months old

The Overnight Report: The Waiting Game

By Greg Peel

The Dow closed down 41 points or 0.2% while the S&P lost 0.3% to 2065 and the Nasdaq fell 0.1%.

Flat

As trading sessions go, yesterday’s action on Bridge Street could not have been much flatter on a net basis, with the index managing only to flip-flop around the flatline all day. On a sector basis the story was nevertheless a little different.

It was not that long ago WTI crude looked set to break out of its long running US$45-50/bbl range to the topside on a falling US rig count and geopolitical rumblings, but this week WTI has broken down through the bottom of the range on a combination of US dollar strength and realisation that lower rig count or not, the world remains oversupplied vis a vis restrained demand.

Yesterday the local energy sector fell 2.3% on weaker oil prices. Daily oil price fluctuations still override a sector now clearly into a consolidation phase, although the M&A game will take a while to play out just yet. At the same time, the iron ore price is threatening to fall through US$50/t once more, weighing on the materials sector. It was down 1.2% yesterday.

With the banks going nowhere yesterday thanks to National Bank’s intriguing trading halt ahead of its profit result this morning, now assumed to relate to a sale within its insurance business, it was left to healthcare (+1.2%) to provide most of the offset. The consumer sectors have also become more popular of late, and they also added some green to the screen to ensure a net flat close for the ASX200.

There are two significant events to consider over the next 24 hours, being today’s release of Australia’s September quarter inflation numbers and their potential influence on the RBA ahead of Tuesday’s meeting, and tonight’s Fed statement and any potential clues it may provide about a December rate hike.

We could also throw in the possibility of the Bank of Japan scaling up the global “race to the bottom” among central banks in boosting QE to counter fresh ECB QE and further PBoC rate cuts as reason to wait on the sidelines this week.

Apple to Fall

Wall Street is clearly awaiting central bank updates as well but last night was also in a quiet mood ahead of the aftermarket release of Apple’s September quarter earnings.

Apple, America’s biggest company and a recent addition to the Dow Jones Industrial Average, has become an economic bellwether for Wall Street as the “new world” leader. Sales of iPhones in the US will provide a gauge of consumer demand, so important to the US economy, and sales in China will add colour to the picture of a China slowdown and the country’s shift towards domestic consumption.

As I write, Apple shares are struggling to rally 2% post release on strong Chinese sales and a beat on revenue, which is a rare achievement in post-GFC America.

Twitter is another new world company reporting this morning, after the close of Wall Street, and also closely watched despite many believing it is no longer a social media platform but merely a news service, destined never to monetise its popularity. Not a good result there, given Twitter shares are currently down 10% in the aftermarket.

Oil prices were again weaker overnight which weighed on the US energy sector. With Wall Street on Fed-Watch, there was also a raft of US economic data to consider.

Durable goods orders fell 1.2% in September, having fallen 3.0% in August. Stripping out lumpy auto/aircraft orders left a 0.4% fall, with the strong US dollar being blamed for falling orders offshore for US-manufactured goods.

The Conference Board’s monthly index of consumer confidence came in at 97.6, down from 102.6 in September, when economists had expected 102.1. September was the best result since January so the dip is not too onerous, but the world’s biggest consumer economy would be better served by rising confidence going into the “Holiday Season”, as it is known.

There was improvement in the Richmond Fed activity index, which rose to minus 1 from minus 5 last month when economists had forecast minus 3. Still contraction though.

The better news was Case-Shiller’s 20-city house price index, which rose 4.7% in August having risen 4.6% in July.  Year on year, prices were up 5.1% in August compared to 4.9% in July, supporting decade-high strength in NAHB’s housing market sentiment index this month.

All up, however, there is nothing here to suggest the Fed is destined to pull the trigger in December. Maybe tonight will provide more clues.

Commodities

Iron ore closed unchanged overnight at US$50.80/t, marking the end of a consecutive ten-day run of falls.

The LME was deathly quiet ahead of this week’s central bank posturing. Base metal price moves were small and mixed.

As noted, the oils fell again. West Texas dropped US57c to US$43.22/bbl and Brent fell US46c to US$46.86/bbl.

I noted yesterday a sudden 9% plunge in the US domestic natural gas price to US$2.08/mmbtu. Last night the price stabilised at US$2.10.

The US dollar index is up a tick to 96.91 while gold managed at US$3.30 gain to US$1166.50/oz. Weaker commodity prices appear otherwise to be weighing on the Aussie, which is down 0.7% to US$0.7197.

Today

The SPI Overnight closed down 20 points or 0.4%.

Australia’s September quarter CPI numbers are out today. Economists are looking for 1.7% annual on the headline.

The Fed’s latest policy statement is due tonight.

Locally it’s another very busy day for AGMs but all eyes will be on National Bank’s ((NAB)) full-year earnings report, due this morning.

Rudi will host Your Money, Your Call Equities tonight, 8-9.30pm, on Sky Business.

 

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