Tag Archives: Japan

article 3 months old

The Overnight Report: Over To Janet

By Greg Peel

The Dow closed up 22 points or 0.1% while the S&P lost 0.2% to 2015 as the Nasdaq fell 0.5%.

Just a Head Fake?

“Members judged that there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged at an accommodative setting.”

So said the minutes of the March RBA meeting, released yesterday. With that, the local market tumbled.

As to whether we can blame the minutes is nevertheless questionable. At two weeks old, they might as well have been two years old given what has transpired in the interim, including the surprisingly strong local GDP result, the rebound in commodity prices and, subsequently, the Aussie dollar, and shock and awe from the ECB. Two weeks ago Glenn Stevens’ policy statement was near word for word a repeat of his February statement. But things have now changed.

So it would have been naïve to be have been disappointed that there was no hint of an RBA rate cut in the minutes. And given the banks fell 1.4% yesterday to provide the greatest impact on the ASX200, and banks don’t like lower rates, it seems more a case of a sudden burst of uncertainty in the local market.

There has been much talk of late of the commodity price rebounds, particularly in oil and iron ore, being unsustainable blips. Oil has simply seen a short-covering snap-back. Iron ore has simply jumped on hurried Chinese restocking that will shortly end. With falls in the prices of both overnight, it was no shock that yesterday saw the energy sector down 3.6% and materials down 2.4% following their recent sharp recoveries.

But the selling was market-wide, with only the telcos holding their ground. I suggested yesterday that the local market had reached a point of indecision, as there appeared to be nothing in the near term to justify ongoing upside. And when markets can’t find a reason to go up, you can always count on them going down instead, until a new pathway is established.

Regarding commodity prices, Goldman Sachs has recently articulated that which I have been implying in this Report for a while, in that the only catalyst for higher oil prices is lower oil prices. Things won’t get better unless they get worse first, and stay that way for a while. Oversupply in all commodities must lead to capitulation and closures among miners/drillers. That requires a prolonged period of pain at lower prices. Only when supply is actually abandoned, and not simply put on hold, can prices rise once more.

Meanwhile there was no surprise yesterday when the Bank of Japan held its cash rate steady at minus 0.1%, while nevertheless tempering its view on Japan’s economy. There was some surprise that the BoJ statement this month omitted the line suggesting further cuts if necessary that had been present in previous statements. It would appear the central bank is not prepared to go more negative.

Low Volume

The oil rally appears now to have fizzled out as hopes fade – if there really were any in the first place – of production freezes from OPEC and non-OPEC producers. WTI fell 2.3% overnight and initially took Wall Street with it, with the Dow falling by a hundred points at its low.

Also driving weakness was a disappointing US February retail sales result. Not only did February sales fall 0.1%, January’s tepid 0.2% gain was revised down to a whopping 0.4% fall.

(And we always joke about Chinese data.)

Retail sales represent around 25% of all US consumer spending, and these numbers are setting the scene for another disappointing March quarter GDP number this year, despite the lack of weather impact this time around. But elsewhere the US housing sentiment index held steady at a slightly optimistic 58, and the Empire State activity index has flipped over to plus 0.6 in March from minus 16.6 in February, so not all is doom and gloom.

How does a data-dependent Fed see the US economy? Well that we will find out tonight. With the combination of Fed statement, revised forecasts and Janet Yellen press conference all having the potential to move the markets sharply tonight, traders decided to square up positions last night and took the indices back towards flat. Volumes, however, were anaemic, suggesting most of the world is on the sidelines.

Commodities

West Texas crude is down US84c at US$36.45/bbl and Brent is down US82c at US$38.77/bbl.

The iron ore retreat has gathered pace. Spot iron ore down US$3.80 to US$51.70/t. We’ve now taken out that ridiculous jump last week.

LME traders chose to prepare for the Fed meeting with some selling of their own. Copper was little changed but nickel fell 1%, aluminium 1.5%, zinc 2% and lead 3%.

Gold is steady at US$1233.10/oz.

The US dollar index is steady at 96.63 but as commodity prices retreat, so does the Aussie. It’s down 0.7% at US$0.7458.

Today

The SPI Overnight closed down 6 points.

Fed meeting tonight. Enough said.

Sigma Pharmaceuticals ((SIP)) will deliver its earnings result today.
 

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article 3 months old

The Overnight Report: Central Bank Watch

By Greg Peel

The Dow closed up 15 points or 0.1% while the S&P fell 0.1% to 2019 and the Nasdaq was flat.

Out of Gas

The local market tried to get excited about ECB-inspired rallies in the northern hemisphere on Friday night in driving up the ASX200 by close to 50 points in the morning. The index stuck its head above 5200 but there the momentum faded.

With Victoria enjoying a long weekend yesterday, volumes were always going to be lower, and with today’s Bank of Japan policy meeting and Wednesday night’s Fed statement looming it appeared to be a good opportunity to square up.

Energy followed oil up with a 1.4% gain, the banks found some more support and rallied 0.6%, and telcos posted a solid 2.0% gain. Thereafter, sectors exchanged small ups and downs.

Having rallied back strongly from 4800 to 5200 on the back of commodity price rebounds and a realisation the banks were not about to go to the wall, the local market has run out of reasons to push forward and on to 5400. The iron ore price is now falling back, the oil price has largely stabilised and the gloss seems to have come off gold. Indeed, Aussie dollar gold has taken a bit of a tumble on strength in the currency.

The next move in either direction will likely be central bank driven. The Bank of Japan may feel the need to counter the ECB today although typically when everyone expects the BoJ to act it doesn’t, and vice versa. While no one expects a rate hike from the Fed the world will be closely scrutinising FOMC forecasting for clues as to whether and when there might be another rate hike.

Caution

The story is the same in the US where the S&P500 is now only 100 points shy of its all-time high despite the turmoil of early 2016. There are also a lot of US data releases due as the week progresses but none of note last night, ensuring a quiet session as Wall Street waits to see what, if anything, the BoJ might do today.

I suggested yesterday that the strong correlation between US stock indices and the oil price has begun to fade as the oil price finds some stability near the US$40/bbl mark. Last night WTI fell 3% but the stock markets weren’t interested.

At least we’re now seeing more moves of 3% or less for oil when 6% plus had become the norm in the past couple of months. And despite the volatility, we’re not really going anywhere at the moment.

Last night’s fall in oil stemmed from Iran declaring that it would not consider freezing its production until a target rate of 4 million barrels per day has been achieved. The rate is currently around 2 million. OPEC members have suggested they would agree to production freezes as long as it’s one in, all in. If Iran’s not in, then no freeze. Not that it makes much difference to global supply if the likes of Saudi Arabia freezes production at record levels.

The oil price did not plummet on Iran’s defiance, as it may have done a month or so ago, because data suggest other OPEC members actually are cutting production to stem financial losses and that US production may well be now on a downturn.

With commodity price rebounds now accounted for, what can drive Wall Street all the way back to all-time highs? It won’t be the economy, because that’s a tit for tat consideration – good numbers raise Fed rate hike expectations and bad numbers ease Fed rate hike expectations. It will probably have to come down to earnings, which were weak in the December quarter.

Interestingly, this year’s March quarter, earnings from which will be reported next month, was the first in two years without a major weather impact in the US. There was “Snowzilla”, but it was an isolated incident compared to the snowbound slowdowns of the March quarters of 2015 and 2014. In other words, year on year earnings “comparables” should look pretty good this time.

Commodities

West Texas crude is down US$1.21 at US$37.29/bbl and Brent is down US77c at US$39.59/bbl.

LME traders had the first opportunity last night to respond to the weekend’s data out of China and indeed these evoked some weakness, but with the Fed meeting coming up there was no rush to over-sell. Aluminium, nickel and zinc each lost a percent while copper stood still.

Iron ore fell another US60c to US$55.50/t.

After a solid run-up for gold recently, it appears traders are not too keen to run the gauntlet of central bank meetings this week without locking in some profits. Following Friday night’s fall, gold is down another US$17.00 at US$1234.70/oz.

The US dollar helped, rising 0.4% on its index to 96.59. That also promoted a 0.7% fall in the Aussie to US$0.7507 but I did flag yesterday that the Aussie’s short-covering rally would likely run out of steam.

Now it just depends on what the Fed comes up with.

Today

The SPI Overnight closed up 4 points.

The RBA will release the minutes of its last policy meeting, held two weeks ago, today, but I would suggest rallies in commodity prices and the Aussie and action by the ECB in the interim render those minutes a bit behind the times, notwithstanding what else happens this week.

The Bank of Japan meets today.

Wall Street will cop a dump of retail sales, inventories, wholesale inflation and housing sentiment numbers tonight along with the Empire State activity index.

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

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Determination

The Australian market appeared similarly confused as to how to interpret Mario Draghi remarks on Thursday night following the ECB’s surprisingly extensive stimulus package announcement. European markets had sold down heavily but while Wall Street also tumbled on the open, the buyers soon returned with gusto.

Buyers also reappeared on Bridge Street at midday on Friday to send the ASX200 up to a positive close from a 32 point drop. The biggest move among sectors was a 0.9% gain for consumer staples. We might assume last week’s strength in the Aussie will ease some of the food deflation pressure the supermarkets have been suffering of late.

The Aussie has become somewhat of a concern, rising yet another 1.6% to Saturday morning at US$0.7562. Will the RBA be forced into action? Rebounds in commodity prices have driven short-covering in the Aussie and central bank easing all over the globe is making our 2% cash rate ever the more attractive to foreign investors.

The saviour could be the Fed, were it to raise its own cash rate this week. But that’s not going to happen. The Aussie will likely find resistance once the shorts have all been cleared out but to fall back to 70c would require an indication from the Fed that rate hikes are still very much expected in 2016.

In the meantime, the local market seems fairly determined it is going to push up to previous resistance levels and, if all goes well, perhaps make another shot at 5400.

Rethink

The German stock market jumped 3.5% on Friday night. On Thursday night the DAX initially rallied 2.5% on the ECB’s bigger than expected stimulus package, but then crashed to be down 2.5% following Mario Draghi’s press conference in which the ECB president declared he “did not anticipate the need for further rate cuts”.

European markets interpreted this statement to imply the ECB has now thrown everything at it, and that’s all there is. But another interpretation, and no doubt what Mario Draghi was trying to say, is that such an extensive stimulus package should be enough to support the eurozone economy. It does not mean the ECB has no further “whatever it takes” capacity.

Wall Street initially fell along with Europe on Thursday night before rallying back to be flat on the session. European investors had a night to think about it, and decided on Friday night their initial interpretation might have been a bit short-sighted and unnecessarily panic-driven. So the DAX jumped 3.5%. We might therefore conclude with some rough maths that the fresh ECB stimulus was worth a net 1.5% rally in Germany.

France chimed in with a 3.3% rally on Friday night and London rose 1.7%. Wall Street shot up from the open and largely held that gain throughout the session. The Dow closed up 218 points or 1.3%, the S&P gained 1.6% to 2022, and the Nasdaq rose 1.9%.

Oil Talk

The headlines suggest Wall Street rallied because oil did, because that’s been the correlation throughout 2016 to date. I believe, however, that the correlation is beginning to fade somewhat now oil appears to be consolidating around the high thirties for WTI. West Texas rose US67c on Friday night, which is not typically worth 200 Dow points even if it is off a low base.  Wall Street was more likely embracing ECB QE.

Oil found renewed strength on Friday night because the International Energy Agency suggested oil prices may now have seen a bottom. Iran’s return to the market has been less dramatic than Iran implied it would be, and despite all the spurious chatter about meetings, it does actually appear supply from producers outside OPEC has begun to fall. Within OPEC, all of Nigeria, Iraq and the UAE saw reduced production in February.

A chastened Goldman Sachs also agreed on Friday night oil might have seen the bottom. Goldman sent oil tumbling earlier in the week by suggesting the rebound was all about short-covering and was unfounded on supply-demand realities, but on Friday night forecast a range of US$25-45/bbl for the June quarter, up from a previous US$20-40/bbl. The investment bank has now qualified its earlier call be suggesting simply that oil will take time to recover from the lows given the extent of inventory rundown required, so don’t expect any major rally from here.

Commodities

West Texas crude rose US67c to US$38/bbl on Friday night and Brent rose US28c to US$40.36/bbl.

Aluminium was flat on the LME but the other base metals posted modest gains as traders awaited Saturday’s Chinese data dump. Copper rose 1% and zinc 1.5%.

The pullback from iron ore’s single-day near 20% jump last week continues, with the metal falling US$1.30 on Friday night to US$56.10/t.

Despite the US dollar index remaining flat at 96.21, gold has fallen back US$16.10 to US$1251.70/oz, retracing Thursday night’s ECB-inspired jump.

The SPI Overnight closed up 42 points or 0.8% on Saturday morning.

Slow Start

Data released by Beijing on Saturday showed industrial production up 5.4% year on year for the January-February period, down from 5.9% in December and missing forecasts of 5.6%. Retail sales rose 10.1%, down from 11.1% and missing 10.8% forecasts. Fixed asset investment rose 10.2% year to date, down from 11.1% but exceeding forecasts of 9.5%.

Beijing combines data for January and February rather than the usual monthly numbers because of the New Year interruption. That interruption can often to lead to misleading results in trend terms, but there are no real surprises in this data dump from a trend perspective. Subsequent months will nevertheless reveal whether China’s own stimulus measures are having an effect, such that Beijing’s 6.5-7.0% GDP target for 2016 can be achieved.

The Week Ahead

The Bank of Japan will no doubt be frustrated but hardly surprised by the ECB’s stimulus step-up last week. The BoJ meets tomorrow but no one is expecting any further plunge into the negative for Japanese rates, especially given the Fed will release its quarterly policy statement on Wednesday night.

No one is expecting the Fed to hike this month but the focus will be on the so-called quarterly “dots”, which represent forecasting from each of the FOMC members and thus provides an indication of net dovishness/hawkishness. At this stage the Fed futures market has a June rate hike at 43% chance. Janet Yellen will hold a press conference post release.

The Bank of England also holds a policy meeting this week, on Thursday night, but no one seems to care. Of more interest is the growing wave of Brexit support now Mad Boris has thrown his weight behind the campaign.

The RBA will release the minutes of its March policy meeting today. With all that’s transpired in the past two weeks, including the Aussie shooting up to 75 from 70, these minutes are a bit stale.

US data releases this week include retail sales and inventories, housing sentiment, the PPI and Empire State activity index tomorrow night, industrial production, CPI and housing starts on Wednesday, and leading indicators and the Philadelphia Fed activity index on Thursday.

Friday it’s fortnightly consumer sentiment and the quarterly quadruple witching expiry of equity derivatives.

The highlight of Australia’s economic data week will be the jobs numbers on Thursday.

On Friday the quarterly changes to the S&P/ASX indices will become effective.

Note that the US went on to summer time on the weekend, so as of tomorrow the NYSE will close at 7am Sydney time.

Rudi will appear on Sky Business through Skype-link on Tuesday, 11.15am, and in the studio as guest on Thursday from 12.30 till 2.30pm, and again through Skype-link on Friday, 11.15am.
 

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

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Tomorrow, China will release industrial production, retail sales and fixed asset investment numbers.

The ECB will now throw everything it has at the eurozone economy. Fearing there may be nothing left to throw, the market has bought up the euro, in stark contrast to the intention of ECB policy.

At its last meeting, the Bank of Japan cut its cash rate to negative. Unfortunately for the BoJ, the US dollar chose the same time to start retreating, as expectations of a March Fed rate rise faded. The yen subsequently rallied, in stark contrast to the intention of BoJ policy.

When everything is moving the same way, it is impossible to get ahead. Next week the BoJ will hold another policy meeting on Tuesday and the Fed will release its latest policy statement on Wednesday night. It’s a quarterly meeting, thus Fed forecasts and the famous “dots” will be updated and Janet Yellen will hold a press conference.

No one is expecting a Fed rate hike. But will there be one in June?

Just about everyone would like to see an RBA rate cut, except the banks perhaps. But with a GDP growth rate of 3% and strong employment, it just can’t happen. The minutes of the last RBA meeting are due on Tuesday. On Thursday, the February unemployment numbers are set for release.

It won’t receive nearly the same level of attention, but the Bank of England holds a policy meeting next Thursday.

The Fed meeting will get all the attention but next week also sees a lot of US data, including numbers for inflation, housing sentiment and starts, retail sales, industrial production and consumer sentiment, along with the Empire State and Philly Fed activity indices.

Friday night on Wall Street is the March quadruple witching equity derivatives expiry.

Friday on Bridge Street will see the quarterly promotions/relegations within the S&P/ASX stock indices become effective.

There is another round of ex-divs to get through on the local bourse next week, and also a bout of out-of-cycle earnings reports. They include Sigma Pharmaceutical ((SIP)), OrotonGroup ((ORL)), Premier Investments ((PMV)) and the most heavily shorted stock on the market, Myer ((MYR)).
 

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

While the local market has been influenced by the macro backdrop during the month, reporting season has thrown up plenty of substantial micro moves. With around a third of companies covered by FNArena database brokers having reported to date, the beat/miss ratio (FNArena’s own assessment) is running at 2.4 to 1 and broker ratings upgrades have outnumbered downgrades by 1.6 to 1.

It’s one reason why we’ve pushed our way back towards the 5000 mark on the ASX200.

But next week sees the other two thirds of companies reporting. So realistically, it’s still early days. From an economic data standpoint, next week’s December quarter wage index and private sector capex numbers remind us that the quarter’s GDP result is nigh.

It’s a busy week for US data next week, just to add further to the tedious Fed debate. We’ll see new and existing home sales, house prices, consumer confidence, durable goods, personal income and spending and trade numbers and the Chicago Fed and Richmond Fed indices. There will also be flash estimates of February manufacturing and services PMIs and a revision of the December quarter GDP result.

Japan and the eurozone will also provide flash PMIs next week, while Japanese inflation will be in the spotlight by week’s end.

Highlights among next week’s reporting companies are far too numerous to list, so please refer to the FNArena calendar (link above).
 

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article 3 months old

The Overnight Report: Oversold Scramble

By Greg Peel

Wall Street was closed for a public holiday last night.

Rolling Thunder

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

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

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

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

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

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

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

Bad is Good?

Here’s a headline you will not often read:

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

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

Also bouncing back hard was the renminbi.

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

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

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

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

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

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

Commodities

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

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

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

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

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

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

Funny old world.

Today

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

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

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

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

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

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

China will be back in business next week, which may prove interesting for metals prices. The iron ore market all but shuts down in China’s absence but base metal markets suffer extreme volatility due to thin volumes, as has proven the case again this week.

Beijing will immediately hit the market with January trade numbers on Monday, followed by inflation numbers on Thursday.

The eurozone will report December quarter GDP tonight as will Japan on Monday.

It’s a long weekend for the US due to the Presidents’ Day holiday on Monday and all markets will be closed. This would suggest some squaring up on Wall Street ahead of the break but in the current volatile environment, anything can happen.

US data releases next week include housing sentiment and starts, industrial production, inflation and the Empire State and Philly Fed activity indices. The minutes of the January Fed meeting are due on Wednesday.

The minutes of the February RBA meeting are due on Tuesday, ahead of Australia’s employment numbers on Thursday.

Next week sees the local reporting season shift into top gear as the week progresses. The volume of reports means there are just too many from which to select highlights, so please refer to the FNArena calendar (link above).

Please note also the calendar is compiled on a best endeavours basis. Australian companies are under no regulatory obligation to publish reporting dates and three different brokers often provide three different date assumptions for the same company. Other companies simply report when they’re ready, leading to apparent calendar omissions.
 

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article 3 months old

The Monday Report

By Greg Peel

Ground Zero

It was a stuttering session on Bridge Street on Friday as the local market struggled to establish any direction on the last trading day of what had been a disappointing month. One sector at least knew which way it was headed, with a 5% gain in energy off the back of the oil price rebound being the stand-out on the day.

There was some counterbalance from selling in the big hospital names, leading healthcare down 1.8%, but otherwise it looked like a weak monthly close at midday when the ASX200 was down 30 points. Then along came the Bank of Japan.

Having only a week ago assured markets there would be no dramatic move in monetary policy, the Bank of Japan shocked markets on Friday afternoon by dropping its cash rate to minus 0.1% from plus 0.1%. As Japanese banks will now have to pay 0.1% to park their money with the central bank, the move has been implemented to encourage lending into the economy instead. As to whether this is the magic bullet needed to get Abenomics back on the rails, well there’s not a lot of optimism across the globe.

But the move was certainly well received by stock markets. The Japanese Nikkei index jumped 2.8% to its close but beforehand the Australian market found the kicker it needed to carry the ASX200 back over the 5000 mark to close the month, as I had suggested on Friday morning would be the goal of fund managers in the session. The 5000 level is certainly ground zero for the local market – a centre of gravity so powerful we have ultimately returned to it every time there is any move above or below over the past 12 months.

All the Way with the BoJ

The BoJ rate cut also gave UK and European markets a shot in the arm, and that mood lost nothing as it crossed the pond to Wall Street. Underpinned by the week’s rebound in oil prices, the US markets took the Japanese rate cut as a major positive at a time the December Fed rate hike has been causing much consternation.

The Dow closed up 396 points or 2.5%, the S&P gained 2.5% to 1940 and the Nasdaq rose 2.4%.

Talk persists of Russia and Saudi Arabia agreeing to 5% oil production cuts. There are various reasons why the world is sceptical of this possibility, not least of which being a long history of failed co-operation between the two producing nations. But most importantly, it is the US which is creating global oil oversupply. With oil at US$30 a barrel, non-US oil producers have the best chance of affecting global supply reduction if, having come this far, they can just sit it out a bit longer and wait for a slew of underwater US producers to go to the wall.

If production cuts are implemented outside the US, pushing oil back to 40 or maybe even 50, then marginal US producers will hang in there and the problem will not have been solved. Oil would likely then go back down towards 20 again.

Oil prices stabilised on Friday night but there is no doubting the week’s rebound, to end a still woeful month, has given Wall Street some renewed hope amongst Fed rate rise fear and what is proving yet another disappointing US corporate earnings season. Energy sector losses have made net earnings look woeful but that aside, once again revenue growth across the US economy is sadly absent.

On the subject of Fed policy, Friday night’s first estimate of US December quarter GDP came in right on expectation at 0.7% growth. That’s down from 2.0% in the September quarter and 3.9% in June. The result might have met expectation, but on the basis of this trend, how could one see a central bank continuing on a steady tightening path? And for the third year running, snow is threatening to be a factor in the March quarter.

The GDP result was thus another outside factor in Wall Street’s rally on Friday night. It is hard to see the Fed raising in March. The BoJ has gone the other way, and oil has stopped falling. For now.

Commodities

West Texas crude was almost unchanged over 24 hours on Saturday morning at US$33.56/bbl. Brent was up US71c at US$34.74/bbl.

The BoJ’s move unsurprisingly sparked a big plunge in the yen and subsequently the US dollar index jumped 1% on Friday night to 99.58. This should have been bad news for commodity prices, but over in London, base metal traders were more heartened during the weak by the oil price rebound.

We are also now only a week away from that annual event that always has the capacity to throw commodity markets into a bit of a turmoil. Chinese New Year comes very early in 2016, beginning next week. There is always a scramble ahead of the break, which pushes prices up, deathly quiet during the week, and sell-off afterwards as life slowly returns to normal. The holiday also distorts Chinese data over the period which often causes distress.

You’d think we’d be used to it by now.

Copper rose 0.6% on Friday night but short-coverers sent zinc up 2.5%, lead up 3% and tin up 4.5%.

Iron ore was unchanged at US$41.50/t.

Gold was also little changed despite the big dollar jump, at US$1116.90/oz.

And the big rise in the greenback did not impact on the Aussie, which is steady at US$0.7080, given the counterbalance of a lower yen through the cross-rates.

The SPI Overnight closed up 37 points or 0.8% on Saturday morning.

The Week Ahead

Today is the first of February and that means two things: the first of the month brings the global round of manufacturing PMI releases; and we have now entered the local corporate earnings result season.

In China’s case, Beijing will release both the official manufacturing and services PMIs today. As we know from last month, these releases have the capacity to send the Chinese stock market into apoplexy.

For the US, it’s jobs week. I would suggest we’re probably now back into a “good news is bad news” setting on Wall Street, such that a better than expected non-farm payrolls result this coming Friday night will send US stocks south on Fed rate rise fears.

Before we get to that result, the US will see personal income & spending tonight, vehicle sales on Tuesday, private sector jobs on Wednesday, and factory orders, productivity and chain store sales on Thursday.

The Bank of England will hold a policy meeting on Thursday. What surprises might it come up with?

The RBA will meet tomorrow. No surprises are expected downunder. The RBA will also release a quarterly Statement on Monetary Policy on Friday.

Australia’ manufacturing PMI is out today, along with monthly house prices and the TD Securities inflation gauge. The services PMI is due on Wednesday and construction on Friday. We’ll also see building approvals and the trade balance on Wednesday and retail sales on Friday.

The first week of the results season proper will start slowly as always. Navitas ((NVT)) will report tomorrow, a small group will report on Thursday including News Corp ((NWS)) and Tabcorp ((TAH)), and Friday sees REA Group ((REA)) along with a couple of others.

Macquarie Group ((MQG)) will provide a trading update on Thursday.

Rudi will make his first appearance in 2016 on Sky Business as host on Wednesday, YMYC, 8.00-9.30pm and re-appear as guest on Thursday at noon.
 

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

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The Next Three Weeks At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Tomorrow the ASX will close at 2.10pm local and the NYSE will close at 1pm local.

All Western markets will be closed on Christmas Day while in Australian and New Zealand, markets will be closed on Monday December 28 in lieu of Boxing Day.

On December 31, the ASX will close at 2.10pm local. Japanese markets will be closed. All Western markets and the Japanese and Chinese markets will be closed January 1.

Next week the US will see house price, consumer confidence, trade and pending home sales numbers and the Chicago PMI. The first week of the new year will bring durable goods, factory orders, and the private sector and non-farm payrolls employment numbers. The week will also see the release of the minutes of the historic December Fed meeting.

Beijing will release official manufacturing and services PMI numbers on New Year’s Day while the rest of the world will deliver manufacturing PMIs on January 4 and services PMIs on January 6, including Caixin’s Chinese PMIs.

New Zealand markets will be closed on January 4.

Australia will see private sector credit numbers on December 31 and the first week of the new year brings house prices, the PMIs, building approvals, retail sales and trade numbers. Monday January 11 sees ANZ’s job ads series and Australia’s unemployment numbers are due on January 14.

FNArena’s regularly daily service will close from today and reopen on January 14.

Merry Christmas and Happy New Year to all.
 

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The Monday Report

By Greg Peel

Too Soon, Again?

After a day of rallying ahead of the Fed rate decision, and a subsequent day of rallying after the Fed rate decision, a 250 point fall in the Dow on Thursday night spooked investors on Bridge Street who were likely convinced the Santa Rally had finally begun. False alarm! they cried. And they proceeded to offer the ASX200 down 76 points on the opening rotation.

Both Wall Street and Bridge Street had experienced a somewhat euphoric couple of sessions centred around the end of uncertainty resulting from the Fed’s long-awaited rate hike. Many had assumed the end of uncertainty would translate into a resumption of the longer term stock market rally. But when the champagne ran out and the band started packing up, reality set in that at least in the short term, the market would have to return to a consideration of those things called…um…oh yeah, fundamentals.

One of the more prominent fundamentals is the oil price. But the Fed has not gone away, as Wall Street now has to weigh up the likely pace of the Fed’s ongoing tightening cycle. Consensus had four subsequent rate hikes in 2016. The Fed’s “dots” suggested three. Suddenly US bank stocks, noting that banks are beneficiaries of higher interest rates, looked a little bit overvalued in anticipation.

And more generally, implicit strength in the US dollar is set to weigh further on the earnings of US multinationals.

None of which (other than the oil price) is likely to have a specifically negative impact on the Australian stock market. If anything, a stronger greenback means a weaker Aussie, and that’s positive, and a slower pace of Fed tightening means a slower pace of US investors bailing out of the longstanding carry trade (buying Aussie stocks for yield).

So when the ASX200 opened 76 points lower on Friday, in came the buyers. Outside of tiny info tech, the only sectors the ultimately end the session in the red were, predictably, energy and materials.

The question for today is: Can the ASX200 again defy another huge fall on Wall Street, as was the case on Friday night?

Toil and Trouble?

It is unclear just how much of Wall Street’s plunge on Friday night, which on the back of Thursday night’s fall represented the biggest two-day drop since August, is directly attributable to a “quadruple witching” expiry of equity futures and options that came so soon after the historic Fed rate rise.

The Dow fell 367 points or 2.1% while the S&P lost 1.8% to 2005 and the Nasdaq fell 1.6%.

It is not untypical to see a degree of volatility on “quad witch” days given the S&P500 tends to gravitate towards the most commonly held option strike price as market-makers race to cover their exposures. We may surmise that on Friday the target was S&P 2000. But behind that smoke screen there were clearly other issues at play.

The worst performing sector on the S&P was the banks, which harks back to the “slower pace of tightening” argument above. The best, or rather least-worst, performing sector was utilities. Again we see a slower pace of tightening at play. The oil price was down again, albeit by less than a percent this time, but bottom pickers in oil stocks appear to have retreated, bruised, to the sidelines.

Of more concern with regard to oil is the ever widening spread between investment grade corporate bonds and non-investment grade (junk) bonds which can be directly linked to fear of oil companies defaulting on their debt. The US ten-year Treasury yield fell another 4 basis points on Friday night to 2.20%.

There was also some concern surrounding a surprise announcement on Friday from the Bank of Japan.

Setting Sun?

Given Japan officially fell into recession in the September quarter, markets had been expecting the BoJ to announce increased QE. But no, all is on track, the central bank insisted. Then the ECB extended its own QE program early this month, so on a tit for tat basis the market again began to expect a response from the BoJ when it met on Friday.

The expectation was that the BoJ would increase the level of bond purchases within its QE program. But it didn’t. Instead, it extended the maturity of the bonds it would target. And it would increase the amount of equity EFTs it has been buying to “invest in physical and human capital”, which is code for “support the stock market”.

Again, the BoJ announced these adjustments with a familiar air of optimism for the Japanese economy. But the brave face is starting to become a little bit worn. If there’s no problem, why tweak QE? And if there is a problem, why not increase the level of bond purchases? Has the BoJ reached its limit of QE fire power?

On that fear, the Nikkei fell 1.9% on Friday, when typically extended QE would spark a rally. The surprise and concern was not lost on Wall Street, again making it difficult to decipher exactly what it was, other than a range of issues, that sent Wall Street into a tail spin on Friday night.

The US dollar subsequently fell against the yen, leading the dollar index down 0.6% to 98.68.

Commodities

The dollar’s decline could not stop West Texas crude falling another US26c to US$34.66/bbl and Brent falling US30c to US$36.69/bbl.

The dollar did help out base metals, although volumes have now become thin on the LME as the market winds down ahead of Christmas. News broke on Friday that nine major Chinese copper smelters would meet on Saturday to discuss stockpiling a level of production rather than dumping it onto an oversupplied market, and as a result copper jumped 2.7%. There were sympathetic moves in aluminium and zinc, up 2%, and lead rebounded 3.6% having been heavily sold down earlier in the week on excess inventory numbers. Nickel and tin sat put.

Iron ore rose US80c to US$39.30/t.

It was a rollercoaster ride for gold last week, as markets struggled to figure out whether a combination of Fed rate rise and gradual subsequent rises was bullish or bearish for the US dollar. On the dollar’s fall on Friday night, gold rallied back US$14.00 to US$1065.50/oz.

The Aussie dollar is also up on the greenback’s fall, by 0.8% to US$0.7178.

The SPI Overnight closed down 40 points or 0.8%.

The Week Ahead

Historically, two of the best two weeks of the year for Wall Street are the last two weeks of December. Yes, it’s called a Santa Rally. But the reality is the vast bulk US corporations, including fund managers and stockbrokers, account on a calendar year basis. Thus December 31 represents not only the end of the quarter but the end of the fiscal year and with that comes the potential for an elevated level of “window dressing”.

This is important for the purposes of lifting apparent fund manager performance as marked at the end of the year, but also important for employee bonuses, which are paid based on calendar year success, or lack thereof.

In other words, don’t yet write off Santa, as long as those dreaded fundamentals don’t get in the way.  And consider that most of Australia’s major investment banks are foreign, and also operate on a calendar year basis, and otherwise it’s still an end of quarter approaching. Being the December quarter, for most of the market the year actually ends this week – before Christmas and the summer break.

All Western markets are closed on Christmas Day, Friday.

The US will cram a lot of data releases into the first three days of this week. Tonight sees Chicago Fed national activity index, tomorrow the Richmond Fed manufacturing index, existing home sales, FHFA house prices and a final revision of the September quarter GDP. The market is forecasting a pullback to 1.9% from the last estimate of 2.1%.

On Wednesday it’s durable goods, new home sales, personal income and spending and the fortnightly Michigan Uni consumer sentiment measure.

The NYSE will close at 1pm on Thursday.

Japan will be closed on Wednesday.

There are no Australian data releases of note this week. The ASX will close at 2.10pm on Thursday.

FNArena will cease its regular daily service after Wednesday. Service will recommence on January 14. The website will nevertheless be accessible over that period.
 

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

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