Tag Archives: Japan

article 3 months old

The Overnight Report: Iron Will

By Greg Peel

The Dow closed up 88 points or 0.5% while the S&P gained 0.5% to 2107 and the Nasdaq added 0.4%.

Stormy Weather

The focus for the national market in Australia yesterday was the CPI numbers. The focus in Sydney and surrounding regions was out the window. For the banks, the RBA’s interest rate decision is important. For the insurers, gathered in the same financials sector, the extent of damage on the east coast of NSW is clearly a concern.

The March quarter headline CPI came in at 0.2% quarter on quarter for 1.3% annual growth. The trimmed mean, or “core”, CPI grew 0.6% for 2.3% annual. Both numbers were a whisker above consensus just ahead of the release. The unusually wide gap between headline and core reflects a 12.2% drop in petrol prices over the quarter.

The whisker above seemed enough to spook markets into thinking maybe a May rate cut is not a given. Economists disagree, noting the numbers are within the RBA’s latest inflation forecast ranges and thus should provide no impediment to cutting the cash rate one more time.

Forex traders were not convinced, sending the Aussie up 0.6% to US$0.7754.

Doubt was enough to see the financials sector leading the market down yesterday with a 0.9% fall, with insurers joining the banks as the damage bill for the east coast storm is clearly rising. Energy was also hit on a drop in oil prices, while the telco and industrials finished in the green.

Beyond that we seem, at present, simply to be going up and down with Wall Street. It’s not clear why, given Wall Street, at present, is simply going up and down on daily earnings results. Monday night saw some weak reports, thus Dow down 80, and last night saw more positive results, hence Dow up 80.

Treading Water

Last night once again saw all three major US stock indices close above their respective “big figure” levels of 18,000, 2100 and 5000. Wall Street has been going up, down, up, down but not actually going anywhere. Likewise Australia.

Last night saw well received earnings reports from what Americans would see as staples companies, being Dow components McDonald’s and Coca-Cola. Sticking to the Dow members, Boeing posted a beat but fell given a strong run-up in share price, and Visa saw its shares jump on an announcement China will open up its market to card transaction clearing.

In economic news, US existing home sales rose a better than expected 6.1% in March, suggesting a revival after a slow start to the year due to the weather. The FHFA price index of houses on Fannie/Freddie mortgages rose 5.4% year on year to February.

That index is now back at January 2006 levels, which is about when things really started to go nuts in the US mortgage market. It is 2.9% below the March 2007 peak, which is about the time the wheels started to fall off.

The existing home sales news represents the first bit of positive US economic data in about around a month, and signals to markets that arguments about snow impacting on March quarter data may not be off the mark. If a spring economic rebound is on the cards again, as it was in 2014, then we’re back to debating a June Fed rate rise again.

Last night the US ten-year yield jumped 6 basis points to 1.97% and gold fell US$15.30 to US$1186.50/oz, despite the US dollar index being up only slightly to 98.02.

Rising Sun

As a side note, much has been made lately of the tech-laden Nasdaq index re-conquering the 5000 level for the first time since 2000. Well yesterday the Japanese Nikkei stock index re-conquered 20,000 for the first time since 2000.

That’s a 15% rise for the Nikkei this year. Mind you, the all-time high for the Nasdaq is just a little over 5000. The all-time high for the Nikkei is almost 39,000, achieved in 1989 at the peak of Japan’s stock/property bubble that subsequently burst and ushered in 20 years of winter.

Either way, two years ago the BoJ looked to Fed QE and saw that it was good, and Wall Street has surpassed its previous all-time highs in the interim, and earlier this year the ECB looked to Fed QE and BoJ QE and saw that it was good, and now the German DAX has travelled into all-time high territory. Meanwhile, the RBA is struggling with a decision whether or not to cut its rate to 2.0%, and the ASX200 remains 17% below its 2007 all-time high.

Iron Capitulation

Someone get Twiggy’s heart pills, the spot iron ore price has jumped US$2.10 or 4% to US$52.90/t.

While Tuesday’s quarterly report from Rio Tinto ((RIO)) indicated the company’s iron ore expansion plans remain on track, yesterday’s report from rival BHP Billiton ((BHP)) indicated the company would slow the pace of its own Pilbara expansion, due to low iron ore prices. Following production curtailments from the likes of Atlas Iron ((AGO) and Arrium ((ARI)), Australia, and thus the world, is finally seeing a meaningful supply-side response to the iron ore price collapse. Bottom in place?

The rest is now up to China. The fall in the iron ore price has been all about increased supply, given China continues to buy increasing volumes of iron ore. China is the king of stocking low and destocking high, and demand for steel in China has waned. Will a price revival bring a negative demand response from China? That will depend on Beijing’s plans for any further infrastructure and housing stimulus.

Base metal prices were mixed and largely inconsequential last night, except perhaps for a 1.4% rise for zinc.

The oils went in both directions as the West Texas contract rolled into June delivery, in line with Brent. WTI fell US42c to US$56.19/bbl while Brent rose US87c to US$62.68/bbl.

Today

All eyes will be on HSBC’s flash estimate of China’s April manufacturing PMI today. Flashes will follow from Japan, the eurozone and US.

A busy day on the local stock front sees production reports due from Newcrest Mining ((NCM)), BC Iron ((BCI)) and Sandfire Resources ((SFR)) while Telstra ((TLS)) will hold an investor day, Australian Pharmaceutical Industries ((API)) will report interim earnings and later ResMed ((RMD)) will report quarterly earnings in the US.

Rudi will appear on Sky Business's Lunch Money, at noon, and again between 7-8pm on the same channel for Switzer TV.
 

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

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

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

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article 3 months old

The Overnight Report: Minutes Of Disagreement

By Greg Peel

The Dow closed up 27 points or 0.2% while the S&P gained 0.3% to 2081 as the Nasdaq rose 0.8%.

Orange Invasion

The Poms will be having flashbacks to the reign of William and Mary following Shell’s US$70bn takeover bid for BG. Royal Dutch Shell that is, looking to take out the old British Gas. Analysts have long talked about a positive impact of falling commodity prices being potential consolidation through M&A, in which the strong devour the weak and strengthen the market at the bottom of the cycle.

They’ve talked about it, but in the haze of oil price volatility the punters were never going to be confident until they actually saw it. Now they have. The Shell move yesterday floated all energy sector boats in anticipation of who might be next. The sweetener was Shell’s indirect endorsement of Australian CSG LNG, given BG’s massive QCLNG project in Queensland, nearing completion, is a primary acquisition for Shell. Yesterday the local energy sector rose 2.5%.

What’s another commodity that’s fallen in price from over US$100 to under US$40? Oh yes, iron ore. Shell left no one in any doubt its precocious move was all about exploiting the weak oil price. Australia’s struggling iron ore miners are also prime targets for such a swoop. The materials sector was up 1.3%. Resources led yesterday’s rally.

Minute by Minute

The favourite sport on Wall Street is to second guess the Fed, suggesting the Fed actually knows exactly what it is going to do in the future but just won’t tell anyone. The Fed might be feeling pretty chuffed after having successfully brought the US economy back from the brink but it is not omnipotent, and does not control the rest of the world. Nor is it omniscient, thus it can only make decisions based on how developments play out. This is the whole point of policy decisions being “data dependent”.

Yet still Wall Street will freak out if a couple of FOMC members are still keen on a June rate rise – probably because they’d just like to get it over and done with and move on – and then will run the other way if someone else bemoans the destructive strength of the US dollar. If the Fed has been able to deliver any “forward guidance” at all in 2015 (one of my favourite tautologies, right up there with “plain vanilla”) it is that they will act if it seems appropriate to do so at the time and not if it doesn’t.

The minutes of the last Fed meeting, released last night, throw no light on when the first rate rise will be. The US stock indices chopped around last night as traders agonised over this reality, and settled to a flattish close when someone pointed out the weak March US jobs data had not been released when the Fed last met.

But we’ll keep on debating the subject relentlessly until it happens, just as we did for months ahead of QE2, QE2.5, QE3 and the Taper.

For the record, it appears the Bank of Japan will not be launching any monetary counter attack on the ECB, having left its policy unchanged once more yesterday. The FOMC will have been much relieved.

The US dollar index is 0.2% higher in the wake of the minutes at 98.08, the US ten-year bond yield is steady at 1.90%, and the stock markets went back to worrying about earnings at the bell. Alcoa’s after-the-bell result release showed a miss, underscoring the market’s, and the Fed’s, concerns over the impact of a too-strong greenback. Alcoa shares are down 3% in the after-market.

Oil Shock

Just when you thought it might be safe to jump back into the well, oil tanked again last night. The recent Saudi price rise for exports to Asia had energy markets all excited the bottom may now have been seen, but last night the weekly US inventory numbers showed the biggest one week jump in crude supply since 2001.

As you were.

And just to top things off, the Saudis released March production data last night, which represented a new record.

West Texas crude is down US$2.14 or 4% to US$50.98/bbl and Brent is down US$3.15 or 5% to US$55.24/bbl.

The LME closed last night before the Fed minutes release so there was some hesitancy amongst traders. A 1% claw-back for nickel and a 0.8% drop for copper were the biggest moves.

And speaking of claw-backs, iron ore rose another US30c to US$47.90/t.

Gold fell US$5.60 to US$1201.10/oz.

The Aussie dollar is still trying to find its new equilibrium level following the RBA meeting, and it is up 0.6% to US$0.7684.

Today

The SPI Overnight closed up 4 points.

Gotta love those Sandgropers. It’s all talk of succession when the iron ore price is 140 and then it’s demanding more GST from the commonwealth when the iron ore price is at 40. As to how the resource companies have fared over the past three months of wallowing prices we’ll shall begin to find out from today, when AWE Ltd ((AWE)) releases its March quarter production report. The rest of the sector will follow throughout the month.

We’ll also see Australia’s construction PMI today.

Rudi will appear on Sky Business' Lunch Money, at noon, and again on Switzer TV, between 7-8pm.
 

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

Australia, New Zealand, Singapore, Hong Kong, the UK and Europe are all closed for business tomorrow. US financial markets are closed but banks are open, and US economic data releases continue as scheduled. This means the March jobs numbers will be released tomorrow night to empty exchanges.

Australia, New Zealand, the UK and major European markets are closed on Monday. It’s business as usual in the US. China, by coincidence, is also closed on Monday.

The shortened week next week crams in a lot of economic data releases for Australia. All attention will of course be on the RBA policy decision due on Tuesday, with economists now leaning towards an April rate cut when previously they assumed May.

But next week also sees the service sector PMI, retail sales, ANZ job ads, housing finance and, importantly, the March jobs numbers.

It’s a quiet week in the US data-wise but the minutes of the last Fed meeting, released on Wednesday night, will be closely scrutinised.

The Bank of Japan will hold a policy meeting next week. How long before the BoJ is forced to double-down again on policy as it loses out in the race to the bottom against the ECB? And China for that matter.

China will release inflation data at the end of the week.

The ex-divs have just about fizzled out on the local market but next week sees the beginning of the resource sector’s quarterly production report season. AWE ((AWE)) and ERA ((ERA)) kick us off.
 

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article 3 months old

The Overnight Report: Iron Ore Roars Into The Forties

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P fell 0.4% to 2059 and the Nasdaq fell 0.4%.

Commodity Concerns

Yesterday’s morning session on Bridge Street suggested we might be in for a quiet start to April and June quarter, cementing arguments that a lot of the volatility seen in the last few days of March was as much to do with end-of-quarter shenanigans than anything else. But as the afternoon wore on the ASX200 drifted lower, weighed down by weakness in the resource sectors on the back of falling commodity prices.

For iron ore producers, it won’t get any better today.

Local building approvals slipped 3.2% in January but at 14.3% annualised growth, residential building is still a major driver of an otherwise sluggish economy. And we’re determined to abandon the old quarter acre block dream, given private house approvals are down 1% annually but apartment approvals are up 36.2%.

The strength of that number is encouraging but apartments are a lesser value “trade” for the economy compared to standalone houses, using fewer materials per unit.

More concerning is that house prices in Sydney jumped 3% in March alone, and across the country average prices are up 7.6% year on year. Nice for property owners but a worry for the RBA, and possibly a reason the central bank may hold off next week. But economists don’t believe housing is enough to prevent another cut. Maybe we’ll soon be seeing these macro-prudential controls so long spoken of.

PMI Parade

If housing construction is a bright light for the Australian economy, manufacturing is not. Australia’s manufacturing sector continues to contract despite a lower Aussie, with the manufacturing PMI for March showing a fall to 46.3 from 47.2 in February. I’ve lost track of how many months (years) the sector has now been in steady contraction, but I think it’s since Hills Hoist sales peaked.

The first of the month means manufacturing PMI day across the globe, and there were mixed results. The winners were the eurozone with a rise to 52.2 from 51.0, and the UK with a rise to 57.9 from 56.4. The losers were Australia, Japan (50.3 from 51.6) and the US (51.5 from 52.9).

China cancelled itself out. Beijing’s official result showed a swing into expansion at 50.1 from 49.9, but HSBC’s independent measure showed a swing into contraction to 49.6 from 50.7. Take your pick.

On top of Japan’s weak PMI reading, the March quarter Tankan Survey indicated sentiment among Japanese manufacturers was unchanged over the period, despite the weaker yen.

US Weakness

A survey of US fund managers released last night noted 90% of respondents believe the Fed will raise its cash rate in 2015 and that 85% of those same respondents believe the S&P500 will be higher at the end of the year. This result corroborates what I have been suggesting, that Wall Street has largely factored in a rate rise and just wants to get on with it. There would like be some volatility on the day, but those with a longer term view will not be concerned.

Nor is there a great deal of concern being shown with regard more weak US economic data. Last night featured a weak PMI, a drop in vehicle sales and the disappointing addition of only 189,000 new private sector jobs in March, according to the ADP report – the lowest addition since January 2014. This has curbed expectations for Good Friday’s non-farm payrolls number, but most commentators are quick to blame the first quarter weather, just as they did last year.

And given last year’s experience, they are assuming a rebound in economic growth in the second and third quarters.

The weak numbers did nevertheless mean a weak start to the June quarter for US stocks, with the Dow down 200 points from the opening bell. The buyers came in to trim that to a 77 point close by the closing bell, but a 7 basis point plunge in the US ten-year bond rate to 1.87% suggests not everyone is convinced the data are only weak because of snow.

Similarly, gold was suggesting lower for longer rates last night with a US$20.90 gain to US$1203.80/oz.

The US dollar index fell 0.1% to 98.23.

Ironed Out

Spot iron ore has fallen another US$2.00 or 4%, to a new low of US$49.00/t.

Nickel managed a comeback last night, following its precipitous fall, but the 2.8% rebound was put down to traders taking profits on their shorts and squaring up ahead of the Easter break. Other metal price movements were minimal.

Oil prices also rebounded last night, with West Texas jumping US$2.15 or 4.5% to US$49.68/bbl and Brent rising US$1.54 or 2.8% to US$56.73/bbl.

Weakness in oil prices earlier this week was driven by expectations Iran and the West were about to reach a deal, leading to the lifting of sanctions on Iran and a flood of Iranian oil onto the market. Last night it appeared negotiations had reached a bit of a stand-off, and that a deal was not as close as it had been assumed.

Today

The Aussie seems to have found a pre-RBA level here at US$0.76, with local markets closed until the Tuesday policy meeting.

The SPI Overnight is up an ambitious 23 points despite Wall Street and iron ore price weakness. One might argue that the market cap implications on the ASX200 of lower iron ore miner prices has diminished, assuming the two big players are supported by their dividends.

The trade balance is out today locally and TD Securities will publish its monthly inflation gauge.

Once upon a time, when the ASX actually used to close for lunch, the Thursday before Easter would be a half-day. Not so anymore, officially, but there’ll be tumbleweeds rolling down Bridge Street this afternoon as everyone heads off to their planes, trains and automobiles.

Or the pub.

Have a happy and safe break.

Rudi will appear on Sky Business' Lunch Money, noon-12.45pm.
 

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

Rock and Roll

I suggested on Friday morning that the pullback on Wall Street on Thursday night, following Wednesday night’s post-Fed surge, need not be repeated in the Australian market. If the Fed is back to being dovish again, and the first rate rise is no longer assured in 2015, then Australia’s high-yielding stocks are attractive both offshore and locally – the latter enhanced by an expected rate cut ahead from the RBA. And indeed, the ASX200 closed up 23 points.

Not even the energy and materials sectors, both of which faced further falls in relevant commodity prices, could finish in the red on Friday given the big miners and big oil & gas companies pay, or are about to pay, attractive dividends. The question now is: just how expensive can Australia’s yield stocks get? They were expensive during the February reporting season, according to the analyst fraternity, and here we are with the index back near its post-GFC high.

It appears there’s more upside, nevertheless, with Wall Street swinging back into the positive again on Friday night. The last couple of hours of trading post the Fed statement release on Wednesday night saw US stocks and bonds surge and the US dollar tank, then Thursday saw everything reverse almost back to the starting point. After another night to sleep on it, it appears Wall Street decided it was right the first time around. On Friday the Dow closed up 168 points or 0.9%, the S&P gained 0.9% to 2108, and the Nasdaq added 0.7% to 5026, to be just under its all-time 2000 closing high of 5048.

The US ten-year bond yield fell 5 basis points 1.93%, and the US dollar index fell 1.5% to 97.83.

So on that note, the Local SPI Overnight closed up 28 points, or another 0.5%, on Saturday morning. The bad news, however, is that the weaker greenback has sent the Aussie up again, by 1.9% to US$0.7777. But we can only assume a more dovish Fed will force a more dovish RBA.

The good news is that the weaker greenback has also provided a boost for commodity prices.

Copper Surge

Copper is one metal that has suffered from the Chinese economic slowdown yet remains very sensitive to disruptions in global supply. Last week saw workers at Freeport’s Grasberg mine in Indonesia going on strike and blocking access to the mine. Throw in the drop in the dollar on Friday night and short-covering, and copper jumped 3.4%.

The move was matched by lead, which rose 3.9%, while nickel added 2.8% and aluminium, tin and zinc were all up around 1%.

Iron ore rose US50c to US$55.00/t.

Gold gained US$12.10 to US$1183.40/oz.

Another announced decline in the US rig count added to the US dollar influence in sending West Texas crude up US$1.76 or 4% to US$45.72/bbl, while Brent rose US76c or 1.4% to US$55.11/bbl.

Where to Now?

The Fed’s statement, released last week, appears to suggest a significant shift in policy from the world’s most influential central bank. But realistically, a rate rise would have been the “shift” that capped off the end of QE last October, so really we’re just back in stimulus land once more. Is it a long dream or a long nightmare? Across the globe, countries are attempting to devalue their currencies and boost their economies through monetary easing and in the case of Japan, the eurozone and UK, through QE. The more they move to counteract each other, the less effective that easing is.

Let’s call the whole thing off? Maybe they should all get together and agree to equally write off each other’s debts.

Meanwhile, Fed policy has drawn attention away from our old friend Greece, which is still negotiating with its EU creditors to arrive at an acceptable bail-out deal. The EU is standing firm, and according to some commentators, is at the point of no longer fighting desperately to prevent a Grexit. Either as an alternative or as a bargaining chip, Greece has turned to Russia. The Greek prime minister, who we must remember leads a far left political party, has brought forward his meeting with Vladimir Putin.

Imagine Germany’s response were Russia, amidst the ongoing battle in Ukraine, suddenly to “annexe” Greece via debt commitments. It might have a tiny economy but Greece sits at the crossroads of Europe and the East, and to that end has been strategically important from antiquity right through to World War II. It would seem Mr Tsipras has a bit of leverage on his side.

The Week Ahead

The Fed has thrown away the Thesaurus and from now on will let the numbers do the talking. And just when everyone assumed the strong US February jobs numbers were enough to assure a Fed rate rise, Janet Yellen has downplayed those as well. Wage growth has not been kicking any goals, despite consistently solid new hirings. Only when wage inflation is apparent will the Fed consider a rate rise to be necessary.

Interestingly, the March jobs numbers will be released next week on the first Friday of the month as usual. But that’s Good Friday, and US markets are closed. Wall Street will have a whole weekend to think about it on a chocolate high, before responding on Monday. The rest of us have to wait until Tuesday.

Before then, this week brings the Chicago Fed national activity index and existing home sales tonight, and the Richmond Fed activity index, new home sales, FHFA house prices and the CPI tomorrow, along with a flash estimate of the March manufacturing PMI. Wednesday it’s durable goods, Thursday an estimate of the services PMI, and Friday the fortnightly consumer sentiment measure. The final revision of December quarter GDP will also be released on Friday, and the market is forecasting an increase to 2.4% from the previous 2.2%.

Japan, the eurozone and China, via HSBC, will also be flashing PMIs this week, with all the manufacturing numbers due tomorrow. Japan will also deliver monthly industrial production, retail sales and jobs numbers on Friday, while Germany’s influential IFO business sentiment survey is out on Wednesday.

Australia’s week is devoid of major economic releases, but on Wednesday the RBA will release its biannual Financial Stability Review. This might prove significant for the banks, given the yet to be ratified FSI recommendations and ongoing talk of possible macro-prudential controls for the mortgage market.

Thursday is expiry day for quarterly stock options on the ASX, and we’ll see another round of ex-dividends across the week. Their impact is nevertheless beginning to peter out.

But we will see a burst of off-season earnings results this week, including those from Kathmandu ((KMD)), TPG Telecom ((TPM)), Nufarm ((NUF)) and Bank of Queensland ((BOQ)).

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report. On Friday, Rudi will participate on Your Money, Your Call. Bonds versus Equities, 8-9pm.
 

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

We knew that the Fed was focused on US data previously in making its policy decisions but clearly the FOMC decided it was time to address the market's obsession with words, eg "patient", and timeframes and just let the numbers speak for themselves. Presumably we will now see Wall Street rise and fall on data releases, but perhaps not respond so dramatically to jobs numbers alone.

Next week's US releases include the Chicago Fed index and Richmond Fed index, new and existing home sales, house prices, durable goods, the CPI, flash estimates of manufacturing and services PMIs, and consumer sentiment. The week will wrap up with the final revision of December quarter GDP, which is increasingly old news.

The eurozone and Japan will also be in on the flashing, while Germany's IFO business sentiment survey will be closely watched and Japan will provide industrial production, retail sales, jobs and inflation data at week's end.

The most anticipated flash will be that of HSBC's China manufacturing PMI.

It's a week largely devoid of data but the RBA's Financial Stability Review may revisit the issues of bank capital and macro-prudential controls.

ASX quarterly stock options will expire on Thursday, there'll be several more stocks going ex-dividend over the week and Kathmandu ((KMD)), TPG Telecom ((TPM)), Nufarm ((NUF)) and Bank of Queensland ((BOQ)) all provide earnings results.
 

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article 3 months old

The Overnight Report: Waiting Impatiently

By Greg Peel

The Dow closed down 128 points or 0.7% while the S&P fell 0.3% to 2074 as the Nasdaq managed a 0.2% gain.

Nuts of May

“Members noted that the current setting of monetary policy had been accommodative for some time and that the recent reduction in the cash rate would provide some further support to the economy. They also acknowledged that a lower exchange rate would help achieve balanced growth in the economy. Nonetheless, on the basis of the current forecasts for growth and inflation, members were of the view that a case to ease monetary policy further might emerge.”

And on that note, the ASX200 rallied 66 points yesterday, before settling up 44. All sectors finished in the green bar healthcare. To underscore the connection between the above “confirmation” the RBA will cut again, and the subsequent rush into yield, one need look no further than the energy sector. On Monday energy stocks fell heavily on lower oil prices. On Monday night, further falls in oil prices were even more dramatic, yet yesterday the energy sector was the second strongest performing sector with a 1.5% gain, with only the telco (up 1.7%) more highly sought after.

Why? Because energy stocks now pay dividends, and in the case of Woodside Petroleum, very solid dividends. Never mind that lower oil prices put those dividends at risk.

Interestingly nonetheless, forex traders appeared to focus on a different paragraph in the RBA minutes, released yesterday.

“In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change.”

This statement sent the Aussie higher, as it dismisses any assumption of the next rate cut coming consecutively in April. The Aussie shot up on this news but clearly as a result of some short-covering, as pretty soon it was back again. Indeed, this morning it is 0.4% lower over 24 hours at US$0.7613. Economists had already assumed May was more likely for the RBA’s follow up than April, given CPI data will be released in between, and they have not changed their minds on the strength of yesterday’s minutes.

No Tit for Tat

The Bank of Japan made no changes in policy at yesterday’s meeting, despite the competition now provided by ECB QE. The BoJ still believes Japan’s inflation rate can rise to 2% over time, despite warning it will probably fall to zero in the months ahead.

The eurozone’s CPI for February showed minus 0.3% year on year, up from minus 0.6% in January. The unemployment rate fell to 11.2% from 11.3%. These numbers, while mildly encouraging, are pre-QE. The more up to date ZEW investor survey for March confirmed confidence remains elevated.

Wall Street Roundabout

In the twelve trading sessions of March to date, the Dow has moved by triple digits in nine of them – four up, and as of last night, five down. And always in opposite directions. No one quite knows why the Dow was down again last night having been up strongly on Monday night, other than the FOMC has now gone into the bunker and that’s as good a reason as any to square up.

Last night’s only major US data release was February housing starts and they were a little weak, but quickly blamed on February snow. Otherwise, the debate still rages as to whether the Fed will remove the word “patient” from its monetary policy statement, and 69% of respondents to a CNBC survey believe it will. As to what that means exactly, again, no one’s quite sure, but the same poll is tipping the first rate rise in August.

The US bond market seems none to perturbed, knocking 4 basis points off the ten-year yield last night to 2.04%. It is the ECB most impacting on US rates at present, not the Fed. The US dollar index is steady at 99.65.

Commodity Slump

The US move to summer time even as the snow still falls in some parts creates a brief window in which the LME is still open on the release of the Fed statement, before the UK also moves to summer time. But last night metal traders were not so concerned about monetary policy as they were about simple lack of demand. Base metals are finding it hard to hold up as oil falls.

Last night copper, lead, nickel and tin all fell 1% or more, with only aluminium offering some resistance.

Iron ore fell US50c to US$57.60/t.

The oils were down again, with West Texas falling US69c to US$43.13/bbl and Brent falling US43c to US$53.50/bbl for the new May delivery front month.

Gold is down US$6.00 at US$1148.70/oz.

Today

The SPI Overnight closed up one point.

This suggests Bridge Street will hang on to yesterday’s gains as we await tonight’s Fed decision, although further falls in the prices of oil and iron ore, and copper and gold, may apply some pressure beyond dreams of another RBA rate cut.

Woolworths ((WOW)) will go ex this morning, amongst a group of ex-ers.

Rudi will appear on Sky Business, 5.30-6.00pm and he will host Your Money, Your Call between 8-9pm tonight on the same channel.
 

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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

Next week will be dominated globally by the Fed policy meeting and release of the FOMC statement on Wednesday night. Fed chair Janet Yellen will also conduct her first quarterly press conference of 2015, on the anniversary of her infamous “six months, something like that” throwaway line of her debut conference.

Her we are twelve months later, and the “six months” call may well still apply with regard the timing of the first Fed rate hike.

The Fed’s decision is “data dependent” and next week’s US data releases include industrial production, housing sentiment and starts, the Empire State and Philly Fed manufacturing indices and the Conference Board’s leading economic indicators. Friday brings the quarterly quadruple witching derivatives expiry for US stock markets.

The Bank of Japan will hold a policy meeting next week, which may be interesting in light of the ECB’s thundering entry to the QE club. Will the BoJ resort to some tit for the ECB’s tat?

The eurozone will see monthly inflation and trade data next week and December quarter unemployment, all of which are ostensibly “pre-QE”. The ZEW investor sentiment survey should, on the other, provide an indication of how QE has been accepted.

The thinking behind the RBA’s decision not to cut again this month will be further explained with Tuesday’s release of the board meeting’s minutes, while Glenn Stevens will have an additional chance to provide colour when he makes a speech on Friday.

Thursday will see the expiry of quarterly futures and index options on the ASX.

There’ll be another round of local stocks going ex-dividend next week, mostly concentrated on Monday.
 

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The Overnight Report: Beyond 2000

By Greg Peel

The Dow closed up 155 points or 0.9% while the S&P gained 0.6% to 2117 and the Nasdaq rose 0.9% to 5008.

Rate Debate

It was all about “bad news is good news” on Bridge Street yesterday, just like they used to do it on Wall Street before the Fed ended QE. The question is: will the RBA cut today? At 85 points up for the ASX200 at its peak yesterday, you’d think the RBA was about to cut straight to zero. The close of up 30 points looks a little more sane.

TD Securities does not believe the RBA will cut today, despite issuing a February inflation gauge that was flat on January on both the headline and core rates. That leaves inflation at 1.3% headline and 2.3% core (ex food & energy), offering no impediment to the central bank.

TD Securities is in the minority.

Corporate profits sunk 0.2% in the December quarter despite the resource sector finding some stability and support from a lower Aussie. The slump in resource sector profits over the June and September quarters was a big contributor to the 5.9% net fall in profits in 2014. Wages grew by a mere 0.3% in the December quarter to be up 1.2% for the year.

There is little in the way of either price inflation or wage inflation at present. Low wage inflation is leading to softness in demand.

Australia’s manufacturing PMI fell to 45.4 in February from 49.0. The manufacturing sector continues to contract despite the falling currency.

And China cut on the weekend. Looking at the above data, and last week’s disappointing capex numbers and the jump to 6.4% unemployment, you’d think a rate cut was a no brainer. But there is a problem. House prices rose 0.3% in February to be up 8.3% for the year. Said the CBA economists:

“The most recent RBA interest rate cut looks to be adding further stimulus to the housing market as evidenced by the house price data, auction clearance rates and lending figures.”

All will be revealed at 2.30pm.

Global PMIs

February manufacturing purchasing managers’ indices were released across the globe over the past 24 hours, with mixed results. HSBC confirmed its take on China’s PMI rose into expansion, to 50.7 from 49.7. Japan saw a fall to 51.6 from 52.2.

QE is set to begin in the eurozone this month which will hearten European manufacturers. The eurozone PMI was flat at 51.0. The UK saw a rise to 54.4 from 53.4, while US economists were disappointed with a fall to 52.9 from 53.5.

Nasdaq 5000

US economists were also disappointed with January personal spending numbers. Spending fell 0.2% to mark the second consecutive month of falls – something which hasn’t happened since 2009. But it’s all down to oil prices, which are distorting the figures. Incomes rose 0.3% in January but most of this went into savings, so cheap gasoline or not, Americans are still somewhat reluctant to open their wallets.

And therein lies another interest rate debate.

Core inflation, as measured by the personal consumption-expenditures index (PCE), which is a different measure to the CPI, rose 0.1% in January. Apparently this was enough to set off selling in the US bond market, sending the ten-year yield up 8 basis points to 2.08%.

US stock markets shrugged off the soft data last night and posted a strong performance. They cheered in Times Square when the Nasdaq finally hit 5000 for the first time since 2000. The Nasdaq has only ever been above 5000 for eight days in history.

The big figure proved the peak for last night’s session initially, given the sellers quickly moved in, but a late spurt ensured a close of 5008. In the end it seemed that getting to the number was incentive itself, rather than any fundamentals behind the achievement.

Brent Comes Back

It was also an interesting night in the oil markets. I have noted how the WTI-Brent spread has been quietly blowing out of late, reflecting US oversupply, but last night a collection of factors saw Brent come screaming back. West Texas crude rose US41c to US$49.71/bbl but Brent fell US$2.48 or 4% to US$59.67/bbl.

The Chinese rate cut, confirmation of increased production in Libya, and progress with regard Iranian sanctions all conspired to set off the Brent plunge. Brent is the global oil price benchmark, given North American production stays in North America. The significance of the WTI price is nevertheless its reflection of the lower need for oil imports into the US, thus impacting other global producers.

The US dollar index rose 0.2% to 95.47 last night and gold fell US$7.30 to US$1205.00/oz. Base metal prices were again mixed on inconsequential moves. Iron ore fell US20c to US$62.80/t.

On the strength, or lack thereof, of yesterday’s local data releases, the Aussie is down 0.5% to US$0.7770.

Today

The SPI Overnight rose 14 points or 0.2%.

Today sees the release of Australia’s December quarter current account data, including the terms of trade. January building approvals are also due, and then at 2.30pm the rate that stops the nation will be announced.
 

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

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

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

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

"Exit" is a Latin word, but can it be translated into Greek? The world is holding its breath ahead of tonight's meeting of Greece's creditors.

Notwithstanding whatever the outcome may be, next week is a very busy one in both macro and micro terms. Locally we see the final and most crowded week of the corporate result season, and by week's end we are counting down to Australia's December quarter GDP result.

Australian economic data releases next week include December quarter construction work, wage prices and private sector capex, along with January private sector credit. On the local stock front, there are too many results releases due to attempt to offer highlights. Please refer to the FNArena Calendar.

Elsewhere, a busy data week in the US sees existing, new and pending home sales and the Case-Shiller and FHFA house price indices, the Chicago Fed national activity and Richmond Fed manufacturing indices, CPI, consumer confidence, durable goods and the first revision of the US December quarter GDP.

If the Fed's rate rise decision is data-driven, well take that little lot.

China will return from holiday on Wednesday and HSBC will provide its flash estimate of February manufacturing PMI, although New Year always distorts Chinese data over these couple of months.

In Europe, whatever its make-up by Monday, the German IFO business sentiment survey is due along with the eurozone CPI. Japan will also report its CPI along with industrial production and unemployment numbers.


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