Tag Archives: The Overnight Report

article 3 months old

The Monday Report

By Greg Peel

Rotation

5500 has become the new barrier for the ASX200 as the local market continues to show signs of wanting to push higher. On Friday, a steady morning rally took the index up 37 points to 5512 but a drift-back in the afternoon meant a close of only up 21, at 5497.

There was, of course, Friday night’s US jobs report to consider and it was a Friday, so no doubt there was some typical squaring up ahead of the weekend.

Looking at the sector moves however, Friday’s action screamed rotation. The best performing sectors were energy, up 1.1% on a small move up in the oil price, Materials, up 1.7% despite lower metals prices, and consumer discretionary, up 0.7% having been sold down over the week.

The only sectors to post losses were utilities, telcos and consumer staples, while all other sectors posted small gains. This sector spread screams rotation, from defensives to cyclicals. This is not the first time we’ve seen such action in the local market lately and often the defensives come roaring back, but at elevated levels, we may be reaching the point where reliable yield is just too expensive.

If cyclicals are now going to take the baton, they’ll still need some incentive to do so. Results season will provide some individual direction.

Good is Good

The US added 255,000 jobs in July, seasonally adjusted, smashing expectations of 180,000. The unemployment rate was unchanged at 4.9% despite an increase in the participation rate, suggesting those coming back to look for work found it. Wages increased by a healthy 0.3%.

It was the jobs report of an economy in good shape. But in the upside-down world in which we currently reside, tipping what Wall Street’s response to the report might be is not straightforward. Stocks could have risen on the good news is good news assumption or fallen on the good news is bad news assumption of a Fed rate rise being back on the cards. Either response was going to be explainable.

As it was, Wall Street liked it. The Dow closed up 191 points or 0.1%, the S&P rose 0.9% to a new all-time high 2182 and the Nasdaq also reached a new all-time high in gaining 1.1%.

Perhaps the reason why Wall Street chose “good news is good news” over “good news is bad news” is evident in the move in the Fed funds futures, which is cited as representing the chance of a Fed rate rise. The chance of a September hike moved up to a mere 18% from 9%, while December rose to 46% from 32%.

Great jobs report or not, virtually no one is expecting a September rate rise. And even December is yet to reach a 50/50 bet. Aside from all other data, there will be another jobs report before the September meeting. The general belief is that the US economy is beginning to look healthier – certainly healthy enough to justify a rate rise – but that the Fed will simply remain too timid to do so.

There is also the matter of what other central banks are up to. The BoE just delivered a substantial easing. The BoJ disappointed but eased further nevertheless. The RBA cut its rate. China is pursuing various measures. Around the globe, major economies are in easing mode. That, by default, is as good as a Fed rate rise.

And there’s the matter of the US dollar. It jumped 0.5% on Friday night to take its index to 96.24. A rising dollar will dampen the still “modest” US recovery. The Fed should not, by rights, pay attention to exchange rates but in the increasingly “globalised” world, of course it does.

The chance of a September rate rise may still be low but other markets were making adjustments on Friday night. Aside from the stronger greenback, the US ten-year bond yield rose 8 basis points to 1.58% and gold fell US$25.00 to US$1335.40/oz.

With the US results season now in its tail end, and everyone happy that was another not-as-bad-as-feared quarter, attention will now once again shift to central banks and economic data.

Commodities

A strong US jobs number also creates a push-pull for commodity prices. Gold aside, given its not a commodity per se, a healthy US economy is good for commodities but the stronger greenback offsets.

On Friday night we saw West Texas crude up US16c to US$41.97/bbl.

Nickel and zinc rose 0.5% and aluminium 1.5% while copper fell 1% and lead 0.5%.

Iron ore jumped US$2.00 to US$60.70/t.

Alas, despite the stronger greenback, the Aussie is only 0.1% weaker at US$0.7618.

The Week Ahead

The SPI Overnight closed up 31 points or 0.6%.

China will be back in the frame this week. Today sees July trade numbers, Tuesday inflation and Friday the monthly dump of industrial production, retail sales and fixed asset investment data.

On the central bank rounds, it’s over to the RBNZ to cut its rate on Thursday, as is expected.

It’s a quiet week for data in the US until week’s end. Tuesday sees June quarter productivity ahead of Friday’s retail sales, inventories, PPI and consumer sentiment.

In Australia we’ll see ANZ job ads today, NAB business confidence on Tuesday and Westpac consumer confidence on Wednesday. Wednesday also brings the critical monthly housing finance numbers.

The local results season steps up a gear this week.

Highlights will come from among the banks, with Bendigo & Adelaide ((BEN)) reporting today and Commonwealth Bank ((CBA)) on Wednesday, with ANZ Bank ((ANZ) offering a quarterly update tomorrow.

Classifieds will also feature, thanks to reports from Carsales.com ((CAR)) and REA Group ((REA)) tomorrow and Fairfax Media ((FXJ)) on Wednesday.

Other results of interest among the many this week include Transurban ((TCL)) and Cochlear ((COH)) tomorrow, OZ Minerals ((OZL)) and AGL Energy ((AGL)) on Wednesday and Goodman Group ((GMG)) and Telstra ((TLS)) on Thursday.

Rudi is attending and presenting at the AIA National Conference this week and will appear on Sky Business on Thursday between 7-8pm for the Switzer Report and again on Friday, through Skype-link, at around 11.05am to discuss broker calls.
 

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

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article 3 months old

The Overnight Report: Awaiting Jobs

By Greg Peel

The Dow closed down 2 points while the S&P closed flat at 2164 and the Nasdaq rose 0.1%.

Dead Cat

Yesterday saw yet another session on the local market in which the index took off sharply in one direction on the opening rotation, only to reverse steadily throughout the day. Yesterday the ASX200 shot up 44 points from the open before managing a mere 10 point gain by the close.

It seems the computers decided early that all would be forgiven following Wednesday’s steep falls and we’d be back on track towards the highs once more, but investors had other ideas. It is interesting to note, as revealed in yesterday’s Short Report, that the prior rally up to 5600 featured widespread reductions in short positions across the market, suggesting once the nervous shorters were cleaned out, there was no real reason to be there.

Hence we saw the plunge on Wednesday to more realistic valuations and hence yesterday’s attempts at a rapid reversal were thwarted. The futures are stronger again this morning but it would appear, as results season begins to unfold, the market is where it wants to be.

The bulk of the index gain yesterday came down to a 2% jump for energy following oil’s recovery off the US$40/bbl mark. Volatility ensures energy could just as easily be down by as much in coming sessions. Healthcare was the big underperformer yesterday, falling 1.2% as investors took profits on CSL ((CSL)) in particular. Having been slammed these past few sessions, consumer discretionary managed a 0.4% gain.

Which was counter to the data released yesterday. Consumer staples also rose 0.5% despite June retail sales managing only a 0.1% gain to take annual growth down to a tepid 2.8%.

The result provides justification for the RBA’s rate cut decision but there is nevertheless a misleading element to the low number. Low dollar value of sales is a result of two main factors – very low wages growth and discounting. But given low wages growth, consumers are benefitting from discount wars as an offset, particularly in supermarkets.

There was also good news among the data yesterday, with figures showing inbound tourism to Australia is up a significant 12% year to date. The number of Chinese tourists reached an all-time high. Presumably the number of Poms amidst that total will start to decline given the drop in the pound but hey, who are we to complain?

Fight them on the beaches

Markets were set for an expected rate cut from the Bank of England last night but there was still some nervousness that guvna Mark Carney would not act, having declined to do so at the last meeting immediately after the Brexit vote. As it was, the opposite proved true.

Not only did Carney cut the BoE cash rate for the first time in seven years, to 0.25% from 0.50%, representing the lowest level since 1694, he expanded the bank’s government bond purchase program (QE) and introduced corporate bond purchases as well. And he also introduced an exemption for banks on a long criticised reserve requirement that effectively amounts to double-counting of safe assets.

The extent of the package surprised markets. The FTSE jumped 1.6%, the pound fell once more, and the UK ten-year yield fell to an historically low 0.6%. The German equivalent fell further into the negative and the US equivalent fell 4 basis points to 1.50%.

Wall Street rose from the open on the news but quickly fell again, before posting a very typical pre jobs reports, middle of summer session. Ostensibly no one was quite inspired to do anything much.

Commentators agree that if tonight’s jobs number comes in close to expected, around about 160-180,000, not a lot will happen then either. The number will have to be either as shockingly low as the May number or as surprisingly high as the June number to spark a reaction, and even then, another wild number is going to leave Wall Street doubting the veracity of the data.

Commodities

The drop in the pound saw the US dollar index up 0.3% to 95.81 but unfortunately on the cross-rates, the Aussie is up 0.5% at US$0.7627. It’s all very well to cut the cash rate, but the impact is lost if everyone else does too.

Strength in the greenback helped base metal prices lower, with all of aluminium, copper and nickel falling over 1%.

Iron ore fell US$1.80 to US$58.90/t.

West Texas crude ignored the dollar, and rose US66c to US$41.81/bbl.

Given QE in any major economy is supportive of gold, it also ignored the dollar in moving slightly higher to US$1360.40/oz.

Today

The SPI Overnight closed up 17 points or 0.3%.

The RBA will issue a quarterly Statement on Monetary Policy today, ahead of tonight’s US jobs report.

Capilano Honey ((CZZ)) may buzz in with an earnings report today although I have conflicting dates from different brokers.

Rudi will link up with Sky Business at around 11.05am, through Skype, to discuss broker calls.
 

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: Fightback

By Greg Peel

The Dow closed up 41 points or 0.2% while the S&P gained 0.3% to 2163 and the Nasdaq added 0.4%.

Bashed

Well the pitchforks are certainly raised and blood is being spat. It was heartening to see respected CLSA bank analyst Brian Johnson on the ABC news last night pointing out that what may be lost on the mortgage swings of less-than-the-RBA rate cuts has been gained on the retiree roundabout of increased term deposit rates. But who’s going to listen?

Retiree enclaves don’t win elections, mortgage belts do. So we’ll overlook the retirees and just go for the politically popular with the great unwashed. Bash, bash, bash. If capitalism isn’t working, perhaps the government could re-nationalise CBA. And on the former RBA governor’s not unreasonable call to investigate bank funds management divisions, he may be proved redundant. Analysts suspect the banks will be looking to offload these divisions in their desperate attempts to meet stricter capital requirements in the low growth environment.

The 2% fall in the financials sector yesterday provided the bulk of the index plunge. We can cite several reasons for bank selling – they were bought up ahead of the rate cut, their mortgage “repricing” measures are insufficient to overcome margin pressure, European banks posted some woeful results the night before, and the pitchforks are out.

Thereafter, the biggest falls were posted by the other sectors that were heavily bought ahead of the rate cut – consumer discretionary and utilities. Lesser falls were posted elsewhere and the resource sectors proved largely resilient.

It was somewhat of a capitulation trade, and as I suggested yesterday, it’s not unhealthy ahead of reporting season proper to rebase below inflated levels that might otherwise have led to small “misses” on earnings leading to panic stock-dumping. The trend, according to the chartists, remains bullish. There may also have been some fear yesterday that Wall Street’s apparent breakdown the night before might be the start of something bigger. Last night’s trade suggests otherwise, and the local futures are looking positive this morning.

Just a Blip

On Tuesday night the S&P broke down from its lengthy 2165-75 trading range which technically seemed onerous but in summer-thin, lackadaisical Wall Street trade in which central banks provide the safety net, not fundamentally significant. Suffice to say, the S&P is back at 2163 this morning and the Dow has reversed a seven-day losing streak.

Oil had a lot to do with it, or more specifically, gasoline. The weekly US inventory numbers came out last night and showed less of a build in gasoline stocks than was feared, hence WTI crude rebounded 3.6% with a bit of help, one assumes, from short-covering.

There was also mildly positive news on the data front, with ADP’s private sector jobs report showing a better than forecast 179,000 additions. Wall Street is pencilling in 185,000 for Friday night’s non-farm payrolls. We do need to bear in mind, however, that (a) the ADP report has a poor correlation record and (b) economists have been way off the mark with their forecasts these past couple of months.

A result of 185,000 would be fair to muddling – enough to restore some hope in the US economy following the weak GDP report but not enough to reignite Fed rate hike fears. On that subject, two Fedheads last night individually suggested at least one rate hike is still possible for 2016, although one is hard pressed to find anyone on Wall Street agreeing.

But if it is another number closer to 300k than 200k, as it was in June, there could be some mild panic. The ADP number was nevertheless enough to send the US dollar index up 0.5% overnight and force some consolidation in gold, which is down five bucks.

Aside from Friday night’s US jobs report, markets are looking to tonight’s Bank of England meeting. Immediately after the surprise Brexit vote result the BoE assured a rate cut would follow if necessary, but at the subsequent scheduled meeting the BoE did nothing. The post-Brexit bounce allowed more time to assess the issue.

The governor did, nonetheless, hint a rate cut was probably still likely, and that’s what the market has priced in for tonight. Volatility may transpire if one is not forthcoming.

Commodities

West Texas crude is up US$1.43 at US$41.15/bbl.

Base metals continue to move back and forth but aren’t making any headway. Only lead posted a move in excess of 1% last night, to the downside, while the others posted gains.

Iron ore is unchanged at US$60.70/t.

Gold is down US$5.10 at US$1357.70/oz, with the US dollar index up 0.5% at 95.53.

The Aussie is down 0.2% at US$0.7588.

Today

The SPI Overnight closed up 27 points or 0.5%.

Rio Tinto ((RIO)) reported after the bell last night and while in the interim the media has made much of the 50% profit decline, the result met expectations.

Earnings reports are due today from Downer EDI ((DOW)), Suncorp ((SUN)) and Tabcorp ((TAH)), among others.

June retail sales numbers are out locally today and tonight the focus will be on the BoE.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm.
 

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: Break Down

By Greg Peel

The Dow closed down 90 points or 0.5% while the S&P lost 0.6% to 2157 and the Nasdaq fell 0.9%.

Sell the Fact

There may be some confusion as to why an interest rate cut from the RBA would cause the first sell-off in some time on the ASX when one would assume the opposite. The explanation is merely that the market so aggressively priced in an expected cut over the past few sessions there was really nowhere else to go, as profits were locked in.

An August rate cut was being tipped by economists as far back as May, although there was a little wavering from the market in between. Though not referred to directly in the governor’s statement yesterday, the cruncher was likely the US GDP result. On justifying its decision, the board cited moderate local economic growth, low inflation, and that persistent “complication” of the strong currency.

The weak US GDP result largely killed off any expectations of a September rate hike from the Fed, or even this year. Hence the US dollar has been falling ever since, forcing the Aussie higher. Unfortunately for the RBA, it appears the rate cut will only serve to drag on the Aussie, not send it falling. Last night the US dollar index fell another 0.8% and the Aussie is back to where it was pre-cut this morning at US$0.7604.

With regard individual sectors, in yesterday’s report I observed “a weaker US dollar is supportive of commodity prices. As to whether such support was worth a 2.7% jump in the energy sector yesterday on only a slight tick up in the oil price is a different matter”. And yesterday energy fell 3.2%. This contributed significantly to the overall 0.8% index drop but if we average out the two sessions, energy has only fallen in line with other sectors.

Outside of oil, the big loser yesterday was again consumer discretionary, down 1.4%. This sector should be a beneficiary of lower rates, but it had also been heavily bought in the lead-up to the RBA’s decision. The banks should also benefit, and they fell 0.7%.

On that note we saw the banks move swiftly yesterday to hand over only around half of the RBA cut in variable rates. The peasants are already at the gates wielding pitchforks. The trade-off was an increase in deposit rates, which will be some comfort to those living off investments, but no doubt will be overlooked by blood-spitting politicians.

The ASX200 was very much due a correction from the post-Brexit run-up, which received extra fuel from RBA speculation. A re-basing ahead of earnings season proper is not such a bad thing, and to that end the futures are suggesting another decent drop today.

Fiscal Helicopter

The RBA’s problem with the Aussie is nothing compared to the Bank of Japan’s problem with the yen. Not only has the yen refused to fall despite everything the BoJ and Abe government have thrown at it, now hopes have faded once more of the Fed coming to the rescue and pushing up the greenback.

It has been expected for a month that the BoJ and Japanese government would unleash a combined monetary and fiscal shock & awe package as a last ditch effort, but on Friday the BoJ disappointed. So it was over to Abe, who yesterday announced a new fiscal stimulus package worth US$73bn over several years.

The package will cover everything from infrastructure, such as port upgrades, to child care and maternity leave. And 22 million low-income Japanese will all receive a direct “Pennies from Shinzo” hand-out of US$147. They can each now buy a beer in Tokyo.

Alas, the yen is another 1% higher against the greenback this morning, having jumped substantially following Friday’ BoJ disappointment. There may be some disappointment in the fiscal package as well, but it’s more a case of a weaker dollar.

Deflated

The US dollar was weaker again last night because the Fed’s preferred gauge of inflation, the core personal consumption & expenditure (PCE) measure, rose a mere 0.1% in June. An annual rate of 0.9% is well below the Fed’s 2% target.

It’s not that US consumers aren’t spending. Indeed, personal consumption rose 0.4% in June, and the increase in June quarter spending is the biggest since the GFC. But incomes rose only 0.2%, meaning the trend is consumers dipping into their savings continues. This does not bode well. The Fed would like to see rising consumption, but supported by rising wages.

And to add to concerns, last night’s US auto sales numbers for July were disappointing. For month after month recently, auto sales have surprised to the upside, sparking fear of a “subprime” bubble building in car loans given the near-zero interest rate environment. The “miss” was not substantial, but following on from a surprisingly weak earnings result from Ford last week, it appears the positive economic contribution of auto sales is finally fading.

This news weighed on Wall Street last night. The other issue was the oil price.

WTI is only down US36c this morning but the point is that at US$39.72/bbl, the 40 support level has been broken. With supply returning after outages everywhere from Nigeria to Libya and Canada, supply-side fears have returned. Wall Street has paid a lot of attention to an oil price which for some time had been fluctuating within a comfortable range, but a break-down is a different matter.

Wall Street has subsequently broken out of its own tight trading range as well. Although last night marked the seventh straight down-day for the Dow, it was the first substantial fall since the Brexit rebound began. The S&P500 has dropped out of its two-week 2165-75 range, and the Nasdaq turned south for the first time in six sessions.

Commodities

As noted, West Texas crude is down US36c at US$39.72/bbl.

Base metals were mixed yet again, with no metal moving more than 1%.

Iron ore rose US20c to US$60.70/t.

The US dollar index is down 0.8% at 95.07, thus gold is up US$10.40 at US$1362.10/oz.

Today

The SPI Overnight closed down 35 point or 0.6%.

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

The US will see the private sector jobs report for July tonight.

On the local stock front, we’ll see earnings results from Rio Tinto ((RIO)) and Genworth Mortgage Insurance ((GMA)) and in the wake of yesterday’s shocker from Seven West Media ((SWM)), Seven Group Holdings ((SVW)) will also report.
 

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: Oil Wakes The Bear

By Greg Peel

The Dow closed down 27 points or 0.2% while the S&P fell 0.1% to 2170 as the Nasdaq rose 0.4%.

Pressure on Glenn

The NSW bank holiday yesterday led to light volume and exacerbated volatility as the local market surged through the morning session like a creature possessed. A near 50 point rally to lunchtime took the ASX200 well past the 5600 mark before gravity finally kicked in later in the day.

The sudden burst of enthusiasm was, supposedly, all about heightened expectations for an RBA rate cut today. Having been a 50/50 bet on Friday, yesterday saw the chances of a cut priced in closer to 65%. It was all to do with that weak US GDP result.

US GDP numbers are prone to being revised, often substantially, in subsequent months. But there is no doubting the 1.2% growth result on first estimate for June shocked a market looking for 2.6%. The US dollar plunged by 1.2% on the news, albeit helped by a stronger yen following the BoJ’s lack of action. And as a result, the Aussie shot back up to US76c.

That’s too high for the RBA, the local market decided. If the US economy is indeed weaker than hoped then the chances of a Fed rate hike in 2016 now seem more remote, therefore the US dollar will not rise but possibly weaken further, meaning the Aussie, through no fault of its own, will remain elevated. This provides the RBA with an ongoing “complication”.

On the other hand, a weaker US dollar is supportive of commodity prices. As to whether such support was worth a 2.7% jump in the energy sector yesterday on only a slight tick up in the oil price is a different matter. Materials managed only 0.9%, which seems more considered. The tune may be different today for the energy stocks after WTI traded under 40 last night.

Take out the resource sectors, and the only other sector screaming “rate cut” was the banks, with a 0.5% gain. Utilities were up, but only by 0.4%, while telcos were the worst performer with a 0.7% fall. Consumer discretionary should be the beneficiary of a rate cut, but it fell 0.1%, likely because it had been on a bit of a tear last week.

Whether or not traders decided over lunch yesterday that 50 points was a bit steep, or whether the Chinese PMI numbers were the cause of the afternoon pullback, is unclear. The Chinese numbers were mixed.

Beijing’s official manufacturing PMI for July fell to 49.9 from 50.0 in June, suggesting the impact of stimulus measures has worn off and the sector is back in contraction. However Caixin’s independent measure, more weighted to smaller businesses, saw a jump to 50.6 from 48.8, suggesting the first sign of expansion since February 2015. Beijing’s official service sector PMI rose to 53.9 from 53.7. Caixin will publish its equivalent tomorrow.

Not a lot of clarity in those numbers, nor any confirmation Beijing will be forced into more frantic stimulus. Most likely traders simply decided yesterday that once the index surpassed 5600, it was a good enough level to take profits. Earnings season awaits, and begins to ramp up by week’s end.

The RBA’s statement will be published at 2.30pm. Data yesterday suggested the Australian housing market is indeed cooling slightly, as prices and sales growth eased. This supposedly provides the RBA with more scope to cut if needs be.

Look out if they don’t.

Atlas Shrugged

If you’re into meaningless labelling, oil is now officially in a bear market. Having traded below US$40/bbl last night, WTI has fallen 20% from its prior peak. Yet for Wall Street, it’s no longer a big deal.

The US manufacturing PMI for July showed a fall to 52.6 from 53.2, and construction spending was down 0.6% in June. In the wake of the GDP report, there’s not a lot to be cheery about with regard the US economy. It was a choppy session on Wall Street, featuring a bit of a midday plunge, but when the dust settled it still appears Wall Street has no impetus to meaningfully correct and the S&P500 remains firmly entrenched in a 2165-75 range.

We’re getting towards the end of US earnings season and to date, 71% of S&P500 companies having reported have beaten on earnings and 51% on revenue. The net earnings decline has been in the order of 3.5% when 6.5% had been forecast. But realistically, US earnings seasons have become like those popular US sitcoms of bygone days that endlessly rotate on cable television.

Every quarter for however many now has seen earnings expectations marked down hard before “surprising” to the upside. Beats on earnings in the order of 60-70% are the norm. The fact remains, US earnings are in recession and revenues have failed to show any sign of actual recovery pretty much since the GFC, on a net S&P500 basis. Yet Wall Street keeps posting fresh all-time highs.

As to why, we only need appreciate that in some cases, US companies are offering a higher yield on their dividends than they are on their bonds. We are in a parallel universe that is unrecognisable. And central banks across the globe have no intention of changing that.

Commodities

Oil had a bit of a blip on Friday night when the US dollar plunged 1.2%, but it was back to business as usual last night as the dollar crept back up 0.3% and the realities of building inventories, and in particular building gasoline inventories at the height of US driving season, re-established. As to just how low oil can go, well that’s a matter of debate. Having suffered the shock of early 2016 and recovered to find a threshold of rig restarts at US$50/bbl, one presumes the downside is relatively limited as those rigs can just as swiftly shut down once more.

And at some point, what everyone has been expecting for nigh on two years now, the global economy must see some benefit from lower energy costs.

West Texas crude is this morning at US$40.08/bbl, down US$1.32 or 3%.

Base metals were again mixed last night, with aluminium falling 0.5% and copper 1%, while nickel and zinc each rose 1%.

But look out, iron ore has jumped US$1.70 to US$60.50/t.

Gold is relatively steady at US$1352.40/oz.

The Aussie’s been on a rollercoaster since Friday night, shooting up to 76 on the greenback plunge but falling back 0.8% in the meantime to US$0.7533 as RBA expectations intensify.

Today

The SPI Overnight closed down 21 points or 0.4%. NSW is back.

Locally we’ll see building approvals and trade numbers today ahead of the RBA’s decision.

The US will see the Fed’s preferred measure of inflation tonight as the PCE is released along with income and spending data.

Earnings reports are due today from a handful of companies locally, including Navitas ((NVT)) and Seven West Media ((SWM)).

Rudi will Skype-link with Sky Business today 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.

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

The Monday Report

By Greg Peel

BoJ Disappoints

Well I hate to say I told you so, but I told you so. Whenever the world expects the Bank of Japan is about to unleash monetary shock & awe, it always disappoints. Then when no one’s paying much attention, it surprises with an extensive package.

The world was sure the BoJ would deliver something substantial on Friday – increased QE and/or a cash rate further into the negative, and the central bank itself had previously dropped a few hints. But Friday’s meeting brought no change to QE or rates, but rather the BoJ will increase its annual purchase of Japanese stock ETFs (exchange traded funds) by almost double, to around US$58bn.

The news lifted the Nikkei a little but sent the yen soaring, given the world was set for something more aggressive. It’s now over to the freshly mandated Japanese government to come up with something more substantial on the fiscal front.

The Australian stock market was bumbling along looking very “Friday” during the morning ahead of the BoJ announcement, which was worth a drop of 20 points. The index recovered late in the session, probably reflecting the fact it was the last day of the trading month and fund managers would have been keen for the index to close on a 2016 high.

With China such a focus, it’s easy to forget the importance of Japan as a trading partner, and specifically a buyer of iron ore, coal and LNG. The oil price had been down on Thursday which might otherwise explain a 1.3% drop for the energy sector on Friday, but iron ore was up strongly, base metal prices were up and the materials sector finished down 1.2%.

Elsewhere, a 1.3% gain for consumer discretionary is a “risk on” trade, probably backed by hopes of an RBA rate cut tomorrow, but this was countered by the biggest mover of the day – utilities, up 1.5%. Ditto on the RBA, so as usual, the markets are simply playing the central banks. And why wouldn’t you?

Could be some disappointment tomorrow if the RBA doesn’t oblige.

No Fed Rate Hike?

So we’ve covered the BoJ and RBA, so now we must move on to the Fed.

Economists had forecast a 2.6% growth rate for the US June quarter GDP. On first estimate, it came out at 1.2%. The March quarter GDP was also revised down to 0.8% from 1.1%. The culprit within the June numbers was a 3.2% decline in business investment – the largest since the GFC.

The US dollar index had fallen a full 1.2% on Saturday morning to 95.52 on a combination of the weak GDP result and the surging yen.

Yet the US stock market remained as it has been of late, as idle as a painted ship upon a painted ocean. The Dow fell 24 points or 0.1% while the S&P rose 0.1% to 2173 and the Nasdaq rose 0.1%. Over the last eleven trading sessions the S&P500 has moved in a range of 0.9%. The last time that happened was in 1970.

Fundamentally, one would suggest therefore that the US market is looking a bit toppy after its sharp rebound post-Brexit. Technically however, this stall in the rally without a pullback is deemed a bullish sign.

The biggest drag on the Dow on Friday night was ExxonMobil, which posted its worst quarter in some time after more than halving earnings compared to the same quarter 2015. The result was a miss. Fellow Dow component and oil producer Chevron also posted a miss but managed to avoid share price punishment.

The major take-out from Friday night was nevertheless another diminishing of Fed rate hike expectations. September now appears unlikely, unless there are some astounding data between now and then (US jobs this week).

Commodities

The big drop in the dollar and reduced rate hike expectations predictably had gold rising US$15.80 to US$1350.40/oz.

The story was more mixed in base metal markets, where metal-specific stories are more dominant at present. Aluminium jumped 2% and zinc 1.5%, but copper and lead only managed 0.5% and nickel fell 1%.

Iron ore fell US40c to US$58.80/t.

After having a good look at its 200-day moving average on the downside, West Texas crude rose US30c to US$41.40/bbl.

On greenback strength the Aussie was up 1.3% at US$0.7598 on Saturday morning.

The SPI Overnight closed up 17 points or 0.3%.

Not Stressed

Not long after Wall Street, and thus the world, closed for the weekend, the results of the latest UK/EU bank stress tests were released. There was a lot of eye-rolling when the bulk of 51 banks assessed were given a thumbs-up.

The tests are supposed to determine whether a bank has enough capital to survive another GFC-style shock. However, unlike the Fed’s equivalent tests on US banks, the European tests have no quantitative hurdles built in. The assessment is qualitative. The sceptics would say this allows the results to be prima facie positive in order to avoid a compounding panic on the day.

It was also noted the results provided no “test” to incorporate Brexit or negative interest rates. Nor were the results for Greek and Portuguese banks published – those banks are informed privately. In the end, the only banks deemed to be in trouble were the ones the world knew were in trouble anyway – mostly Italian.

The Week Ahead

On the subject of Fed focus, the US non-farm payrolls report for July is out on Friday night, preceded by the private sector report on Wednesday night.

Other US data releases this week include the manufacturing PMI and construction spending tonight, personal income & spending and vehicle sales tomorrow, the services PMI on Wednesday, factory orders and chain store sales on Thursday and the trade balance on Friday.

Today is manufacturing sector PMI day across the globe, with Beijing also throwing in China’s service sector PMI. Wednesday sees everyone else’s services PMI.

The Bank of England will meet on Thursday night but having done nothing at the last meeting not long after the Brexit vote, it’s unlikely to move at this meeting.

Aside from PMIs, Australia will see house prices and new home sales today, building approvals and the trade balance tomorrow, and retail sales on Thursday.

The RBA will meet tomorrow and publish a quarterly Statement on Monetary Policy on Friday. The chance of rate cut tomorrow is currently deemed to be 50/50.

Welcome to August, and that means welcome to result season proper. Things start slowly this week before snowballing through the month. Report highlights this week include those of Rio Tinto ((RIO)) on Wednesday, Suncorp ((SUN)) and Tabcorp ((TAH)) on Thursday and Virgin Australia ((VAH)) on Friday.

It’s a long weekend in NSW thanks to Banking Holiday today. The ASX remains open but things might be a little slow.

Rudi will appear on Sky Business on Tuesday via Skype-link to discuss broker calls at around 11.15am. He'll re-appear in the studio on Thursday, 12.30-2.30pm and does the Skype-link again on Friday, 11.05am.
 

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

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article 3 months old

The Overnight Report: Going Nowhere

By Greg Peel

The Dow closed down 15 points or 0.1% while the S&P gained 0.2% and the Nasdaq rose 0.3%.

Risk On?

The ASX200 is not exactly shooting the lights out at the moment but the bias clearly remains to the upside. The index has spent the week grafting its way to 5550 from 5500 with the technicals still suggesting higher levels to come.

The Brexit blip notwithstanding, the longer run rally from below 5000 to yesterday had initially been led by defensive stocks, with the big cap banks and miners dipping and recovering at different times. I have made mention often enough of how the utilities sector just kept rising and rising.

Analysts were already struggling with valuations among the defensives, while at the same time conceding the fact global interest rates continue to fall, the Fed continues to stall, and the RBA may yet act again. So throw out your historical PE comparisons – what’s the point when the German government is issuing zero coupon ten-year bonds? We have never been here before.

But on Wednesday we finally saw some selling in the local utilities sector and yesterday that continued. The banks have quietened down now with Commonwealth Bank’s ((CBA)) result, due in a couple of weeks, set to be the next catalyst other than a rate cut next week.  Yesterday’s big movers were materials, up 1.5% consumer discretionary, up 0.8%, and energy, down 1.0%. Everything else was pretty quiet.

Energy fell on the oil price and that currently is looking a bit vulnerable but solid iron ore prices, resilient gold prices and some strength in base metals have seen materials now taking the lead. This is cyclical, not defensive, as is consumer discretionary, which of course would benefit from another rate cut.

Central banks are driving global markets. They are the “free put”. If the defensive yield plays have now stretched about as far as they can, even under the new world order, will it be cyclicals that take us back to 6000? That, supposedly, will depend on result season.

Stalled

And on the subject of earnings, Ford (Dow) shocked all and sundry last night by posting a weak result and disappointing guidance. Its shares fell 8%, and ensured the Dow was down over hundred points early in the session in a dour mood.

The result was a shock because US car sales have been posting record after record every month and providing some hope for the US economy. But on the one hand there are concerns about the growing number “subprime” car loans being issued, and on the other, it turns out Ford has been forced to offer huge money-back incentives in order to post those record sales numbers. Globally, Ford cited the China slowdown as also being a drag.

However, General Motors reported earlier in the season and beat on expectations. So maybe Henry just needs to have a good look at himself. Whatever the case, and as so often has played out these past couple of weeks, Wall Street grafted its way back through the session to a relatively flat close.

The past ten sessions of almost no close-to-close movement is the tightest in a couple of decades.

US earnings season is at the halfway mark, with just over 50% of S&P500 companies having reported. So far, everybody’s pleased. The quarterly decline in earnings to date is closer to 3% than the 6% forecast pre-season.

Just don’t tell anyone the same has been happening every quarter for some time now. Forecasts are marked down and down and down until most companies can’t help but beat.

Wall Street may be pleased, but it’s still not going anywhere.

This mornings after-the-bell results have included a beat from Amazon which has its shares up 2%, and a strong beat from Google parent Alphabet, which has its shares up 4%.

One obvious drag on Wall Street at the moment is oil. Following another 2% fall last night, WTI is close to its 200-day moving average. If that breaks, commentators assume the oil-stocks correlation of early 2016 will reassert itself.

Commodities

West Texas crude is down US81c at US$41.10/bbl.

The US dollar index is only down 0.1% at 96.68 but base metals had a strong session last night following a couple of weaker ones. There is likely positioning going on ahead of today’s BoJ meeting for which great expectations are held, and in between there’s the Filipino nickel industry story.

Nickel rose 3% in London last night, zinc 1.5%, aluminium 1% and copper 0.5%.

Iron ore rose another US$1.20 to US$59.20/t.

After jumping sharply post-Fed on Wednesday night, despite the Fed remaining as inconclusive as ever, gold is back down US$5.10 at US$1334.60/oz this morning.

The Aussie is 0.2% higher at US$0.7504.

Today

The SPI Overnight closed up 8 points.

As I have noted before, whenever the world is expecting shock & awe from the BoJ the central bank usually does nothing, but often catches everyone out another time when expectations are negligible. Expectations are very high that today the BoJ will do something significant on the monetary front, to be followed up next week by something significant from the government on the fiscal front.

Stay tuned.

Locally we’ll follow up Wednesday’s June quarter CPI result with the PPI today, along with month of June private sector credit.  Japan will dump a lot of monthly data and the BoJ meets, and tonight sees first estimates for June quarter GDP in both the eurozone and US.

Origin Energy ((ORG)) is among those posting the last of the production reports today.

Rudi will Skype-link with Sky Business around 11.05am today to discuss broker calls.
 

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article 3 months old

The Overnight Report: Limbo Land

By Greg Peel

The Dow closed down one point while the S&P fell 0.1% and the Nasdaq jumped 0.6%.

Two Speed Inflation

If you look at yesterday’s Australian June quarter CPI numbers at face value it’s hard to see why the RBA wouldn’t have already decided to cut in August. Headline inflation rebounded 0.4% from the March quarter shock -0.2% fall but annual inflation is still lower, and at 1.0% is the lowest since 1999.

Core inflation rose 0.5% for an annual rate of 1.5%, which while better than 1.0%, is still below the RBA’s 2% target and a record low.

So why was there uncertainty in the market yesterday? Why did the Aussie go up first – seemingly the wrong way – then straight back down again to be little changed?

Well for once, it’s all about the breakdown of CPI components. As the CBA economists, for one, suggested yesterday, not all deflation is bad. The major drag on the headline were lower costs for groceries (down, down), lower costs for telco services (consolidation and competition in the industry) and lower rents (apartment oversupply). All of these are beneficial for consumers suffering from record low wages growth.

And indeed, while inflation might be low, the numbers were no lower than the RBA’s updated forecasts following the March numbers. March caught the central bank by surprise, but these June numbers are as expected.

The RBA, via APRA, may have successfully headed off a housing bubble for now, but whereas overstretched mortgages were a prior concern, the new concern is too many apartments. Cut the cash rate again, and there is a risk of further fuelling that particular fire. And will a rate cut have any impact whatsoever on grocery price inflation, for example? No. So once again the RBA finds itself between a rock and a hard place.

A quick straw poll of bank economists has them split this morning between cut and no cut next week, with CBA possibly summing up the mood by suggesting the RBA will indeed cut, “through gritted teeth”.

The stock market was already heading down from a spike opening yesterday and traded lower after the CPI release, then higher, then flat. No one’s quite sure what to make of it.

Among the sectors, the two stand-out moves were materials, up 1.8% on the iron ore price jump, and – yes it had to happen eventually – utilities, down 1.3%.

Clarity Diminished

We knew yesterday morning that Apple (Dow) had posted a strong result after the bell and last night the stock led indices to a strong opening with a 6.5% gain. Apple held its ground but the wider market then sold off to be flat, as per usual, ahead of the Fed statement.

Balancing out Apple to some extent in the Dow was Coca-Cola, who disappointed and suffered a 3% fall. After the bell this morning, a good result from Facebook has its shares up 5.5%.

There was one sentence in the Fed statement that has been at the centre of the debate since the release: “Near term risks to the economic outlook have been diminished”.

That word, “diminished”, has been enough to have business TV commentators locking in a September hike and at least one investment bank immediately issuing a note to that effect. But one TV economist did point out that while “diminished” is new, previously “balanced” has been used in the language. Is diminished more hawkish than balanced, or not?

Well look at it this way. This morning we obserfve the US dollar index down 0.4% at 96.76, the US ten-year yield down 5 basis points to 1.51% and gold up US$20.00 at US$1339.70/oz. Those moves scream no September rate cut. To top it off, the Fed funds futures market has reduced its implied chance of a September rate hike to 18% from 30% before the statement release.

Is it any wonder Wall Street closed flat (notwithstanding Apple’s skewed impact on the Nasdaq)? No one is any the wiser.

Given the Fed meets every six weeks, not calendar monthly, there is no meeting in August. But every August, central bankers meet at the place of QE infamy, Jackson Hole. It was here Ben Bernanke tipped the market off to upcoming QE1, QE2 and so on all those years ago. Janet Yellen didn’t go to Jackson Hole last year (she’s under no obligation), but she is going this year.

Before then we’ll have another jobs number. Incidentally, I have been highlighting a solid run of US data recently but last night’s durable goods orders result disappointed with a -4.0% fall when a -1.7% fall was expected. Perhaps the main reason why Wall Street does not see September as a goer.

Commodities

LME traders certainly did not like the weak US durable goods number. Despite the weaker greenback, copper, lead and zinc all fell 2% in last night’s trade.

Oil is also down another 2%, with West Texas crude falling US73c to US$41.91/bbl. While the resumption of lower oil prices is impacting on US energy sector stocks, it is having nothing like the sort of impact on Wall Street psyche it did earlier this year.

That’s probably because there was surprise WTI made it all the way back to 50, and a lot of analyst talk oil would need to go lower again before it could go higher, in order to squeeze out marginal supply. But we’re not talking 25 again. Maybe 35, but perhaps 40 is enough to bring the buyers back in. There’s no real panic.

Iron ore is up US60c at US$58.00/t.

The Aussie is down 0.2% at US$0.7487.

Today

The SPI Overnight closed up 11 points or 0.2%.

Today we see a bit of a support act doing its thing ahead of the main event next month. We have a burst of early-season earnings results, including those from CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)), OceanaGold ((OGC)) and (tonight) ResMed ((RMD)).

Macquarie Group ((MQG)) holds its AGM today and invariably provides a trading update.

Rudi will appear twice on Sky Business today. First from 12.30-2.30pm and then again on Switzer TV, between 7-8pm.


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article 3 months old

The Overnight Report: Poised

By Greg Peel

The Dow closed down 19 points or 0.1% while the S&P was flat at 2169 and the Nasdaq rose 0.2%.

Resilient

It was back to a familiar pattern on the local market yesterday as the ASX200 plunged 35 points on the opening rotation before bouncing sharply to ultimately stumble its way back into the positive. Any attempts to send this market into reverse appear ill-fated at present.

The sector to watch yesterday was always going to be energy, given the oil price fell out of its technical range overnight. In the end a 1.5% drop on the day was a modest response compared to the sort of volatility we were seeing earlier in the year.

With the short-coverers licking their wounds, Woolworths ((WOW)) was able to fall back 3% yesterday to a more sensible level after Monday’s 8% pop. Analysts have applauded the tough stance being taken by the embattled supermarket, but do not foresee any great turnaround for some time yet.

Consumer staples thus closed down 0.8% in what was otherwise a mixed session across the sectors. Investors were no doubt positioning ahead of today’s local CPI release, and RBA implications, and tonight’s Fed statement release. The banks had a good day, healthcare didn’t, the telcos are being dominated by a down-playing of expectations from Telstra ((TLS)) and would you know it, utilities was up again.

Materials was flat yesterday but may not be today following a big jump in the iron ore price overnight.

Today’s June quarter CPI numbers could be interesting. The March numbers shocked with a 0.2% drop in quarterly headline inflation and despite a 0.2% rise in the RBA’s core inflation measure, the central bank wasted no time in acting.

Economists are forecasting a turnaround in June to 0.4% headline growth but for annual headline inflation to fall to 1.1% from 1.3%. If the RBA acted at 1.3%, why would it not act again at 1.1%? Except for the fact economists expect core inflation to rise to 1.7% from 1.5%.

That’s still outside the RBA’s 2-3% comfort zone, but is it enough to ensure an August rate cut?

Looks like we’ll have to wait for the actual results.

Hamburgled

McDonalds (Dow) posted a shocker last night. The 4.5% fall for this otherwise defensive consumer staple (Yes – in America fast food is considered staple) was its biggest one day drop since the GFC, and worth 40 Dow points.

It was enough to sour the early mood on Wall Street, along with another dip in the oil price, and the Dow was consequently down over a hundred points in early trade. But as was the case on the local market yesterday, Wall Street fought its way back to a flat close.

In other Dow earnings news, new Yahoo owner Verizon posted a beat but its share price fell, while share price gains were booked for DuPont and United Technologies following positive reports.

After the bell this morning, Twitter disappointed and its shares are down 10% as I write, while Apple (Dow) did the opposite and its shares are up 7%. This bodes well for the Dow tonight, although we will likely see the usual quiet market ahead of the Fed.

The Fed keeps telling us it’s data dependent. Last night saw US new home sales up 3.5% in June to the highest level in seven years. Case-Shiller house prices were slightly higher in May, while the latest Conference Board monthly consumer survey showed confidence steady this month from the last.

Overall the data continue to improve, prompting many on Wall Street to point out that in any other era, the Fed would be hiking steadily. Brexit is now past us in terms of an immediate threat but no one expects the Fed to raise tonight, and there are still plenty of pundits believing the Fed will not move ahead of the election.

Any excuse, it seems. While history shows the Fed is not always kept at bay by an election, the long-running and often hysterical sitcom that is the US election process has arguably “jumped the shark” this year in terms of sheer ludicrousness.

Commodities

West Texas crude is down US41c at US$42.64/bbl.

The US dollar index is steady at 97.16 and all base metals moved 0.5-1% last night in London – copper up and the others down.

Iron ore jumped US$1.60 to US$57.40/t.

Gold is US$4.40 higher at US$1319.70/oz.

The Aussie is up 0.5% over 24 hours at US$0.7504 despite the flat greenback. This occurred in the local session yesterday and suggests there may be some concern amongst those short the currency that today’s CPI numbers won’t be as weak as many assume.

Today

The SPI Overnight closed up 12 points. We can probably attribute most of that to the iron ore price.

The CPI numbers will be out late this morning.

Tonight sees the UK post its first estimate of June quarter GDP, but being pre-Brexit it won’t mean much.

The US sees durable goods ahead of the 2pm release of the Fed statement.

On the local stock front, Fortescue Metals ((FMG)), Independence Group ((IGO)), Sandfire Resources ((SFR)) and Senex Energy ((SXY)) will post production reports today, although Independence has already pre-released some numbers.

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

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article 3 months old

The Overnight Report: Oil Jitters Return

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P lost 0.3% to 2168 and the Nasdaq fell 0.1%.

Pride Cometh

Once the undisputed and complacent king, Woolworths ((WOW)) will now close stores and cut back staff in order to reverse course after a lengthy fall from grace. As a Top 20 company, Woolies has offered nothing but disappointment for several years now for those still hanging on to a mega-cap, must-have principle. Yesterday was a different story.

The market saw the news as positive, and the short-coverers did the rest as Woolies jumped 8% yesterday, sending the consumer staples index up a stand-out 3.3%. At near 8%, Woolies was far and away the most shorted Top 20 stock in the market until the scramble began.

It was a less exciting session for other sectors. Consumer staples and healthcare resumed their rallies following some profit-taking on Friday, and utilities just keeps on keeping on. Outside of info tech, the resources sectors offered the only drag on a market that clearly remains in positive mode.

As to whether we can go again today is unsure nevertheless. Energy may prove a drag without another Woolies, although metals prices were relatively steady overnight and the ever-confident SPI Overnight closed up one point. Yesterday saw the ASX200 rally 35 points after the SPI had closed up 4.

Oil Concerns

The oil price was almost the singular driver of Wall Street earlier this year but once the WTI price recovered and settled into a range of US$44-50/bbl, the market turned its attention elsewhere. Last night oil traded down to US$43 and settled at its lowest level since April. Representing a break-down through the bottom of the range, oil now poses a renewed threat.

On the topside, the issue was one of a price of 50 bringing idled production back on line. This set 50 clearly as an upside barrier. On the downside, the issue is not crude but refined products.  There is a glut in the US of gasoline, diesel and other products, squeezing refiner margins and forcing refining cutbacks. These cutbacks lead to less crude demand, unwanted crude ends up in storage, and so down goes the price.

With the annual refinery maintenance season soon to begin, oil traders fear the level of crude in storage will only rise.

But it could have been worse. Sharp movements in the oil price earlier in the year had Wall Street panicking in either direction. The earnings season rolls on, and Wall Street still awaits the Fed’s decision and commentary on Wednesday night. The technicals remain to the upside, and pullbacks on the way are always considered healthy.

With regard the Fed, it is interesting to note last night’s auction of US two-year Treasuries saw the weakest demand in seven years. Dealers were left holding some 60% of notes on offer. Clearly investors are reluctant to buy short-term bonds ahead of the Fed and BoJ meetings this week.

The benchmark US ten-year yield remained unchanged at 1.57%, bearing in mind it was over 20 basis points lower at the Brexit nadir.

Commodities

West Texas crude is down US$1.20 at US$43.05/bbl.

With the US dollar index slipping 0.1% to 97.24, base metal price moves were minimal in London.

Iron ore rose US10c to US$55.80/t.

Gold is down another US$6.80 at US$1315.30/oz and is starting to look a little vulnerable ahead of the Fed meeting. If the FOMC comes out with a hawkish statement, and the market starts to bake in a September hike, gold will struggle to hold 1300.

The Aussie is up 0.2% at US$0.7468.

Today

The SPI Overnight closed up one point.

It’s a quiet day for data across the globe until the US reopens tonight, when home sales, house prices and consumer confidence will be in the frame.

Locally, ALS Ltd ((ALQ)) will hold its AGM today and Alacer Gold ((AQG)) will reportedly issue an earnings report.

This would be a good time to remind readers that all the upcoming reporting dates of major companies are listed in the FNArena calendar, on a best endeavours basis. In Australia, companies are not obliged to set a reporting date nor stick to one if they do, and for many a company, three different brokers will suggest three different dates for the same report.

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

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

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

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