Tag Archives: The Overnight Report

article 3 months old

The Overnight Report: Don’t Worry, We Buy

By Greg Peel

The Dow rose 189 points or 1.1% while the S&P gained 1.2% to 2093 and the Nasdaq added 1.0%.

Relief

The ASX200 opened sharply lower yesterday in response to the Chinese market’s late 8.5% plunge on Monday before holding its breath for the 11.30am Sydney time open in Shanghai. The Shanghai index promptly fell another 5%, and the ASX200 dipped further to be down 59 points.

The sudden late sell-off in Shanghai on Monday was apparently triggered by rumours that the state-owned China Securities Finance Corp – the entity charged with buying stocks on behalf of the government in order to head off a stock market crash – had now accomplished its mission and was exiting the market. On the open of trading yesterday, a China Securities Regulatory Commission spokesman declared this not to be true.

The spokesman said the CSFC will “increase its holding” of stocks “at appropriate times” and will continue to play its role of “stabilising the market”. And he also pledged, as regulator, to identify “malicious” stock sales by individuals designed to wreak havoc on the market.

In other words: It’s a free and open market, but if you sell you’ll be taken out and shot.

We cannot criticise the Chinese government for acting as buyer of the last resort in times of dangerous volatility as this is also common practice in mature Western markets. No one has ever met a member of the Fed’s Plunge Protection Team, for example, but everyone knows they’re there. On odd occasions during the 2008 turmoil sudden and inexplicable buying on Wall Street evoked knowing looks of recognition that the PPT was in action.

But whatever the US government did, rightly or wrongly, in 2008, it did not shut down half the stock market, order state-owned companies to buy shares (there aren’t any anyway) on pain of death and kick down the doors of anyone with a sell order.

The question is one of whether the Chinese stock market is in any way representative of the Chinese economy, as stock markets definitively are in capitalist economies, or simply a sideshow casino that the rest of the world can point at and laugh but ignore on the basis of its irrelevance to the rest of the world or even China itself. The latter seems more the case, but for the flow-on impact of debt-backed investment into global commodity markets and the impact on Chinese consumer confidence.

On that note, as the Shanghai index made its way back to be up 1% late in the Bridge Street session yesterday, it was the local energy sector which enjoyed the biggest rebound, up 0.8%. The rest of sectors ultimately traded off small moves up and down by the close. The Shanghai index closed down 1.7% at the death, but the world stopped worrying.

Rebound

European stock markets, which had fallen heavily on Monday night, subsequently bounced back. The German and French indices both gained a percent.

Wall Street opened hesitantly, but soon stepped into steady buying mode to break the worst down-streak since January and send the Dow up 200 points. Leading the charge was, again, the energy sector.

With all that’s been weighing on oil prices recently, the last thing oil producers needed was additional questions raised about the ongoing strength of Chinese demand. A big correction for the US energy sector had prompted “oversold” calls, and so it was the trigger of Chinese stock market stability, and a small rise in oil prices, set off a short-covering scramble. The materials sector also took heart from a rebound in metals prices, and as luck would have it, last night saw some positive US earnings reports following a period of disappointment.

Parcel delivery services are considered a reliable economic bellwether so an earnings beat from UPS saw its shares jump 5%. Ford (Dow) blew auto market analysts away with a stunning June quarter, sending its shares up 2%. Diversified resource sector leader Freeport McMoRan was able to entice an 8% rally just by announcing cost cuts.

The only downer on the day was the Conference Board’s monthly measure of US consumer confidence, which plunged to 90.9 from 101.4 in June when economists had forecast a slight slip to 100.0. However fingers were pointed at lingering Greek and Chinese market concerns during the survey period.

Commodities

Oil prices, as noted, enjoyed a mild recovery last night after their long fall, with West Texas rising US76c to US$47.76/bbl and Brent rising US19c to US$53.06/bbl. But the real action was in the metals.

The US dollar index rose 0.1% last night but that was not going to stand in the way of a short-covering scramble on the LME on technical triggers and Chinese stability. Aluminium rose 1%, copper and lead rose 2%, nickel and zinc rose 3% and tin rose 4%.

Iron ore gained US80c to US$52.20/t.

Gold is steady at US$1095.30/oz.

The Aussie dollar has similarly rebounded, jumping 0.9% to US$0.7340.

Today

The SPI Overnight closed up 27 points or 0.5%.

The Fed will conclude its July meeting tonight and issue a statement which will hold the world’s attention, but likely disappoint due to lack of anything new.

Rudi will make his weekly appearance on Sky Business' Market Moves, 5.30-6pm and later on, from 8pm onwards, he will host Your Money, Your Call Equities.
 

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: Shanghai Shock

By Greg Peel

The Dow closed down 127 points or 0.7% while the S&P lost 0.6% to 2067 and the Nasdaq fell 1.0%.

Stock Picking

The Australian market opened lower yesterday following the fourth consecutive drop on Wall Street and at 28 points down in the first half hour, it looked as if the SPI futures overnight call of 49 points down was well underway. But clearly there are those who question the extent of Wall Street correlation, given recent weakness has mostly been driven by disappointing US earnings.

What followed was selective bargain hunting that first halted the slide before slowly building momentum to the closing bell. Large cap stocks seem to have been targeted given the banks, materials, healthcare and the telco all enjoyed rallies when industrials, the consumer sectors and energy all missed out.

The banks are enjoying renewed support after a long slide following the decision to reprice investor loan books to counter expected capital and macro-prudential tightening. Having taken a knife to their commodity price forecasts, offset by a weaker Aussie dollar forecast, resource sector analysts have begun to see value in certain materials names following steep share price falls.

But unfortunately these two themes may amount to nought today. The SPI Overnight is again calling a weak session, down 43 points, and this time might be more accurate.

Late Slam

When the bell rang at 4pm on Bridge Street yesterday, the Shanghai stock index had not moved much through its session so far. With the Chinese index having rallied back around 20% from its perilous low marked in the first week of July, thanks to significant government intervention, fear had subsided across the globe and allowed investors to refocus on the fundamentals.

But just as the bell rang on Bridge Street, something untoward was triggered in Shanghai. Two hours later, the Chinese market closed down 8.5% -- its biggest one-day fall since February 2007. That session was known as the “Shanghai Surprise”, and the subsequent risk-off trade in the US revealed to the world that there were these things called “collateral debt obligations”, containing sub-prime mortgages, and apparently when investment banks tried to sell them, they could find no buyers.

The rest, as they say, is history.

The world is once again afraid of the Chinese stock market and worried that yesterday’s late rout is a precursor to a full-blown crash. Given the level of intervention undertaken by the Chinese government and central bank to date to engineer a rebound, stopping just a little short of forcing fund managers to buy at gunpoint, one wonders what Beijing can pull out this time if this really is another selling wave building.

Presumably, they will shut down the market altogether.

There are those who argue that China’s stock market is isolated from the rest of the global financial market given only the Chinese can own China ‘A’ shares. And given only 15% of Chinese own shares, the flow-on into consumer spending is limited. But it’s not that simple.

Firstly there’s the general hit to Chinese confidence, both at the business and consumer level, at a time the economy is struggling to gain traction. But more directly there is the margin lending issue, which sees Chinese buying not just stocks with borrowed money, but commodities as well. When the stock market falls, commodities are the first assets to be offloaded to cover the margin calls.

Five in a Row

This point was not lost on Wall Street last night, as the US indices posted their fifth consecutive session of falls. The benchmark S&P500 is now approaching its 200-day moving average and once again, commentators are suggesting the correction-that-never-comes might be about to arrive.

The mood was not helped by 2.5% drops for both the German and French stock markets, and 1% in London.

Certainly US investor confidence is enjoying no boost from economic data points and corporate earnings releases right now as a counter. Last night’s new durable goods orders numbers for June offered a glimmer of hope, given net orders rose 3.4%, beating 2.7% forecasts and representing the first rise since March, but economists were quick to point out the six months to June saw orders fall 2%.

US weakness is finally coming home to roost for the US dollar. The US ten-year bond yield fell 4 basis points to 2.23% last night on a flight to safety but the safe currencies du jour are apparently the yen and, believe or not, the euro. The US dollar index is down 0.7% at 96.53.

Beyond the data, Wall Street watched as oil prices continued to fall last night, with base metals hot on their heels. The counter to an oversupplied global oil market has always been assumed demand growth from China. Energy stocks led an already nervous market lower.

Commodities

West Texas crude has now fallen for eight sessions in nine, to its lowest level since March. Last night saw a US$1.09 fall to US$47.00/bbl. Brent chimed in with a US$1.77 fall to US$52.87/bbl.

In Australia we might at least be able to look forward to cheaper petrol again, as we did last summer, except that the Aussie was up in the 80s back then and this morning it is down 0.2% to US$0.7272.

Tin continues to play its own game, rising 1% on the LME last night, but copper, lead and zinc all fell more than 1% and nickel fell 3%.

Iron ore actually managed to rise US70c to US$51.40/t, but if the Chinese stock market continues to fall, US$50 can be kissed good bye.

Gold fell US$5.60 to US$1094.70/oz and is another commodity rife for margin call cash-raising.

Today

The SPI Overnight closed down 43 point or 0.8%.

Alacer Gold ((AQG)) will post an earnings report today.

Tonight sees the first estimate of UK June quarter GDP.
 

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

Cracks in China

The big fall away from the 5700 mark the ASX200 experienced last Wednesday appears to have taken the wind out of the sails of any post-Greece revival for the Australian stock market as we approach the local reporting season. Friday saw another soggy session, weighed down by commodity prices and another weak lead from Wall Street.

The index showed some attempt to rally in the morning on Friday but if ever it were going to stage a comeback, that thought was killed off by the release of the (former HSBC’s) flash estimate of China manufacturing PMI for July. It came in at 48.2, missing forecasts of 49.8.

This is a big “miss” in Chinese data terms and again brings into question the efficacy of Beijing’s 7.0% June quarter GDP result. At the time, economists argued that constituent data did not appear to add up to such result and weakness in July manufacturing implies the China’s manufacturing sector was contracting as the quarter came to a close.

By Friday’s closing bell, Bridge Street booked a mixed bag of data movements and typical end of week lack of conviction. The consumer sectors were the hardest hit, the banks continue to be impacted by capital raising scares, and weak metals prices continue to weigh on materials. Meanwhile the two main defensives – utilities and the telco – managed small gains alongside energy, which is surprising given the fresh slide for oil prices.

Gloom

The shock earnings result from Amazon might have been expected to raise some hopes at the end of a generally sour week for US quarterly earnings reports but it wasn’t to be. Amazon shares rose as much as 19%  intraday but settled back to close 10% higher as weak sentiment weighed on Wall Street.

Still, Amazon is now a bigger company in capitalisation terms than Wal-Mart, which is extraordinary given the company never has booked, and at this stage has no intention of ever booking, a profit. Wal-Mart is America’s biggest employer, Amazon is purely an online business. Old world versus new.

The weak Chinese data provided by Caixin/Markit helped Wall Street lower on Friday, with resource sector stocks continuing their slide on lower commodity prices. The US does not export raw materials in any meaningful way to China, but it does need a strong Chinese economy to support exports of capital goods and consumer products. Poor June quarter results posted by everyone from Caterpillar to Apple last week carried overtones of weaker than expected Chinese demand.

And data from home didn’t help on Friday night. Sales of new single family homes fell 6.8% in June to the slowest pace in seven months, although economists warn this is a volatile estimate subject to significant revision.

With the technicals signalling a warning ahead of Friday’s session, the Dow subsequently fell 163 points or 0.9%. The S&P lost 1.1% to 2079 and the Nasdaq dropped 1.1%. On Thursday night the S&P500 was sitting right on the psychological and well-worn 2100 level, so once it broke there was little to stem the tide.

The S&P closed down 2.2% for the week – the biggest weekly fall since March.

Commodities

Oil is now “officially” in bear market territory. Friday’s night’s US76c drop for West Texas crude to US$48.09/bbl took its fall from the US$61 high seen in June to 22%. The turn in the oil price is yet to elicit a response from US producers, given the rig count rose again last week according to data released on Friday.

Meanwhile, Saudi monthly supply levels continue to grow. No doubt the next bottom for the oil price will come when that rig count turns down once more. Brent fell US87c on Friday night to US$54.64/bbl.

The weak China data caused further groans on the LME last night but after a weak of falls, base metal prices consolidated somewhat. Lead, nickel and zinc were weaker but aluminium and copper posted modest gains, and the wild ride for tin continued with a 3% jump.

Iron ore is managing to hold up above the US$50 level, and on Friday rose US10c to US$50.70/t.

The US dollar index was steady at 97.21 but gold found some sub-1100 buyers on Friday, to drive a US$10.10 gain to US$1100.30/oz.

The Aussie dollar otherwise reflected China concerns, and it is down 0.9% to US$0.7284.

With a trickle of local earnings reports due this week as precursors to the results season proper, the Australian market looks set for a weak start. The SPI Overnight closed down 49 points or 0.9% on Saturday morning.

The Week Ahead

US earnings reports will continue to flow in this week but the focus will also be on monetary policy as the FOMC delivers a policy statement on Wednesday and the first estimate of US June quarter GDP comes out on Thursday. It is the last Fed meeting before September, when many expect the first rate rise. The forecast for the GDP stands at 2.5%.

The US will also see durable goods tonight, monthly consumer confidence, Case-Shiller house prices and the Richmond Fed activity index on Tuesday, and pending home sales on Wednesday. Friday brings the Chicago PMI and Michigan Uni’s fortnightly consumer sentiment gauge.

Germany’s IFO sentiment survey, due tonight, may provide some insight into how the whole Greek drama has impacted while at week’s end, a flash estimate of July eurozone CPI will indicate how the ECB’s money printing is going.

Japan will release retail sales, industrial production, unemployment and inflation data over the course of the week.

The economic focus in Australia comes later in the week when building approvals are released on Thursday and Glenn Stevens makes another speech. Friday sees private sector credit and the June quarter PPI.

But increasingly the focus in Australia will be on the micro as we approach August. There will be a late scramble of resource sector production reports this week, coinciding with a trickle of earnings season curtain-raisers.

Navitas ((NVT)) will report today, while GUD Holdings ((GUD)), Energy Resources of Australia ((ERA)) and ResMed ((RMD)) will report on Thursday.

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. Also on Wednesday, Rudi will host Your Money, Your Call Equities.
 

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: More Earnings Pain

By Greg Peel

The Dow closed down 119 points or 0.7% while the S&P fell 0.6% to 2102 and the Nasdaq dropped 0.5%.

The Bad Oil

A new round of weakness in commodity prices is beginning to weigh on the Australian stock market in the wake this month’s macro turmoil, and we’ll likely see more of the same today. While LME traders are currently facing the northern summer slowdown period, concerns over Chinese growth continue to influence base metal prices and iron ore is struggling to hold onto US$50/t.

West Texas crude has now fallen meaningfully into the forties once more and gold is feeling unloved ahead of the Fed rate rise.

Yesterday saw the materials and energy sectors lead the ASX200 lower following Wednesday’s rout, with the big-name miners the biggest losers.

The Aussie dollar is also coming under pressure from commodity prices, US dollar strength notwithstanding, but at least this provides a silver lining of sorts for many companies. The Aussie is this morning 0.4% lower at US$0.7352.

Whimper

There was some concern the ruling Syriza party might fall apart ahead of the second vote in the Greek parliament, leading to a possible general election and potentially back to square one. But the party suffered no greater number of defectors and abstainers than it did for the initial vote, thus last night the parliament passed the additional round of reforms required by Greece’s creditors.

The way is now clear for the terms of the actual bailout to be decided upon.

Despite the earlier uncertainty, the vote was met with fervent disinterest by Europe’s major stock markets, with both the German and French indices posting flat sessions.

Earnings

With US oil now back under the US$50 mark the US energy sector is feeling the pain, but last night’s drop on Wall Street was driven mostly by another round of weak earnings reports from some of the big names. The Dow again led the indices lower, with components Caterpillar, 3M and American Express all posting disappointing results.

There was some respite offered after the closing bell nonetheless, with Amazon posting a beat which has sent its shares up 16% in the aftermarket. Amazon joins fellow new-agers Netflix and Google in posting solid upside surprises, while to date it appears it is the old stalwarts who are suffering.

Fingers have been firmly pointed at the stronger greenback. The US dollar index is this morning 0.2% lower at 97.20.

There was also much excitement generated by last night’s weekly new jobless claims. Weekly numbers are volatile and economists noted the jobs claims numbers can be particularly volatile in July, but last night’s figure of 255,000 new claims was the lowest since 1973. New claims have now remained under 300,000 since February, the longest run in fifteen years.

The jobs numbers bring the Fed firmly into the spotlight, but if Wall Street is now more convinced than ever the first rate rise will be in September, the US bond market was certainly not indicating such last night. The ten-year yield fell 5 basis points to 2.28%, driven by the disinflationary implications of lower commodity prices and safe haven-seeking from those feeling uneasy about weak corporate earnings reports.

Commodities

If bond yields are falling on lower commodity prices, the irony is somewhat of a feedback loop is in play. If the Fed rate rise is now imminent, the US dollar is expected to rally. If so, US dollar-denominated commodity prices must fall. Last night LME traders cited the positive US jobs data as reason to sell yet again, sending all base metals lower bar tin. Aluminium fell 1.4% and copper fell 1.9%.

Iron ore fell US10c to US$50.60/t.

West Texas crude fell US37c to US$48.85/bbl last night, suggesting the halcyon days of the recovery to 60 and the restart of idled rigs are over. Another supply-side response will probably transpire in the US, ensuring West Texas cannot fall too far below 50, one would assume. Brent fell US49c to US$55.51/bbl last night.

Gold is down another US$3.80 to US$1090.20/oz.

Today

The SPI Overnight closed down 19 points or 0.3%.

The flashers are out and about today, beginning with HSBC’s estimate of its own China manufacturing PMI for July. Japan will join in, as will the eurozone and US tonight.
 

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: Earnings Jitters

By Greg Peel

The Dow closed down 68 points or 0.4% while the S&P lost 0.2% to 2114 and the Nasdaq dropped 0.7%.

Thumped

The extent to which the ASX200 plunged from the opening bell yesterday would appear to suggest those players who had retreated to the sidelines in the wake of the Greek resolution, wondering what to do next, decided that the slow drift back up to the 5700 mark over the week was unjustified. The big drop then fed on itself as investors panicked and got out fast.

No sector was spared in the rout, although the leading 3% drop for utilities suggests the market was expecting RBA governor Glenn Stevens to be more open to a further rate cut than he implied in his speech and Q&A in Sydney yesterday.

While reiterating that a decision to cut the cash rate once more remained “on the table”, Stevens rather poured cold water on the possibility in saying “It is not quite good enough simply to say that evidence of continuing softness should necessarily result in further cuts in rates, without considering the longer-term risks involved”.  Those risks include Australia’s surging property market.

There was certainly no impediment to another rate cut provided by yesterday’s inflation data. Australia’s headline CPI rose 0.7% in the June quarter, to an annual rate of 1.5%. Economists had forecast 0.8% for 1.7% annual. Core inflation, ex food & energy, which the RBA pays attention to, rose 0.55% for 2.3% annual to remain at the lower end of the RBA’s 2-3% comfort zone.

No doubt the sudden drop on Wall Street on Tuesday night, thanks to weak earnings reports from the likes of Dow components IBM and United Technologies, was enough to foster caution on Bridge Street yesterday. Wall Street is assuming a decent rebound in the US economy out of another snowbound March quarter and to that end, corporate earnings reports are expected to provide evidence. After the bell on Tuesday night Apple posted a disappointing result and fell 4% in the aftermarket. If Apple is struggling then the world is in trouble, it would seem.

Apple Pie

But on the strength of Apple’s numbers it was clear America’s biggest company is not struggling at all. It’s just that exuberant investors had pushed Apple shares up 13% in 2015 and were looking for an upside earnings surprise that was not forthcoming. Last night’s 4.2% correction is nothing to be particularly worried about.

Apple was not the only tech company to disappoint last night nevertheless. Dow component Mircrosoft also posted a weaker than expected earnings report which saw its shares fall 3.7%.

For the big US multinationals, the ever-rising greenback is a source of concern ahead of the Fed’s inevitable rate rise.

Last night the US dollar index ticked up 0.1% to 97.43. The US bond market continues to err on the side of caution, and is probably waiting to see what happens next in Greece before deciding it’s safe to sell once more. The Greek issue, as we must acknowledge, is not quite over just yet. The US ten-year yield fell 2 basis points last night to 2.32%.

Commodities

Energy stocks were also amongst those driving Wall Street lower last night, thanks to an unexpected rise in US weekly crude inventories. West Texas dropped US$1.64 in its new September delivery front month to US$49.22/bbl, representing the first sub-50 close since April. Brent, which is already trading on September delivery, fell US91c to US$56.00/bbl.

On the LME, the focus was on China. Yesterday a Chinese government ministry suggested China’s industrial sector still faces significant downward pressure and “arduous efforts” are needed to stabilize the economy. That was enough to send base metal prices lower once more, with only aluminium remaining relatively unscathed. Lead fell 1%, copper, nickel and zinc fell 2% and tin fell 3.6%.

Iron ore fell US$1.40 to US$50.70/t.

Gold slipped again, dropping US$7.10 to US$1094.00/oz.

The Aussie dollar is 0.6% lower at US$0.7382.

Today

Following the big adjustment on Bridge Street yesterday, the SPI Overnight is down 2 points.

CIMIC ((CIM)), or the old Leighton Holdings to you and I, will provide a curtain raiser to next month’s earnings season today as it releases its interim result. Fortescue Metals ((FMG)) will feature among those resource sector stocks releasing quarterly production reports today. Macquarie Group ((MQG)) will meet shareholders at the AGM.

Rudi will make his weekly appearance 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 Overnight Report: Big Fall For Big Blue

By Greg Peel

The Dow fell 181 points or 1.0% while the S&P lost 0.4% to 2119 and the Nasdaq dropped 0.2%.

Top of the Range?

The ASX200 meandered its way northward yesterday without a lot of conviction to close almost at the 5700 mark, which has provided a ceiling for the past two months of turmoil. Given a weak session on Wall Street overnight, this may likely prove the case once more.

Materials was the only sector to meaningfully lose ground yesterday, while all other sectors closed flat to positive. Energy surprised with a slight recovery despite another fall in the oil price.

The minutes of the July RBA meeting, released yesterday, offered no real surprises. The central bank noted strength evident in the March quarter GDP did not appear to carry over into the June quarter, unemployment has not risen as expected but plenty of spare capacity suggests no threat of inflation, and while the Aussie had fallen against the greenback on ever lower commodity prices, it had not fallen as much against other trading partner currencies.

This appears to leave the door open for another rate cut, and the RBA will watch the data to come. Today’s June quarter CPI result will help to inform any a decision at the August meeting.

Barring any further bouts of macro uncertainty, the Australian market will likely drift until next month when corporate earnings reports begin to flow in earnest. The market is now treating Greece as a story from the past but the reality is there remains a risk of further volatility, particularly were the Tsipras government to be forced into a fresh general election.

Reality Check

I mentioned yesterday that now that the Dow has returned to above 18,000, the S&P to above 2100 and the Nasdaq to new all-time highs, commentators have once again been crying “overvaluation”. They have also – yet again – been suggesting a 10% pullback would be healthy for Wall Street, just as they have been, vainly, for the past three years.

Last night at least provided a slight glimmer of hope for those praying for a correction of respectable magnitude. Two big Dow names, IBM and United Technologies, posted earnings misses that saw their shares carted. IBM, the second heaviest weighting in the Dow average fell 6% and United Technologies fell 7%. These two stocks alone drove the bulk of the Dow’s 1% fall.

Weakness was also thus registered for the S&P500, while the Nasdaq slipped warily off its all-time high mark.

Once again there were no US economic data releases of note last night to prompt further Fed rate rise debate.

Having rallied steadily in the past three sessions, last night the US dollar slipped back on suspected profit-taking, falling 0.8% to 97.32.

Commodities

Weakness in the greenback could not inspire any positive moves in base metal markets, with prices continuing to drift off as the summer wind-down period begins for end-users. All metal prices were lower on the LME.

Spot iron ore managed a US20c gain to US$52.10/t.

Gold managed to claw back US$4.30 to US$1101.10/oz. Chances are, having spent so long time clinging to the 1200 mark, gold will now consolidate at the 1100 mark for a period.

The weaker greenback did nevertheless provide a reason to buy oil following five consecutive sessions of price declines. West Texas rose US37c to US$50.36/bbl and Brent rose US26c to US$56.91/bbl.

The weaker greenback also ended the Aussie’s drift lower, driving a 0.8% gain to US$0.7428.

Today

The SPI Overnight closed down 27 points or 0.5%.

As noted, Australia’s June quarter CPI data are due out today. Economists are looking for an increase in the annual headline rate to 1.7% from 1.3% in the March quarter.

RBA's Glenn Stevens will also be speaking in Sydney today.

This week’s US data drought ends tonight with existing home sales and house prices.

BHP Billiton ((BHP)) and its offspring South32 ((S32)) will report June quarter production numbers this morning, while Macquarie Group ((MQG)) will hold its AGM.

Rudi will appear on Sky Business twice today. First from 5.30-6.00pm on Market Moves and again between 7-8pm on Switzer TV.
 

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article 3 months old

The Overnight Report: Goodnight Gold

By Greg Peel

The Dow closed up 13 points or 0.1% while the S&P gained 0.1% to 2128 and the Nasdaq rose 0.2%.

Greece

Greece is no longer in default, having paid the money owed to the IMF, and to the ECB, from the emergency bridging loan provided by the EU in the wake of Greece’s acceptance of the creditors’ reform package.

Last night Greek banks reopened but capital controls remain. Having spent three weeks queuing to withdraw E60 per day, from last night Greeks could withdraw E300 per week and from Saturday E420 per week. Major transfers to foreign banks remain banned, thus the costly disruption to Greece’s economy and capacity to trade continues. From last night, Greeks were hit with widespread price hikes thanks to a VAT increase to 23% from 13%.

How’s our 15% GST hike looking?

For the first time in months, representatives of the EU, ECB and IMF are expected in Athens in the coming week to assess the state of the economy. But the fat lady is still yet to sing this time around. On Wednesday night the Greek parliament will need to pass a second wave of required reforms, which will likely prove the make or break session for Alexis Tsipras.

At last week’s vote, only 123 MPs of the coalition’s 162 seat majority voted in favour of the initial reform package, with 120 required to sustain a minority government. Another round of MP defections could see Tsipras out in the cold, forcing his resignation and ultimately a fresh Greek general election.

It was a general election that got us to this point in the first place.

Now What?

Global stock markets have now reached a state of post-trauma calm and are wondering what exactly to do next. The Chinese stock market has stabilised, for now, and a Grexit appears off the table, for now. The Australian market is currently sitting in the doldrums ahead of the storm that is August result season, although a trickle of outlier reports are due from as early as this Thursday.

Yesterday saw another quiet session on Bridge Street, featuring a modest gain for the index. The energy and materials sectors were the poor performers in an otherwise sector-wide rally. The ASX200 is sitting in between its two important levels of 5600 and 5700, and one assumes upcoming earnings reports will be the catalyst to affect a breach of either.

The Aussie has also stalled, at US$0.7370.

European stock markets were mildly higher again last night, but without any major economic data releases or big-name corporate earnings reports to focus on, Wall Street meandered through its session lacking any conviction. The Nasdaq continued its run of new all-time highs, but with only a minor gain last night.

The Dow and the S&P500 are not yet back at all-time highs but they are back at levels over 18,000 and 2100 respectively, thus once again commentators are suggesting full valuation. There are plenty more earnings reports due yet in the US quarterly reporting season to stir the pot, but we may be in for a quiet time until September when the Fed may (hopefully, to get it over and done with) make its move.

Commodities

An impending Fed rate hike and subsequent strength in the US dollar have not been supportive of the US dollar gold price, and nor is a subsidence global risk. Gold held up but did not manage to rally during this latest Greek crisis, and had to weather the storm of Chinese selling to pay for margin calls on stock positions.

If gold was not going to go up then the only possible direction when the storm subsided was down. Gold had already fallen quietly for seven straight sessions before last night, and was looking vulnerable ahead of the release of Chinese gold reserve data. They came in at half of what the market had assumed, and it was goodnight Irene.

Gold is down US$36.50/oz to US$1096.80/oz to mark a five-year low, despite the US dollar index ticking up only 0.1% to 98.06.

For base metals, the end of Greek and Chinese trauma has coincided with the northern summer shutdown period, in which industrial activity slows to a crawl and buying support fades. Nickel was the only base metal to manage a rally last night (2%) while all the other metals drifted lower once more.

A flip-flopping iron ore price is keeping Twiggy awake at night, but last night saw a flip with a US$1.90 gain to US$51.90/t.

Today

The SPI Overnight closed up 10 points or 0.2%.

The minutes of the July RBA meeting are due tonight, but are unlikely to offer anything new given the June quarter CPI is out tomorrow.

Oil Search ((OSH)) and OZ Minerals ((OZL)) are among the quarterly production reporters today, while Macquarie Atlas Roads ((MQA)) will provide a quarterly update.
 

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

And then suddenly, nothing happened.

After a tumultuous few weeks, including many a Monday morning hanging in the balance of meetings in Brussels or new and more desperate initiatives from Beijing, an eerie calm descended upon markets across the globe on Friday as attention turned to rugby/cricket/golf/cycling over the weekend. As it should on a weekend.

The news out of Greece this morning is that the Greek banks are preparing for another onslaught of withdrawals tonight despite pleas from politicians for Greeks to actually deposit money in an act of patriotism. Good luck with that one. The withdrawal limit has not been effectively increased from E60 per day other than to allow E420 per week on the back of fresh ECB emergency funds.

As some VAT increases come into force immediately, the long hard road will continue for the country under ongoing currency controls while negotiators nut out the bailout details and eurozone parliaments prepare to vote. Meanwhile, financial markets can get back to what they would normally focus on, although on Friday it appeared everyone was too exhausted to bother.

Flat

A quick glance at an ASX200 chart confirms the Australian market is where it was at the end of May. What was all the fuss about in between? Friday saw minimal movement amongst sectors in either direction for a flat close in the index, and it appears traders heeded my suggestion it might be a good day for a steak and a couple of reds.

Europe saw a similar session, and the disinterest carried across the pond to provide for a little bit of up and down on the open for the S&P500 before it, too, settled down to a flat close. The big mover on Friday in the US was Google, which closed up 16% after having blown analysts out of the water after the bell on Thursday night with its profit report.

Google is not a Dow stock, but as a tech stock, albeit an old one and one of few tech wreck survivors, its performance provides incentive for the tech-heavy Nasdaq. The Nasdaq subsequently closed up 0.9% on Friday at an new all-time high. The Dow put in a tepid 0.2% or 33 point fall leaving the broad market S&P to split the difference with a 0.1% gain to 2126.

It might have been a one-man-band of a session but it appears Wall Street is ready now to just concentrate on June quarter corporate results. The whole Fed rate hike debate thing has become a bit tiresome, and will likely soon be resolved without much ado.

To that end, Friday night saw the release of the US CPI data for June. A 0.3% increase at the headline represented the fifth increase in succession, and the 0.1% annual rate achieved the first positive headline number since December, indicating the impact of the oil price plunge has now worked its way through.

The core rate, without oil, rose 0.2% for a 1.8% annual rate. This is closer to the Fed’s measure, except that the Fed specifically prefers personal consumption & expenditure (PCE) as its guide.

In other data, housing starts shot up 10% in June, but consumer sentiment measured by Michigan Uni fell to 93.3 from 96.1 a fortnight ago.

The US dollar index is up 0.3% at 97.96 and the US ten-year bond rate is again steady at 2.35%.

Commodities

Indonesian export rules regarding nickel have seen that base metal running up and running back again over the past few months but now there is talk of tin coming in for similar bans. Thus tin jumped 4.6% on Friday night when all other metals were somewhat weaker thanks to the stronger greenback and Janet Yellen’s ongoing talk of a 2015 rate rise. Copper fell 1%.

Iron ore was unchanged at US$50.00/t.

Uncertainty still reigns in oil markets ahead of the Iranian deal being put to Congress but the oils went quiet on Friday, and indeed barely moved. West Texas is down US19c at US$50.78/bbl and Brent is up US6c at US$57.11/bbl.

Gold was the bigger mover on the night. With a Fed rate rise drawing ever closer and volatility subsiding on the Greek and Chinese fronts, gold is now losing its raison d’etre and fell US$11.30 to US$1133.30/oz on Friday night.

The Aussie dropped 0.6% to US$0.7370.

The SPI Overnight closed down one point.

The Week Ahead

There’s little in the way of economic data releases across the globe early this week, allowing US earnings results to take centre stage. Wednesday will then see existing home sales and FHFA house prices in the US, followed by leading indicators and the Chicago Fed national activity index on Thursday and new home sales on Friday.

Friday also sees a global round of flash estimates of July manufacturing PMIs, including those of Japan, China (HSBC), the eurozone and US.

Japan will be closed today and the RBNZ will hold a policy meeting on Thursday.

The minutes of the July RBA meeting are due out tomorrow but nothing much new is expected, particularly given Australia’s June quarter CPI data are due on Wednesday. Economists are looking for an increase in the annual headline rate to 1.7% from 1.3% in the March quarter.

Glenn Stevens will speak in Sydney tomorrow.

The local stock front will be dominated by ongoing resource sector June quarter production reports this week. Highlights include OZ Minerals ((OZL)) tomorrow, BHP Billiton ((BHP)) on Wednesday and Fortescue Metals ((FMG)) on Thursday. Macquarie Group ((MQG)) will hold its AGM and provide FY16 guidance on Wednesday.

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon.
 

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

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 Overnight Report: Back To Business

By Greg Peel

The Dow closed up 70 points or 0.4% while the S&P gained 0.8% as the Nasdaq shot up 1.5%.

Stabilising

It was another strong session on Bridge Street yesterday but not the one way street, step-jump adjustment type of session we’d seen in the previous two. We might thus assume Tuesday and Wednesday represented the removal of Greece risk, with a bit of comfort from Chinese market stability thrown in, while yesterday represented more “normal” attempts by investors to reposition.

The ASX200 did rally another 55 points to 11am towards the 5700 mark but finally the sellers emerged at this point, having stood aside for two days. No doubt short-covering played some part in the two-day run, given the Australian market was showing above average short positioning the week before.

It was a mixed bag yesterday among sectors, further suggesting we’re back to picking themes rather than simple index trading on global events. The banks and telco led the way, while energy bore the brunt of the fall in oil prices.

If we really can put Greece and China to bed now, at least for the time being, the market will be able to reserve its full attention for six-monthly earnings results, which begin to flow next month.

The Aussie story is an interesting one at present, given the sudden slap down into the 73s the currency saw on Wednesday night. This was triggered by a surprise rate cut from the Bank of Canada, on a “guilt by association” basis. Like Australia’s, Canada’s commodity-dependent economy is struggling to transition away from resource sector dependence, and more so if we consider the BoC’s 25 basis point cut took Canada’s cash rate down to only 0.5%.

The implication form the Aussie plunge is that the RBA will be forced to follow suit, but last night the Aussie regained much of Wednesday night’s loss with a 0.5% rise back to US$0.7413 this morning, despite a stronger greenback.

Earnings Focus

We can also argue that the Australian market did not need to go on with it as vigorously yesterday following the vote in the Greek parliament, given a “yes” result was anticipated in the previous two days of rallies. It’s now up to 18 other eurozone parliaments to approve the new deal, and while there remain dissenters, it is likely the zone will close ranks around Germany.

The highlight of last night’s ECB policy meeting was confirmation the central bank will indeed extend its emergency funding to Greek banks, following the positive vote in parliament, such that they should be able to reopen for business on Monday.

The main European stock markets still had a bit of Greek relief left in them last night, having been most damaged by the uncertainty of the last few weeks. The German and French markets both added another 1.5%. Wall Street similarly spiked up on the open, but as was the case downunder, the sellers quickly emerged. Thereafter, it was all about corporate earnings, economic data and Janet Yellen.

The pullback from the open soon swung around to a slow graft north once more as a stunning result from Netflix helped drive the Nasdaq to a new all-time high. The video streaming service is another of those New Media businesses analysts argue staunchly about as to whether they will ever make any money – Facebook and Twitter being other examples – but Netflix silenced the critics last night with an 18% share price surge. A not so well received result from Goldman Sachs dragged on the Dow, while the S&P500 was balanced out with positive results from the likes of Citigroup and EBay.

After the bell, Google posted a strong beat and is currently up 11% in the aftermarket.

On the economic front, the US housing sentiment index ticked up to 60. This is in line with forecasts, but does represent the highest level of confidence in ten years. A sharp drop in weekly new jobless claims was timely given Yellen’s grilling by the Senate banking committee, although the Philly Fed activity index disappointed with a fall to 5.7 from 15.2. The stronger dollar was blamed.

On Capitol Hill, Yellen again said nothing new but did point out that while there is a risk of raising too early, there is also a risk of raising too late. The Fed’s 2% inflation target is very much in focus, and tonight sees the US June CPI result.

The building risk of a September rate hike continues to push the greenback higher. The US dollar index is up 0.5% at 97.67. The US ten-year yield remained steady at 2.35%.

Commodities

The slide in oil prices continued last night as oil traders turned attention to Yellen’s insistence in a rate hike this year and the implications for the US dollar. But while West Texas fell US65c to US$50.97/bbl, Brent’s expiring August delivery contract rose slightly on news a power outage shut down the UK’s largest oil field. The new September contract closed down US7c at US$57.05/bbl.

Activity on the LME has very much quietened down after the Greece brouhaha and wild times in China, culminating in what appeared better than expected Chinese data this week. On low volumes, aluminium and copper went to sleep, zinc and lead fell half to one percent but nickel rose 1% and tin jumped 3%.

Iron ore fell US10c to US$50.00/t.

Gold continues to slip-slide away on the stronger dollar and it’s down US$4.30 to US$1144.60/oz.

Today

The SPI Overnight closed up 7 points.

After a wild week, it might be nice in the ongoing east coast cold and wet (watch out WA, you’re about to cop it too) just to find a cosy restaurant for a steak and a red this afternoon. Maybe two reds.

Tonight sees inflation data in the US.

On the local stock front, Santos ((STO)) will release its quarterly production 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: Waiting…

By Greg Peel

The Dow closed down 3 points while the S&P fell a point to 2017 and the Nasdaq lost 0.1%.

I was assuming, or at least hoping, I would be writing this Report this morning knowing what the outcome of the Greek parliamentary vote had been, but as I write debate is still ongoing in Athens despite the midnight (in Brussels) deadline being passed.

Questions

The highlight of Yesterday’s session on Bridge Street was the release of Chinese monthly and quarterly data. The unfortunate aspect of that release was that the Australian market, and the world, should be rather thrilled about the numbers, but that is not the case.

China’s June quarter GDP came in at an annual rate of 7.0% when 6.8% was expected, right on Beijing’s 2015 target. Industrial production in the month of June rose 6.8% year on year, up from 6.1% in May and ahead of 6.0% forecasts. Retail sales clocked 10.6%, up from 10.1% and ahead of 10.2% forecasts. Fixed asset investment rose 11.4% in the year to June, in line with May but ahead of 11.2% forecasts.

The world should be breathing a sigh of relief, on indications China’s economy may have stopped slowing in the quarter thanks to Beijing’s stimulus efforts, but the general response is one of “yeah, right”. Having lost all credibility in its orchestration of the Chinese stock market bubble and then prevention of its bust, the Chinese government has now again raised the question of just how reliable official data really are. Economists use other data points such as electricity and vehicle sales for example to estimate Chinese growth, and these simply do not corroborate yesterday’s results.

The ASX200 did kick higher yesterday after the release of the Chinese data, but realistically the bulk of the 1% rally was already established beforehand. It was another “risk-on” session following Tuesday’s big jump, despite stock markets around the globe deciding to calm down on Tuesday night ahead of the Greek vote. Yesterday showed hints of a “FOMO” rally – fear of missing out.

The big move up was in the energy sector, which rose 2.5% because oil prices did not tank following the Iranian agreement. Consumer staples chimed in with 2.1%, but interestingly consumer discretionary was still one of the better performers on the day at 1.3% despite the miserable consumer confidence numbers implied by yesterday’s Westpac survey results.

There seems to have been general index buying going on. It didn’t seem to bother anyone that the Shanghai index fell 3%, and after falling 2% the day before, is beginning to look scary again as suspended stocks come back on line.

Yellen it Loud

September is clearly back in the frame for the first Fed rate hike following last night’s testimony from the Fed chair before the House financial committee. Yellen reiterated that she expected to raise the rate at some time this year, and further suggested that while offshore issues, mainly Greece and China, are of concern, they are not sufficient to derail the US economic recovery and thus, by implication, would not hold up the decision to hike.

On Yellen’s testimony, the US dollar index jumped 0.5% to 97.15. One might also expected a further sell-off of US bonds, but bond markets had their eyes on other matters, specifically pictures on the TV of Molotov cocktails being thrown at riot police in Athens. The “flight to safety” trade, ahead of the Greek vote, overcame the rate rise trade in sending the US ten-year yield down 5 basis points to 2.35%.

US stock markets also became nervous when images of rioting appeared, and the indices subsequently turned south. But it had been a quiet session of relatively small movement up to that point, and ultimately a flat close.

Support for a September rate hike was also provided by last night’s US data releases. The Fed Beige Book noted growth in all twelve Fed regions. The producer price index rose 0.4% in June when 0.2% was expected. Industrial production rose 0.3%, and the Empire State activity index swung to plus 3.9 from minus 2.0 last month.

The earnings result highlight on the day was that of Bank of America, which beat expectations and enjoyed a 3.2% share price jump.

Commodities

On Tuesday night oil prices closed higher on a “buy the fact” trade following the long awaited announcement of a deal with Iran. Last night was more indicative of the fear of Iranian implications, on top of record production from Saudi Arabia in June and signs of a glut of US oil products, leading to lower crude demand.

West Texas fell US$1.69 to a three-month low of US$51.62 and Brent fell US$1.63 to US$57.05/bbl.

LME traders wrestled with what appeared to be positive numbers out of China, albeit if they are accurate they would reduce the likelihood of further stimulus, and the stronger greenback. Ultimately base metal prices headed in opposite directions, with copper and nickel falling somewhat and aluminium, lead, tin and zinc rising.

There was good news for nervous iron ore miners last night, with a US70c gain to US$50.10/t in the spot iron ore price.

The stronger greenback sent gold down another US$6.00 to US$1148.90/oz.

The stronger greenback also forced strong selling in the Aussie, which is down 1.0% to US$0.7378, representing a six-year low.

Today

Janet Yellen will tonight continue her testimony, this time before a Senate committee. Given she has remained “on message” so far, nothing new is expected out of tonight’s session.

The eurozone will see inflation and trade data tonight, but attention will be drawn to the ECB policy meeting. Mario Draghi is not expected to fiddle with his QE setting, which appears to be working so far, but rather what to do about Greece and Geece’s undercapitalised banks will be the question.

Locally, Rio Tinto ((RIO)), Iluka Resources ((ILU)), Whitehaven Coal ((WHC)) and Woodside Petroleum ((WPL)) will release June quarter production reports.

But clearly, the Greek outcome will impact upon markets this morning, one way or the other.

SPI futures are up 5 points.


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