Tag Archives: The Week Ahead

article 3 months old

The Monday Report

By Greg Peel

Scripted

I suggested on Friday morning the local market would likely open to the upside on overnight strength before fading in the afternoon as traders took profits following a week-long rally, unless Beijing had something to say about it. Well Beijing did have something to say about it, but the market still played to script.

China posted GDP growth of 6.7% in the June quarter, in line with the March quarter result and beating expectations of 6.6%. Industrial production grew 6.2% year on year in the month of June, up from 6.0% in May and beating expectations of 5.9%. Retail sales rose 10.6%, up from 10.0% and beating 9.9%. Fixed asset investment grew 9.0% year to date, down from the 9.6% pace in May and below 9.4% expectations.

On face value, these appear to be a pretty encouraging set of numbers with the exception of fixed asset investment. To the ASX200, they were worth 20 points at midday, taking the index from up 20 points, and ready to fade, to up 40 points. But then the sellers arrived on cue.

Economists do not, however, suggest these were numbers out of China that offer relief. Within the GDP result, growth in private investment, representing 60% of all investment, fell to a record low for the quarter. This leaves the government to carry the can. On that note, the 9.0% growth rate in fixed asset investment to June is the lowest since 2000, suggesting the government is easing off on the infrastructure stimulus.

The June retail sales number was indeed encouraging, but in a way China’s economy is a bit like Australia’s in that it is trying to transition away from a previous model. Can the growth of China’s consumer economy offset the slowdown in the export-driven sectors? Not if private investors are not on board. Beijing can beef up the stimulus again, as everyone expects it will, but just how many airports and railway lines can you build for the sake of it?

Local traders may have had a closer look at the Chinese data, after the computers had had first shot, and decided they were not so hot after all. The index faded all afternoon.

But importantly, the index has clearly breached the 5400 resistance level, meaning that will now become support. Wall Street took a breather on Friday night and the local futures finished down 11 points on Saturday morning, so 5400 will now be the pivot level for the decision as to whether we have reason to push higher.

That will likely come down to the US earnings season now underway and the local earnings season due to start next month.

Almost

Had the S&P500 closed even a tenth of a point higher on Friday night, it would have been the first Monday to Friday run of all-time highs for the index since 1998. But alas, the S&P closed down two points at 2161. The Dow closed up 10 points but that only marked four days of rally. The Nasdaq lost 0.1%.

The fact the 1998 record was not achieved underscores the reality that markets do not usually go up five days in a row. Wall Street was all set for a similar session of Friday profit-taking after a very strong week, but instead hung in there. It is a positive sign.

Traders have also pointed to other positive signs in the Russell small cap index catching up to its large cap counterparts post Brexit and indeed outperforming on the upside. This suggests the rally has breadth. And a further six basis point gain for the US ten-year bond yield to 1.59% equates to over 20bps from the Brexit low and an indication the safe haven money is coming back out again.

The ongoing element traders have been pointing to for several post-GFC years is the level of cash still on the sidelines. If investors decide they have no choice but to deploy that cash in a low interest rate world, stock market upside could be substantial.

The US CPI rose 0.2% in June, in line with expectation. The increase was largely due to the oil price which many believe should ease off after the summer driving season. Annual inflation is only 1.0%, reflecting the initial big drop in oil prices. Core inflation, without oil, is 2.3%. This should be enough to prompt the Fed into hiking but for three reasons.

Firstly, the Fed prefers the PCE measure of inflation, and that is still running under 2%. Secondly, the Fed did not hike in June because of Brexit risk, and despite the rebound in markets a rate hike is not expected at the July meeting either, on a “too soon” basis. Thirdly, wages fell 0.2% in June. Lack of wage growth suggests a subdued inflation outlook.

But US retail sales jumped 0.6% in June when 0.1% was expected. It’s the third consecutive solid gain.

The big earnings result on Friday night came from the banks. Citigroup posted a beat and Wells Fargo posted in line. The shares of both closed down on the day, but this was more a case of a Friday after a week-long rally and the fact JP Morgan’s solid result on Thursday night had traders amped up for strong beats on Friday night.

As of this week, the earnings reports will come thick and fast, with a lot of Dow names in the frame. If Wall Street is to hang on to or exceed new all-time highs, it will need the run of results to be as positive as the early numbers have suggested.

Commodities

Since we’re focusing on records today, we can also note the 0.6% jump in the US dollar index to 96.69 on Saturday morning ended the strongest week for the dollar against the yen since 1999. The yen has been plunging basically since “Helicopter” Ben Bernanke met with officials in Tokyo early in the week, sparking speculation the BoJ may be prepared to use “helicopter money” as a last ditch effort to soften the yen and boost the Japanese economy.

Helicopter money directly refers to hand-outs of printed money to the populace as a form of stimulus, analogously dropped from helicopters. In the GFC, the famed “Pennies from Kevin” is a local example. But it can also mean other drastic stimulus measures, such as the BoJ buying government bonds and then forgiving the debt. Whatever the case the policy is highly inflationary, but given a low inflation world and over two decades of deflation in Japan, hyperinflation is not considered a risk.

The jump in the greenback on Friday night helped aluminium, copper and nickel down around 0.5% on the LME and lead down 1.5%, with zinc rising 0.5%.

Iron ore fell US20c to US$57.80/t.

Oil traders cited the better than expected China GDP and US retail sales in sending West Texas crude up US73c to US$46.23/bbl, despite the US rig count marking its sixth week of gains in seven.

Gold held its ground against the strong greenback in rising US$2.50 to US$1337.10/oz.

The Aussie is down 0.7% on the strong greenback at US$0.7580.

The SPI Overnight closed down 11 points or 0.2% on Saturday morning.

The Week Ahead

All eyes will be on the ECB on Thursday night when it holds a scheduled policy meeting. But given the wold has quickly recovered from Brexit fears, and the Bank of England elected not to react, it is likely Draghi will keep his powder dry.

The US will see housing sentiment tonight, housing starts on Tuesday and existing home sales, the Chicago Fed national activity index, the Philadelphia Fed activity index, FHFA house prices and leading economic indicators on Thursday. Friday sees a flash estimate of July manufacturing PMI, and Japan and the eurozone will offer the same.

Japan is closed today.

The minutes of the July RBA meeting are due tomorrow and otherwise, NAB’s June quarter business confidence summary on Thursday provides the local data of note this week.

It will be a bit different on the local stock front however, as the quarterly reporting season ramps up.

Western Areas ((WSA)) will report quarterly production today, Rio Tinto ((RIO)) and Oil Search ((OSH)) tomorrow, BHP Billiton ((BHP)) and Woodside Petroleum ((WPL)) on Wednesday, South32 ((S32)) on Thursday and Santos ((STO)) and OZ Minerals ((OZL)) on Friday, among others during the week.

Rudi has returned from two weeks of touring Victoria and Queensland. He will appear on Sky Business via Skype-link on Tuesday, 11.15am, to discuss broker calls. On Thursday he'll return to the studio at Macquarie Park, 12.30-2.30pm and on Friday he'll do the Skype-link again around 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

Next Week At A Glance

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


By Greg Peel

Once we get past the Chinese data today, global economic data releases are fairly thin on the ground until later next week. A potentially significant highlight on Thursday will be the scheduled ECB policy meeting.

Last night the Bank of England did not cut its cash rate as most expected, and as had been earlier hinted at, basically because markets have recovered since their Brexit fit and the pound has rebased to a more helpful level for the UK economy. As the world quickly recovered from the Brexit news, the ECB also suggested it may not need to do anything drastic beyond policies already in place. And the euro is also lower. So we shall see.

In the US, next week brings housing sentiment and starts ahead of Thursday, which sees existing home sales, house prices, the Chicago Fed national index, the Philadelphia Fed index and leading economic indicators. On Friday the US, eurozone and Japan will all flash July manufacturing PMI estimates.

Australia’s calendar is also virtually devoid of data releases next week, although the minutes of the July RBA meeting are due on Wednesday.

There will be more action in the stock market nevertheless.

Next week sees the resource sector quarterly reporting season shift up a gear, with reports due from the likes of BHP Billiton ((BHP)), Rio Tinto ((RIO)), Oil Search ((OSH)), Woodside Petroleum ((WPL)), Santos ((STO)), OZ Minerals ((OZL)), South32 ((S32)) and Western Areas ((WSA)), among others.


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article 3 months old

The Monday Report

By Greg Peel

Breather

The local stock market took a breather on Friday, following two weeks of Brexit volatility and election uncertainty and ahead of Friday night’s US jobs report. Nothing new is known about potential Brexit fallout, but by Friday it at least looked like the Coalition would be able to form some sort of government.

By this morning it looks quite possible the Coalition will be able to form a majority government. This reduces the risk of a possible credit rating downgrade. On Friday night the Aussie went soaring, up 1.2% by Saturday morning to US$0.7564 despite the US dollar index being little changed.

But during Friday’s local session, it seems everyone went to lunch. The only movement of any note was a further 0.6% drop for the utilities sector, as “overbought” calls continues to hit home.

Yer Kidding

The US added 287,000 jobs in June, trashing estimates of 170,000. Mind you, estimates have been none too flash of late, given 170,000 was about the assumption for May as well, minus the 35,000 striking Verizon workers. May’s number came in at 38,000.

It was assumed the May result would be revised up with the June result, being such an anomaly, but instead it was revised down, to 11,000. We now have two consecutive anomalies, so economists prefer to average out to provide a three-month running indicator, which after the June result is 147,000 per month. Late in 2015, when the Fed decided to hike, that average was running at 200,000 plus.

Not only were more jobs created in June, but more hopeful workers re-entered the market, meaning the unemployment rate rose to 4.9% from 4.7%. Average wages rose 0.1% for a 2.6% annual rate.

Under normal circumstances, Wall Street would take the June jobs numbers as reason to expect a Fed rate hike in July. The response in the stock market would then be torn between good jobs result means economic growth, which is good, and good jobs result means higher borrowing rates, which is bad. But no one expects the Fed to hike in July because despite stock markets rallying across the globe, Brexit still provides for uncertainty.

So the Fed won’t hike this month. Maybe September, if the data continue to look positive in the meantime, but even then, probably not. So what does this mean? It means you can have your cake, being strong jobs growth, and eat it too, because the Fed will keep rates low. There is no reason not to buy stocks.

The Dow closed up 250 points or 1.4%, rising back over the 18,000 mark. The S&P rose 1.5% to 2129. The all-time closing high is 2130. The Nasdaq gained 1.6%.

But was this a “risk on” rally? No. Not only did investors buy stocks on Friday night, they also bought bonds and gold – the safe havens. The US ten-year yield fell 2 basis points to 1.37% and gold rose US$5.60 to US$1365.40/oz. Typically on a positive jobs number, and thus increased Fed rate hike expectations, investors would sell bonds and gold and buy stocks. In this case, stocks were bought because there is no alternative.

It’s hard to find any commentator that doesn’t believe US stocks can continue to rally under such circumstances. It is even more difficult to find anyone who is not nervous, given the lack of any fundamental drivers. The VIX volatility index fell back to 13 on Friday night, suggesting abject complacency.

Fundamentals will come home to roost from this week, however, as we enter the US June quarter reporting season. Alcoa reports tonight, and then there’s a gap to week’s end when the first of the big banks report.

As has become the trend, earnings forecasts are weak going into the season, offering up the opportunity of a “beat”, but a bit of a hollow one. Net S&P500 earnings are forecast to fall 5%.

Commodities

The US dollar index was steady on Friday night at 96.28, which is again not what one would expect from such a stellar jobs number. Base metal traders were therefore able to see the result as economically positive, hence we saw copper up 0.5%, aluminium and nickel up 1.5%, and zinc 2.5%.

For the oil market it’s a case of being torn between good economic data and the risk of further oversupply as US rigs kick back into gear above US$50/bbl. So oil prices did nothing, with West Texas steady on US$45.16/bbl.

Iron ore was unchanged at US$55.20/t.

The Week Ahead

After a flat close to last week, the SPI Overnight closed up 61 points or 1.2% on Saturday morning.

The Bank of England will hold a scheduled policy meeting on Thursday night. Given post-Brexit indications from Mark Carney, the market will be very surprised if there is no rate cut from 0.5%. Zero is a possibility.

This week will bring China back into focus.

Over the weekend we saw the release of China’s June CPI, which fell to a five-month low 1.9% from 2.0% in May. On Wednesday we’ll see June trade numbers and on Friday, industrial production, retail sales and fixed asset investment numbers.

And we’ll see the June quarter GDP result. The market is forecasting 6.6%, down from 6.7% in May.

In the US, the Fed Beige Book will be released on Wednesday ahead of CPI, retail sales, business inventories and consumer sentiment numbers on Friday.

In Australia we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday, followed by the June jobs numbers on Thursday.

On the local stocks front, this week heralds the beginning of the quarterly reporting season, which includes resource sector production reports and many a trading update from non-resource companies.

This week’s highlights include production reports from Alumina Ltd ((AWC)) tomorrow and Iluka Resources ((ILU)) and Whitehaven Coal ((WHC)) on Thursday. Transurban ((TCL)) will also report on Thursday.

Rudi will not make any appearances on Sky Business this week as he'll be presenting to investors on Gold Coast and in Brisbane.
 

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

All eyes will, as usual, be on the US jobs numbers tonight. The question is as to whether there is any number sufficiently positive to suggest the Fed may yet, in the wake of Brexit, look to raise this year.

With that result out of the way, attention will turn back to China next week. June inflation data will be released on Sunday, trade numbers on Wednesday, and industrial production, retail sales and fixed asset investment numbers on Friday. Friday also brings the June quarter GDP result.

The Bank of England holds a policy meeting on Thursday night. There will be much surprise if the UK cash rate is not cut from 0.5%, perhaps to zero.

US data releases next week include inflation, retail sales, inventories, consumer sentiment and the Empire State activity index, all at the end of the week. The Fed Beige Book is due on Wednesday.

On Monday night Alcoa will report June quarter earnings, unofficially kicking off the US result season.

Locally we’ll see housing finance numbers and the NAB business and Westpac consumer confidence surveys. Thursday it’s the June jobs numbers.

Australia also enters a quarterly season next week of trading updates and resource sector production reports. Alumina ((AWC)), Iluka Resources ((ILU)), Whitehaven Coal ((WHC)) and Transurban ((TCL)) are among next week’s reporters.
 

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article 3 months old

The Monday Report

By Greg Peel

Playing to Script

Friday on Bridge Street played out as expected, despite it being the first day of the new year. The market opened higher in line with global momentum post-Brexit, traded sideways for a while and then at 2pm, the square-up bell was rung.

The index came most of the way back as traders took profits on a very solid week, ahead of a weekend, a long weekend in the US, and the local election, just in case something disturbing like a hung parliament should transpire.

On that note, we are reminded stock markets are usually ambivalent with regard which party is in power, but do not like uncertainty. And that’s exactly what we have this morning.

We also, of course, have a more elevated case of uncertainty over in the UK/EU. But whatever happens now, markets are convinced another wave of central bank easing is afoot. Central bank easing helps support stock markets but also directly supports commodity markets, and as such we saw some big moves up in commodity prices through Friday.

It it thus no surprise the materials sector was the stand-out performer locally on Friday with a 2% gain when every other sector closed as good as flat.

Investors were not fazed by the latest data out of China, which were far from encouraging. Beijing’s official manufacturing PMI fell to 50.0 in June from 50.1 in May, right on the cusp between expansion and contraction. Caixin’s independent equivalent showed a fall to 48.6 from 49.2 – the fastest decline in four months and the sixteenth consecutive month of contraction.

We can perhaps take some heart in the fact Beijing is trying to steer China away from reliance on manufacturing and export, and note the official service sector PMI rose to 53.7 from 53.1, although that doesn’t much help the sellers of rocks. What will help is government stimulus in the form of infrastructure investment, which is expected to be beefed up as China looks to its own favoured means of easing, beyond renminbi devaluations.

Who’d have thought?

Who’d have thought a week ago that Wall Street would post its best week since 2014? Both the Dow and S&P500 gained 3.2%. Friday’s trading nevertheless played to script as well, given both the week’s rally and the long weekend.

Afternoon selling wiped out initial gains, such that the Dow closed up 19 points or 0.1%, the S&P gained 0.2% to 2012 and the Nasdaq added 0.4%. Interestingly, the indices were back at the flat line just after 3pm before a late burst ensured the S&P closed above the psychological 2100 mark.

The US manufacturing PMI posted a much more encouraging rise to 53.2 from 51.2, beating expectations.

Traders have always been keen not to take positions home over weekends but weekends have become even more scary in this post-GFC world. Beijing likes to pull little tricks on a weekend and as we learned from the whole Grexit saga, weekends can often bring meetings between relevant parties that have particular ramifications the following week.

Nothing happened this weekend beyond the no-result Australian election, but the fact gold was up US$20.20 to US$1341.90/oz and the US ten-year bond yield fell back 3 basis points to 1.46% suggests investors were happy to top up their safe haven positions as a hedge against the “no alternative” equity rally.

Commodities

The UK has signalled monetary easing ahead, the EU is ready to do whatever it takes, Japan will probably be forced to do something and Beijing has already slipped in another renminbi devaluation. And on that basis, many do not see the Fed raising anytime soon. Put it all together and global stimulus is supportive of commodity prices.

The US dollar index fell a mere 0.3% to 95.64 on Friday but in London, aluminium rose 0.7%, copper 1.5%, zinc 2.5%, lead 3.5% and nickel 6%.

West Texas crude rose US90c to US$49.30/bbl.

Only iron ore bucked the trend, falling US20c to US$54.00/t.

The Aussie dollar was up 0.8% on Saturday morning at US$0.7499 as the sausages sizzled and the vanilla slices flew out the door, but in the cold hard light of Monday morning, has slipped to US$0.7465.

It was also Saturday morning when the SPI Overnight closed up 32 points or 0.6%.

The Week Ahead

Wall Street is closed tonight but there follows a big week for US releases, including the minutes of the June Fed meeting on Wednesday and the non-farm payrolls report for June on Friday.

Tuesday it’s the services PMI and factory orders, Wednesday the trade balance, and Thursday chain store sales and the ADP private sector jobs report.

In a rudderless, which unfortunately is not as positive as Rudd-less, Australia we’ll see ANZ job ads, the Melbourne Institute inflation gauge and building approvals today and retail sales and the services PMI tomorrow ahead of the RBA meeting. No rate change is expected, but the market will be interested to hear the board’s take on Brexit.

Thursday it’s the construction PMI.

Tuesday is services PMI day across the globe including Caixin’s take on China.

There is very little in the way of local corporate events or releases this first week on the new year but as of next week we start to see the first quarterly reports.

Rudi will be traveling to and presenting in Melbourne this week. Hence no live appearances from the Sky News studios in Macquarie Park.
 

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

Nigel Farrage may have called for June 24 to become Britain’s “Independence Day” holiday but the real one is on Monday, the Fourth of July, providing for a long weekend in the US. No Wall Street.

Before that, today we see China back in the spotlight after a brief absence with its June manufacturing and service sector PMIs. We’ll also see manufacturing PMIs from across the globe.

And the Fed comes back into play next week with the June non-farm payrolls report on Friday. Ahead of that we will see the services PMI, factory orders, trade, chain store sales and the private sector jobs report. The minutes of the June Fed meeting, which cited Brexit risk as a reason not to raise, are out on Wednesday.

In Australia we’ll see building approvals, ANZ job ads, the MI inflation gauge, retail sales and the services and construction PMIs.

After a tumultuous week, things will probably settle down a bit next week under what at this stage appears likely to be a returned government. It’s a quiet week on the local stock front until quarterly report season begins from the following week.
 

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article 3 months old

The Monday Report

By Greg Peel

Swing Low

Now what?

That is the question on everybody’s lips, and even among those who believe they have an idea, there is no agreement.

The situation remains fluid, thus uncertainty prevails. When uncertainty prevails, volatility thrives. A common call from global commentators on Friday night, with regard stock markets, was “buying opportunity”. But not right now. Right now there remains further downside risk and as such longer term investors are being told to stand aside for the time being until the fallout from this unprecedented event is more clear.

It is typical for markets to sell first and ask questions later. But we can perhaps take some heart in the fact that when the dust settled after 24 hours of trading on Friday, the reaction was not quite as bad as had been predicted by, for example, futures markets heading into the open of the UK and US stock exchanges.

In Australia the index fell 167 points or 3.6% on Friday but closed 33 points off its lows. We’re sitting just above 5100 – a level last seen in April on the way back from the February commodity crunch. We recall how hard the index had to work to finally move away from the 5000 resistance level. We’re still a hundred points above what will now be solid support.

In London the stock index futures were indicating a fall of 8% heading into the open. Ultimately the FTSE only closed down 3.2%. The Dow futures were showing close to an 800 point fall before the bell. Ultimately the Dow fell 617 points or 3.4%. The S&P fell 3.6% to 2037, and the riskier Nasdaq fell 4.1%.

The real damage was done in Europe, where the German market fell 6.8% and the French market 8.0%. Bank stocks were the main target, falling up to 20% across the UK and Europe. The Australian financials index fell 3.8%.

What happened to the pound over the course of Friday is already the stuff of legend. But the wild gyrations and ultimate collapse of the pound remind us that on Thursday, and as late as Friday morning, markets had rallied back hard on the assumption “stay” was winning. So we first had to give that rally back as we fell on Friday.

As both the pound and the euro tanked, the US dollar index was up a whopping 2.6% on Saturday morning at 95.54, despite carry trade-reversal also sending the “safe haven” yen surging. Caught in the cross-rates, the Aussie fell 2% to US$0.7476.

The US dollar was a headwind for gold, which still managed to shoot up US$59.30 to US$1315.60/oz in its safe haven capacity.

The strong greenback should have been a major headwind for commodity prices, notwithstanding the impact on prices of global uncertainty, so when we look at the 5% drop in West Texas crude, taking it back to US$47.64/bbl, and the one to two percent falls in base metal prices in London, we might conclude it’s not that bad.

Iron ore fell US30c to US$51.40/t.

An adjustment was made across the globe on Friday. In Australia, the SPI Overnight closed up 3 points on Saturday morning, suggesting we will probably now hit a wait and see period, given a bout of vu-deja – the eerie feeling nothing like this has ever happened before.

Politics

It is also important to remember this is not 2008. This is not Lehman. While uncertainty may prevail, there is no credit freeze going on due to financial organisations fearing their counter parties may go under. Global banks are no less capitalised this morning than they were on Friday morning. It’s simply the value of their shares that has suffered. The Bank of England, for one, has pledged to pump hundreds of billions of pounds of liquidity into the system to maintain stability.

Other central banks are preparing to do whatever they may have to do. One has to feel for the Bank of Japan, which just can’t catch a break in trying to rein in the yen, and the ECB, which has fought hard to promote even the slightest of economic growth in the eurozone.

Presumably the Fed will now not raise in July, if ever there were an actual possibility. But with a US dollar now rocketing once more, the Fed is in an even more difficult position. The Aussie dollar appears somewhat caught between its US dollar denomination and the fact Australia has been seen as a form of safe haven at times in these post-GFC years, offering high yields in a well-regulated environment. The RBA will be watching closely, but obviously has plenty of fire power left in the form of rate cuts.

Interestingly, it was the May rate cut which allowed the ASX200 to finally break away from 5000 and find new resistance at 5400.

David Cameron has resigned. It looks like the Labour Party leader will either go or be pushed. There is already a call for a second referendum in Britain. There is already a call for a second vote on Scottish independence, given Scotland voted overwhelmingly to remain in the EU.  To that end, there is talk Scotland will attempt to veto Brexit legislation.

And when does the actual “Brexit” begin? Cameron says he’ll hang around for three months and then the new prime minister can pull the lever which begins a supposed two-year process. Boris Johnson, arguably prime minister in waiting, has urged even less urgency.

Angela Merkel has said take your time. EU bureaucrats have, on the other hand, spitefully insisted the process is overdone with swiftly. They fear the dominoes. Which brings us to the question…

Is this the beginning of the end of the EU?

Europe is littered with euro-sceptics. Nationalist and far right parties have been on the upswing. The talk is a Nexit, Dexit and even Frexit might be on the cards. Over the weekend Spain held a general election.

There was a surge in support for the ruling conservatives, opting for the status quo, ie “stay”.

The Week Ahead

The week ahead will no doubt be an interesting one. As noted, the local market is poised with the futures up 3 points. At least we won’t be flying around on every little shift in bookie odds.

Thursday is nevertheless end of financial year, which can in itself provoke last minute volatility. Obviously portfolio returns are looking a little less flash than they were a week ago.

The final revision of the US March quarter GDP result is due tomorrow night. Tomorrow also sees Case-Shiller house prices, Conference Board consumer confidence and the Richmond Fed index. Wednesday it’s pending home sales, personal income & spending and the PCE inflation measure. Janet Yellen will be speaking yet again on Wednesday night.

Thursday it’s the Chicago PMI and Friday the manufacturing PMI, construction spending and vehicle sales.

Friday is the first of the month, hence manufacturing PMIs from around the globe and both manufacturing and service sector PMIs from Beijing.

In Australia we’ll see new home sales on Wednesday, private sector credit on Thursday, and house prices and the manufacturing PMI on Friday. And just to add more spice to the curry, we have the election on Saturday.

On the local stock front, Collins Foods ((CKF)) will post its earnings result tomorrow.

One fact that caught my attention over the weekend was this one…

In order for Britain to leave the EU, a “qualified” 72% majority of the remaining 27 member states must approve, representing a simple majority of at least 65% of the EU population. I’m not sure what the “qualifications” are, but presumably this means the EU has the power to say “No, you’re staying”.

We live in interesting times.

Rudi will appear on Sky Business on Tuesday, via Skype-link to discuss broker calls around 11.15am, then again on Thursday at noon and again between 7-8pm for the Switzer Report and lastly on Friday, via another Skype-link up to discuss broker calls at around 11.05am.

SPECIAL NOTE: FNArena's Weekly Insights will be a special edition dedicated to Brexit. Watch your inbox later today.
 

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

Well…it’s white knuckle stuff.

When I wrote the Overnight Report this morning it looked reasonably safe the UK would remain in the EU, as far as global markets were concerned, but now the result is unclear at best. It’s early days, so no point in me speculating. Brexit outcome notwithstanding, this is what we can look forward to next week…

Tonight in the US, durable goods orders.

Next week, trade, the Richmond Fed index, house prices, consumer confidence, pending home sales and the Chicago PMI. Wednesday sees personal income & spending, along with the Fed’s preferred PCE measure of inflation. Coincidentally, Yellen will speak on Wednesday.

Tuesday sees the final revision of US March quarter GDP before the first estimate for the June quarter comes along.

Friday is the first of the month, meaning manufacturing PMIs from across the globe and both manufacturing and service sector PMIs from China.

Late in the week we see a raft of data out of Japan, including unemployment, industrial production and inflation. The BoJ will no doubt be on a knife’s edge right now watching the Brexit vote, given a vote to leave will send the yen surging to further derail monetary policy impact.

In Australia we’ll see new home sales and house prices along with the manufacturing PMI.

Thursday is the end of financial year, which can mean a deal of volatility in isolation as fund managers and traders play argie-bargie on the local bourse.

But of course the world could possibly look very different net week.

Over to you London…
 

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article 3 months old

The Monday Report

By Greg Peel

Uncertainty

The local market began strongly on Friday, spurred on by the sudden turnaround in offshore markets as a result of an apparent swing back to the “stay” vote in Britain. But the rally was short-lived, to the point the index was slapped back down almost to square again by midday.

While “stay” may have been looking more likely on Thursday night, the reality is one poll does not a conclusion make. There is talk that the suspension of campaigning until Monday in deference to murdered MP Jo Cox will most likely hurt the “go” camp, which had previously been gaining some momentum. There is also a suggestion the murder may swing voters towards “stay” given Cox was a “stay” campaigner.

The bottom line is it’s still too close for anyone to call. Unless the polls between now and Thursday all line up to predict a definitive result one way or the other, it is likely global markets will swing back and forth on every apparent shift. But if nothing is at all clear, it is most likely investors will remain on the sidelines, having set their hedges, counting down the hours.

It could be a long four days.

Sector moves were mixed on the local market on Friday. The sector most damaged to date by Brexit fears – the banks – managed a 0.7% rebound to mark the biggest sector move of the session. Otherwise it was small moves up or down, with a rare quiet day for the resource sectors.

Fed Shock

It was only a month ago the Fed was talking up its rate hike expectations, surprising Wall Street by hanging onto the concept of perhaps three hikes in the remainder of 2016. Then last week the mood changed, with only one rate now the apparent expectation. On Friday night, St Louis Fed president James Bullard went one surprising step further.

Yes, Bullard said, there will be one rate hike in 2016. But that will be it until 2018, he added.

Come again?

Once upon a time such a comment may have sent Wall Street reeling, in one direction or another – up if the response is “Thank God, the Fed will continue to support the market” or down if the mood is “Omigod, the US economy must be in worse shape than we thought”. But in actual fact, Bullard’s comments had very little impact whatsoever, for two reasons.

One is Brexit – that is dominating all thinking at present. The other is sheer exasperation. The Fed’s credibility has already been brought to question thanks to its apparent flip-flopping all through the year, and what makes Bullard’s comments even more outlandish is the fact he was previously among the most hawkish of FOMC members.

To that end, Bullard managed only to cause a lot of bemusement. And eye rolling.

Indeed, the US ten-year bond rate went up 5 basis points to 1.62% when one would have expected the opposite on such a dovish suggestion. The US dollar index did duly fall 0.5% to 94.15 but both moves are a reflection of faith growing in a “stay” vote in Britain and not anything that happened to come out of a Fedhead’s mouth.

The same was true with oil, which having fallen back from the 50 mark through the week due to rising “go” fears, rebounded 5% on Friday night.

Once upon a time a 5% jump in the oil price would have had US stock indices surging. Not anymore. A period of relative stability for the oil price has meant the close correlation that existed earlier in the year is no longer evident. And no one was going to go on a buying spree before next Thursday.

To that end, Wall Street was quiet on Friday. Closing volumes were enormous due to the quadruple witching expiry and quarterly stock index rebalancing but volatility was lacking. The Dow closed down 57 points or 0.3%, the S&P lost 0.3% to 2071 and the Nasdaq fell 0.9%.

Commodities

West Texas crude rose US$2.21 to US$48.26/bbl.

The weaker greenback may have helped a little but that was not at all apparent on the LME. Nickel decided to have a 2% jump but the other base metals closed mixed on insubstantial moves.

Iron ore rose US50c to US$50.70/t.

Gold dropped back on Thursday night when a UK poll showed a swing towards “stay” but on Friday night the lack of any predictable result was evident in gold rallying back US$20.10 to US$1298.0/oz.

The fall in the greenback means the Aussie was 0.4% higher on Saturday morning at US$0.7394.

The SPI Overnight closed flat.

The Week Ahead

While there’s a lot more going on than just the Brexit vote next week, unfortunately nothing else will matter until Friday morning when, presumably, we’ll know the result.

Please God let it not be so close as to take days to confirm.

Three polls over the weekend all suggest “stay”, but still as a close call.

Janet Yellen will provide a scheduled testimony to the US Senate Banking Committee on Tuesday night. The world will be very interested in what she has to say, particularly following Bullard’s comments on Friday night.

With regard data, the US will see existing home sales and house prices on Wednesday, new home sales, the Chicago Fed national activity index and a flash estimate of the June manufacturing PMI on Thursday, and durable goods and fortnightly consumer sentiment on Friday.

Japan and the eurozone will also flash PMI estimates on Thursday.

Normally the eurozone’s ZEW investor sentiment survey, due Tuesday, and Germany’s IFO business sentiment survey, due Friday, would be closely watched, but given the world might change on Thursday the results are irrelevant.

In Australia, March quarter house prices are due tomorrow along with the minutes of this month’s RBA meeting. Is the RBA really “on hold” or could we yet see further rate cuts? Maybe the minutes might hold some clues.

On the local stock front, Metcash ((MTS)) will release its earnings result today, BHP Billiton ((BHP)) will host an investor day in London tomorrow night and Wesfarmers will hold a strategy day on Wednesday.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls around 11.15am. On Thursday he'll appear for his weekly slot between 12.30-2.30pm and on Friday he'll repeat the Skype-linkup at around 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

Next Week At A Glance

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


By Greg Peel

The big day is upon us. Next Thursday Britain will vote on the Brexit. Late mail has the “stay” vote in front but given the swings and roundabouts of late, polling up to the day may still spark further market volatility.

The vote will be the stand-out event in what is otherwise a relatively quiet week on the calendar.

The US needs to get through the quadruple witching expiry tonight ahead various economic releases later next week. Wednesday sees existing home sales and house prices, Thursday new home sales, the Chicago Fed index and a flash reading of June manufacturing PMI, and Friday it’s durable goods and consumer sentiment.

The two influential monthly sentiment surveys in Germany are due next week, being the ZEW and IFO, but pre-Brexit vote they won’t mean much.

The minutes of the June RBA meeting will be released on Tuesday in a week otherwise largely devoid of local data.  Thursday sees the expiry of ASX stock options.

Metcash ((MTS)) will release its earnings result on Monday, BHP Billiton ((BHP)) will host an investor day in London on Tuesday and Wesfarmers ((WES)) will hold a strategy day on Wednesday.
 

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