Tag Archives: The Week Ahead

article 3 months old

The Monday Report (On Tuesday)

By Greg Peel

Friday

The SPI futures suggested a 27 point opening to the downside on Friday morning but instead the ASX200 dropped 50 points in the first half hour, which again looked like computers gone mad. This assumption was backed up by an immediate attempt to rally back such that within the subsequent half hour, the index was only down 30.

But this time what might otherwise have been another session of grafting back towards square turned into a “just sell and get out of here by lunchtime” session. The index declined again to be down 50 points once more by midday and there it stayed all afternoon as offices emptied for the long weekend.

Word is a couple of large lines were sold in the futures market early in the session, so maybe it wasn’t all the computers’ fault this time.

Aside from the desire to square up ahead of a holiday, we may also point to the fact the index had tried on about three occasions now to break up through 5400, without success. Typically if markets find they just can’t go up, they go down instead. Friday did look like a bit of a capitulation on that front.

And as it transpired, a prescient one.

Commodity price weakness and accusations against BHP Billiton had materials falling 2.3% on Friday but a 1.0% fall for the banks was the standout, and did the bulk of the index damage. Energy dropped 1.3% but thereafter, sector falls were not as significant.

If a proprietary desk made the market for the lines of futures and was hit on the bid, that desk then has to sell “the index” of stocks to hedge their position. One need only slap the big caps – even just the top ten – to have the bulk of the market cap covered. The first thing one thus does is hit the banks, the big miners and so on.

It may have been that come this morning, the market would be ready to regain some of Friday’s lost ground on a bargain hunting basis, assuming nothing came out of left field overseas on the weekend.

But it did.

Friday Night

A new poll was published on Friday night suggesting – for the first time – that more British are in favour of leaving the EU than staying. Prior polls have indicated the opposite balance but Friday night’s poll showed not just a slight bias, but a 55/45 leave/stay split.

The London FTSE fell 1.9%, the French CAC 2.2% and the German DAX 2.4%. Hardest hit were the British and European bank stocks. However, by the time the UK and European markets were closed on Friday night, that Brexit poll result had not yet been published.

Weakness was a reflection of the rolling tide of bond buying in Europe, ahead of next week’s Fed meeting and the following week’s Brexit vote, turning into a torrent. The German ten-year yield traded as low as 0.01%. Ahead of the weekend, European investors were getting out of risky stocks and into safe haven bonds.

Wall Street opened lower as a result but was beginning another familiar graft back again when the poll news hit the wires. The Dow subsequently closed down 119 points or 0.7%, having been down as many as 173 points. The S&P closed down 0.9% at 2096 and the riskier Nasdaq fell 1.3%.

The British pound fell 1.4% against the greenback on the poll news, sending the US dollar index up 0.6% to 94.65.

The US ten-year bond yield closed down 4 basis points at 1.64%.

In the US, it was also the banks that suffered most on the day. The US banks had previously been leading Wall Street back to all-time highs on Fed rate hike expectations, but then along came that May jobs numbers, and now this.

The LME had already closed on Friday night before the Brexit news and greenback rally, and moves among base metal prices were minimal.

Oil was still open nonetheless, and West Texas crude fell US92c to US$49.53/bbl. Aside from the impact of the stronger greenback, the weekly US rig count showed another slight tick up.

Despite the stronger greenback, gold rose $3.80 to US$1273.30/oz as a safe haven.

The SPI Overnight closed down 61 points or 1.2% on Saturday morning.

Sunday

May data released by Beijing on Sunday showed Chinese industrial production rose 6.0% year on year as expected, and retail sales rose 10.0% as expected. The concerning result was fixed asset investment, which fell to a growth rate of 9.5% in the year to May, down from 10.5% in the year to April. Economists had forecast 10.5%.

Within that fixed asset number, private sector investment rose only 3.9% compared to 22.3% growth from the state. This is the figure that has economists worried, as it suggests China’s economy is almost solely been driven by government stimulus at present.

It is nonetheless assumed Beijing will need to bump up that stimulus to offset a weak private sector if year-end GDP growth targets are to be met.

Monday Night

While Orlando provided the shock, the focus of attention for markets across the globe was still the Brexit poll. While there is more than one poll being conducted on a regular basis, and others have a much closer outcome at this stage, suddenly the world is realising the vote is only ten days away and the result is unclear. Previously the “stay” vote was winning in the polls, leading to a level of complacency.

That has now changed.

Having already closed to the downside on Friday night before the latest poll was published, the London FTSE fell another 1.2% last night, while the French CAC fell 1.9% and the German DAX 1.8%.

Wall Street attempted a recovery from the open, prompted by news Microsoft had made a takeover bid for LinkedIn. The bid sent LinkedIn shares soaring 50% and floated all similar boats, while Microsoft (Dow) shares came off around 2%. But it wasn’t long before the mood returned to Brexit concerns.

There is also, of course, a Fed meeting and press conference this week, and meetings for the Banks of Japan and England.

While no one expects a Fed rate hike, the market is simply unsure now whether the Fed will be back in dovish mode or remaining in hawkish mode since the May jobs numbers were released. The Fed is also even less likely now to do anything ahead of the Brexit vote and on that score, nor is the BoE.

It could be a different story for the BoJ nevertheless, who again through no fault of its own is being faced with a surging yen. Seen as a “safe haven” currency, then yen has risen on the poll news as carry trades are reversed in the face of increased volatility. Will this force the BoJ to move further into the negative, or at least step up QE?

That volatility was reflected in the VIX index on the S&P500 last night, which rose 23% to 21 as investors moved to hedge their positions. The sidelines seemed a safer place to be, resulting in the Dow closing down another 132 points or 0.7% last night, the S&P falling 0.8% to 2079 and the Nasdaq dropping 0.9%.

It is going to be an interesting two weeks.

The US dollar index actually managed to slip back a bit last night as the yen became flavour of the month, down 0.3% to 94.38 despite ongoing weakness in the pound and euro. There was therefore no reason not to buy the other safe haven – gold – which is up US$10.50 to US$1283.80/oz.

Having been quiet on Friday night, base metals were mixed last night. Copper rose 0.7% and aluminium and lead both rose 1.5% but nickel and zinc slipped slightly.

Iron ore is down US30c at US$51.80/t.

West Texas crude is down US97c at US$48.56/bbl.

The SPI Overnight closed down 40 points or 0.8% this morning. That equates to a net 101 points down since the ASX closed on Friday for the long weekend.

The Week Ahead

The Fed statement and press conference are due on Wednesday night. The BoE and BoJ meet on Thursday night.

The US will see retail sales and business inventories tonight, industrial production, the PPI and Empire State activity index on Wednesday and the CPI, housing sentiment and the Philadelphia Fed activity index on Thursday.

On Friday it's housing starts and if there were not enough volatility on offer this week already, Friday is the quadruple witching derivatives expiry for the June quarter.

In Australia we’ll see the NAB business confidence survey today and the Westpac consumer confidence survey tomorrow. On Thursday the May jobs numbers are due.

Investor days will be held this week by nib Holdings ((NHF)) tomorrow and Goodman Group ((GMG)) and Graincorp ((GNC)) on Thursday.

Rudi will appear on Sky Business today, via Skype, to discuss broker calls around 11.15am. He'll return on Thursday, twice. First from 12.30-2.30pm and then again, between 7-8pm, for an interview on Switzer TV. On Friday he'll Skype-link again to discuss broker calls 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

China will release May industrial production, retail sales and fixed asset investment numbers on Sunday.

Australian markets are closed on Monday.

The short week will see the NAB business and Westpac consumer confidence surveys and the May jobs numbers.

The Bank of Japan will hold a policy meeting on Thursday. Rates further into the negative? The German ten-year yield has now almost hit zero. The Bank of England will also meet on Thursday but nothing will happen ahead of the Brexit vote.

The Fed will hold its policy meeting on Wednesday, with expectations for a rate hike now near zero. What will be important is the language of the statement and Janet Yellen’s press conference.

US data releases pick up again next week, and feature retail sales, inventories, industrial production, inflation, housing sentiment and starts and the Empire State and Philly Fed activity indices. Friday is a quadruple witching expiry of equity derivatives.

While local companies continue to hold investor days, corporate news is now thin on the ground as we approach year-end.


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article 3 months old

The Monday Report

By Greg Peel

Buy the Dip

Last week saw the ASX200 falling from resistance at 5400 down towards support at 5250 as expectations of a rapid round of RBA rate cutting were reconsidered. Those expectations were fuelled by the weak march quarter inflation number but tempered by last week’s strong trade numbers reflected in both the March quarter GDP result and April trade data.

Expectations of further rate cuts led to strength in the banks – the biggest influence over the index by market cap weighting. Last week saw bank shares falling back again.

But as it looked like we might break back down through support and once again fall into the gravitational pull of 5000, the buyers stepped back in on Friday. Never mind what the US jobs number overnight might be, it was mostly a Buy Australia session. All sectors contributed on a relative equivalent basis.

Friday’s economic data release was the local service sector PMI, which swung back into expansion with a rise to 51.5 in May from 49.7 in April. Caixin’s independent take on China’s services PMI saw a fall to a three-month low 51.2 from 51.8. Nobody seemed to be paying much attention.

The rally on Friday took us into the middle ground of around 5300. Developments over the weekend may make for an interesting session today.

Yes, there is the US jobs report, which I’ll get to in a moment. But while the SPI Overnight closed up one point on Saturday morning, we’ve since seen destructive storms along Australia’s east coast, from South Queensland down to Tasmania, which are still in play. Immediately one might think of the impact on insurance companies, and the impact on retail sales. There were also major power outages in Sydney yesterday that shut down everything from online pizza ordering to EFTPOS payments at supermarkets.

That said, we also have tomorrow’s RBA policy meeting to consider, which might otherwise suggest a quieter day’s trading today in anticipation. While the market is only ascribing a small chance to a follow-up rate cut so soon, the central bank’s response to the balance of weak inflation and strong economic growth will be carefully analysed.

Job Shock

The US added 38,000 jobs in May. Even if you adjust for the 35,000 striking Verizon workers the result does not even come close to the 160,000-odd forecast. Wall Street was dumbfounded.

To confuse matters further, the unemployment rate actually plunged to 4.7% from 5.0%. But this was due to a big drop in the participation rate, which in itself is another negative. On the other side of the coin, wages grew by 0.2%, which in any other set of numbers would be considered reasonable.

The initial reaction on Wall Street was to sell, and the Dow was down 150 points from the open. But as had been the case almost every day last week, the rest of the session was spent grafting back that loss. There are three ways to interpret 38,000.

Either it’s bad news, suggesting the US economy is slowing, or it’s good news, suggesting the Fed will hold off on raising, or in the wider scheme of things, it’s neither here nor there. It is not the first time in the past few years Wall Street has been confronted with a jobs number that has fallen spectacularly short of expectation. In those instances, the following month saw a big rebound to a number above expectation.

So it could just be a blip. But suffice to say, ahead of the release the market was factoring in around a 33% chance of a Fed rate hike in June and a 66% chance in July. In the wake of the release, the market has June at a near zero chance and July at 33%.

The shift in odds is underscored by a huge drop in the US dollar index, down 1.8% to 93.87 in a heartbeat. At the same time the Aussie jumped 1.9% to US$0.7366 as a result, and gold jumped US$33.10 to US$1243.50/oz. The US ten-year bond yield fell 11 basis points to 1.70%.

On increasing expectation of a Fed rate hike, US banks have been enjoying a rally and leading Wall Street back towards its highs. The banks thus took a bit of a hiding on Friday night, but there was sufficient offset elsewhere to ensure a less dramatic close. A lower greenback is good for commodity prices, so resource sectors performed well, and yield stocks such as utilities regained their appeal.

The Dow closed down 31 points or 0.2%, the S&P lost 0.3% to 2099 and the Nasdaq fell 0.6%. That the S&P should close near 2100 is significant, as this has proven to be neutral territory of sorts in 2016 – the pivot point between strength and weakness.

Fed chair Janet Yellen will coincidentally give a speech tonight on monetary policy. The market has now dismissed a June hike, albeit many presumed the Fed would wait until after the Brexit vote anyway, but now July looks uncertain. We’ll nevertheless see the June US jobs report out before the July meeting and if there is indeed a rebound, the picture may well change once more.

What will Yellen have to say tonight?

Commodities

Commodity prices have been beholden of late to Fed rate hike expectations and the negative implications of a stronger US dollar. All base metal prices were stronger on Friday night but copper’s 1.5% gain was the stand-out, with other moves less significant. There is of course a trade-off implication of a weaker US economy.

Iron ore rose US$1.60 to US$49.50/t.

The oils did not rally, because for the first time since last August, the US rig count saw an increase over the week. West Texas crude fell US16c to US$48.90/bbl.

This is exactly what the market has been anticipating/fearing. A price of US$50/bbl has been widely considered as the threshold at which shuttered US production would begin to come back on line following a period of weak prices. While 50 has not quite been achieved the WTI price has stabilised above 45 and thus we see some producers now confident to fire up again, no longer burning cash at spot prices.

If they start to forward-sell their production, the risk is prices will fall again. Oil has surprised many by managing to hang onto its rebound despite runaway OPEC production increases.

The Week Ahead

As noted, the SPI Overnight closed up one point on Saturday morning, suggesting the local market is not quite sure what to make of the US jobs number.

Of particular interest locally today will be the release of the Melbourne Institute inflation gauge for May, leading into tomorrow’s RBA meeting. Is the weak inflation trend continuing? We’ll also see ANZ job ads today. The other highlight for the week locally will be housing finance numbers on Wednesday.

China will release May trade numbers on Wednesday ahead of the usual industrial production, retail sales and fixed asset investment suite on the weekend.

In the US, Yellen’s speech tonight will be the highlight in a week largely devoid of economic data, up until fortnightly consumer sentiment on Friday.

Things have quietened right down now for local corporate events and releases, beyond any unscheduled “confession session” announcements that may yet be forthcoming. Vicinity Centres ((VCX)) will hold an investor day on Wednesday.

The coming weekend is a long one, with the ASX closed next Monday for the birthday the Queen has already had. We should probably expect some squaring up towards the end of the week.

Rudi will appear on Sky Business through Skype-link on Tuesday, 11.15am to discuss broker calls. On Thursday he'll be on screen from inside Sky news studios from 12.30-2.30pm and on Friday he'll Skype-connect again 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

The Monday Report

By Greg Peel

New High

In recent trade the ASX200 has had a couple of goes at breaching 5400, only to find profit-takers lined up in readiness. The push higher has been helped along by Wall Street, which has also been working its way back toward its highs. But whereas traders have dismissed the rally on Wall Street as a temporary short squeeze, short positions in Australia have recently been historically low.

Which suggests genuine buying is behind the local rally, with shorter term traders happy to call 5400 an appropriate level to cash in. But on Friday the index shot straight through 5400 from the open and reached as high as 5427 by mid-morning. This would suggest traders who had been riding the rally from under 5000, particularly in the likes of the big resource stocks and banks, have now squared up.

The index meandered its way in the afternoon, Friday-style, to a close of 5405 which, although below the high of the day, represents the first close above 5400 since the index plunged through that level in the China scare last August.

A half percent gain for the banks was the primary driver, while Wesfarmers managed to find some buyers having previously been knocked down on its write-offs. Consumer staples led the gains with 1.0%. For once the resource sectors sat it out, while buyers continue to look to the yield-payers of telcos and utilities in the face of likely ongoing RBA rate cuts.

The SPI futures closed up 23 points on Saturday morning, suggesting we should be set to go on with it today. But Wall Street is closed tonight, as is the UK, and it’s a very big week for local economic data releases, including March Quarter GDP.

More Yellen

All eyes were on Janet Yellen on Friday in the US as the Fed chair spoke at Harvard University. Given the apparent step-up in hawkishness emanating from her FOMC colleagues of late, Wall Street was keen to hear whether the typically more dovish chair would yet again pour cold water on the debate.

In the end, Yellen didn’t really say anything to fuel either the June hike or no June hike arguments. If the US economy continues to show signs of recovery, according to the data, then another rate hike sometime in the next few months would be appropriate, she said. And caution will be required.

While the US indices typically wobbled on the news, as the computers tried to interpret Yellen’s words, it was a case of a small down before a rapid recovery. Perhaps the take-away is that Yellen said nothing that suggests there will not be a rate hike in June. This was enough to see US bank stocks continue their interest rate-driven rally, while the US dollar index and US ten-year bond yield also rallied, implying rate hike expectations.

Or at least improving odds of a rate hike. The Fed futures market is presently only pricing in about a 33% chance of June hike. Perhaps those odds might tighten if the Brexit polls in the UK continue to trend further toward the “stay” vote, albeit many still believe the Fed will not consider moving until July just in case.

With regard the Fed’s “data dependence”, Friday night saw the first estimate of March quarter GDP revised up to 0.8% from a previous 0.5%, largely in line with expectation. Additional growth came from housing construction and warehouse stocking. We recall that the first estimate is always an extrapolation of the first month of the quarter – in this case January – and the first revision adds in the second month before the final revision adds in the third. Mid-winter is always the slowest period.

We’re about to enter June so the March quarter seems a long way away, but the positive revision was nevertheless seen as a positive by the markets, rather than generating a rate hike scare. As has been the Fed’s intention for some time, markets are now relatively well prepared for a rate hike.

Commodities

The US dollar index was 0.6% higher on Saturday morning at 95.70 as it continues to price in a rate hike or at least the underlying reason for a rate hike, being an improving US economy. It is the improving US economy that is providing reason for commodity prices to hold their ground, despite the mathematical drag of the stronger dollar.

Signs of Chinese restocking also supported base metal prices on Friday night, with the LME closing ahead of Yellen’s Harvard visit. Lead and zinc rose 1% while the other metals saw smallish gains. The LME is closed tonight.

West Texas crude is US14c higher at US$49.54/bbl.

Having looked a bit vulnerable under US$50, iron ore rallied back US$1.00 to US$50.90/t.

More beholden to the inverse relationship with the greenback is of course gold, which fell for the eighth straight session on Friday to US$1212.80/oz, down US$6.70.

The Aussie was 0.5% weaker on Friday morning at US$0.7185.

The SPI Overnight closed up 23 points or 0.4%.

The Week Ahead

It is a very big week for data this week.

Wednesday is the first of the month, which means manufacturing PMIs around the globe, followed by services PMIs on Friday.

After the holiday tonight, the US will see personal income & spending, including the Fed’s preferred PCE inflation gauge, consumer confidence, Case-Shiller house prices and the Chicago PMI tomorrow night. Wednesday it’s construction spending, vehicle sales, the Fed Beige Book and the ADP private sector jobs number for May.

Thursday it’s chain store sales, while Friday brings factory orders and the last set of non-farm payroll numbers before the June Fed meeting.

The ECB holds a policy meeting on Thursday.

Australia can also strap in.

In terms of monthly data, we have building approvals and private sector credit tomorrow, house prices and the manufacturing PMI on Wednesday, retail sales and the trade balance on Thursday, and the services PMI on Friday.

In terms of March quarter numbers we have company profits and inventories today, the current account, including the terms of trade, tomorrow, and the GDP on Wednesday.

The data is hotting up just as the corporate news begins to wind down ahead of books-close, notwithstanding any more profit warnings that may surprise during this “confession session” period.

ALS ((ALQ)) will release earnings numbers today and hold an investor day tomorrow. FlexiGroup ((FXL)) will hold a strategy day tomorrow, and Challenger ((CGF)) an investor day on Thursday.

Rudi will Skype-link with Sky Business on Tuesday morning, 11.15am, to discuss broker calls. On Wednesday he'll present Your Money, Your Call Equities while the masses will be watching State of Origin. On Thursday he'll re-appear 12.30-2.30pm and again between 7-8pm for the Switzer Report. On Friday he'll repeat the Skype-link, probably 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 first revision of US March quarter GDP will be released tonight. Wall Street is hoping for some improvement on the first estimate of a disappointing 0.5%. Janet Yellen will also speak tonight. Recent Fedspeak has been far more hawkish, suggesting the Fed is preparing the market for a June rate hike.

Will Yellen typically kill the mood with her more dovish tone? Otherwise, trading is sure to be thin on Wall Street tonight ahead of the Memorial Day long weekend. The US is closed on Monday.

Across next week the US will see house prices, consumer confidence, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, the Fed Beige Book and the manufacturing and services PMIs. Most importantly, the May US jobs report will be released on Friday – likely the final swing factor in the June rate hike decision.

Wednesday is the first of the month and that means manufacturing PMIs across the globe, and both the official Chinese manufacturing and service sector PMIs. The rest of the world releases services PMIs on Friday.

The ECB will hold a policy meeting on Thursday.

Australia will be included in the PMI releases, and we’ll see monthly data for building approvals, retail sales and trade. We will also see March quarter numbers for company profits, inventories and the terms of trade ahead of Wednesday’s release of March quarter GDP.

ALS ((ALQ)) will release its earnings report on Monday but thereafter, corporate events begin to thin out as we head into EOFY.


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article 3 months old

The Monday Report

By Greg Peel

Buying Mode

There’s really not a lot to say about Friday’s action on the local market. The index rose relatively consistently throughout the session ahead of a bit of Friday-like afternoon profit-taking, while still closing on a robust 0.5% gain.

Every sector finished in the green. The only sectors not to rise at least 0.5% were financials, on 0.4%, and healthcare, on 0.3%, while at 1.3%, tiny info tech was the only sector to exceed 1.0%. Every other sector fell evenly between those two, suggesting Friday’s action was more about index buying than about individual company movements.

And why not? one might ask. What’s the alternative? A term deposit paying 2.5%? A government bond paying much the same over ten years? Both of which are taxable. While eight years down the track investors still shudder at the memory of their GFC experience, and still carry historically high levels of cash, the dividends available in the stock market -- many tax free -- are just too attractive to ignore.

And the latest game in town is How Low Can We Go? Most local economists had been for some time predicting the RBA would need to cut, but even they were taken by surprise by the May move. Now the race is on to predict further cuts, be it one, two or maybe three, down to 1.00%. Those dividends are looking even better.

The ASX200 finished the week at 5350, which is basically the technical target chartists have held onto for months, even as we stared into the abyss at 4800. We are at the “where to now” point and continue to consolidate. The upside must still be favoured, baring anything out of left field, ranging from a sudden retreat in the oil price to a Brexit “yes” vote.

This week will be critical to determining whether market confidence is supported by economic reality. Glenn Stevens will conduct a Q&A tomorrow, where no doubt the one percent question will be raised. On Wednesday we have March quarter construction numbers and on Thursday, private sector capex and capex intentions. That latter number is forward-looking and very closely watched by the RBA.

And on the other side of the world…

Flip everything over, and we have the situation in the US. Having decided only a month a go there was no way the Fed was going to raise again this year, suddenly Wall Street is worried they might. Twice. Maybe even three times.

And the market, many a commentator is suggesting, is not prepared for it. The market is still pricing in the chance of maybe one hike, later in the year. Many believe the Fed will not risk acting ahead of the Brexit vote next month. Many believe the Fed will not risk acting ahead of presidential election in November (despite there being no precedent of holding back in election years). But recent Fedspeak is leaning very much the other way. The Fed is trying to get Wall Street to prepare.

The Dow was up over a hundred points mid-session on Friday night before wavering towards the close. It was a Friday nonetheless, and it was also expiry day for May S&P500 options, which often has an impact. Wall Street finished down for the week but the question going forward is as to whether one should be scared by the possibility of a Fed rate hike, or two, or happy that the impetus behind a Fed hike is a stronger US economy.

In both 2014 and 2015, the US economy bounced hard out of a March quarter slump. In 2016, GDP grew by an anaemic 0.5% in the March quarter. CNBC’s daily GDP tracker, based on rolling data releases, is currently predicting 2.5% for the June quarter. That’s rate hike-worthy on anyone’s terms. The first official estimate of June quarter GDP will not, however, have been released when the Fed meets in June.

The Dow closed up 65 points or 0.4% on Friday night. The S&P gained 0.6% to 2052 as the Nasdaq reversed its recent trend and shot up 1.2%. This was due to a Street-beating earnings result from chip-maker Applied Materials, which sparked a 13% share price jump and a lift for all chip stocks.

The economic data point of the day was April existing home sales, which rose a better than expected 1.7%. Inventory for existing homes for sale is tight, particularly at the affordable end of the market, which is a positive for the economy.

Commodities

All talk on oil markets at present is of supply outages. In particular, production is still down in Canada due to the fires and in Nigeria due to rebels bombing pipelines. The WTI price is hanging around just under, but not yet game to breach, the 50 mark. Lost Canadian production is expected to resume in a couple of weeks, while Nigeria is more ongoing. Rebels bomb pipelines every other week in that troubled land.

The concern is that 50 is a magic level that once surpassed will spark a new round of hedging (forward-selling) from oil producers. This could prove self-defeating. On Friday night West Texas closed down US49c at US$47.75/bbl while Brent was steady at US$48.87/bbl.

The US dollar index was steady at 95.27 but base metals prices were mostly weaker, with copper down 0.5% and nickel and lead down 1%.

Iron ore is unchanged at US$55.70/t.

Gold is off a tad at US$1251.90/oz and the Aussie is steady at US$0.7218.

The SPI Overnight closed up three points on Saturday morning.

The Week Ahead

A revision of the US March quarter GDP result is out on Friday, but those numbers are starting to get a bit stale. Of more interest during the week will be a flash estimate of manufacturing PMI tonight, new home sales and the Richmond Fed index tomorrow, and house prices, new home sales and a flash services PMI on Wednesday.

On Thursday it's durable goods and pending home sales, and on Friday consumer sentiment.

As noted, Australia’s week will be dominated by March quarter construction and capex numbers ahead of next week’s GDP result. And all ears will be on Glenn Stevens tomorrow.

On the local stock front, we’ll see earnings results from Technology One ((TNE)) tomorrow, Programmed Maintenance ((PRG)) on Wednesday, Aristocrat Leisure ((ALL)) on Thursday, and Fisher & Paykel Healthcare ((FPH)) on Friday.

Perpetual ((PPT)) will provide earnings numbers for its investment company on Wednesday, which will also see investor days being held by Boral ((BLD)), Suncorp ((SUN)) and WorleyParsons ((WOR)).

And there are a few more AGMs to get through.

Rudi will Skype-linkup with Sky Business on Tuesday morning, 11.15am, to discuss broker calls. He'll appear on the Sky Business channel on Thursday, 12.30-2.30pm and does the Skype-link again on Friday morning, around 11.05am.

This is also the week a select group of paid subscribers gets to spend a whole evening with Rudi. Should be both fun and interesting.
 

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

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 Fed would have us believe a June rate cut is likely unless the data in the interim suggest otherwise. Many believe the Fed will wait to July, post the Brexit vote, and others believe the Fed is simply trying to ensure the market does not become complacent in believing there will not be a rate hike at all this year.

Whatever the case, the supposedly “data dependent” Fed can chew on next week’s US releases, which include new and pending home sales, house prices, trade, durable goods, the Richmond Fed index, flash PMI estimates and consumer sentiment. On Friday, a revision of the March quarter GDP result will be released.

Speculation the RBA is set to go the other way again soon will ensure plenty of attention when Glenn Stevens speaks on Tuesday. Next week’s Australian data releases include quarterly numbers for construction and capex, ahead of the following week’s GDP result.

On the local stock front, next week will see earnings results from Technology One ((TNE)), Programmed Maintenance ((PRG)) and Fisher & Paykel Healthcare ((FPH)) while Boral ((BLD)), Suncorp ((SUN)) and WorleyParsons ((WOR)) will all hold investor days.

There will also be another handful of AGMs.
 

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The Monday Report

By Greg Peel

Friday

I mentioned on Friday morning, with regard Thursday’s trade on the local market, that telcos had traded up 0.8% and utilities down 1.7%, with no real rhyme or reason. Well on Friday, telcos were down 1.2% and utilities up 1.0%, so go figure that one.

Beyond that, there was an air of “Friday” about Friday’s trade. We had the run-up into the technical target range of 5300-5400 and having done so, ran out of any reason to push higher. Materials fell 1.2% with a bit of help from weak metal prices but energy was down 0.5% despite a stronger oil price.

Consumer staples led the market down 1.5% as traders took profits after having successfully ridden the rally back in the supermarkets from oversold conditions, to the point further catalysts are not apparent. Discretionary (+0.8%) is getting more attention now thanks to the RBA’s urgent change in policy.

With Wall Street down on Friday night, the SPI down 15 points and the weekend’s Chinese data releases disappointing, it looks like we’ll be in for some further consolidation as the new week begins.

It’s Structural

All last week on Wall Street we saw large US chain stores lining up to report earnings misses and suffer share price drops as a result. On Friday it was JC Penney’s turn to join the queue, falling 3%. By Friday night an ETF made up of all these big brick & mortar retail names was down 15% for the week alone, prompting concerns for the US economy.

The consumer represents two thirds of US GDP. If Americans are not spending, then the US economy is in trouble. On Friday night the April retail sales numbers were released, which were hoped would throw some light on the issue.

Vale bricks & mortar. April sales rose 1.3%, exceeding forecasts of 1.0% and marking the biggest monthly gain in a year. While autos represent a chunky component, sales ex-auto were still up a solid 0.8%. Outside of autos, one of the best performing segments was “non-store sales”. In other words, online.

Good news – the US economy is not in trouble. Bad news – such a stellar result will not have been missed by the Fed. Could June once again be back in play?

On the sales result, the US dollar index rose another 0.5% to 94.38. The greenback continues to rebound from what were previously encouraging lows, thus weighing on shares of multinationals. The US two-year yield spiked up on a return of the June possibility, before settling back to be down one basis point. But the ten-year yield closed down 5 basis points to 1.71%.

This “flattening of the yield curve” suggests that while the Fed may hike again in the short term, in the longer term the bond market does not anticipate strong US growth. Flat yield curves do not offer banks much opportunity to profit, thus the financials were sold down on Wall Street on Friday night. Slow economic growth does not bode well for consumer staples, so Wal-Mart led the Dow down.

The Dow closed down 185 points or 1.1% while the S&P fell 0.9% to 2046 and the Nasdaq lost 0.4%. The S&P breached its 50-day moving average at 2054 and thereafter the selling accelerated. Typical “risk-off” ahead of a weekend was exacerbated by a monthly options expiry.

Commodities

The sell-off on Wall Street had nothing to do with oil prices, which for once were very flat on Friday night. West Texas was barely changed at US$46.38/bbl and Brent was down a tad at US$47.80/bbl.

Thursday night’s selling on the LME gave way to retrospection on the strong US sales result, but also squaring ahead of the weekend’s data out of China. Only a 1% rally in zinc is worth noting.

Iron ore fell US90c to US$53.50/t.

Despite the stronger greenback, gold managed to rally US$9.60 to US$1272.80/oz. Because of the stronger greenback, and a change in trend since the RBA rate cut, the Aussie fell 0.7% to US$0.7268.

The SPI Overnight closed down 15 points or 0.3% on Saturday morning.

China

On Saturday Beijing released monthly Chinese data for April.

Industrial production rose 6.0% year on year, down from 6.8% in March and missing forecasts of 6.5%. Retail sales rose 10.1%, down from 10.5% and missing 10.5% forecasts. Fixed asset investment rose 10.5% in the four months to April, down from 10.7% for the three months to March, and missing 10.9% forecasts.

So all were disappointing. But then, the March numbers had been stronger than expected so once again, we must factor in the Lunar New Year distortion. Beyond that, just how worried should the world be about an economy growing output at a 6% annual rate, retail sales at 10% and construction spending at 10%?

The Week Ahead

The minutes of the April Fed meeting will be released on Wednesday night. As usual, the market will be looking for any clues as to what the Fed might do next.

US data this week include housing sentiment and the Empire State index tonight, housing starts, industrial production and the CPI tomorrow, the Chicago national and Philly Fed indices on Thursday, and existing home sales on Friday. More grist for the Fed mill.

Japan will report March quarter GDP on Wednesday.

The minutes of the RBA’s May meeting are due tomorrow and these, too, will be closely scrutinised.

On Wednesday Australia’s March quarter wage price index result will be released – the first of the quarterly releases ahead of our own GDP result in a couple of weeks. The April jobs numbers will be released on Thursday to a country in election mode.

God help us.

On the local stock front, Elders ((ELD)) will report earnings today, while DuluxGroup ((DLX)), James Hardie ((JHX)) and Ozforex ((OFX)) will report tomorrow. There is another handful of AGMs to be held this week and Woodside Petroleum ((WPL)) will hold an investor day on Friday.

National Bank ((NAB)) goes ex tomorrow.

Rudi has a busy TV appearances schedule ahead of him this week. On Tuesday he'll Skype-link with Sky Business around 11.15am to discuss broker calls. Later that day, he'll host a webinar for clients of VFSGroup. On Wednesday he'll host Your Money, Your Call Equities (8-9.30pm). On Thursday, he'll appear twice; first as guest on Sky Business (12.30-2.30pm) then later as guest on Switzer TV, between 7-8pm. On Friday, he'll linkup again through Skype, probably around 11.05am, to discuss time broker calls one more.

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 US will release April retail sales numbers tonight which might go some way to confirming whether US consumers simply aren’t buying, or just not buying from bricks & mortar, given a very weak run of chain store quarterly earnings results this week.

Tonight also sees the eurozone’s March quarter GDP result.

Tomorrow Beijing will release Chinese retail sales, industrial production and fixed asset investment numbers for April.

Japan will release its March quarter GDP result next week, in a busy week for US data.

They include numbers for housing sentiment, starts and existing home sales, industrial production and inflation, as well as the Empire State, Philly Fed and Chicago Fed activity indices. The minutes of the April Fed meeting are also due.

The minutes of the May RBA meeting are out on Tuesday but between last week’s rate cut and the Statement on Monetary Policy, the market has a pretty clear idea of where the RBA is headed.

Australia’s jobs numbers are also out next week and the release of the March quarter wage price index kicks off the run-down to the GDP result in two weeks’ time.

Next week will see earnings results from Elders ((ELD)), DuluxGroup ((DLX)), James Hardie ((JHX)) and Oxforex ((OFX)) while Woodside Petroleum ((WPL)) will hold an investor day and several more AGMs are scheduled.
 

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The Monday Report

By Greg Peel

Derivative Dive

On Friday afternoon a very large trade was booked in May 5000 put options on the SPI futures contract. Clearly the deal had been agreed upon the night before, which is why the SPI Overnight closed down a surprising 47 points on Friday morning and the SPI continued to plunge when daylight trading commenced at 9.30am.

The put options were likely bought as a market hedge and were sold by local market makers, who themselves then had to “delta hedge” by selling futures contracts. Heavy selling in the SPI then dragged down the physical ASX200 from the opening bell, and within a blink the market was down 80 points for reasons that were not immediately apparent.

Then the futures selling stopped.

It took till lunchtime to be back to square, and eventually the ASX200 finished up 12 points for the day. Given a flat Wall Street on Thursday night, the only explanation for initial market weakness – until such time as the options deal was revealed – was weakness in iron ore and base metal prices but as it was, the materials sector closed up a percent on the day. Oil prices were slightly stronger overnight but energy closed down a percent.

The only other sector to finish in the red were financials, but only just, while otherwise we saw squaring up ahead of the weekend and the Friday night release of the US April jobs numbers.

The talking point of the day came from the release of the RBA’s quarterly Statement on Monetary Policy. The board has reduced its 2016 core inflation forecast range to 1-2% from a prior 1.5-2.5%, suggesting inflation will not reach the RBA’s target 2-3% range this year. Once again it is clear the weak March quarter CPI data came as quite a shock to the central bank. Not only can we see why we had a rate cut last week, the market is now baking in a second cut, if it were not already suspecting such.

By Saturday morning the Aussie was down a further 1.3% at US$0.7367, which was all to do with the RBA and very little to do with a slight tick up in the US dollar.

Goodbye June?

The US added 160,000 new jobs in April, well short of the 200,000 expected. Previous results for March and February were revised downward. The unemployment rate remains steady at 5.0% due to a tick down in participation. On the other hand, wages grew by a reasonable 0.3%, in line with expectation.

On the release of the report, a handful of major houses issued their own reports informing that prior expectations of a Fed rate hike in June had now been pulled back to September. There is one more jobs report to go before June and another Fed meeting in July but by September, June quarter GDP growth numbers will be known. (Note: the Fed meets six-weekly, not monthly).

Once again Wall Street was caught between the benefits of lower for longer rates and the unsettling reality of a slowing pace of US growth. The Dow fell and recovered and fell again, before finally recovering to finish the session up 79 points or 0.5%. The S&P rose 0.3% to 2057 and the Nasdaq added 0.4%.

While September is now the preference for some, more dovish commentators suggest that in a year which is yet to see the Brexit vote and the US election, December is the most likely option, if only to save face. The trend in US economic data would need to turn around significantly in that time to even justify December.

This is not the sought of news incoming RBA governor Philip Lowe really needs. While local inflation has forced a rapid reaction in RBA policy, the problem of the too-strong Aussie was meant to be alleviated this year by rising US rates.

Commodities

Australians can no doubt empathise with our Canadian friends who saw a 25,000 acre wildfire in Alberta grow to 250,000 acres in the space of 24 hours. While the fires have moved close to oil sands production, no infrastructure has as yet been damaged. Production has ceased nonetheless given the evacuation of local residents means there is no one there to run operations.

The fires have put a floor under oil prices for now, but has not sent them skyward, suggesting that once Canadian production is back to normal there might not be much holding oil prices up. West Texas was only slightly higher at US$$44.56/bbl on Saturday morning and ditto Brent at US$45.33/bbl.

Lower for longer rates in the US means a weaker for longer US dollar, hence base metals prices were mostly positive in London on Friday night. Nickel and zinc were the best performers with gains in excess of one percent but aluminium fell half a percent.

Iron ore fell another US$1.80 or 3% to US$57.70, to mark a fall for the week of US$7.50 or 11.5%.

While the reduced likelihood of June Fed rate hike did not impact on the US dollar index, which was up 0.1% at 93.89, gold rallied US$10.10 to US$1287.70/oz.

The SPI Overnight closed up 22 points or 0.4% on Saturday morning.

The Week Ahead

It’s a quiet week ahead for US data releases until we get to Friday, which features retail sales, business inventories and fortnightly consumer sentiment.

The eurozone will release a first estimate of March quarter GDP on Friday.

The Bank of England meets on Thursday night but nothing is expected, especially ahead of the Brexit vote.

Beijing will release Chinese inflation data for April tomorrow.

It’s now game-on in Australia, with a double dissolution election confirmed for July 2. We knew that anyway, but confirmation still removes uncertainty.

Local data releases this week include ANZ job ads today and Westpac consumer confidence tomorrow, along with housing finance numbers.

Commonwealth Bank ((CBA)) will wrap up bank reporting season today with a quarterly update, and we now shift into a new reporting mini-season. Orica ((ORI)) will report today, Incitec Pivot ((IPL)) tomorrow, CSR ((CSR)) on Wednesday and AusNet Services ((AST)) on Thursday.

Myer ((MYR)) will release quarterly sales numbers on Thursday and there’s a handful of AGMs to be held throughout the week.

ANZ Bank ((ANZ)) goes ex-dividend today and Westpac ((WBC)) on Thursday.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls. He'll be back on Thursday from 12.30-2.30pm and again via Skype-link on Friday morning, around 11.05am, to discuss broker calls. Later that day he'll re-appear as guest on Your Money, Your Call Fixed Interest, 7-8pm.
 

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

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