Tag Archives: United States

article 3 months old

The Monday Report

By Greg Peel

BoJ Disappoints

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

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

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

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

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

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

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

No Fed Rate Hike?

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

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

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

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

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

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

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

Commodities

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

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

Iron ore fell US40c to US$58.80/t.

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

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

The SPI Overnight closed up 17 points or 0.3%.

Not Stressed

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

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

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

The Week Ahead

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

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

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

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

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

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

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

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

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

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

We await what the Bank of Japan has in store today and tonight we see first estimates of June quarter GDP for both the eurozone and the US. Next week, the local earnings result season begins in earnest.

Monday is a bank holiday in NSW. The ASX is open but things may be a little slow. It’s the first of the month nonetheless so we’ll see a round of manufacturing PMIs from across the globe, and both manufacturing and services for China. Services PMIs for the rest of the world are due on Wednesday.

The RBA will meet on Tuesday and at this stage the market sees a rate cut as a 50/50 bet. During the week we’ll see numbers for building approvals, trade and retails sales as well as the PMIs. The RBA will also issue a quarterly Statement on Monetary Policy.

The Bank of England will also meet next week but having not made any policy changes following the Brexit vote, and with the Brexit process yet to be triggered, it is likely the BoE will continue to wait and watch.

US data next week include construction spending, personal income & spending, vehicle sales, chain store sales and factory orders. Being the first week of the month it’s jobs week, thus we’ll private sector numbers on Wednesday and non-farm payrolls on Friday. The Fed does not meet again until September.

Several companies will post earnings next week, including Rio Tinto ((RIO)), Downer EDI ((DOW)), Tabcorp ((TAH)), Suncorp ((SUN)) and Virgin Australia ((VAH)).
 

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article 3 months old

The Overnight Report: Going Nowhere

By Greg Peel

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

Risk On?

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

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

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

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

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

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

Stalled

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

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

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

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

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

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

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

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

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

Commodities

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

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

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

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

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

The Aussie is 0.2% higher at US$0.7504.

Today

The SPI Overnight closed up 8 points.

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

Stay tuned.

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

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

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

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

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

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

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article 3 months old

The Overnight Report: Limbo Land

By Greg Peel

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

Two Speed Inflation

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

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

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

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

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

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

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

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

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

Clarity Diminished

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

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

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

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

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

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

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

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

Commodities

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

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

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

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

The Aussie is down 0.2% at US$0.7487.

Today

The SPI Overnight closed up 11 points or 0.2%.

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

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

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


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

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

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article 3 months old

The Overnight Report: Poised

By Greg Peel

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

Resilient

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

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

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

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

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

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

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

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

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

Hamburgled

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

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

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

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

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

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

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

Commodities

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

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

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

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

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

Today

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

The CPI numbers will be out late this morning.

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

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

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

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

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

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

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article 3 months old

The Overnight Report: Oil Jitters Return

By Greg Peel

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

Pride Cometh

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

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

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

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

Oil Concerns

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

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

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

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

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

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

Commodities

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

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

Iron ore rose US10c to US$55.80/t.

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

The Aussie is up 0.2% at US$0.7468.

Today

The SPI Overnight closed up one point.

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

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

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

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Predictable

The dip overnight on Wall Street provided an excuse but realistically it was an all too predictable session on the ASX on Friday assuming no unexpected news. We had a solid run-up during the week, profits are often locked in ahead of a weekend, and next week sees critical central bank meetings that offer reason to move back to the sidelines to see what transpires.

The consumer sectors had been leaders in the rally over the week, so no great surprise they were the underperformers on Friday. Telcos also came in for some more selling, but otherwise downward moves across sectors were minimal and materials posted a sole gain with a 0.2% increase.

The pullback put the ASX200 pretty much on the 5500 level, which is rather neat, and suggests a pivot point for what happens next. The technicals remain generally bullish at this stage but we’ll still need some sort of fundamental justification to move into the next up-leg.

While markets across the globe may go quiet early this week ahead of the Fed meeting and statement release on Wednesday night, in Australia we will also see the release of June quarter CPI numbers on the Wednesday ahead of the Fed. The RBA has left the door open for an August rate cut were the June numbers to again be weak. Economists are forecasting weak numbers.

We also saw falls in commodity prices on Friday night, which should weigh on the ASX200 this morning.

Poised

The focus on Wall Street this week is clearly on the Fed, although US indices did manage slight gains on Friday night. The Dow closed up 53 points or 0.3%, the S&P gained 0.5% to 2175 and the Nasdaq rose 0.5%. The Dow and S&P both posted new highs.

On the US earnings front, the trend continues to be positive, or at least “less bad”. General Electric’s (Dow) result disappointed somewhat on Friday but with 100 of the 500 S&P stocks now having reported, the running change in earnings per share is minus 4.2% compared to a consensus forecast ahead of the season of minus 5.3%.

There are still 400 stocks to report over the next couple of weeks.

Meanwhile, the early earnings trend may be positive, thus justifying Wall Street strength, but the indices were again led by telcos and utilities on Friday night. The hunt for yield continues to override any notion of economic improvement.

US economic data have nevertheless been positive this month, and the trend continued on Friday night. A flash estimate suggested the US manufacturing PMI for July would come in at 52.9, up from 51.3 in June and well ahead of 51.5 forecasts.

It is this sudden turnaround in US data that has Wall Street assuming the Fed must now be seriously looking at a rate hike sooner rather than later, given the feared Brexit disaster did not transpire. Up until this month US data had been a bit too mixed to assure a hike, and the shockingly weak May jobs number was the cruncher. But since the June jobs number came screaming back, a string of very positive releases including retail sales, industrial production and various housing numbers has followed.

There is no hike expected on Wednesday night. But markets will be looking to see just what sort of hint the FOMC may be prepared to provide of a September move.

The Fed is under no pressure to hike this week, which is handy given Friday brings a Bank of Japan policy meeting. Strictly the Fed should not be in any way beholden to what Japan does, but given some form of shock & awe is being assumed out of Tokyo, the FOMC will no doubt be keen to see what that is before having to make its own decision.

Commodities

The issue of a Fed rate hike is one commodity markets will be concerned about. While the justification for a hike – stronger US economy – is positive for commodity prices, a consequentially stronger US dollar is not. The US dollar index rose 0.5% to 97.35 on Friday night.

An outage of a commodity trading platform during the Asian session meant many traders were cut off from base metal markets as trading shifted over to London, ensuring very light volumes were then traded on the LME. This didn’t stop nickel falling 3%, although nickel has been the outperformer of late, while other metals fell by small amounts except aluminium. It’s been the underperformer of late, and rose slightly.

Iron ore fell US40c to US$55.70/t.

West Texas crude fell US29c to US$44.25/bbl.

Gold doesn’t quite know whether it’s Arthur or Martha at the moment, as it shifts back and forward inside a 1320-40 range. Friday night’s jump in the greenback prompted a fall of US$8.60 to US$1322.10/oz.

The strong greenback ensured the Aussie was down half a percent at US$0.7455 on Saturday morning.

The SPI Overnight closed up 4 points on Saturday morning.

The Week Ahead

Fed on Wednesday night, BoJ on Friday.

Ahead of the Fed meeting, the US will see new home sales, Case-Shiller house prices, consumer confidence and the Richmond Fed index on Tuesday, and pending home sales and durable goods on Wednesday. Thereafter, Friday will bring the first estimate of US June quarter GDP.

The UK will report its GDP on Wednesday, and the eurozone on Friday, although both reflect a pre-Brexit Europe.

Along with the BoJ meeting on Friday, Japan will see a raft of June data, including inflation, retail sales, industrial production and unemployment.

On the local stock front, the last of the resource sector quarterly production reports merge this week with early movers in what is otherwise the August result season.

Among the production reporters we’ll see Newcrest Mining ((NCM)) today, Fortescue Metals ((FMG)) and Independence Group ((IGO)) on Wednesday, and Origin Energy ((ORG)) on Friday.

Thursday will bring earnings reports from CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)) and ResMed ((RMD)).

Thursday also sees the Macquarie Group ((MQG)) AGM, at which guidance will be updated.

Rudi will appear on Sky Business via Skype-link on Tuesday to discuss broker calls, 11.15am. Then on Wednesday he'll host Your Money, Your Call, 8-9.30pm. On Thursday he'll re-appear in the studio, 12.30-2.30pm and later that day he'll join Switzer TV on the channel. On Friday he'll repeat the Skype-link up 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 Fed will meet next week and release its latest monetary policy statement on Wednesday night. While no rate change is expected, the odds are firming once more for a September hike, given the markets’ shrugging off of Brexit and a run of strong US data. Further clues will be sought.

The Bank of Japan meets on Friday and while it’s always difficult to know what might transpire, markets are assuming fresh stimulus of some kind will be announced. The resounding win by the government in the recent upper house election supposedly provides a mandate to attack the persistently strong yen once and for all.

These two meetings will be very much the focus of next week, possibly keeping markets at bay until developments are known. But the US reporting season rolls on, and next week also sees initial June quarter GDP estimates from all of the UK (Wednesday), US and eurozone (Friday).

There will be more data releases to ponder in the US next week, including house prices, home sales, consumer confidence, durable goods, the Richmond Fed index and Chicago PMI.

Friday will not only bring the BoJ meeting but also a dump of Japanese data, including inflation, industrial production, retail sales, and unemployment numbers.

Ahead of the Fed release on Wednesday night, Australia’s June quarter CPI numbers will be released. We recall it was the weak March quarter CPI numbers which prompted the RBA into a swift rate cut in May, and almost universal expectations of an August rate cut are based on expectation of more weak numbers in next week’s release.

In the local market, next week will see a late rush of resource sector quarterly production reports coinciding with the first trickle of early season corporate earnings releases.

Production reporters include Newcrest Mining ((NCM)), Fortescue Metals ((FMG)), Independence Group ((IGO)) and Origin Energy ((ORG)).

Earnings reporters include CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)) and ResMed ((RMD)).

Macquarie Group ((MQG)) will also hold its AGM next week at which a guidance update is always a potential share price mover.


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article 3 months old

The Overnight Report: Consolidation

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P lost 0.4% to 2165 and the Nasdaq fell 0.3%.

Stall

The ASX200 posted its tenth gain in eleven sessions yesterday but conviction waned as the day wore on. After such a solid run, not only recovering the Brexit plunge but far overshooting it, it is inevitable that a pullback of some extent should occur as profits are booked.

Having opened up over 40 points, the index closed only up 24. With Wall Street also finally seeing some consolidation last night, the futures are suggesting an open of down 32 points this morning.

Healthcare was again the star yesterday, having previously been a bit of a laggard in the rally. It rose 1.5%, outperforming more modest and relatively even gains in other sectors. The exceptions were materials, which fell another 0.4% having led out the rally from the start, and telcos, finally seeing a dip of 0.1%. Utilities were still in favour nonetheless, rising 0.6%.

The materials sector should continue to play more of an “alpha” (stock-specific) game through to next week as more quarterly production reports roll in, and as they wrap up we’ll be into the reporting season proper.

Technically, the ASX200 has done all the right things in rising to 5500. The next target should be 5800 but first we need to get past a couple of significant central bank meetings and then we need to see a successful reporting season.

Banking It

A market can’t make new highs forever, which is why nobody much minded that Wall Street pulled back last night. There were some good and not so good earnings reports on the day, but Wall Street is now looking ahead to next week’s central bank meetings and deciding to move to the sidelines.

The Fed will release its policy statement on Wednesday. A rate hike is not expected at this meeting but in the constant ebb and flow of Fed speculation, September is now firming as a good chance. Brexit has been a storm in a tea cup and recent US data, including jobs, housing industrial production and retail sales have all been solid – solid enough to put the onus on the Fed to explain why it would not raise.

The US ten-year yield has moved back up from its Brexit low of 1.36% to now sit at 1.56%. Gold has stopped rising, although it’s interesting to note that having fallen around US$15 on Wednesday night understandably, gold last night rallied back US$15.40 to US$1330.70/oz on only a 0.3% retreat for the dollar index to 96.88.

Next Friday the Bank of Japan will meet. No one knows for sure what it has in mind, but ever since the Abe government won a sweeping majority in the recent upper house election the market has assumed that whatever it is, it won’t be pop gun stuff. Mind you, I have noted before that whenever the world assumes big things from the BoJ it does nothing, and vice versa.

And on that subject, nothing is exactly what the ECB did last night, unsurprisingly. Mario Draghi pledged low rates for longer and a continuation of QE into 2017, and perhaps beyond, but saw no reason to introduce any new measures. The ECB’s status quo decision follows the Brexit rebound and a similar decision by the Bank of England last week.

Had any combination of the BoE, ECB and BoJ been forced to act swiftly to stave off post-Brexit disaster, the Fed would have an argument that staying put is the sensible option. We still await the BoJ.

And just to underscore the argument for a Fed rate hike, US existing home sales rose 1.1% in June to the strongest rate since February 2007.

Commodities

There is talk of Libya being able to recommence export from an oil terminal and that had a negative impact on oil prices last night. However, the West Texas contract rolled over into September front month delivery and often we see some selling at expiries. It’s down US$1.21 to US$44.54/bbl.

Aluminium continues to suffer from building inventories and it was down another 1.5% last night in London. The Philippines story continues to drive nickel, which rose 1.5%, while the other metals were quiet.

Iron ore rose US$1.00 to US$56.10/t.

On the dip in the greenback, the Aussie is up 0.4% at US$0.7495.

Today

The SPI Overnight closed down 32 points or 0.6%. And it’s Friday.

Japan, the eurozone and US will all post flash estimates of July manufacturing PMIs today/night.

Santos ((STO)) and OZ Minerals ((OZL)) will post production reports today.

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

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

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

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

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article 3 months old

The Overnight Report: Conviction Lite

By Greg Peel

The Dow closed up 36 points or 0.2% while the S&P gained 0.4% to 2173 as the Nasdaq rose 1.1%.

Healthy

Healthcare led the local market up yesterday with a 1.7% rise thanks to a 2% gain for mega-cap CSL ((CSL)) in response to a broker upgrade. Meanwhile, the consumer sectors continue to be the consistent players in the run above 5400 for the index, with both staples and discretionary gaining 1.4%.

One might argue whether staples is truly a “defensive” sector these days amidst the supermarket wars and the sheer size of the major players in the sector, but it seems Woolies is a stock investors find difficult not to hold in a portfolio.

The same could be said for BHP Billiton ((BHP)), which yesterday posted a mixed production report and helped materials down 1.4%, to post the only sector loss. The move down in the big miners was countered by a 1% gain for the banks, for which the story is much the same in terms of “must-haves” of the bygone era.

Were this recent rally to be a cyclical one, we would be seeing a rotation out of some of the defensives many an analyst sees as overbought. But yesterday telcos and utilities continued to rise along with the market.

What we’re likely seeing here is a combination of TINA and FOMO – there is no alternative and fear of missing out. With a central bank safety net under global stocks – and that will likely include another RBA rate cut -- there doesn’t seem much risk in holding stocks and there’s no point in suggesting the rally lacks fundamental basis if it’s just going to keep moving higher.

Yesterday’s session represented the ninth gain for the ASX200 in ten.

The Aussie is continuing to go the right way as well, down another 0.6% this morning at US$7463.

Spectators

There may not be too much FOMO going on on Wall Street at the moment given the ongoing graft into new blue sky territory is occurring on very low volumes, even for summer. Commentators make constant reference to historically high levels of US cash on the sidelines but new all-time highs, and bullish talk, has not yet been enough to shift that cash back into play.

Which is interesting considering you basically get no return on your cash in the US.

Microsoft (Dow) was the talk of the Street last night after having posted an earnings beat in Tuesday night’s aftermarket and a 5% gain in last night’s session. Traders were most excited about one particular element of Microsoft’s result, being its suddenly popular cloud business. A successful move into the cloud shifts the tech stalwart more into “new tech” territory from its “old tech” status.

Microsoft’s result spurred a fresh round of tech stock buying on Wall Street last night, as evidenced by Nasdaq outperformance.

Morgan Stanley rounded out the bank sector results with a solid beat, just as each US bank has largely done. MS shares rose 2%.

After the bell this morning, we note Dow stocks Intel and American Express are seeing post-result selling, down 3% and 1.5% respectively as I write. EBay, on the other hand, is up 6%.

We’re still only now getting into the meaty part of the US results season but so far the beats are clearly outweighing the misses. It must be taken into consideration nevertheless – and here the banks are a case in point – that most of the “beats” reflect not-as-bad-as-expected profit declines rather than profit growth.

Yet Wall Street is creating new highs every day.

There is also a growing concern that the VIX volatility index on the S&P500 has fallen to 11, which is typically the bottom of the range and often the contrarian signal for volatility to come. In theory, 11 suggests over-complacency. In practice, it means fewer investors feeling the need to buy downside protection for their portfolios.

While 11 is about as low as it goes, the VIX can hang around the lows for long periods of time. I’d also wager that the current low level is a result of so many investors being burnt on protection they took against a Brexit disaster that lasted all of five minutes, they are wary of making the same mistake twice.

One doesn’t need one’s own put options. The central banks have that covered.

Commodities

It was weekly US oil inventory night last night and for the ninth week in a row, crude inventories fell. Last week’s drop was greater than expected so West Texas is up US37c at US$44.94/bbl.

The US dollar index continues to tick higher, and is up another 0.1% at 97.14 this morning. While the strong dollar is acting as a headwind for commodity prices it’s not yet causing any major dramas. Base metal prices were once again mixed on small moves last night in London, other than a 1.5% fall for aluminium.

Iron ore is unchanged at US$55.10/t.

It’s a different story for gold. Are those assuming EU turmoil, BoJ shock & awe and a timid Fed starting to lose their conviction? Gold is down US$16.40 at US$1315.30/oz.

Today

The SPI Overnight closed up 20 points or 0.4%, matching the S&P500. That would take the ASX200 past the 5500 level.

The ECB holds a policy meeting tonight. There should not be any great surprise if the central bank does nothing, given the world has shaken off Brexit altogether and the euro is lower, which is exactly what the doctor ordered.

It’s a busy night for US data tonight, including existing home sales, house prices, the Philly Fed index, the Chicago Fed national index and leading economic indicators.

NAB will publish a June quarter summary of its business confidence survey today.

Woodside Petroleum ((WPL)), South32 ((S32)) and Evolution Mining ((EVN)) will post production reports today.

Rudi will appear on Sky Business from 12.30pm until 2.30pm today.
 

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

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

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

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