Tag Archives: United States

article 3 months old

The Overnight Report: Paint It Beige

By Greg Peel

The Dow closed up 2 points while the S&P lost 0.1% to 2096 and the Nasdaq rose 0.3%.

Good News is Bad News

Yesterday’s plunge from the open for the ASX200 may have confused certain ABC finance commentators but I believe the story is pretty clear. The market may have dropped a couple of hours before the strong GDP result was released but the fact is we already knew the GDP result would be strong by virtue of Tuesday’s surprisingly positive net export result.

That result had economists scrambling to upgrade their GDP forecasts from under 3% annual growth to potentially over and guess what, it was 3.1%.

I noted yesterday that May had seen the ASX200 rise from 5250 to 5400. It was not about commodity prices – they rose in April, and while oil has moved little since, iron ore has fallen. This particular increase was all because at the beginning of the month the RBA delivered a surprise rate cut thanks to the March quarter disinflation shock, which again had economists scrambling, this time to lower their cash rate expectations and predict 1.00% by next year.

The May rally was thus led by the banks and other yield-payers. Yesterday’s strong GDP result, coming off the back of the strong December quarter result, now has economists questioning whether 1.00% is at all possible. Suddenly the yield-payers are not as attractive as they were last week. On Tuesday local investors started to sell these sectors in response to the export data, while the significant cohort of offshore investors in Australian yield slept. Overnight, offshore investors had the chance to place their “sell on open” orders ready for yesterday morning.

So down we went. There was a brief “buy the fact” rebound when the actual GDP result was released, but then the Chinese PMI results for May were released.

Beijing had the manufacturing PMI unchanged at 50.1. Caixin’s equivalent fell to 49.2 from 49.4. Beijing’s services PMI fell to 53.1 from 53.5. Caixin’s equivalent is due out tomorrow. For a brief couple of months the Chinese economy looked like it might have bottomed out, ahead of a stimulus-fuelled recovery. But as I had pointed out at the time: never trust the numbers around Chinese New Year.

Suffice to say the ASX200 fell again in the afternoon. The resource sectors joined in thanks to the China data, but we had lower oil and iron ore prices from the outset anyway. Any attempt by the ASX200 to conquer 5400 and push back up towards 6000 again appears now to have been postponed.

Or has it?

Economists agree the GDP result is unusual, and misleading. In short, the strong growth rate comes down to an increase in the volume of output, not the value. On the one hand, lower commodity prices had stripped export volumes of that value. On the other, wages growth is at its slowest pace since the Keating recession and inflation is also slowing. The official unemployment rate is surprisingly low but only because the official unemployment rate is a joke. The vast number of Australians who’ve given up looking for work are the ones ensuring there is no inflation in this country.

Does this, therefore, mean the RBA can keep cutting? That will be the question for June.

Modesty

When the numbers start to become misleading, analysts like to actually get out into the real world to get a handle on what’s actually going on. A good example of this is the Fed’s Beige Book – an anecdotal assessment of economic activity in the twelve Fed districts.

If yesterday’s Australian GDP brought into question further RBA rate cuts, last night’s Beige Book brought into question the June or July Fed rate hike Wall Street has all but come to assume. It was a Triple-M result – growth in each district was either “moderate”, “modest”, or “minimal”. If anything, the US economy has slowed since the last anecdotal assessment.

So maybe the Fed won’t hike after all. How does one respond?

Well it is no longer clear – on Wall Street at least – whether bad news is bad news or good news, or vice versa. Which probably explains why the Dow initially fell over a hundred points before recovering all of that loss by the close. I’ve made the reference before but it’s fitting once again – if this was QI, now’s the time to hold up your “Nobody Knows” card.

On the positive side, the US manufacturing PMI for May rose to 51.3 from 50.8. But while this is an improvement, it still suggests a very “modest” pace of growth. Not the stuff of rate hikes. Meanwhile, the pace of auto sales also slowed in May and construction dropped 1.8% in April.

To further complicate matters, the S&P500 index has had a couple of goes at the technically important 2100 level but failed to breach it. Just like the ASX200 keeps failing at 5400.

Attention now turns to the data biggie, being tomorrow night’s US non-farm payrolls report. Tonight sees the private sector precursor. I apologise for assuming that report was due last night, on a Wednesday as always, but the long weekend has knocked it back by a day.

Commodities

The US dollar index fell for a change last night, down 0.6% to 95.4, thanks to the Beige Book. That should be supportive of commodity prices, but the implications of a slower than assumed US economy, and disappointing Chinese data, should do the opposite. In short, there was no clear trend last night.

West Texas crude is little changed at US$48.91/bbl.

Copper fell over a percent when all other base metals rose, including zinc by 2.5%.

Iron ore fell US30c to US$49.30/t.

Gold is down slightly at US$1212.70/oz.

The Aussie dollar initially shot up on the GDP result yesterday, was then sold back down by those who bought it on the export number the day before, and rose again last night thanks to the weaker greenback. It’s up 0.3% over 24 hours at US$0.7255.

Today

The SPI Overnight closed up 3 points.

With the March quarter now put to bed, today brings local the retail sales numbers and trade balance for April.

The ECB holds a policy meeting tonight.

The ADP private sector jobs number for May is out in the US.

Challenger ((CGF)) will hold an investor day today.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm and then returns for an interview on Switzer TV between 7-8pm.
 

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article 3 months old

The Overnight Report: End of Month

By Greg Peel

The Dow closed down 86 points or 0.5% while the S&P fell 0.1% as the Nasdaq rose 0.3%.

Good News is Bad News?

We saw another questionable open on the ASX yesterday, in which the index plunged 43 points on the opening rotation with no lead-in from offshore whatsoever, following a flat session on Monday. As soon as the market was “open”, the index recovered virtually all of the ground the computers had lost.

Presumably the humans have learned to simply stand aside, let the computers run riot in the first half hour.

With normal programming re-established, all eyes were on the release of the March quarter current account data.

The current account and trade deficits both narrowed more than expected, which in short is good news for those who listen anxiously to politicians’ warnings over Australia’s debt. Importantly, the loss in export dollars experienced in the quarter due to plunging commodity prices was offset by the increase in volumes exported.

Export volumes rose 4.4%, underpinned by strong contributions from resources (5.6%) and services (6.1%). Export prices fell 5.0% and are down 11.3% year on year. The net result is a 0.7% fall in the value of exports.

On the other side of the ledger, the volume of imports fell 0.8%, led by a 7.0% fall in mining equipment. Import prices were 3.1% lower, and thus the value of imports 3.8% lower.

Put the two together, and the terms of trade will add 1.1 percentage points to March quarter GDP – a figure ANZ’s economists described as “very solid” and CBA’s as “whopping”. Economists have scrambled to lift their GDP forecasts from a prior 2.8% annual to as much as 3.2%.

But what does this mean for RBA rate cut expectations? Perhaps a clue lies in the fact yesterday saw the banks fall 0.5%, the telcos 1.2% and consumer staples 1.4%. Aside from a 1.5% fall in energy due to the lower oil price, these three yield-paying sectors led the index down. We should acknowledge there was also a pay dispute issue impacting Wesfarmers, and that utilities only fell slightly.

It’s not cut and dried, but the bottom line is if the March quarter GDP suggests the Australian economy is actually healthier than even the RBA had assumed, then economists might start to back away from their 1.00% cash rate forecasts.

And just to add fuel to that fire, yesterday’s data releases for the month of April showed a big rise in business borrowing – a positive indication for Australia’s economic “transition” – and an increase in building approvals when economists had forecast a fall following March’s strong result.

It would seem rumours of the housing boom’s demise are premature.

Yesterday it appeared the local market was trading off a theme so pervasive in US markets for so many years: With regard monetary policy, good news is bad news.

Sell in May? The ASX200 rose from 5250 to 5400 over the month. It would be of no surprise if yesterday simply saw some end of month squaring.

Flat in May

The same is likely true on Wall Street last night, albeit the Dow closed May only a handful of points higher for the month. Last night’s session was further complicated by stage 2 of the introduction of US-listed Chinese stocks into the various MSCI global indices.

Many an index-tracking fund benchmarks off the MSCI indices, and if new stocks are added, others must be sold to match new index weightings. The net impact should be a net offset, but if US stocks have to be sold, that impacts on US indices.

Last night’s data showed US consumer spending jumped in April by a better than expected 1.0% -- the biggest monthly gain in seven years. Incomes rose 0.4%. The personal income & expenditure (PCE) measure of inflation rose to 1.1% annual from 0.8% in March in core terms. This is the Fed’s preferred indicator.

Nothing to stop a June rate rise there, although Wall Street continues to favour a post-Brexit vote July hike. Having at one point priced in little chance of a rate hike in 2016, the market now sees July as about a 66% chance to June’s 33%.

Last night also saw oil continue to drift back, having failed to penetrate the 50 level.

Commodities

West Texas crude is down US79c or 1.6% at US$48.83/bbl.

Also failing at the 50 mark is iron ore, which fell US70c to US$49.60/t.

It was a quiet return to trading on the LME. Zinc jumped 1.5% but moves in all other metals were negligible.

Gold found a bit of a bid last night nevertheless, having fallen steadily of late on the stronger greenback. The US dollar index is up 0.2% at 95.86 but gold is up US$10.10 at US$1215.00/oz, possibly also reflecting the end of the month.

On the strong current account numbers, the Aussie is up 0.7% at US$0.7231.

Today

The SPI Overnight closed down 24 points or 0.5%.

While Sell in May might have been quashed for another year, June is a month downunder which can often be impacted by tax-related selling of underperforming stocks ahead of EOFY.

Australia’s March quarter GDP result is out this morning.

And being the first of the month, it means PMIs. Most importantly, we’ll see May manufacturing PMI numbers for China from both Beijing and Caixin, along with Beijing’s service sector PMI.

The Fed will release its Beige Book tonight, but the focus will be on the ADP private sector jobs number for May, ahead of Friday’s non-farm payrolls release. There is a complication this month given 35,000 workers at Verizon were on strike over the survey period and will thus be counted as “unemployed”, even though they’re now back. So there may need to be some averaging between the May and June numbers, albeit the Fed meets in between.

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

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

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

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

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article 3 months old

The 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 Overnight Report: Consolidation

By Greg Peel

The Dow closed down 23 points or 0.1% while the S&P was flat at 2090 and the Nasdaq rose 0.1%.

Resistance

After another strong session on Wall Street, the ASX200 shot up 30 points from the bell yesterday, hit a brick wall at 5400, and promptly tumbled just as quickly to be down on the day. After dusting itself off, the index again staged a rally before running into the weak capex numbers.

Again we were in the negative. But ultimately the market grafted its way back to a close of 5388, once again eyeing off the 5400 barrier.

It was a mixed bag among the sectors yesterday. Energy (2.0%) and materials (1.7%) again led the charge to the upside with the banks providing only limited support, while the selling continued in Wesfarmers ((WES)) following prior announced impairments. Hence consumer staples fell 2.1%. Telcos and utilities also came under some pressure.

The headlines have all been typically sensationalist over a weaker than expected March quarter capex result but in fact the numbers weren’t as bad as they looked, if one considers that there are two sets of numbers. There is the “what was” of actual capital expenditure over the period and there is the “what will be” of capex intentions for the next financial year.

“What was” fell a larger than expected 5.2% and will have economists trimming their March quarter GDP forecasts. Mining fell 12% and non-mining rose 0.4%. We can take some solace in the fact the “mining” number must eventually stop falling, although we still have to get past the ramp-up (and subsequent end to capex) of the big LNG projects. Meanwhile, non-mining is just not gaining enough traction to make the difference.

If we look at the “what will be”, the second estimate of FY17 capex intentions came in at a better than expected $89.2bn, up 6.3% higher than the first estimate a quarter ago. Of that $89.2bn, mining accounts for $36.0bn and non-mining $53.2bn. That would seem a step in the right direction.

While the RBA will be keen to have learned just how the Australian economy really did fare in the March quarter, it is capex intentions that inform monetary policy going forward.

Meanwhile, the market still gives the impression it really wants to break through 5400. Perhaps once the profit-taking is exhausted, it might. But today is a Friday, there is no support from Wall Street for another sortie, and this weekend is also a long one in the US, providing cause for traders to square up.

Happy Birthday

The Dow turned 120 years old last night.

While the Dow Jones company was keen for a celebration, Wall Street had no plans to turn on an exciting session. After two solid days of rallying, the Dow took a breather. While going nowhere does not provide much opportunity to make money, traders were nevertheless pleased to see the indices hold their ground in consolidation rather than sharply fall back again, as is often the case.

In economic news, US durable goods orders rose 3.4% in April but stripping out the lumpy transport component left a more modest 0.4% gain. The core capital goods component, which is seen as a proxy for business investment, fell 0.8%, and has fallen in five of the past six months.

So not a particularly rosy picture there. By contrast, the US housing market continues to surge along, with pending home sales jumping in April to their highest level since February 2006. The pending home sales numbers match very strong new and existing home sales numbers released earlier in the week, as well as an ongoing rise in house prices.

The other important driver of Wall Street at present – oil – saw an initial rally last night to push WTI over the 50 mark, but 50 is to oil what 5400 is to the ASX200 at the moment, and this morning oil prices are down slightly from the day before.

It is a full session in US equity markets tonight but the tumbleweeds will be rolling through the NYSE after lunch as Wall Street is evacuated for the Memorial Day long weekend – the unofficial start of summer.

Commodities

West Texas crude is down US34c at US$49.40/bbl and Brent is down US43c at US$49.47/bbl. I think it is now fair to say WTI has regained its place as the global oil benchmark from Brent, now that the spread is negligible and US oil production is the swing factor in global supply. To that end, Brent prices will continue to appear on the FNArena website but I’ll only mention it here from now on if something strange happens.

When WTI breached 50 last night, LME traders decided enough selling had been seen and piled into base metals, sparking a short-covering scramble. When oil retreated again, so did metal prices, but while copper and nickel only managed gains of around 0.5%, aluminium rose 1%, zinc 2.5% and lead 3%.

Metal prices were also supported by another dip for the US dollar index, down 0.3% to 95.15.

Speaking of magic 50 marks, iron ore fell US10c to US$49.90/t.

Despite the weaker greenback, gold is down US$4.50 at US$1219.50/oz and because of the weaker greenback, the Aussie is up 0.3% at US$0.7223.

Today

The SPI Overnight closed up 5 points.

The US March quarter GDP result will be revised tonight and Fed chair Janet Yellen will speak, potentially sparking some volatility that might otherwise be absent on a pre-long weekend Friday.

Locally, Fisher & Paykel Healthcare ((FPH)) has released its earnings report this morning.

Rudi has returned from his up-close evening with FNArena subscribers in good spirits and he will Skype-link with Sky Business at around 11.05am this morning 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: Encore

By Greg Peel

The Dow closed up 145 points or 0.8% while the S&P rose 0.7% to 2090 and the Nasdaq gained 0.7%.

Green on Screen

After two wavering and nervous-looking sessions for the ASX200 on Monday and Tuesday, yesterday saw a return to the type of buying we saw last Friday – index wide. Thanks to a sudden return to exuberance in Europe and on Wall Street, Australia joined in the risk-on flurry.

As oil prices push up towards the 50 mark, energy led the charge with a 2.7% gain. At the other end of the scale, the defensives of utilities and consumer staples dragged the chain somewhat, only managing gains of around half a percent. Every other sector posted uniform gains of around 1.5%, and thus so did the ASX200 by the close.

There was a slight fade at the end – the index almost raised its bat to the crowd around lunchtime before settling up 76 – but otherwise yesterday’s “rally” mimicked that on Wall Street in being a step-jump from the opening bell and thus not much of a “rally” per se.

However while Wall Street traders were suggesting on Tuesday night it was all about a short squeeze and little else, Australia’s level of short positions are as low as they’ve been for a long time. And shorts in the Big Caps are minimal. Thus we can’t call yesterday a short squeeze downunder. We may, nevertheless, call it jumping on the bandwagon.

The volume of construction work in Australia declined by 2.6% in the March quarter, yesterday’s data revealed – worse than the 1.5% decline forecast. Engineering construction fell 4.2% to be down 13.7% year on year, balanced by a rise in residential construction of 1.5%, up 5.7% year on year. The housing boom is not finding the support elsewhere to overcome rapidly declining resource sector investment. The Australian economy is struggling in its transition.

Not that anyone cared yesterday. And besides, Glenn’s got our backs.

The construction data feed into today’s more influential capex numbers. Could they take the wind out of the sails?

Same Again

On Tuesday night global markets were encouraged by easing Brexit fears. We recall that the tag “Brexit” had its origins in something we all used to worry sick about in previous years – a possible “Grexit”.

Last night eurozone finance ministers agreed to release E10.3bn of bail-out funds to the still-struggling member, despite Germany’s opposition, two days after the Greek parliament voted to enact a further round of spending cuts and tax increases. The ministers also agreed to offer Greece further relief in 2018 if required.

While not in the class of a Brexit in terms of possible global turmoil, staving off renewed Grexit fears is still a mild positive for the risk-on players. And we won’t have to all go on and on about it again.

Otherwise another day of rallying on Wall Street was simply a follow-on from Tuesday. And while volumes were a little better last night than the night before, they still weren’t the stuff of buyer conviction. Again traders declared the rally to be driven by little more than short-covering, and advised their clients to sell into to it.

Last night’s monthly trade data released in the US showed an increase in both exports and imports, further fuelling a sudden belief the US economy is actually doing pretty well. Positive data continue to feed into June rate hike expectations, and thus into strength in the US financial sector. Tonight all eyes will be on durable goods. Another gain for oil prices, almost to the 50 mark, also helped drive a second session of market gains.

On Monday night, Wall Street barely moved, uncertain as to what might transpire with the UK and with Fed policy. Since then, the Dow is up 358 points.

Commodities

West Texas crude is up US63c at US$49.74/bbl and Brent is up US77c at US$49.90/bbl.

Aside from playing off supply numbers, oil is looking at stronger US data as a positive sign. The trade-off is a stronger US dollar a Fed rate rise implies. Base metal markets should also see stronger data as a positive, but are more fearful of the greenback at present and unsure over demand-supply, given China is yet to show any real rebound.

The US dollar index has slipped 0.2% to 95.40 but aluminium, lead and nickel are down 0.5-1.5%. Copper is up a percent.

Iron ore fell US20c to US$50.00/t.

Stability in the greenback means gold has also stabilised at US$1224.00/oz.

The Aussie is 0.2% higher at US$0.7199.

Today

The SPI Overnight closed up 34 points or 0.6%.

If accurate, that would take the ASX200 over the 5400 mark. The question is as to whether we will see profit-takers come in at that level, or whether a breach will bring in fresh buying.

As noted, the US sees durable goods data tonight but before that, the local release of March quarter private capex and capex intentions numbers today will be very closely watched by the RBA.

Aristocrat Leisure ((ALL)) will post its earnings result today.

Rudi will make his weekly appearance on Sky Business, 12.30-2.30pm and tonight he shall entertain a small group of subscribers who signed up for the Sydney "An Evening With Rudi" event.
 

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article 3 months old

US Dollar: June Hike Expectations Continue To Rise

By Fawad Razaqzada, technical analyst, FOREX.com

The relentless rise in the [US] Dollar Index (DXY) has continued today. The dollar has been boosted mainly on renewed expectations of an earlier-than-expected rate hike in the US, possibly in June as the FOMC’s last meeting minutes suggest, or more likely in July, once the UK-EU referendum is out of the way. In addition, data from the US has generally been positive of late, though we have had outliers such as the manufacturing PMI yesterday which showed activity in the sector fell to its lowest level since 2009. Today, however, sales of new US homes in April came in much stronger than expected and this provided fresh impetus for the dollar to rise against most major currencies, though not against the British pound which was the star performer as the latest polls pointed to reduced probability of a Brexit. Nevertheless, the pound on its own was not enough to halt the rally on the Dollar Index. In addition to the US currency being strong, the euro, which has the highest weight on the Dollar Index at 57.6%, continued to fall amid soft Eurozone data and continued dovish talk and action from the ECB.

The combination of these macro factors has helped to underpin the Dollar Index above major resistance levels of late, including most recently, 95.10/20. This area was tested as support over the last three days and evidently the bulls have held their ground here which is why we have seen another rally to fresh multi-week highs today.

The DXY is now approaching the resistance trend of its bearish channel around 95.80, so what happens here could be significant in terms of the dollar’s next likely move. With price action displaying rather bullish characteristics recently, a breakout appears to be the more likely outcome than a rejection, though it may initially hesitate here before potentially pushing higher. The RSI momentum indicator has already broken through its own trend line, so the Dollar Index may now follow suit. If it does break out of the bearish channel then the next stop could be at the prior resistance level of 96.40, the 200-day moving average, currently at 96.63, or the 61.8% Fibonacci retracement level at 97.22.

The dollar bears meanwhile may wish to wait for their opportunity and confirmation before stepping back in. They should look for a daily reversal candlestick pattern, especially around the levels mentioned above. That, or a potential break back below the aforementioned broken resistance range at 95.10/20. If seen, we could see a quick unwinding of the long positions, leading to a sharp move south. For this to happen though, we will either need to see some very bad US data once again or renewed dovish talk from the Fed.



 
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article 3 months old

The Overnight Report: Oh Won’t You Stay

By Greg Peel

The Dow closed up 213 points or 1.2% while the S&P gained 1.4% to 20176 and the Nasdaq jumped 2.0%.

Reprieve

Had I been writing this Report yesterday evening I would have suggested the local market looked very vulnerable. Last Friday we saw a market looking very much like it wanted to go up, supported by recent developments in monetary policy. On Monday we plunged from the open but immediately the technical buyers stepped in.

But that rebound faded in the afternoon. Yesterday we saw another attempt to recover from early sogginess before a sharp fall towards the closing bell. That drop ensured a close under 5300, and that is technically weak. Markets that want to go up but can’t find support tend to swiftly become markets that go down.

Had the Dow been down two hundred points this morning it would have been Goodnight Irene. But the Dow is up two hundred points so the local market is in for a reprieve. The futures are up 75 points this morning.

Yesterday saw only healthcare and utilities hold up against a tide of weakness elsewhere. Energy saw the biggest fall of 1.3% on a lower oil price, but oil is strong this morning. Materials responded to a weaker iron ore price and that was weak again overnight, albeit the two big miners rallied in London.

The telcos finally caved with a 1.0% fall and it's surprising that hadn’t happened earlier, given Telstra’s outage woes.

All of the above will prove academic today.

More enduring is RBA governor Glenn Stevens’ suggestion in a Q&A yesterday that inflation in Australia is too low, and that RBA still wants to see it back above 2%. This implies another rate cut is on the cards, and as such the index did jump higher, briefly, at lunchtime yesterday, before selling again overwhelmed.

The Aussie also dutifully dropped on Stevens’ comments, despite the fact the market has already baked in another rate cut and that’s what had us down at 72 in the first place. Strength in the greenback overnight had the Aussie falling as low as 71.4 before it stabilised, down 0.6% over 24 hours at US$0.7184.

Risk On

There’s been a lot of concern of late about the upcoming Brexit vote, much Chicken Little commentary and speculation the Fed will remain on hold until after the referendum just in case the world goes to hell in a handcart. Polling, up to now, has favoured the “stay” vote, but inconclusively so.

The latest poll released last night has inspired confidence in there being no Brexit. It showed “stay” at 55% and “go” at 42% -- the widest margin to date. Importantly, the poll only recorded the intentions of those who definitely plan to vote, and for the first time the “stay” vote outweighed the “go” vote in the over-65 cohort.

The fear has been that the “goers” would be more likely to come out to vote than the “stayers”, and that there would be a greater nationalistic fervour among older Britons. Last night’s poll eased those fears.

And subsequently eased market fears, both in London and across the Channel. The FTSE jumped 1.4%, the German DAX 2.2% and the French CAC 2.5%.

That sense of relief then flowed across the Pond. But if that wasn’t enough, data released before the opening bell on Wall Street revealed US new home sales jumped 16.6% in April, the biggest monthly jump in 24 years.

(Keep an eye on those Aussie stocks with a finger in the US building materials pie today.)

For US home building stocks, it was off to the races. And for the rest of the market, the result was the same. But hang on…surely the strong home sales numbers give the Fed more reason to hike in June, and an easing of Brexit fears removes that particular barrier? Shouldn’t Wall Street crumble on rate hike fears?

Many believe this will likely still occur in the short term, were the Fed to hike next month. But in the wider scheme of things, such a solid new homes sales result suggests the US economy is actually at lot stronger than many had assumed – particularly those who up to now could see no economic reason why the Fed should feel the need to hike. And on a global scale, if there is to be no Brexit then that takes out a major concern that would otherwise have investors hiding on the sidelines.

Two sectors stood out last night – banks and tech. Rate hikes are good for banks. Tech represents the epitome of the “risk on” trade, being for the most part very speculative. But “tech” includes names like Apple, and when the biggest stock in the market rallies hard, there’s a big impact on the indices.

Yet it wasn’t really a “rally”, per se. The Dow shot up 200 points from the opening bell and stayed there all day. Volumes were not particularly heavy. It is thus most likely, commentators agreed, that last night was more about short-covering than anything else.

Commodities

It also didn’t hurt that West Texas is up US$1.00 or 2% after a couple of soggy sessions, to US$49.11/bbl, and Brent is up US76c at US$49.13/bbl – as good as parity. The strong home sales data feeds back to expectations of stronger oil demand.

Base metal prices could fare no better than mixed in London nevertheless. Copper and nickel are up around half a percent and aluminium, lead and zinc are down around half a percent.

Iron ore fell another US$2.50 to US$50.20/t.

The US dollar index is up 0.4% to 95.59 on rate hike expectations, thus gold is down US$21.30 at US$1226.90/oz.

Today

The SPI Overnight closed up 75 points or 1.4%.

Locally we’ll welcome the numbers for March quarter construction work done today, which feed into tomorrow’s capex data. Otherwise, it’s quite a busy day on the local stock front.

Programmed Maintenance ((PRG)) will release its earnings result. Investor days will be held by all of Boral ((BLD)), Suncorp ((SUN)) and WorleyParsons ((WOR)), while Perpetural ((PPT)) will provide an update on its investment division.

Adelaide Brighton ((ABC)) and G8 Education ((GEM)) are among a handful of companies hosting AGMs today.
 

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article 3 months old

The Overnight Report: Waiting Game

By Greg Peel

The Dow closed down 8 points while the S&P lost 0.2% to 2048 and the Nasdaq fell 0.1%.

Contrast

What a difference a weekend makes. On Friday local investors steadily pushed the ASX200 up 0.5% to the close in a mostly straight line, with all sectors faring relatively equally. The session smacked of index buying. Yesterday, in stark contrast, was a rock’n’roll affair.

The index opened slightly higher before promptly falling 54 points to late morning. It then rallied to be back in the positive by 2pm before falling away again to the close, down 32 points. For the most part, the sector moves up on Friday were all largely reversed.

The exceptions were telcos, which held their ground, and energy, which dropped 2.0%. Analysts are quite happy with Oil Search’s ((OSH)) complex bid for InterOil but investors sold the stock down 3%. Individual company issues which were absent on Friday were back in force yesterday. Beyond Oil Search, we had a profit warning from Flight Centre ((FLT)), the fourth most shorted stock on the market, which fell 9%, and a profit upgrade from BlueScope Steel ((BSL)), which jumped 7%.

On Friday the focus appeared to be on the potential for ever lower rates from the RBA, despite a reasonable economy, and the benefits that might bring. Yesterday investors appeared concerned about commodity prices once again, as oil fails to push through 50 and iron ore futures took a tumble yesterday afternoon. Spot iron ore fell 5% overnight.

With macro fundamentals a difficult beast to grasp at present, the market seems unsure just what it should be doing. The bounce off the low yesterday before a rally back to square occurred when the index hit the 5300 mark, suggesting technical buying. With Wall Street flat overnight and equally unsure of direction, we may well be stuck in a range now for a while, notwithstanding any left of field developments.

June Looms

Brexit risk is increasingly on everyone’s minds. At this stage the polls favour the “stay” vote winning on June 23 but not by any clear margin. Given the referendum is not compulsory, “stay” supporters are concerned it benefits those with a more nationalist bent who may make a point of voting while the status quo-types may not be so committed. Whatever the case, it is as yet too close to call.

The Fed releases its June policy statement one week earlier. Wall Street generally believes the FOMC would not be inclined to cause potential turmoil with a rate hike if a week later a whole new round of turmoil manifests. If a rate hike is otherwise on the cards, it may come down to what the polls are saying as we get closer to the event.

Either way, Wall Street has swung from not expecting a rate hike until at least December to suddenly having to contemplate a hike as early as next month, with potentially more to follow. Yet not a helluva lot has changed in the interim. Wall Street is confused, and cautious.

Janet Yellen will speak on Friday night. It’s a full week away, but already in last night’s session talk is of the market not wanting to do anything bold until Yellen has her say. Recent Fedspeak has been decidedly hawkish but Yellen has a track record of appearing far more dovish than her voting members, seemingly always being the one to pour cold water on rate hike expectations.

We note also that the June Fed meeting is a quarterly, meaning updated economic forecasts and a press conference with the Chair. Often it is the conference and accompanying Q&A that sends markets off in a new direction, rather than the policy statement itself.

Commodities

West Texas crude rolled over into the July delivery front month last night and in so doing, closed the gap on Brent to a negligible amount. WTI is down US30c at US$48.11/bbl and Brent is down US50c at US$48.37. Hard to believe that spread was once US$27, although prices were a lot higher then.

The US dollar index is again steady at 95.24 and thus having no impact on commodity prices. LME traders remain just as cautious as everyone else and devoid of direction. Last night aluminium rose 1% while lead and zinc fell 1% and nickel fell 2%.

Iron ore fell US$3.00 to US$52.70/t.

Gold is down US$3.70 at US$1248.20/oz.

The Aussie is also steady, at US$0.7224.

Today

The SPI Overnight closed down one point.

As central bankers continue to dominate the markets they were once upon a time silent witnesses to, Glenn Stevens will speak today and take a Q&A.

Technology One ((TNE)) will issue an earnings result.

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

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

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

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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.

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