Tag Archives: United States

article 3 months old

The Monday Report

By Greg Peel

Derivative Dive

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

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

Then the futures selling stopped.

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

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

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

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

Goodbye June?

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

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

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

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

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

Commodities

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

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

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

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

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

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

The Week Ahead

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

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

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

Beijing will release Chinese inflation data for April tomorrow.

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

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

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

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

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

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

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

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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

Tonight’s US jobs report should serve to help tighten up assumptions of whether the Fed will or will not hike in June, albeit there will be one more jobs report before that meeting. The market is forecasting 200,000 jobs. If that is accurate, we probably can’t draw any real conclusion.

US data releases are thin on the ground next week until Friday, when retail sales, inventories, the PPI and consumer sentiment numbers are due.

China will release inflation numbers on Tuesday.

The Bank of England will hold a policy meeting on Thursday but one assumes monetary policy must now be on hold ahead of the Brexit vote in June.

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

Locally, ANZ will release its jobs ads series next week and Westpac its consumer confidence survey. Housing finance numbers are also due.

Commonwealth Bank ((CBA)) will follow up this week’s bank results with a quarterly update while Orica ((ORI)), Incitec Pivot ((IPL)) and AusNet Services ((AST)) will report interim earnings over the week.

QBE Insurance ((QBE)) will hold an investor day and there will be a handful of AGMs held throughout the week, including AMP ((AMP)) and Oil Search ((OSH)).
 

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article 3 months old

The Overnight Report: Waiting For Jobs

By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2050 and the Nasdaq lost 0.2%.

Meandering

As the dust settled over the RBA rate cut, federal budget and BHP’s larger than expected fine, the local market seemed at a loss as to what to do next yesterday. We opened down over 20 points, rallied back to be up over 20 points, and then faded away at the close. One thing is clear nevertheless – we’re not following Wall Street around like a faithful pet.

Yesterday’s data releases were on the positive side.

Retail sales rose 0.4% in March when 0.3% was expected, to a 3.6% annual growth rate. That’s below the ten-year average rate of 4.5%, but that average will continue to recede and eventually step down once the pre-GFC years roll off. We just don’t spend like we used to.

Retail spending represents around 30% of household spending and 55% of GDP. But again we have to consider such metrics to be going out of date. Commonwealth Bank’s economists note Australians are now spending less on traditional retail items, of which some 80% is “goods”, and more on non-traditional items we can call “experiences”. The savings rate, at near 9%, is historically high.

New home sales rose 8.9% in March, having fallen 5.3% in February. While many an analyst is warning of a cooling housing market, that cooling process is not a linear one. The home sales growth trend is still waning, but March sales and building approvals data and April house prices all showed a pop.

Australia’s trade deficit was $2.1bn in March when $2.9bn was expected. We can put the “beat” down to the commodity price bounce and weaker currency. Exports rose 4.3% and imports rose 0.7%. The export revival story continues for tourism, which posted a record surplus.

But none of the above seemed to make much difference yesterday. The yield stocks and offshore earners which had jumped sharply on the rate cut eased back. The banks were positive thanks to no dividend cut from National Bank ((NAB)), energy rose and materials fell. On a 0.3% gain, consumer discretionary couldn’t get too excited about the retail sales numbers.

Caixin’s measure of China’s service sector PMI fell to 51.8 in April from 52.2 in March, largely consistent with Beijing’s earlier result.

The local market may not be so ambivalent today, it appears. Base metal prices were slapped overnight and iron ore has fallen back through the psychological 60 mark. The SPI Overnight is showing down 0.9%.

Looking to June

The Dow was up over 80 points early in last night’s session but drifted back and wandered around before a flat close.

There had been a spike in oil prices early on, as wildfires in Alberta forced the closure of Canadian oil sands production, but a later report suggested production had resumed and oil fell back again.

Data releases on the day were not promising. April chain store sales posted a big miss, and left analysts scratching their heads and wondering just what’s going on with the American consumer. But as I suggested above, developed economies such of those of Australia and the US need to start adjusting their thinking away from traditional metrics that have been set in concrete for so long.

Or in bricks & mortar. US chain store sales have surprised to the downside. Last week, Amazon’s March quarter earnings release showed a much stronger than expected sales number. Perhaps there’s a clue here.

Traders were happy to square up last night ahead of tonight’s non-farm payrolls report. It’s the first of two that will be released before the June Fed meeting, but this one is not shaping up so well. The market is still tipping 200,000, but Wednesday’s ADP report fell well short of expectation and last night’s weekly new jobless claims number showed a surprise jump.

A weak non-farm payrolls number may further kill off thoughts of a June rate hike. But as to how Wall Street reacts is never easy to predict these days.

Commodities

After rising and falling back on oil sands news, West Texas is up US46c at US$44.51/bbl and Brent is up US47c at US$45.19/bbl.

Selling in base metals has intensified. This has been put down mostly to the rebound in the US dollar and the fact it was speculators and commodity funds, not end-users, that pushed prices up recently and now they are all bailing. Last night LME inventory data mostly showed lower numbers yet nickel was trashed 5%, while all of aluminium, copper, lead and zinc fell around 1.5%.

Iron ore fell US$1.50 to US$59.50/t. The US$60/t mark is considered important psychological support, hence it is feared the breach might open the floodgates to the downside. Mind you, it’s exactly what analysts have been expecting, if that is the case.

The US dollar index is up 0.5% at 93.75. Gold is nevertheless steady at US$1277.60/oz while the Aussie, having already taken a bath this week, is steady at US$0.7465.

Today

The SPI Overnight closed down 47 points or 0.9%.

There will be close attention paid to the RBA’s quarterly Statement on Monetary Policy, due for release today. Of most interest will be just how far the board has wound back its inflation forecasts.

Australia’s construction PMI is out today, while over the weekend Beijing will release China’s April trade numbers.

In between is the US jobs report.

On the local stock front, Macquarie Group ((MQG)) reports full-year earnings today and REA Group ((REA)) issues quarterly numbers.

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

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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: Data Dependent

By Greg Peel

The Dow closed down 99 points or 0.6% while the S&P fell 0.6% to 2051 and the Nasdaq lost 0.8%.

The Lord Giveth…

Up a hundred points one day and down eighty the next – one would be forgiven for thinking the local market suddenly realised it got it wrong on Tuesday with regard the RBA rate cut, or that the federal budget was an absolute shocker. But neither is the case.

On the prospect of further mortgage repricing courtesy of the rate cut, the banks led the rally on Tuesday, backed up by every other sector that for one reason or another is a beneficiary of a lower rate and/or lower Aussie. The resources sectors stood by and watched. Yesterday the banks gave back 0.5%, but that’s hardly a shock after Tuesday’s gains. Otherwise there were only three sectors which sent the ASX200 spiralling yesterday.

Consumer staples were mildly more positive on Tuesday on the rate cut benefit, but overnight investors took a closer look at the individual plight of Woolworths ((WOW)) and the fact it has spent a lot of money trying to take on the competition, to no avail, so now it will spend more. Woolies’ 7% drop yesterday took staples back down 3.0%.

Meanwhile the energy sector plunged 5% and the materials sector 6%. Overnight oil and iron ore prices fell to provide such impetus, but such big moves are a reflection of just how hard these sectors ran last month. Then there was the announcement that BHP Billiton’s ((BHP)) Brazilian fine will be much bigger than the company had assumed. BHP fell 9%.

There were other sectors in the red yesterday but realistically if you’re in this market but not in resources, you’ve still booked Tuesday’s rally. If you’re not in banks, you’re still ahead. If you’re in the index ETF, you’ve got whiplash.

And the budget had a negligible impact on stocks yesterday.

In economic news, which no one paid attention to as they discussed their super and watched BHP fall out of bed yesterday, Australia’s service sector PMI rose to 49.7 in April from 49.5 in March – still in contraction but moving the right way.

Unproductive

When Donald Trump put his hand up as presidential nominee last year, the pundits gave him about as much chance of winning the nomination as Leicester City winning the EPL.

While there is much talk now of what a Trump presidency might mean for Wall Street, history shows stock markets are typically indifferent when it comes to new administrations. Trump is not what markets are used to in a presidential nominee, but for the meantime, life goes on.

Economic data were back in the frame on Wall Street last night. The US service sector PMI rose to a healthy 55.7 in April from 54.5 in March, but that’s where the good news ended.

The ADP private sector jobs number for April came in at 156,000, well short of a 200,000 forecast. In recent times, the ADP result has been a more accurate predictor of the non-farm payrolls number than it used to be. While a weaker jobs number would keep the Fed at bay, and thus Wall Street happy, there’s no denying the reality that a weak US economy is ultimately not a positive.

More worryingly, US productivity (GDP per man-hour) fell 1.0% in the March quarter from the previous March quarter, to mark the fourth quarterly decline in six. The annual rate is running at 0.6%, well down from the historic 2.2% average. What this implies is that while the growth in US jobs and fall in unemployment rate over the past few years looks very encouraging, it is not translating into the sort of economic growth one would hope for.

The possibility of a June Fed rate hike continues to fade.

The dollar rebound continued last night nevertheless, with the index up another 0.3% at 93.25. Oil prices were relatively steady, while iron ore fell another 2.4%. The US earnings season continues to roll on and after what was a reasonably positive start, later results suggest that heavily marked down expectations heading into the season were actually not that far off the mark.

After the flurry provided by the sharp rebound in oil, Wall Street is once again not far from slipping back into the negative for the year. But it seems there are plenty of buyers ready to jump back in at lower levels, if commentary is any guide.

Commodities

West Texas crude is up US17c at US$44.05 and Brent is down US25c at US$44.72/bbl.

Base metals mostly continued their pullback on the LME. The US dollar rebound remains a driver, as does weaker China data, but traders point to the fact the recent rally was mostly driven by speculators and commodity funds and not by end-users, so profit-taking is in play. Aluminium and zinc fell 0.5%, nickel 1% and copper 1.5%.

Iron ore fell US$1.50 to US$61.00/t.

Gold is down US$6.70 at US$1279.00/oz.

The Aussie is another 0.4% lower at US$0.7459 as forex traders bake in an assumed second rate cut from the RBA, probably in August.

Today

The SPI Overnight closed down 13 points or 0.3%.

Caixin will provide its take on China’s April service sector PMI today.

In Australia we’ll see March data for trade, retail sales and new home sales.

On the local stock front, it’s National Bank’s ((NAB)) turn to shock with a result today and BT Investment Management ((BTT)) will also report its interim. News Corp ((NWS)) will report quarterly earnings.

There are a handful of AGMs to be held today including that of Rio Tinto ((RIO)), albeit this is the local follow-up to the original AGM held in London.

Late breaking news: NAB’s result appears to have featured an earnings miss, albeit bad debts actually fell and the dividend remains intact.
 

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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: RBA Rattles Wall Street

By Greg Peel

The Dow closed down 140 points or 0.8% while the S&P lost 0.9% to 2063 and the Nasdaq fell 1.1%.

Shock!

The RBA delivered a “shock” rate cut yesterday afternoon, apparently, due to the latest CPI data signalling “deflation”. At least those were the mass market headlines.

Actually it was a 50-50 chance, and it is clear from Glenn Stevens’ statement the disinflation experienced in the March quarter concerned the board enough to make the move:

“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”

Media commentators may now like to go and look up the definition of deflation.

The statement again made a passing reference to a strong Aussie dollar potentially “complicating” Australia’s economic transition but “remarkably” accommodative monetary policy around the world was clearly a factor behind cutting. And “critical” to the decision was the impact felt in housing investment by tighter lending regulations, which provided the central bank with sufficient breathing space.

And didn’t the stock market love it.

Before the opening bell, ANZ Bank ((ANZ)) posted its first drop in profit since the GFC and cut its dividend. Computers sold down the stock 4% from the open. But very quickly the banks, including ANZ, were back in the green. We might put this down to (a) they were all sold off the day before, (b) ANZ’s dividend cut was not totally unexpected, (c) the market is positive on ANZ’s restructure and more prudent approach, and (d), short positions in the banks were the highest they’ve been since 2011 heading into this week.

By late morning the ASX200 was up 50 points, with buying in the banks a significant driver. The market then settled and waited. At 2.30pm, bang!

Zeroes one day, heroes the next. The ultimate 3% jump in the financials index yesterday was the major driver of the 2% rise for the index. The interesting point here is that in order to make money, banks need interest rates to go up, not down. But lower rates do take the pressure off the recent rise in bad debts which has impacted on bank earnings.

Other sector moves were more straight forward. The yielders, telcos and utilities, and consumer discretionary, which benefits from more money in punters’ pockets, each rose over 2%. The offshore earners, which benefit from a lower Aussie, drove healthcare and industrials up over 2%. The cut is a mild positive for consumer staples, which rose 1%, while the resources sectors watched from the sidelines. Energy was actually down 0.7% on a lower oil price.

And how about that Aussie? Over 24 hours it’s down a full 1.8 cents to US$0.7485 having experienced a two-step plunge. The first cent was on the rate cut, while the balance was a result of the US dollar having a much anticipated rebound last night.

But now that the euphoria has subsided, how will Bridge Street far today? The SPI Overnight is down 63 points. Oil is down, iron ore is down, base metals are down and Wall Street is down.

At least last night’s pre-election “safety” budget will have little impact.

Aussies in the mix

Nobody much noticed on Bridge Street yesterday but Caixin’s China manufacturing PMI for April showed a drop to 49.4 from 49.7 in March when 49.8 was forecast. Wall Street noticed, and China was on the list of concerns that sent the US indices lower last night.

Oil was lower, as reality continues to sink in with regard global production, while the US dollar index is up 0.5% to 93.00, stalling the currency story. These were three reasons cited for weakness on Wall Street last night.

The fourth was the RBA rate cut. It’s not that the world has recently decided the RBA has the power to move global mountains, it’s simply a matter of global sentiment.

Ever since the GFC, global stock markets have applauded every increase in central bank stimulus. But when the BoJ moved Japanese rates into the negative this year, there was a tangible shift in sentiment. Where is this currency war leading to? With the yen firmly stronger and the Nikkei weak, the BoJ is expected to have to move again. With the euro stubbornly strong, and the ECB just having reduced its inflation forecast, Mario Draghi is expected to have to continue with “whatever it takes”.

Now one of the world’s favoured carry trade destinations, the reliable, commodity-driven high yield economy of Australia, has been forced into joining the war. Clouds are gathering.

The US ten-year bond yield fell 7 basis points to 1.8% last night.

It all comes back to the Fed. But until the Fed can find any cause to hike again, there is no end in sight. The US economy grew by only 0.5% (year on year) in the March quarter.

Commodities

The US dollar index is up half a percent following a persistent drop. That’s enough in itself to send commodity prices south.

On the creeping reality of ever growing OPEC production, West Texas crude is down US$1.01 to US$43.88/bbl and Brent is down US$1.35 to US$46.75/bbl.

On the weak China manufacturing numbers, and bear in mind the LME was closed on Monday night, aluminium, copper, lead and zinc are all down over 2%. Nickel and tin were spared.

Iron ore is down US$2.70 to US$62.50/t.

Gold is down US$5.20 at US$1285.70/oz.

Today

The SPI Overnight closed down 63 points or 1.2%. Chartists have long been anticpating the 5350-5400 range as a target for the ASX200. Yesterday we hit 5353.

Australia’s service sector PMI is due today, and tonight sees the same in the US, along with the private sector jobs number for April.

Dexus Property ((DXS)) will issue a quarterly report today and several AGMs will be held, including those of QBE Insurance ((QBE)) and Santos ((STO)).

May the fourth be with you.
 

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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: Buy In May

By Greg Peel

The Dow closed up 117 points or 0.7% while the S&P rose 0.8% to 2081 and the Nasdaq gained 0.9%.

Westpacked

Westpac ((WBC)) reported its interim result before the opening bell yesterday morning and when the bell rang, the market proceeded to plunge 70 points without a blink. But it was all about the banks. When the market closed down only 9 points it was still all about the banks -- the only sector to finish in the red.

Westpac reported a miss on earnings due to an increase in bad debt provisions for some high-profile companies that have gone to or very close to the wall over past months, such as Arrium ((ARI)) and Slater & Gordon ((SGH)). Investors were relieved the dividend remains intact, albeit it’s the first time in a while Westpac has not raised its dividend (from the previous six month period).

Westpac is not, of course, alone in its exposure to high-profile names. Thus while Westpac shares closed down 3.5% yesterday, shares of the other three all closed down around 2%. Yet while Westpac’s earnings result missed analyst forecasts, the one unknown analysts were at pains to cite in their result previews was such corporate exposure, as well as more general exposure to loans in the mining states and also the NZ dairy industry. In other words, it was a “miss” but not entirely a surprise.

Which is possibly why the financials sector closed down 1.6% yesterday having been down around 3% at the 11am nadir. Meanwhile, Telstra’s ((TLS)) announcement it was going to spend millions to end constant outages in its mobile network was well received, as were its buyback plans, sending the telco sector up 2.8% and offering those selling banks another yield stock alternative to switch into. Materials rose 1.4% on another jump in the iron ore price but beyond that, all other sectors posted only modest gains.

Bank problems are not macro problems. ANZ Bank ((ANZ)) will report today (it has by now - see below) and National Bank ((NAB)) on Thursday. In these two cases, dividends will be critical.

Another bank will also take the spotlight later today. Will the RBA cut? Half the market says yes and half says no. Employment is strong, the terms of trade is looking a lot healthier, house prices continue to rise, as yesterday’s data confirmed, and business confidence has dipped but remains robust, as yesterday’s NAB survey revealed, but the Aussie remains elevated on the weaker greenback and inflation is going backwards.

I believe the question will come down to whether or not the RBA believes another 25 point cut will make any difference. Notwithstanding the fiscal side of the equation, which could all change tonight. Has the central bank been allowed a look at the budget ahead of today’s meeting? Not sure how that works. The budget is a week early. My tip is no cut, but I will not be shocked if I’m wrong.

Around the Grounds

Australia’s manufacturing PMI dropped to 53.4 in April from 58.1 in March. Japan’s hit a three-year low 48.2, down from 49.1, the eurozone ticked up to 51.7 from 51.6, and the US fell to 50.8 from 51.8, On Sunday Beijing’s China result was published as 50.1, down from 50.2, and the UK and Caixin China numbers are out tomorrow.

Buffeted

On a weak close to April trading on Friday night, Wall Street traders came in late to set themselves long ahead of the weekend. Typically traders square up ahead of a weekend, but this weekend saw the annual Berkshire Hathaway shareholders meeting. The Oracle has a history of rallying the troops, and sure enough those traders were right. All agreed last night’s hundred point rally in the Dow was all down to Warren Buffet.

Apart from the historical precedent, traders noted that the rally lacked any real investor conviction. Volumes were low, and pretty much have been for some time now in this rally no one’s all that convinced about. It is nevertheless worth noting that oil prices fell in the session, so we can say that the direct correlation no longer stands.

Unless oil prices fall back out of bed, which some are expecting.

After seven days of falls, the Nasdaq finally rose last night, and indeed outperformed the other indices. Again this was attributed to Buffet, who talked up Amazon and the FANG stocks while admitting he doesn’t understand the new-tech sector. That’s why his fund is in IBM and Amex and did rather poorly last year. Buffet still couldn’t help Apple last night nonetheless, which was down for an eighth straight session – its worst run in 18 years.

Commodities

Data suggest OPEC has now boosted its production levels since the failed meeting in Doha. Each monthly increase represents a new record. The suggestion is OPEC producers want to squeeze production as hard as they can to set the highest record they can before the regular June OPEC meeting, at which point they can then agree to freeze.

West Texas is down US$1.10 at US$44.89/bbl and Brent is down US$1.41 at US$45.96/bbl on the new July delivery contract.

There is also some fear in the market that oil’s April rally was very much supported by Chinese government stockpiling, as Beijing took advantage of low prices. There is only so much storage space, and at some point Chinese buying will stop.

Then there’s the issue of how much further the greenback can fall, and whether it’s due a bounce. The dollar index is down another 0.5% at 92.57 and greenback weakness has also been very supportive of commodity prices this past month.

Gold is the classic case in point, although it is relatively steady this morning at US$1290.90/oz having briefly traded up to 1300 overnight.

The LME was closed for the UK public holiday, so no base metal trading last night.

The holiday in Singapore also means iron ore is unchanged at US$65.20/t.

The drop in the greenback means the Aussie is up 0.8% at US$0.7664. The forex cowboys will be oiling their saddles prior to 2.30pm.

Today

The SPI Overnight closed up 12 points or 0.2%.

Late Breaking News: ANZ has just announced its first drop in profit in seven years and has cut its dividend by 7%.

On the local economic front, we have building approvals this morning, the RBA statement this afternoon and the federal budget tonight.

On the local stock front, beyond ANZ, Woolworth’s ((WOW)) will release quarterly sales numbers today, Goodman Group ((GMG)) will issue a quarterly report, Transurban ((TCL)) will host an investor day and omigod what a stupid name media ((OML)) will hold its AGM.

Rudi will skype-link with Sky Business to discuss broker calls around 11.15am today, then appear as guest on Thursday (12.30-2.30pm), re-appear on Switzer later that same Thursday (between 7-8pm) and then Skype-link again on Friday, probably around 11.05am.
 

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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

Tonight will see the release of the first estimate of eurozone March quarter GDP. The US will see personal income & spending data, including the Fed’s preferred PCE measure of inflation.

Last night’s weak US GDP number would suggest a June rate hike from the Fed is now less likely, although the decision by the Bank of Japan not to cut further has some suggesting the Fed’s door is now open in June.

On Sunday, Beijing will release China’s April manufacturing and services PMIs.

Australia, Japan, the eurozone and US will all release manufacturing PMIs on Monday. China and the UK will be closed for May Day on Monday, so the UK and Caixin China manufacturing PMIs are due on Tuesday. Services PMIs are due on Wednesday with the UK and Caixin again a day later.

Other data releases for the US next week include construction spending, vehicle and chain store sales, factory orders, trade and productivity. Wednesday sees the ADP private sector jobs report for April and Friday brings the all-important non-farm payrolls numbers.

Tickets are now hard to come by for the RBA’s monetary policy announcement on Tuesday. Some economists had already forecast a May rate cut on the strength of the Aussie but as commodity prices continued to rally, not all economists held fast. Then came this week’s CPI disinflation shock. About half the market is now tipping a cut on Tuesday.

Aside from PMIs, Australia will also see building approvals, retail sales and trade numbers next week.

On the local stock front, it’s bank earnings season. Results are due from all of Westpac ((WBC)), ANZ Bank ((ANZ)), National Bank ((NAB)) and Macquarie Group ((MQG)).

The quarterly updates and investor days continue to flow, with Telstra ((TLS)) among the highlights next week.  Woolworths ((WOW)) will report quarterly sales. The AGM season also starts to hot up from next week.
 

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article 3 months old

The Overnight Report: Sell-Off

By Greg Peel

The Dow closed down 210 points or 1.2% while the S&P fell 0.9% to 2075 and the Nasdaq dropped 1.2%.

Rock’n’Roll

It was a wild old session on the local bourse yesterday as a clear determination to buy was interrupted by the Bank of Japan’s determination not to do anything.

The trend in recent times has been for the BoJ to move on monetary policy when no one is expecting a move and to stay put when the world is convinced a move is afoot. The yen has been nothing but strong ever since the BoJ moved its cash rate into the negative in January so the expectation was that the central bank would have do something at its meeting yesterday – head further into the negative or at least pump QE purchases up further.

But the decision was to wait for longer to give negative rates more time to play out. On that note, the Nikkei index plunged 3.6% and the yen soared once more. Locally, the ASX200 was sitting at a peak of up 52 points at 1pm when the BoJ decision hit the wires, and six minutes later was only up 11 points.

But by 2.30pm the index was back up 47 points before closing up 37. The BoJ caused no more than a computer-driven blip, it would seem.

When the dust settled, the theme of the day appeared to be a continuation of Wednesday’s trade when the shock CPI result had the market assuming an RBA rate cut is nigh, maybe even as soon as next Tuesday. The sectors that led the rally were consumer discretionary (1.2%) and staples (1.8%), energy (1.8%), materials (2.8%) and industrials (0.8%).

The consumer sectors benefit from lower rates putting more money in punters’ pockets, the resource sectors have been enjoying the commodity price bounce but have found earnings tempered by the strong Aussie, and many an industrial earns its revenues offshore. No other sector much moved. We might have expected the banks to be sold given they are hampered by lower rates, but a 0.1% gain suggests no one wants to do anything too rash ahead of next week’s earnings results.

The Aussie fell 2% on Wednesday’s CPI result and was heading further south yesterday when the yen took off. The US dollar index is down 0.7% this morning and the Aussie is up 0.4% at US$0.7626 – still about a cent down from where it was pre-CPI.

Technical Trigger

The past few quiet but strong sessions on Wall Street have not had traders convinced, with many looking forward to a pullback to provide a more attractive entry point. The first key support level on the S&P500 before last night was 2087, followed by 2075. The US indices had wobbled around all session up to 2pm, balancing out the BoJ, some M&A announcements and earnings reports, including that of Facebook (up 7%). Then billionaire investor Carl Icahn told CNBC he had sold out of Apple.

Down went Apple shares, and so too the Dow. Icahn went on to imply that indeed he didn’t much like the US stock market at all right now. Down went everything. The S&P breached 2087 and a hole opened up.

The S&P stopped falling at 2075.

The session had begun on Wall Street with the release of the first estimate of US March quarter GDP growth, which came in at a paltry 0.5%, below 0.7% expectation. That makes three March quarters in a row the US economy has stalled. In 2014 and 2015 it was all about being snowed in for most of the quarter. While 2016 also featured one record-breaking “Snowzilla” event, weather was not really a factor this time.

Which makes expectations for this year’s June quarter interesting. In the past two years, everyone assumed, correctly, that the June quarter would see a rebound purely on the weather factor. There is no weather factor this time. Yet some analysts are suggesting that the BoJ’s decision not to cut further means the Fed has a clearer path to a June rate hike.

If there is to be a rebound this year, it will come down to the US dollar. The strong dollar hit multinational earnings hard in the March quarter but it has now fallen back substantially, much to the BoJ’s chagrin.

Commodities

West Texas crude is up another US55c to US$45.88/bbl and Brent is up US69c to US$47.89/bbl.

Between the BoJ and the GDP, the US dollar index is down 0.7% at 93.74. This is enough to support both oil prices and base metal prices, with aluminium, lead, nickel and zinc all up a percent or so, although copper stayed put.

Iron ore is down US$1.10 at US$60.00/t.

The US dollar drop provided a boost to gold, which is up US$20.60 at US$1266.40/oz.

Today

The SPI Overnight closed down 8 points.

I suggested yesterday the 52 point SPI Overnight move looked “ambitious”, but was proven wrong when the index peaked out up 57 points. This morning, one might think a 200 point drop in the Dow would elicit a bit more caution than an 8 point drop in the SPI. It would appear that the local index simply wants to go up.

Australia’s March quarter PPI numbers are out today, proving colour to the shock CPI result. We’ll also see monthly private sector credit.

The Nikkei will have a breather today given Japan is closed. The eurozone will release its first estimate of March quarter GDP tonight. The US will see personal income & spending data, including the Fed’s preferred PCE inflation measure.

Beijing will release China’s April PMIs on Sunday.

On the local stock front, today will see production reports from Origin Energy ((ORG)) and AWE ((AWE)) while Genworth Mortgage Insurance ((GMA)) will provide a quarterly update.
 

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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: Growth Has Slowed

By Greg Peel

The Dow closed up 51 points or 0.3% while the S&P rose 0.2% to 2095 as the Nasdaq fell 0.5%.

Disinflation

Cut in May and go away?

A 2% fall in the Aussie dollar over the past 24 hours to US$0.7596 would suggest the market believes the RBA has no choice but to cut next month following yesterday’s shock CPI data. The headline number fell 0.2% in the March quarter when economists had expected a 0.2% gain. The annual rate dropped to 1.3% when economists had expected it to hold steady at 1.7%.

It’s the first quarter of headline disinflation since December 2008.

The core CPI rose 0.2% when economists had forecast 0.5%. The annual core rate of 1.7%, down from 2.1% in December, is the lowest reading since 1997.

Economists are now split on whether the RBA will cut in May. The central bank has to balance a strong labour market, a solid housing market and a soaring rebound in commodity prices against disinflation and a too-high Aussie dollar. The board is carefully watching the jobs numbers for any sign of easing but there has been none to date. Analysts expect housing to soften in the second half and the commodity rebound to fade.

It appears to be a bit of a coin toss at this point.

The local stock market wasn’t taking any chances yesterday, if not backing a May cut at least expecting a cut to come sooner rather than later. The ASX200 initially rallied on the CPI release as for many sectors, a rate cut would be beneficial. But not for the banks of course. It was selling in the banks that turned a 61 point rally at the lunchtime peak into a 32 point loss at the close.

The 1.2% fall in the financials sector yesterday was the standout, both in percentage and in market cap clout. The industrials sector, in which many of Australia’s offshore earning companies lie, posted a small gain, as did consumer discretionary. Interestingly, the telcos were sold down 0.7% and utilities 0.1%, which seems opposite to what one might expect from a rate cut.

But realistically other sectors moves were fairly muted yesterday. For once the resource sectors did not take centre stage. It was all about the banks.

Tech Wreck

Facebook posted an earnings beat after the bell this morning and as I write, its shares are up 9%.

It is an against-the-trend result for this tech company when all of Microsoft, Google, Netflix, Apple and Twitter have posted weak results over the past couple of weeks. Twitter shares fell a solid 16% last night and Apple’s 6% fall took a good 40 points out of the Dow.

I mentioned yesterday that the US has two agencies monitoring weekly crude inventories and they can never seem to agree. On Tuesday night the API said a fall of a million barrels last week and last night the EIA said a rise of two million barrels. The market tends to go with the EIA, but the focus has now turned away from fluctuating weekly inventories toward the more important trend, being that of production reduction.

The EIA reported US production ticked down again last week to mark the seventh consecutive week of declines. That was enough to send the WTI price up 1.5%.

So last night Wall Street was selling tech and buying energy, which is evident in the split of movements among the major indices. The Dow was up 50 points, and could have been up 90 were it not for Apple, while the Nasdaq was down half a percent.

However all of the gain in the Dow and the S&P500 occurred subsequent to release of the Fed’s monetary policy statement at 2pm. Up until that point, the market had been poised at lower levels.

The critical sentence in last night’s statement was “growth has slowed”. Up to now the Fed has pointed to modest growth but in the meantime, economic data have not been too flash. Tonight sees the release of the first estimate of US March quarter GDP and that is expected to come in around 0.7%, down from 1.4% in December.

Those who were backing a June hate hike have now tempered their views. June is not out of the question, but the data would have to suddenly turn more positive in the interim. Many also suggest the Fed won’t hike just ahead of the Brexit vote, in fear of adding to potential market turmoil. But others find this foolish, as there are plenty of things going on all the time the Fed could use as an excuse for not changing policy, and rates would never move.

Either way, Wall Street suggested, by rallying toward the close, that June is now less likely, if it were ever likely in the first place. Attention now moves to the Bank of Japan’s policy meeting today, and the scary possibility of an even more negative Japanese cash rate.

Commodities

West Texas crude is up US67c at US$45.33/bbl and Brent is up US86c at US$47.20/bbl.

Base metal prices were a little weaker in London last night but the LME closed just as the Fed statement release is due, so tonight will tell the tale.

Iron ore is down another US$1.30 to US$62.80/t.

The US dollar index is down 0.1% at 94.40 and gold is relatively steady at US$1245.80/oz.

The Aussie, as noted, is now trading just under 76.

Today

The SPI Overnight closed up 52 points or 1.0%. Seems ambitious.

The RBNZ left its rate on hold this morning but hinted at a possible cut ahead. All eyes will be on the BoJ later today.

Tonight’s highlight will be the US GDP release.

On the local stock front, Cochlear ((COH)) and Computershare ((CPU)) will host investor days today while the quarterly production reports continue to roll in, with today featuring Independence Group ((IGO)). Mirvac Group ((MGR)) will provide a quarterly update.
 

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

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article 3 months old

The Overnight Report: Waiting Game

By Greg Peel

The Dow closed up 13 points or 0.1% while the S&P rose 0.2% to 2091 and the Nasdaq fell 0.2%.

Profit-taking

It looked like it was going to be a dull old day on the local bourse yesterday as the market nursed its Anzac Day hangover, but at midday someone came in and started selling, possibly out of Asia. The ASX200 pretty quickly dropped 25 points.

Half of that drop was scrounged back by the closing bell and on the sector wash-up, only two moved the dial. A dip in oil prices had the energy sector off 1.0% while the big drop in the iron ore price, following the big jump last week, saw materials down 2.1%.

The two big miners were down 3% yesterday which largely told the tale. It’s not every month you see a company like BHP Billiton ((BHP)) run up around 40% so to see a 3% drop is hardly surprising as that gain is locked in. There remains much talk among analysts of iron ore prices in the sixties being unsustainable and seasonally fleeting, so you wouldn’t want to caught if BHP heads south in a hurry once more.

The other sectors didn’t much trouble the scorer yesterday. Stock markets across the world are awaiting the two big central bank meetings this week, being the Fed tonight and the BoJ on Thursday, and not doing much ahead of those outcomes.

Bad Apple

Apple is struggling to sell iPhones in China, it would appear, which is why the share price of America’s biggest company is down 8% in the Wall Street aftermarket as I write. Aside from the central bank meetings, Wall Street was quiet last night ahead of this particular earnings release.

Twitter also disappointed by posting weaker guidance with its result after the bell and its shares are down 13%. So much for the new world, although EBay is at least up a percent, but EBay’s a bit old hat these days as well. AT&T (Dow) is trying to become a bit more new hat, and it posted a reasonable result.

It might be another bad session for the Nasdaq tonight, notwithstanding on the Fed. The Apple and Twitter results serve to emphasise the point a company’s actual earnings result is not the singular factor in determining success or otherwise. In the US earnings season to date it has yet again been the case of earnings results not being as bad as expected, but revenue has been the deciding factor in, for example, the Apple and Twitter results.

There will be a lot of focus on the US energy sector as we move towards the end of the week, with results due from major oil service provider and rig counter Baker Hughes, as well as oil heavyweights and Dow components Exxon and Chevron.

In US economic news last night, durable goods orders rose only 0.8% in March when 2.0% was expected. The Case-Shiller house price index showed prices continue to rise but at a slowing pace. And the Conference Board’s monthly measure of consumer confidence showed a bigger than expected fall to 94.2 for April from 96.2 in March.

I’d be losing confidence too watching the GOP three-ring circus.

Any economic news is nevertheless trumped – ahem – by the Fed meeting tonight.

Commodities

The American Petroleum Institute each week releases US crude inventory data on a Tuesday night before the Energy Information Agency does the same on Wednesday night. But the two numbers never match. Indeed, they are more than often not wildly different.

So we might take with a grain of salt the fact the API last night suggested a bigger than expected fall last week, thus sending West Texas up US$1.67 or 3.9% to US$44.66/bbl and Brent up US$1.56 or 3.5% to US$46.34/bbl.

Iron ore has fallen another US90c to US$64.10/t. That’s twice now the iron ore price has seen mindless surges only to retreat rather swiftly back to reality. No wonder Beijing is seeking to crack down on commodity speculation.

It was another mixed bag on the LME last night, as base metals continue to oscillate a lot but move little. Nickel and zinc both bounced back a percent while copper dropped half a percent.

The US dollar index is down 0.3% at 94.53 and thus gold is up US$5.40 at US$1243.30/oz.

The Aussie is up 0.4% at US$0.7745.

Today

The SPI Overnight closed up 20 points or 0.4%, likely because of the oil price. Those Apple and Twitter results could play havoc on Wall Street tonight, at least until 2pm when the Fed statement hits the wires.

With regard local monetary policy, today sees the release of Australia’s March quarter CPI numbers. One or two economists had been predicting a May rate cut from the RBA – the central bank often waits for quarterly inflation data before making a move – but those predictions have since been tempered following the big rebound in commodity prices.

The UK will release its March quarter GDP result tonight. As we approach June, global markets are becoming increasingly uneasy about the Brexit vote.

On the local stock front, today will bring March quarter numbers from ResMed ((RMD)) and Henderson Group ((HGG)) while high-flying APN Outdoor Group ((APO)) will hold its AGM.
 

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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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