Tag Archives: United States

article 3 months old

The Overnight Report: Oil Gets Real

By Greg Peel

The Dow closed up 53 points or 0.3% while the S&P gained 0.4% to 1929 and the Nasdaq rose 0.9%.

Four Horsemen

Typically when we see a one hundred point fall in the ASX200 on a session it is as the result of market-wide fear on a macro level and selling is widespread across the sectors. All the ducks line up, with maybe the defensive sectors not faring quite as badly.

Yesterday’s hundred point fall was very different – it only occurred in four of ten sectors. Six sectors saw negligible moves by comparison.

There was one macro influence – the PBoC again devalued the renminbi. But otherwise the drivers were sector-based at the global level or individual stock-based at the micro level. Wall Street provided a weak lead as the oil price fell back from its artificial expiry day rally and major US bank JP Morgan admitted it was having a dreadful March quarter. We therefore saw the local energy sector down 3.4%, albeit such moves are becoming rather commonplace, both down and up, and we saw the banks down 2.5%. The latter provided the bulk of the 2.1% index drop.

Otherwise, it appeared a lot of BHP Billiton ((BHP)) investors, no doubt including those offshore, took a day to think about whether owning a stock offering little growth and exposure to ongoing commodity price volatility, but now paying only three-quarters of its previous dividend, is worth owning. An 8% shellacking – the worst day for BHP since 2008 -- provided the answer. The materials sectors closed down 3.6%.

And finally, investors in Wesfarmers ((WES)) were hit with the stark reality that when you invest in Coles, you get coal. On the release of the company’s earnings result that stock fell 5%, and the consumer staples sector closed down 3.4%.

Info tech fell 1.8% but is tiny by market cap, and beyond that a 0.4% drop for healthcare was as bad as it got.

It’s another very big day for results season today.

Comeback

The Saudi oil minister’s admission that there’s no sense in seeking OPEC production cuts was still ringing in the ears of oil traders last night as they sent the WTI price down 4% from the open. The US stock markets dutifully followed suit, and in the first half hour the Dow was down 266 points.

But then the weekly US inventory data were released. The week’s crude inventory build proved to be only half of that previously assumed. Importantly, crude production fell over the week. To date crude production has been growing even as the rig count falls as desperate marginal producers try to squeeze out as much cash as possible in a vain hope to stave off the inevitable. And gasoline inventories fell, suggesting there may finally be some sign of demand growth thanks to lower prices.

It was enough to turn the oil price around and send it into the green by the close. Maybe oil futures traders, and Wall Street traders in general, will finally now realise that listening to OPEC and Russian rhetoric is a fool’s errand that is only serving to inflate volatility. If the oil price is ever to rise, the basis for that rise must begin in the US.

On that note, the first ever LNG cargo to leave mainland USA is about to set sail to Brazil. America’s fledgling LNG exporters also have Europe and Asia in the sights.

As oil turned, so did the US stock markets, all the way back to a 50 point gain for the Dow.

Somewhere in the background were a couple of disturbing US economic data releases. Sales of new homes plunged in January to their lowest level since October. A flash estimate of the February service sector PMI suggested a collapse into contraction territory for the first time since the US government shutdown of 2013. The US service sector far outweighs the manufacturing sector.

Of course, we are still in “bad news is good news” mode, so any weak data only serve to stave off the next Fed rate hike.

Commodities

West Texas crude is up US37c at US$32.18/bbl, while Brent is up US$1.21 at US$34.46/bbl.

Inventory data helped aluminium and zinc to 2% gains on the LME last night while the other metals trod water.

Iron ore fell US30c to US$50.20/t.

The US dollar index is steady at 97.48 but gold is up US$5.30 at US$1229.00/oz.

The Aussie is steady at US$0.7210.

Today

The SPI Overnight closed up 31 points or 0.6%.

On the back of yesterday’s weak local December quarter wage growth numbers, today sees all-important private sector capex.

Today’s earnings calendar includes high-flyers Blackmores ((BKL)) and Seek ((SEK)) along with Perpetual ((PPT)), Ramsay Health Care ((RHC)) and South32 ((S32)).

Rudi will appear on Switzer TV, tonight on Sky Business, between 7-8pm.
 

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

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

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article 3 months old

The Overnight Report: Déjà Vu

By Greg Peel

The Dow closed down 188 points or 1.1% while the S&P fell 1.3% to 1921 and the Nasdaq lost 1.55.

Reversal

It started well – the ASX200 was up over 30 points around 11am thanks to a positive lead from Wall Street and jumps in oil and iron ore prices. BHP Billiton ((BHP)) shares had closed up 6% in London. But then the wheels fell off, and we closed the session down 21 points.

Commodity prices may have jumped overnight but it happened to be the day BHP reported a $7.8bn first half loss and, contrary to assurances from the company’s CEO, abandoned its sacred progressive dividend policy for a 50% payout ratio. The move did not come as a shock, and as it was BHP still closed up 2.6% on the session, helping the materials sector to a counter-trend 0.9% gain.

The Qantas ((QAN)) CEO waxed lyrical about just how wonderful his team was in turning the airline around from steep losses to steep profits but the company kept all the money for itself. No dividend? Qantas shares nosedived 5%.

Aside from the earnings reports on the day which had some influence in stalling the market’s attempts to head north from 5000 once more, news that the PBoC had devalued the renminbi by the most in six weeks sent Asian markets scurrying from the open and turned the tide locally.

Adding to the turnaround were falling oil prices in the Asian session. The 200 point rally in the Dow overnight and the 6% rally for BHP in London had a lot to do with a supposed big jump in the oil price overnight. But it was expiry day for WTI, everyone was short, and an ensuing short-covering scramble on the rollover was quite simply the only reason for the pop. I made note of this yesterday and suggested we wait to see what happens overnight. Well, WTI’s down 5%.

Square the two sessions and oil’s gone nowhere. The stock market has been led around on a chain.

The turnaround saw the local energy sector close down 0.5%, albeit Oil Search ((OSH)) joined the LNG loss-makers club and was hit 3%. Telstra ((TLS)) copped another hammering as the gloss continues to rub off that leviathan and a 0.7% fall for the banks after a reasonable recovery cemented a weak session.

And speaking of banks…

Oil was up on Monday night and back again last night and US stock markets have followed suit. So nothing much has changed. Admittedly, oil’s overnight fall was helped by a comment from the Saudi oil minister who suggested “there’s no sense wasting our time seeking production cuts”.

Really? So perhaps from now on you might just shut the **** up and stop playing your juvenile little games.

Last night’s weakness on Wall Street also lent itself to that other subject du jour – global banking weakness. Standard Chartered was the latest of the EU banks to report substantial losses which, while simply an echo of peer results to date, served to again highlight the impact of weak oil prices and slowing emerging market economies, particularly that of China, on the European banking industry.

On the back of Standard Chartered’s result came JP Morgan’s trading update, at which CEO Jamie Dimon admitted the March quarter to date has been a shocker, fees are down 25%, trading profits are down 20%, and hundreds of millions in provisions have been taken against loans to the energy and commodity sectors. Were oil to trade around the US$25/bbl level for some time, up to US$1.5bn would need to be taken as provisions, Dimon revealed.

It’s a bit of an eye-opener but not completely a shock, and not enough to derail the US banking industry once more. JP Morgan (Dow) shares fell 4%.

The Conference Board’s monthly measure of US consumer confidence showed a fall to a seven-month low 92.2 from January’s 97.8 when 96.9 was expected. That’s not good news for an economy that’s 70% consumption driven.

The reality is the usual correlation between US consumer confidence and actual consumption has faded of late because no matter how confident consumers feel, they’re not spending. They’re buying cars and they’re buying houses (existing home sales were up 11% year on year in January) but that’s all about cheap finance. Still rattled from the GFC, US consumers are taking the windfall gain of lower petrol prices and pocketing it.

And that’s where a big part of the problem lies. Low oil prices would not lead the world into another recession if only the rest of the global economy would provide a spending offset.

Commodities

The new April delivery contract for West Texas crude is down US$1.58 or 4.7% at US$31.81/bbl. April Brent is down US$1.41 or 4.1% at US$33.25/bbl.

Iron ore is up another US20c to US$50.50/t.

While one can never quite be sure who is following who, base metals fell back again last night having rallied on Monday night, following the same oil-stock market path. Aluminium and zinc closed down 2%, nickel and lead down 1% and copper down 0.5%.

Mention weakness in banks and you’re likely to see a pop in gold. Gold is up US$14.80 at US$1223.70/oz.

The US dollar index is a tad higher at 97.47 and the Aussie is 0.2% lower at US$0.7214.

Today

The SPI Overnight closed down 31 points or 0.6%.

Locally we’ll see the first of the December quarter GDP component releases today, being construction work down and wage prices.

How Bridge Street finishes its session will likely again have a lot to do with earnings reports, and today is a biggie in terms of volume. Highlights include Asciano ((AIO)) and Qube Holdings ((QUB)), which are very much in the spotlight at the moment, Fortescue Metals ((FMG)), Wesfarmers ((WES)), Westfield ((WFD)) and WorleyParsons ((WOR)).

Note also that as the reporting season builds towards its crescendo, the ex-divs are beginning to come thick and fast, acting as a natural drag on the index. Today’s ex-div highlight is Rio Tinto ((RIO)).

Rudi will be hosting Your Money, Your Call Equities on Sky Business tonight, 8-9.30pm. Rumour has it, he's invited a special guest. I think most of us know what this means...
 

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: Cheering Defaults

By Greg Peel

The Dow closed up 228 points or 1.45 while the S&P gained 1.5% to 1945 and the Nasdaq rose 1.5%.

Result

And guess where we are now thanks to yesterday’s rally. Yep, right back at 5000. Again.

At the risk of stealing a colleague’s analogy, we have to concede that the 5000 level has become the ASX200’s Hotel California.

Yesterday’s rally was not inspired by Wall Street, unless Wall Street not meaningfully falling can be considered a positive. Oil prices were lower, but only marginally in the context. The iron ore price is rapidly gaining attention, having made a surprising comeback in recent weeks. While Chinese New Year is cited every year as a driver of iron ore volatility, this year we’ve seen the unusual situation of the iron ore price rallying both before and after the break.

The iron ore price is providing the materials sector with ongoing support following its bounce from oversold levels. It’s a big day for the sector today because BHP Billiton ((BHP)) will publish its earnings result. The iron ore price has jumped 7% overnight to over US$50/t. What will BHP’s dividend be?

Yesterday BHP’s two steel spin-offs delivered positive news – BlueScope ((BSL)) posted a surprisingly good result under the circumstances and Arrium ((ARI)) appears to have been saved from oblivion by private equity white knights.

But materials’ 1.9% rally was outstripped by a 2.2% gain for the diverse industrials sector yesterday. Here we can point to a strong result and 8% rally for Brambles ((BXB)), and even make mention of an 11% jump for one-time market dog UGL ((UGL)), the company formerly known as UGLy.

News late last week that Westpac ((WBC)) is in a better capital position than expected has provided some more comfort for the banks sector, which yesterday rose 0.9%.

Amidst all the commodity- and bank-related volatility of the past month, the local results season has to be considered a net positive one to date. There is a big chunk of companies yet to report in this final week, but as of last Friday, FNArena’s Reporting Season Monitor showed a beat to miss ratio of 2 to 1 with 150 stocks reported. Earlier in the month the number of resultant ratings upgrades from brokers was well outpacing downgrades, but last week brought that back into line, indeed, to 37-37.

For the most part, these up/downgrades have been related not to shocks but to value calls – oversold or overbought, at least by the brokers’ assessment.

Oils Well?

The WTI crude price jumped 7% last night which goes a long way to explaining why US stock markets resumed their rally. Oil is back above US$30/bbl and the S&P500 has recovered all the ground lost in the early February sell-off.

On Friday the US rig count was noted as having dropped by another 26 rigs to 413 to mark the ninth straight week of declines. But fewer rigs does not by default imply lower production. US crude inventories are sitting at over 500m barrels following another increase last week – another record level. Those rigs still standing are pumping as fast as they can to generate what cash they can in an attempt to survive.

But surviving, they are not. Up until last week, three US energy companies had defaulted on their debt. Last week alone saw three more. Across the globe, the number is 19. One is reminded of a line in the Big Short – “it’s happening”.

No one puts any faith in OPEC organising coordinated production curtailments but still OPEC keeps talking about it, including just this morning after the US energy markets had closed. So things are heading sufficiently in the right direction for traders to be more and more confident the oil price has seen a bottom, not that anyone would stake their life.

As for last night’s 7% jump in WTI, it was the expiry of the March delivery contract and that clearly brought about a short squeeze on the rollover into April. Let’s see what happens tonight.

Meanwhile, a flash estimate of US manufacturing PMI for February last night suggested a fall to 51.0 from 52.4 in January when economists had forecast 52.5. This didn’t seem to deter Wall Street, but then bad news is good news on the data front.

Commodities

West Texas crude is up US$2.00 or 6.7% to US31.84/bbl on the March expiry. Brent, already trading April, is up US$1.40 or 4.2% to US$34.66. The disparity confirms a short squeeze on expiry.

Iron ore has jumped US$3.30 or 7% to US$50.30/t.

Since Turnbull came to power, all talk has been of the enormous budget black hole that will be left by collapses in commodity prices. Suddenly, talk is of the spectacular windfall the government will enjoy on iron ore’s recovery.

Let’s not count our chickens.

Commodity funds were reported to be back in the base metal markets last night, either buying or short-covering. While lead still managed a 1% fall, aluminium and copper each rose more than 1% while zinc jumped 2% and nickel 2.5%.

It’s a commodity comeback! Buy the Aussie! Our currency is up 1.2% at US$0.7231 despite the US dollar index rising 0.7% to 97.37.

The US dollar has impacted on gold nevertheless, which is down US$18.50 at US$1208.90/oz.

Today

The SPI Overnight closed up 39 points or 0.8%, incidentally at 5000. While that might seem to make sense, there’s still a month of “carry” to go in the March contract, so the futures market is suggesting better things to come.

US data releases tonight include home sales, house prices and consumer confidence.

As noted, BHP is among the highlights of reporting companies today, as are Oil Search ((OSH)), Qantas ((QAN)) and QBE Insurance ((QBE)).
 

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

Friday

After another volatile week which saw the ASX200 rebound back towards to 5000 mark, Friday’s trade had a very “Friday” feel about it. We opened lower on a weaker Wall Street and oil prices, stalled over lunch, and then fell away further in the afternoon.

The sectors that led the late fall were those which had posted strong gains during the week – energy, materials, financials and consumer discretionary. In other words, it looked a lot like traders squaring up ahead of the weekend. Telstra continued to fall in the wake of a somewhat disappointing earnings report, while other sector moves were mixed up and down.

The Australian market has been largely following the global trend over the month to date but there have been some significant individual stock moves within that trend as well thanks to result season. We are now entering the final week of the month-long season but around half of the major stocks on the market choose the last week to report, so there is plenty of scope for some more alpha fun and games this week.

We will also see the first of the December quarter data releases this week that build us up to the GDP result next week.

Poised

Friday’s trade in New York was interesting in that the oil price fell 3% but the S&P500 closed flat, and ditto the January CPI showed its biggest jump since 2011 but the S&P500 closed flat.

It would appear the US markets are now coming to terms with the fact the oil price is weak and will remain so for the foreseeable future, and that any talk emanating from OPEC with regard production curtailments is just that – talk, being used as a tool to force a bounce back in oil prices just as they appear destined to drop to new lows.

Perhaps fearing their strategy will ultimately reach a “cry wolf” point of ineffectiveness, last week did see an actual figure being out on curtailments, but “only if everyone else does the same” and “we understand that Iran needs to catch up”, which basically means no curtailments.

Wall Street is braced for lower for longer oil prices and braced for the financial fallout that will follow as marginal US producers hit the wall. The big US banks are carrying minimal exposure to energy sector loans so there is no great panic on that front.

The US headline CPI for January came in at 0.0%, it was revealed on Friday night, when economists had expected a 0.1% decline. Low fuel prices and a bout of food deflation are keeping headline inflation in check. But the core (ex food & energy) CPI showed a 0.3% gain – the biggest move since August 2011. Headline CPI is up only 1.4% on an annual basis but core CPI is up 2.2%, which exceeds the Fed’s target rate.

So we’re back to talking March again for the next Fed rate hike. Or are we? Were that the case, we would have expected to see Wall Street sold off heavily on Friday night. But we didn’t. The Dow closed down 21 points or 0.1%, the S&P closed unmoved on 1917 and the Nasdaq rose 0.4%.

The bottom line is the Fed does not pay a lot of attention to inflation as measured by the consumer price index. The FOMC’s preferred measure of inflation is the personal consumption & expenditure (PCE) measure, the January result of which is due this Friday. The PCE has been running behind the CPI and has yet to return to the Fed’s target of 2%.

Meanwhile, the Nasdaq also went some way to balancing out the equation on Wall Street on Friday. The new world tech names and biotech names that clutter up the Nasdaq are the “momentum” stocks of the market, often trading on astronomical PEs or no PE given no E. They are bought up in a scramble when the mood is positive and then amongst the first to be jettisoned when the mood turns sour. As we were crashing earlier in the month, the Nasdaq was “outperforming” to the downside and on the rebound, has been outperforming to the upside.

Having crashed to oversold levels earlier in the month and now posted a rebound representing the fastest move up in years, Wall Street is poised, both technically and fundamentally. What will happen next? Well, there are a lot of US data releases this week and right through next week, when the February jobs number is due.

Commodities

West Texas crude fell US89c to US$29.84/bbl on Friday night and Brent fell US89c to US$33.26/bbl.

It was a positive night on the LME but traders are not reading too much into it, noting volumes remain low. Many Chinese participants create a two week annual holiday around the week-long New Year shutdown so this week is expected to see a return to more normal activity. Aluminium, nickel and zinc all rose 2% on Friday.

Iron ore rose another US50c on Friday to US$47.00/t. Through all the turmoil experienced in the local materials sector recently, an 8% rebound in iron ore has almost gone unnoticed. Probably because no one can quite figure out why.

Gold is very much in the headlines of the popular press at the moment, so be warned. If your cab driver tells you he’s just bought a gold bar, sell! Gold fell US$8.80 on Friday night to US$1236.20/oz.

The fall came despite weakness in the US dollar index, down 0.3% at 96.66.

We have subsequently seen significant weakness in the pound this morning following the weekend’s announcement the British will go to the polls in June to provide an opinion on whether the UK should exit the EU. An exit is not favoured in financial and commercial circles given the myriad trading agreements and relationships that have been established over the past 40 years.

The Aussie continues to consolidate and is sitting at US$0.7147 this morning, while being a percent up against the GBP.

The SPI Overnight closed down one point on Saturday morning.

The Week Ahead

The highlights of this week’s local data will be December quarter readings on wage prices and construction work on Wednesday and private sector capital expenditure on Thursday, ahead of Wednesday week’s GDP result.

The US will see the Chicago Fed national activity index tonight, the Richmond Fed index, the Conference Board’s monthly consumer confidence measure, existing home sales and Case-Shiller house prices tomorrow, and new home sales on Wednesday. Thursday it’s durable goods and FHFA house prices, and Friday brings personal income & spending (including the aforementioned PCE), Michigan Uni fortnightly consumer sentiment, trade numbers, and a second revision of December quarter GDP.

On the latter front, the market is expecting a revision down to 0.5% growth from the previous 0.7% estimate.

The US will also see flash estimates of February manufacturing and services PMIs tonight and Wednesday, and Japan and the eurozone will also provide flash estimates of manufacturing PMIs today.

As noted, the final and most crowded week of the local results season is upon us. Special mention can be made of the much anticipated BHP Billiton ((BHP)) result due tomorrow, but thereafter please refer to the FNArena calendar for listings.

No one will be paying much attention to BHP’s profit result, just its dividend policy.

Rudi will appear on Sky Business on Wednesday between 8-9.30pm to host Your Money, Your Call Equities and on Thursday between 7-8pm for the Switzer Report.
 

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

While the local market has been influenced by the macro backdrop during the month, reporting season has thrown up plenty of substantial micro moves. With around a third of companies covered by FNArena database brokers having reported to date, the beat/miss ratio (FNArena’s own assessment) is running at 2.4 to 1 and broker ratings upgrades have outnumbered downgrades by 1.6 to 1.

It’s one reason why we’ve pushed our way back towards the 5000 mark on the ASX200.

But next week sees the other two thirds of companies reporting. So realistically, it’s still early days. From an economic data standpoint, next week’s December quarter wage index and private sector capex numbers remind us that the quarter’s GDP result is nigh.

It’s a busy week for US data next week, just to add further to the tedious Fed debate. We’ll see new and existing home sales, house prices, consumer confidence, durable goods, personal income and spending and trade numbers and the Chicago Fed and Richmond Fed indices. There will also be flash estimates of February manufacturing and services PMIs and a revision of the December quarter GDP result.

Japan and the eurozone will also provide flash PMIs next week, while Japanese inflation will be in the spotlight by week’s end.

Highlights among next week’s reporting companies are far too numerous to list, so please refer to the FNArena calendar (link above).
 

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article 3 months old

The Overnight Report: Three Day Reprieve

By Greg Peel

The Dow closed up 257 points or 1.6% while the S&P gained 1.7% to 1926 and the Nasdaq jumped 2.2%.

Stock Picking

The ASX200 was all over the shop yesterday, reflecting on the one hand indecision from a macro level as to where to go to next and on the other hand, mixed sector moves based on individual earnings reports.

The index opened down 40 points, was up 16 after lunch and closed down 27. There was very little consistency among sectors, with the consumer sectors, banks and industrials registering minimal change. The big downside move was in energy, which fell 4% having rallied 4% the day before. I’m not sure what Tuesday’s buyers of Woodside Petroleum ((WPL)) were looking for, given a “beat” on profit and, importantly, on dividend, sparked a 7% thumping yesterday.

Materials was down 1.5% in sympathy while healthcare (-1.3%) was also weak despite a 20% pop for one of the most shorted stocks in the market, Primary Health Care ((PRY)).

It was not a session from which one could derive any sense of market direction. It was the biggest day to date in the earnings season in terms of number of reporting companies but today will be one of the biggest all up, before the final and most crowded week of the season.

Triple Crown

The weekend’s energy market news was a supposed agreement between Saudi Arabia, Qatar, Venezuela and Russia to limit monthly oil production to January levels as long as other major oil producers followed suit. I noted that this was a clear finger point at Iran.

Last night’s news was that Qatar and Venezuela got together with Iraq and Iran in the hope of extending the agreement and the great news is that Iran is in full support of the idea. That is, as long as it does not include Iran.

The other OPEC members expressed sympathy for a country trying to emerge from years of sanctions. As to where Iraq stands on the matter is unclear, but I would assume Iraq’s stance would be “We will if Iran will”. So if Iran won’t, then presumably none of Saudi Arabia, Qatar, Venezuela, Russia and Iraq will either, as the deal had a caveat of “as long as the others do too”.

West Texas crude jumped another 5% last night.

No doubt the oil market is still very short, as this sort of news is hardly concrete. Maybe the oil market believes that while such a road is a long and difficult one, moves are being made in the right direction with regard global supply curtailment. But until the US joins in, there will be no real impact. And the US will never join in.

Oil market volatility has been the predominant driver of general market volatility in 2016, and this has worried the Fed. The US economy is not showing the signs of growth the FOMC expected it to show back in December. On that basis, the majority of FOMC members are in favour of waiting for more data indications before making another move on rates, as was evident in the minutes of the January policy meeting, released last night.

This implies no rate rise in March and thus a more dovish stance from the Fed, unless of course US economic data suddenly turn very positive in the next month. While last night’s measure of January industrial production showed a 0.1% gain when a 0.2% decline was expected, one swallow does not a summer make. And housing starts were down a worse than expected 3.8%.

So Fed dovishness, and another short-covering jump in the oil price, sent Wall Street rallying strongly form the third day in a row. It is the first time in 2016 the S&P500 has put together three consecutive up-days, and the first time since 2011 those up-day gains were each in excess of 1%.

The S&P bottomed out at 1810 support, broke through 1880 resistance and ploughed on to 1925 resistance, where it currently sits. Technically, a move through 1950 suggests a sustained rally. But just how much of the rally to date in stocks is also short covering? A lot, it is assumed. There is not a great deal of confidence on Wall Street that this week’s action is anything more than a blip in what is still a fundamentally weak market.

Something is needed beyond OPEC fantasies and Fed caution.

Commodities

West Texas crude is up US$1.50 or 5.2% at US$30.59/bbl and Brent is up US$2.06 or 6.4% at US$34.33/bbl.

Base metal trading remains directionless. LME traders are also looking for a sign. Last night saw copper and nickel up 1%, tin up 2%, but lead down 2%.

The iron ore price has finally taken a dip, down US30c to US$45.80/t.

The US dollar index was steady last night at 96.82 but gold clawed back US$7.50 of this week’s losses to US$1210.60/oz.

It looks like someone piled into the Aussie overnight and sparked some short-covering there as well. It’s up 1.1% at US$0.7182.

Today

The Dow was up a couple of hundred points on Tuesday night and yesterday morning the SPI Overnight was up 6 points. The Dow was up a couple of hundred points last night and this morning the SPI Overnight is up 66 points, or 1.4%.

Australia’s January unemployment numbers are due today. Beijing will release Chinese inflation data.

A very big day in the local earnings season includes reports from AMP ((AMP)), Origin Energy ((ORG)) and Telstra ((TLS)).
 

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article 3 months old

The Overnight Report: Pull The Other One

By Greg Peel

The Dow closed up 222 points or 1.4% while the S&P gained 1.7% to 1895 and the Nasdaq jumped 2.3%.

Afternoon Delight

The local market appeared not particularly keen to go on with it from the open yesterday following Friday’s rally, with no lead from Wall Street possibly suggesting some caution. A stuttering morning session saw ups and downs before the ASX200 was down around 30 points at midday.

There began a very steady rally through the afternoon, culminating in what was an almost 20 point pop at 3.59pm to close us up 66. These last minute moves are becoming disturbingly frequent.

Sector-wise, the two big movers were again the resource sectors. Materials starred on Monday with energy riding shotgun but yesterday energy led the way with a 4.8% rally, followed by materials with 2.1%. These numbers look pretty big, but we must remember these sectors have fallen a long way this year and now only represent around 10% of market cap.

Which leaves the banks as the biggest market cap sector by a margin. They rallied 1.0% yesterday but had to account for CommBank going ex, while the other big market cap name – Telstra – stalled after two sessions of outage-related selling. Utilities, up only 0.2%, was the other sector not to really join in the fun yesterday afternoon.

Was the afternoon rally a result of the morning’s release of the minutes of the RBA’s February meeting?

Back in December the RBA considered the outlook to be sufficiently balanced to suggest the current cash rate is appropriate, while adding “that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand”.

February’s minutes concluded with an identical paragraph but for the addition of one new sentence:

“Over the period ahead, new information would enable the Board to assess whether the recent improvement in labour market conditions was continuing and whether recent financial market turbulence presaged weaker global and domestic demand”.

It sounds like the board is beginning to wonder whether last year’s strength in employment can be maintained in 2016 and, in line with major central banks around the world, is worried about the markets. Market turbulence is enough to keep the Fed on hold and to prompt the ECB into reiterating it will do “whatever it takes”, and now it appears the RBA is singing from the same song sheet. If needs be, the RBA will cut again. It’s as simple as that. And that is enough to encourage stock market strength.

But we won’t think about what might have to happen to prompt the RBA into action.

Crying Wolf

The global rally either side of the weekend came full circle last night when Wall Street re-opened for business and kicked on with what began with Thursday’s late market turnaround. That turnaround commenced off the S&P500 technical support level of 1810 and traders suggested resistance would kick in at the technical level of 1880. Last night the S&P went through that level and subsequently pushed higher still.

Most notably, the US stock indices rallied despite a fall in the oil price. The stock market-oil correlation has otherwise been running at 98% this year. Indeed, the US energy sector rallied despite a fall in the oil price.

We recall that it was oil’s turnaround on Thursday which prompted the turnaround in the US stock indices. The WTI price had just hit a new low when, blow me down, the UAE oil minister announced OPEC was ready to talk production cuts. WTI rallied 12% -- not because anyone believed the minister, but because no one wanted to be caught short over the long weekend.

Scepticism turned to surprise last night when there was, indeed, an announcement about an agreement on supply curtailment having been reached between OPEC members Saudi Arabia, Qatar and Venezuela and non-OPEC Russia. Oil opened higher as a result. But then began falling back rather swiftly.

Firstly, the four nations have not agreed to cut production, merely to freeze production levels at January rates. Saudi Arabia, for one, posted record production in January. And what’s more, they will only do so if other major oil producing nations do the same.

This caveat clearly points the finger squarely at Iran. Good luck with that.

So WTI is down 2% on the session but Wall Street is nonplussed. The OPEC-Russia fun and games have worn thin, leaving investors to concentrate on the reality of global oil production cuts ultimately being achieved through sustained lower oil prices and subsequent defaults and bankruptcies amongst marginal US producers.  

This expectation implies the oil price has a definable bottom, and judging by moves in global energy sectors these past couple of sessions (US energy up last night despite lower oil, Australian energy up 4.8% yesterday), many believe that bottom is in.

Commodities

West Texas crude is down US62c at US$29.09/bbl and Brent is down US$1.07 to US$32.27/bbl.

London base metal traders are relieved the Chinese didn’t return from holiday and slam prices, but there is no great sense of optimism on the LME. Oil price moves are also making their presence felt in base metal prices but last night it was a mixed bag, with aluminium and nickel up over a percent and lead and zinc down over a percent.

Iron ore continues to push higher, up another US50c to US$46.10/t.

Goldman Sachs must have been caught short gold because the bank has put out a note to suggest clients should short gold for this recent rally is but a blip. Gold is down US$5.70 at US$1203.10/oz. To be fair to Goldman, they’re not Robinson Crusoe.

The US dollar index is relatively steady at 96.86 but the Aussie is down 0.6% at US$0.7101 thanks to the RBA.

Today

Futures traders are clearly sceptical of the local market putting in a third big rally today. The SPI Overnight closed up a mere 6 points.

Just as the RBA minutes were scrutinised by the market yesterday, tonight’s Fed minutes will be poured over.

And what does happen in the local market today could well come down to what is the biggest day on the earnings calendar to date in terms of volume of reports. And there are bigger days yet to come.

Today’s highlights include Coca-Cola Amatil ((CCL)), Domino’s Pizza ((DMP)), Insurance Australia Group ((IAG)), Lend Lease ((LLC)) and the Healthcare duo Primary ((PRY)) and Sonic ((SHL)). The biggest headline will nevertheless be saved for Woodside Petroleum ((WPL)).
 

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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

Capitulation?

It was a very choppy session on the ASX on Friday, which is not typical of a Friday. The index plunged 60 points from the open but immediately found buyers, who pushed the ASX200 back to the 4800 mark which signals the supposed bear market threshold.

The rebound didn’t hold, and we were down again mid-morning, before another brave assault was mounted and 4800 was again hit at lunchtime.

But it wasn’t to be. The index closed almost back at its lows again in what appeared to be a level of capitulation ahead of the weekend.

The banks (-1.6%) were hardest hit, and the biggest influence on the index, reflecting general bank selling across the globe. There is genuine, if not misplaced, fear that the likes of a Deutsche Bank could go down and send ripples across the global banking world a la 2008.

Given Friday night’s action in the northern hemisphere, it will be interesting to see how the local banks fare today.

The consumer sectors were among the bigger losers on Friday, both down 1.3%, while a coin toss decided Friday was a day to sell, rather than buy utilities. Telcos found some support and energy, for once, played no part.

If there were speculative buyers in energy on Friday, they’ve done well.

Bank on it

It was mid-week when Deutsch Bank threw up the idea of buying back its bonds but it wasn’t till Friday night when the bank’s intentions were truly translated into a market response. There had been a brief interruption in what might have been an earlier bank rebound in Europe when French bank SocGen posted a shocker of a result.

But the European banks all surged back on Friday night to send the relevant stock indices surging as well. The London market is usually the less volatile of the big three but it closed up 3%, with Germany and France both notching 2.5% gains.

It is typical for such a mood to carry across the pond but just to fan the flames, news came through that JP Morgan CEO Jamie Dimon had bought US$25m worth of the bank’s shares with his own money. The Dow component jumped 12% on the session and the US banking sector as a whole enjoyed a spectacular rebound.

Square-Up

Markets are closed in the US tonight for the Presidents’ Day holiday, and typically Wall Street traders are not inclined to want to take vulnerable positions home over a three-day break. The weekend, and tonight, bring with it potential for any sort of market-moving development.

So there was some surprise when traders piled into the US banks on Friday night. There may have been an element of short-covering, but banks aren’t usually popular stocks to short. On the other hand, oil futures are a very popular short trade.

On Thursday night West Texas crude hit a new thirteen-year low and threatened to drop through US$26/bbl. Then lo and behold, an OPEC oil minister chimes in with fresh talk of possible production cuts. It was also at that point, would you believe it, the S&P500 was threatening to breach important technical support at 1810.

Wall Street turned on a dime. Interestingly, the oil price stopped falling but didn’t post much of a rebound, unlike the US stock markets. But while every trader and his dog laughed off the UAE minister’s timing as being more than coincidental, no one wanted to carry heavy oil shorts through the long weekend. Just in case.

So on Friday night, WTI jumped 12%. Traders suggest the bulk of the rally can be put down to short-covering, but there were also some genuine bottom-pickers in there too. The oil price eased back a bit in electronic trade after Wall Street had closed but the move over the session, combined with the rebound in the banks, was enough to send the market as a whole on a flyer.

Wall Street broke a five-day losing streak in style as the Dow bounced 313 points or 2.0%, the S&P jumped 2.0% to 1864 and the Nasdaq rallied 1.7%.

The US ten-year bond yield, which had fallen like a stone all week to be as low as 1.53% at one point, jumped 10 basis points to 1.75%

The US dollar index rebounded 0.5% in the session to 95.96, sparking some profit-taking in high-flying gold. It fell US$9.80 to US$1238.50/oz.

Friday night basically saw a sharp reversal of everything that was going on all week. The question is: How much of that reversal can simply be put down to the fact the US is closed tonight?

Strong endorsements from the Deutsche Bank board and from the JP Morgan CEO corroborate a widespread call that bank selling across the globe has been overdone. No one, on the other hand, is willing to believe the veracity of any OPEC supply reduction talk. But there’s also the technical aspect. A bounce off 1810 for the S&P500 suggests a double-bottom has been established, and that can be a bullish sign.

Commodities

The late easing back in Friday night’s oil price rally meant that in the 24 hours from Friday morning to Saturday morning, West Texas crude gained US$2.16 or 8% to US$28.99/bbl and Brent gained US$2.08 or 7% to US$32.76/bbl.

Base metals had had a tough week but joined in the reversal trade to some extent on Friday night, ahead of the return of China today. Beaten-down nickel managed a 2% rebound while aluminium and copper both rose 1%, with tin and zinc missing out.

The Chinese were buying up iron ore ahead of the New Year break and it would appear the market is worried this will be followed up by selling as Chinese traders return today. Iron ore fell US$1.30 to US$43.20/t.

Gold has been noted above.

Despite wild fluctuations all week in the US dollar index, the Aussie has completely stalled. It is again steady at US$0.7103, reflecting a balance of cross-currency translations and a trade-off between the China connection and solid carry trade yields on offer.

The SPI Overnight closed up 87 points or 1.9%.

The Week Ahead

All eyes will be firmly fixed on the Shanghai stock market when it opens today around lunchtime local time. While the dragons have danced and the fireworks exploded, global markets have tanked.

To add fuel to the fire, Beijing will release China’s January trade numbers today.

Japan will release its December quarter GDP result today.

The US is closed tonight but the week follows up with housing sentiment and the Empire State index tomorrow, housing starts, industrial production and the PPI on Wednesday, leading economic indicators and the Philadelphia Fed index on Thursday, and the CPI on Friday.

Wednesday will also see the release of the minutes of the January Fed meeting.

The minutes of the February RBA meeting will be out tomorrow. Other than vehicle sales today, the only other economic highlight this week will be the jobs numbers on Thursday.

In the meantime, the local corporate reporting season shifts into top gear this week, and the next two weeks will see an avalanche of reports. Today’s highlights include Amcor ((AMC)), Aurizon ((AZJ)), Bendigo & Adelaide Bank ((BEN)) and Newcrest Mining ((NCM)).

There will be no appearances on Sky Business by Rudi this week.
 

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

China will be back in business next week, which may prove interesting for metals prices. The iron ore market all but shuts down in China’s absence but base metal markets suffer extreme volatility due to thin volumes, as has proven the case again this week.

Beijing will immediately hit the market with January trade numbers on Monday, followed by inflation numbers on Thursday.

The eurozone will report December quarter GDP tonight as will Japan on Monday.

It’s a long weekend for the US due to the Presidents’ Day holiday on Monday and all markets will be closed. This would suggest some squaring up on Wall Street ahead of the break but in the current volatile environment, anything can happen.

US data releases next week include housing sentiment and starts, industrial production, inflation and the Empire State and Philly Fed activity indices. The minutes of the January Fed meeting are due on Wednesday.

The minutes of the February RBA meeting are due on Tuesday, ahead of Australia’s employment numbers on Thursday.

Next week sees the local reporting season shift into top gear as the week progresses. The volume of reports means there are just too many from which to select highlights, so please refer to the FNArena calendar (link above).

Please note also the calendar is compiled on a best endeavours basis. Australian companies are under no regulatory obligation to publish reporting dates and three different brokers often provide three different date assumptions for the same company. Other companies simply report when they’re ready, leading to apparent calendar omissions.
 

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article 3 months old

The Overnight Report: Oil Talk And No Action

By Greg Peel

The Dow closed down 254 points or 1.6% while the S&P lost 1.2% to 1829 and the Nasdaq fell 0.4%.

Alpha Bravo

It was a stuttering start for the ASX200 yesterday morning. An early attempt to push back over the 4800 level and thus, in theory, escape from bear market territory failed. By midday the index was sitting on the flatline wondering what to do next. But if the macro story was uncertain, there were several micro stories to consider.

And thus by the close, we were up 45 points and back above 4800. Credit goes to positive individual earnings results from the likes of Goodman Group ((GMG)), Mirvac Group ((MGR)) and Suncorp ((SUN)), and in particular Cochlear ((COH)). Cochlear shares jumped 14% to take the stock into the hundred dollar a share club.

The high-flying healthcare sector has copped a lot of selling this week as investors cash in their winners in order to compensate for their losers. But yesterday healthcare was the standout sector with a 2.7% gain, backed up telcos (+2.1%) following a good day for Telstra and some bargain hunting among the banks  and consumer sectors, each up a percent and change.

It was a day in which “alpha” took precedence over “beta” – the former referring to stock-specific or micro risk and share price movement and the latter referring to the the market as a whole, or macro risk and index price movement.

The question now, as we eye off another weak lead-in from Wall Street and Europe, is whether such a positive theme can continue. Realistically the local earnings season has only just begun. Unfortunately from today’s perspective, we had a result from Rio Tinto ((RIO)) aftermarket which has seen those shares down 3% in London, and thereafter today’s reporting calendar is very thin.

CoCo Dependency

SocGen was the latest European bank to report earnings last night, and it wasn’t pretty. SocGen shares fell 12% in France and took all the big European banking names down yet again, ensuring falls of 2% for the UK stock market, 3% for Germany and 4% for France.

Nor did it help that the Swedish central bank elected to take its bank deposit rate further into the negative. Many European central banks, including the ECB, now have negative rates. This is the rate normally paid to banks by the central bank for parking excess capital reserves. Negative rates mean banks have to now pay for the privilege, which is a move intended to force them to go out and lend into the economy.

The economy is not a warm and cosy place at the moment, and if banks do elect to continue to park funds, they will now incur a cost. Meanwhile, there is also concern over CoCos.

Contingent convertibles are hybrid debt instruments that arose post GFC and became particularly popular in Europe. A typical convertible bond converts into equity when the stock price rises to a trigger level. CoCos work the other way, forcing bond holders into equity on some systemic trigger. The idea is to prevent bank defaults by ensuring an injection of capital when needed, also known as a “bail in”.

With many a European bank share price down 20-30% in 2016 on elevated fear, who would like to be converted?

The Oil Game

US banks were hit again from the open last night on a flow-on from Europe. It seems it doesn’t matter how many commentators come out and scream that European bank capital is still leveraged up to 25 times in the post-GFC era when US banks have brought theirs down from as high as 40 to around 10 times, thus ensuring a substantial capital buffer.

It doesn’t seem to matter how many times the “oversold!” call is made.

But on Wall Street it’s not just about the banks, which are down some 18% for the year, it’s about oil, although the energy sector is only down 12%.

At one point last night, West Texas crude was threatening to drop through US$26/bbl, the US ten-year bond rate was down 17 basis points at 1.53%, gold was up US$66 and the Dow was down 400 points. The S&P500 hit 1810, below a major technical support level of 1812. Then an announcement hit the wires.

The UAE oil minister announced he was ready to talk coordinated production cuts.

Yeah, we’ve heard it all before. Every time oil drops to a new low there are vague suggestions from OPEC and or Russia that they are prepared to talk about reducing supply. Then the oil price bounces, and nothing actually happens. The reason the world took notice last night is because up till now, the UAE has been dead against production cuts. So on that basis, oil rebounded.

But not by much. West Texas is still down 3% on the session. The real bounce came in the US stock markets, where the Dow halved its losses in the space of fifteen minutes as traders piled into the Exxons and Chevrons. The S&P shot back up from its support level and the Nasdaq briefly snuck into the green.

The reason the Dow still closed down 250 points, aside from a bad night for Boeing, is that the rebound did not extend to the banks.

And on the subject of possible OPEC production cuts, all agree that nothing will ever be achieved without Saudi Arabia, who has not yet said anything and in fact upped production in January.

Commodities

West Test Texas crude is down US90c at US$26.83/bbl. Brent is down US54c at US$30.68/bbl.

Gold pulled back but is still up US$54.90 at US$1248.30/oz. The US dollar index is down 0.5% at 95.49 and the US ten-year yield has rallied back to be down only 6 basis points at 1.64%.

Yesterday I noted nickel’s fall to under US$8000/t for the first time since 2003. Last night, still in the absence of China, technical and distressed sellers drove nickel down another 4% on the LME. Other metals were mixed, with copper down 0.5% but lead up 2%.

Iron ore is unchanged at US$44.50/t.

The Aussie is relatively steady at US$0.7094.

Today

The SPI Overnight closed down 36 points or 0.8%.

Aside from the aftermarket result from Rio Tinto, there are no big name stocks reporting today to provide another potential alpha offset.

The RBA governor will provide a regular testimony to parliament today. Local housing finance numbers will be released.

The eurozone will provide its first read on December quarter GDP tonight, and the US will see retail sales and consumer sentiment numbers.
 

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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