Tag Archives: United States

The Overnight Report: We Have Lift Off

By Greg Peel

The Dow closed up 224 points or 1.3% while the S&P gained 1.5% to 2073 and the Nasdaq rose 1.5%.

Must Be Christmas

Well, someone obviously waved a flag yesterday morning and declared it time to buy. These sudden snap-back rallies have become rather regular of late, following periods of snowballing anxiety which in 2015 for the most part have centred around commodity prices. We had a bounce in oil on Tuesday night, and iron ore at least didn’t fall further. Wall Street was positive ahead of last night’s Fed decision.

So first we saw the bottom pickers come in, then the short coverers, and the momentum traders. There are some big short positions being carried by the market at present across a range of sectors, but otherwise it was simply the beaten-down names amongst the large caps that were again the centre of attention in yesterday’s rally.

I noted yesterday that Macquarie had capitulated and dropped its commodity price forecasts earlier in the week, slashing target prices for resource sector stocks and flipping many a recommendation to an equivalent Sell from Buy. Well hot on the heels have come Deutsche Bank and Credit Suisse, conducting similar exercises with similar results. The materials sector nevertheless jumped 3.2% yesterday, but it was all about the BHPs and Rios and not the suite of junior miners in tenuous financial positions.

It should also be noted that brokers tend only to revisit their commodity price forecasts quarterly, thus this week’s mining stock target price cuts to a large extent represent a catch-up with the market. This also means that among the many recommendation downgrades there were also upgrades for stocks brokers felt had been oversold in the crowd.

A 3.4% jump for the energy sector yesterday was understandable after two sessions of oil price rallies, representing a 10% rebound from low to high. Alas, last night oil fell 4%.

The other stand-out mover among the sectors yesterday was consumer staples (3.4%), but there are some very big short positions out there on Woolworths. There are even bigger short positions on Primary Health Care but as that stock continued to cop the brunt of the MYEFO fallout yesterday, shorters saw no great incentive to take profits. The result was an against-the-trend 0.2% fall for the healthcare sector.

It was potentially a risky trade yesterday to be so bullish ahead of a Fed meeting, but given the world was so convinced the Fed would raise, while remaining dovish in its commentary, the potentially greater risk was to wait for the fact and miss out. The market backed a “have your cake and eat it too” result from the Fed, with the “cake” being the end of interminable uncertainty a rate rise would bring and the “eat it too” being the promise of still-easy policy for some time to come.

And So It Was

It was arguably the most anticipated Fed meeting in history. The last time the Fed raised its funds rate was in June 2006. The excitement ahead of the 2pm announcement was palpable. The response when the statement hit the wire was of almost complete silence.

There were no headless chooks this time. No frantic to-ing and fro-ing as the computer algos battled in out at humanly imperceptible speeds. The Fed funds rate has been raised to a range of 25-50 basis points from the 0-25 range that has prevailed for six years. The key word in the FOMC statement with regard ongoing rate rises was “gradual”.

This is exactly what everyone was expecting, so nobody batted an eyelid. Initially, stock and bond markets did not move. Only when Janet Yellen commenced here press conference, and when everyone had actually had a chance to read the full statement, did the buyers come into the stock market. I’m not sure, but as I watched the action on tele I think I might have seen a big guy in a red suit in the background on the NYSE.

I was definitely a “cake and eat it too” result. The only mild surprise is that the statement outlined a whole range of factors which informed the FOMC’s decision beyond the supposed twin mandates of employment and inflation. These included issues in offshore markets.

Many a commentator has criticised the official US unemployment rate of 5% as being fanciful, given it excludes so many willing workers out of a job. Janet Yellen addressed this issue in noting wider measures of actual unemployment had also been trending lower. In terms of headline inflation being zero when the Fed would like to see 2%, the Fed chair yet again suggested low oil prices – the reason why current US inflation is zero -- were “transitory”.

This prompted an interesting question from the floor in the Q&A session, pointing out that the Fed had called oil price weakness “transitory” back when oil was US$60/bbl. With oil now at US$35/bbl, the obvious question was “How long does ‘transitory’ last?” Yellen was unrelenting, suggesting that oil prices would eventually stabilise. But in headline terms, the Fed does not see inflation actually reaching 2% before 2018.

Thus the assumption of a very “gradual” pace of tightening from here. The Fed will nevertheless remain data-dependent, Yellen pointed out.

As Yellen spoke, the US stock indices moved higher in a relatively orderly fashion. There was an initial “sell the fact” move in the US dollar, but as I write the dollar index is 0.2% higher at 98.45. The US bond market was pretty well set for a rate rise, thus the ten-year yield is only up 2 basis points at 2.29%.

Thank God that’s over. It’s a nice way to cap off a year of frustrating uncertainty and allow for a relaxed Christmas break. Of course, in 2016 we’ll be back to the sport of pre-guessing the Fed once more in terms of exactly when the next rate rise will be. But now that the wheels are in motion, hopefully the lesser significance of the next hike will not lead to the extreme levels of anxiety we’ve seen in recent years over will they/won’t they raise, will they/won’t they taper, will they won’t they go again with more QE.

It would be nice to think that eventually, the Fed ceases to be the primary driver of financial market sentiment.

Commodities

Wednesdays bring a Fed statement every six weeks but every week Wednesdays bring the weekly US crude inventory numbers. Surprise, surprise, last week’s inventory increase was bigger than expected. So much for a bottom being evident following the oil price rally of the last two days. Last night West Texas fell US$1.62 or 4.4% to US$35.65/bbl and Brent fell US$1.16 or 3% to US$37.19/bbl.

It was all about inventories and nothing to do with the Fed. Prices fell well before the Fed statement release.

Lost in the wash of Fed anticipation last night were actual US data releases, which saw better than expected results for both housing starts an industrial production. These numbers were what LME traders had to hang on to last night given the shutters came down just before the Fed statement release.

All base metals traded higher, bar lead, with nickel the winner on a near 3% gain. Copper was up 0.7%. Lead fell 2% on announced record-high inventories.

Oil might have been down again but if you’re trying to balance a national budget, the good news is iron ore is up US70c to US$38.20/t.

Gold is also up, by US$10.50 to US$1072.10/oz, which seems counterintuitive, but is likely a “buy the fact” response.

It looks a bit like “buy the fact” in the Aussie too, given the market has been short for so long on an expected Fed rate rise. It’s up 0.5% at US$0.7222.

Today

Looks like we could be going on with it. The SPI Overnight closed up 54 points or 1.1%.

But a warning. Today is the expiry day for December quarter futures and options and only this quarter does the ASX set what is usually two rounds of expiries together, accounting for all of futures, futures options, index options and stock options simultaneouly. In other words, “quadruple witching”.

We could well see some volatility.

Otherwise, today is the first day of the rest of our lives. Enjoy.

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

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

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

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

The Overnight Report: Ahead Of The Fed

By Greg Peel

The Dow closed up 156 points or 0.9% while the S&P rose 1.1% to 2043 and the Nasdaq added 0.9%.

My Goodness

MYEFO dominated market sentiment late yesterday on Bridge Street. We could say that Scott and Arnie managed to turn a 41 point rally for the ASX200 into a 19 point fall but this is not quite the case.

In general terms, the budget update was a gloomy one, no matter what spin the pollies tried to put on it. Bigger deficits for a longer period is the headline, but hardly a surprise given commodity price falls and hardly the end of the world when global interest rates are at historic lows. Many of the spending cuts used in the numbers have already been rejected by the Senate, suggesting the government is simply preparing us for an election sooner rather than later.

Specific hits were taken yesterday by healthcare stocks Primary and Sonic on announced pathology subsidy cuts, while the various aged care stocks traded up and down moves on anticipated cuts in that sector. All up MYEFO managed to turn what was a flat market late in the session into a weak close.

It was earlier in the day that the market dismissed the opening 40 point rally. The index shot up from the bell led by the resources sectors, thanks to overnight rallies for both oil and iron ore. But by the end of the day it was these two sectors that registered the biggest falls. Energy closed down 0.6% and materials 1.0%.

There may well have been some influence from Macquarie’s resource sector capitulation. The broker has long been warning that its metal price forecasts were well above spot, and were spot prices substituted in the equation, big valuation cuts would follow. Macquarie was hoping spot prices would rise to meet its forecasts but the opposite has proven true, and thus the broker has slashed target prices and downgraded the ratings of no less than eleven miners within its coverage, many to an equivalent Sell from Buy.

We also had the RBA minutes out yesterday but they proved to be of the broken record variety and had little influence on the stock market. While many an economist is still predicting one to two rate cuts next year, the RBA is certainly showing no signs of planning such a move.

The Aussie dollar is down 0.7% over 24 hours at US$0.7190, but that move occurred overnight on a rally in the US dollar.

Here we go

US data releases last night included the November CPI, which surprised no one by coming in flat for the month on the influence of falling oil prices. The December result is shaping up to be weak as well given not only crude oil but natgas prices have tumbled, driven down by unseasonably warm El Nino weather in the US and a subsequent lack of demand for heating.

The important number is the core CPI, ex food & energy, which rose 0.2% for an annual rate of 2%. There’s the Fed’s target level right there, although the Fed does prefer the PCE inflation measure over the CPI. It’s all academic anyway, given a rate rise tonight is baked in.

It is typical for Wall Street to rally ahead of a Fed meeting, and we’ve seen two lead-up sessions of rallies. In both cases, however, the primary driver has been a rise in oil prices.

On Monday night oil hit a new low before turning tail and rallying strongly to a positive close. Last night the market went on with it, although prices have since drifted back a bit since the official close. WTI is up 2.7%. From the low on Monday night to the high last night, WTI rallied 10%.

“Is the bottom in?” I hear you ask. Could be, or it could just be another short-covering snap-back.

Exxon and Chevron have led the Dow higher these past two sessions but the Dow was up 250 points at its peak last night, when WTI was also at its peak. The way oil prices are driving Wall Street at present one wonders whether the Fed has much of a role to play.

Currency markets were preparing for a rate rise last night nonetheless, sending the US dollar index up 0.6% to 98.25. Having fallen as low as 2.14% on high-yield bond sell-off fears, the US ten-year Treasury yield is back up at 2.27% and ready.

Discussion on Wall Street now is not of the familiar will they/won’t they variety, but of the how will markets respond variety. The removal of uncertainty should be a big positive for Wall Street, but might we see a “sell the fact” response instead?

Well, this time tomorrow we’ll know. Although, as I have often pointed out, the smart money tends not to join in as the headless chooks run around in the last two hours after the 2pm statement release. It waits until the following day, which is often when the market’s response can by truly gauged.

Commodities

Metals markets are nevertheless jittery, despite all and sundry assuming a rate rise is a given. Traders exited LME positions last night ahead of the announcement and on strength in the greenback. Copper and nickel fell over 2% and zinc close to 3%, while lead fell over 1% and aluminium and tin fell 0.5% each.

Iron ore was unchanged at US$37.50/t.

West Texas crude is up US98c at US$37.27/bbl and Brent is up US44c at US$38.35/bbl.

Gold is off a tad at US$1061.60/oz.

Today

The SPI Overnight is up 57 points or 1.2%. Quite a bold move ahead of the Fed meeting.

And nothing else matters much today, or tonight, at least until that decision is released.

If you’re keen, that will be at 6am Sydney time.

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

The Overnight Report: High Yield Horrors

By Greg Peel

The Dow closed up 103 points or 0.6% while the S&P gained 0.5% to 2021 and the Nasdaq rose 0.4%.

Economy Blues

The new Treasurer will deliver the government’s mid-year economic and fiscal outlook (MYEFO) today and unless you’ve been hiding under a rock you’d know that the budget projections of six months ago are set to be substantially reeled in due to the collapse in iron ore and energy prices. The impact of this focus on the Australian economy is to scare the market into realising it’s not just a resource sector story.

It was predictable yesterday that the 100 point fall in the ASX200 would be led down by energy (-3.3%) and materials (-2.2%) but a 2.4% fall for the banks is indicative of a market concerned about the widespread economic implications of a bigger budget deficit and the response the government may be forced to implement. All sectors finished in the red to varying degrees.

There was also no doubt an element yesterday of finally giving up on any possibility of a much talked about Santa Rally. That’s the problem with something everyone takes for granted as being a given. No rally? Then we must sell.

There was likely also an element of fear with regard recent developments on Wall Street. Falls in commodity prices are cut and dried, but the freezing of redemptions of US high-yield bond funds brings back eerie memories of the freezing of redemptions of many a straightforward equity fund back in 2008. Just how onerous is this issue?

Creeping Doubt

The problem for the US high-yield market at present is that the ebbing tide of oil-related junk bond values is dropping the value of other junk bonds that have no connection to oil and indeed are not in any sort of trouble. This is brings us to one of the fundamental problems of exchange traded funds.

ETFs have become a very popular way to trade baskets of securities as the grunt work of portfolio creation is the responsibility of the fund sponsor, allowing the investor to buy one single security that’s traded on the market just like a stock. Within the most popular high-yield bond ETFs traded on Wall Street are plenty of junior oil company bonds, and given a lot of these companies are set to go to the wall the natural response is to sell.

But one has to sell the whole ETF, when oil-related bonds may make up only, say, 12% of the portfolio, as is the case with at least one of the most popular. This suggests the possibility of a snowballing across sectors. The good news, however, is that when one redeems a bond ETF, one does not receive cash but those actual bonds that make up the ETF. There is thus an incentive for bolder traders to buy the ETFs being sold by panic sellers and pick out the good stuff that has been sold down implicitly below individual trading values. If the subsequent arbitrage profit exceeds the loss on the oil-related bonds that can’t be sold then the trader comes out a winner.

And that is why EFT managers were quick to point out last night that while there is indeed a rout going on in high-yield EFTs at present, managers re not having to break up the ETFs and sell the bonds to any great extent because there are plenty of buyers for the ETF at fire sale levels. There is thus an orderliness, and hence no reason to panic, which is very much different to the sub-prime sell-off of 2007 in which no one wanted to buy.

Markets do, however, tend to panic first and then think it through later.

Thus we saw a 300 point fall in the Dow on Friday night and early in last night’s session, the Dow was down another 127. At that point the S&P500 had crossed the psychological 2000 level. But critical to the stock sell-off was further initial selling in WTI crude, which traded under US$35/bbl.

And every time we see a big oil sell-off we see the buyers come in in the belief this time simply must be the bottom. They haven’t been right yet, but they will be right one day. WTI rallied back to close above 36, and the Dow came back to the flat line. The average was still flat within the final hour before the buyers poured in on the death.

This would tend to suggest Wall Street has concluded there will still be a Fed rate rise on Wednesday. The speed of the high-yield sell-off these past few sessions has led to some creeping doubt about whether such a development might be the one thing that would change the Fed’s mind, and lead to a decision to hold off.

What the FOMC members have to decide is whether a decision not to raise would send such a negative message that the volatility that would follow would be far more extensive that what we are currently seeing in one corner of the market.

Commodities

West Texas crude is up US81c at US$36.29/bbl having hit a low of US$34.53/bbl. Brent is steady at US$37.91.

Hallelujah! Iron ore rose US50c to US$37.50/t. Pass the bubbly.

The LME appears now to have gone quiet ahead of the Fed meeting. All base metals finished in the green but only by small amounts.

The US dollar index is steady at 97.66 but gold is down US$12.60 to US$1064.70/oz. The market is likely squaring up ahead of the Fed.

And it seemed one currency that might be safe to hide in is the Aussie. Last night saw a rally which has taken the Aussie up 0.8% since Saturday morning to US$0.7243.

Today

The SPI Overnight closed down one point.

Yesterday the ASX200 closed on its low at 4928. Closing on a low is always a worrying sign but the index did just manage to stop short of technical support at 4925. That will be a critical level for today unless we do follow Wall Street with a rebound.

As noted, Scott Morrison will deliver MYEFO today. The minutes of the December RBA meeting will be released and we’ll see house price and vehicle sale numbers.

Of interest in the US tonight will be the monthly CPI release, but no one is expecting the result to impact on the Fed decision at the eleventh hour.

Mesoblast ((MSB)) will provide a quarterly update today.

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

The Monday Report

By Greg Peel

No Bottom Yet

The benign close on Bridge Street on Friday is not much worth analysing, given all that has transpired in the meantime. Suffice to say industrials and telcos posted 1% falls and the resource sectors lost 0.6%, but the banks were slightly positive and a bit of green elsewhere resulted in a close of down 8 points for the ASX200.

Of more significance is the reality that a bottom is clearly not yet nigh for crude oil prices, despite what appeared to be some bottom-picking activity last week. West Texas crude fell US$1.25 or 3.4% on Friday night to US$35.48/bbl, representing a seven-year low. Brent fell US$1.84 or 4.6% to US$37.90/bbl.

Renewed selling was triggered by a report from the International Energy Agency which downplayed any expectation for a recovery in oil prices in 2016. The IEA is pessimistic about any easing in global oversupply ahead of a ramp-up of Iranian production once sanctions are lifted. The Agency was particularly critical of OPEC, blaming the bloc’s “freewheeling” supply policy.

OPEC’s total output in November was 900,000 barrels per day more than the estimated demand rate for OPEC crude in 2016.

The oil price fall proved another kick in the teeth for Wall Street, which is struggling to put together any sort of traditional late-year rally. The US stock indices posted their biggest one day falls since August, led down by the energy sector. The Dow closed down 309 points or 1.8% while the S&P lost 1.9% to 2012 and the Nasdaq fell 2.2%.

But it was not just the price of oil, per se, which spooked Wall Street.

I have warned in this Report recently of the flow-on risk into the US financial sector of junior shale oil producer defaults and bankruptcies due to persistent low oil prices. Many an oil producer has funded costs through high-yield junk bond issues and the potential for default is putting a lot of pressure on the junk bond market.

So much pressure that the high-yield Third Avenue Focused Credit Fund announced on Friday night a freeze on investor redemptions. Third Avenue is concerned the rush to redeem would lead to a fire sale of the fund’s assets at destructive prices. The freeze will allow Third Avenue to liquidate the fund in an orderly fashion. It hopes.

The last time frozen redemptions were front page news on Wall Street was in 2008. And it is not going to help junk bond markets that the Fed is expected to make its first rate hike this week.

Despite that expectation, the US ten-year Treasury yield fell 10 basis points on Friday night to 2.14% as investors rushed to withdraw their investments in high-risk, high-yield instruments and transfer into safe haven government bonds. Heightened fear was also apparent in the VIX volatility index, which jumped 27% to 24.6, taking it into nervousness territory.

Trade War

And it was not just the price of oil, or junk bond issues, that spooked Wall Street on Friday night.

In the wake of the inclusion of the Chinese renminbi in the IMF’s basket of global reserve currencies, the PBoC announced on Friday it was planning to loosen the currency’s peg against the US dollar and instead switch to a peg to a basket of global currencies – potentially 12 to 13 in total. The central bank is yet to provide details on currency weightings, or just how the switch will come into effect.

But it was not lost on markets on Friday night that the move amounts to a further devaluation of the renminbi. The fear is that in trying to revive its flagging export sector, China is orchestrating a trade war. The peg announcement on Friday follows an announcement from Beijing earlier in the week that export taxes on steel, pig iron and other products would be reduced, potentially leading to further dumping of cheap steel on global markets.

What Beijing should really be doing is addressing China’s steel production overcapacity, and indeed overcapacity in the refining of a range of metals. But to do so too aggressively would bring about the sort of social backlash Beijing forever fears, given the implicit loss of jobs. Capacity reduction will thus be a very long process, one presumes.

The whole point of the ECB’s beefed up QE policy is to lower the euro to ensure Europe’s export-led economy can recover. Japanese QE has a similar goal. With the PBoC now becoming aggressive in its own currency devaluation attempts, one wonders just where the “race to the bottom” and subsequent trade war potential can end.

And all the while, the Fed is set to raise.

The impact of the PboC announcement on Friday was evident in moves on European stock markets on Friday night. A 2.2% fall in London is understandable given the weighting of energy stocks in the FTSE, and renewed oil price weakness. But oil weakness is good for energy-importing European countries, yet the German stock market fell 2.4% on Friday night and France 1.8%.

But on the other side of the coin, the world in general is desperate to see the Chinese economy stabilise. Beijing might be ready to fight a battle in export markets, but for other export economies, China is critical as a customer. This means everything from US iPhones to German heavy machinery, French wine and Australian iron ore.

In this front there was actually good news over the weekend. Beijing provided China’s November “data dump” on Saturday.

Industrial production rose to 6.2% year on year growth, beating forecasts of 5.7%. Retail sales posted the strongest reading of 2015 with a gain of 11.2%. And at 10.2%, year to date fixed asset investment also proved to be better than expected.

The numbers suggest Beijing’s many and various stimulus efforts over the year may finally be starting to gain some traction. This is good news, but in the context of all else that’s happening in China, and of falling oil prices, the impact will no doubt still be lost as markets enter the new week.

Other Commodities

Iron ore fell another US50c to US$37.00/t on Friday night.

The US dollar index fell 0.4% to 97.57 (the renminbi is not in the index basket) which should have provided some support for commodities, but clearly not for oil or iron ore. But there were at least some positive moves for base metals prices in London.

US-based Freeport-McMoRan is now among those global resource sector companies announcing planned production curtailments. While Beijing may be moving very slowly on addressing overcapacity in China, Chinese metal smelters are themselves taking a more active stance in addressing their own oversupply issues. There is thus a glimmer of optimism returning to beaten-down base metal markets.

On Friday night copper jumped 1.9% and nickel 1.7%, while lead rose 1.1% and zinc 0.8%. Only tin and aluminium remained subdued.

Gold was US$5.00 higher at US$1077.30/oz.

The Aussie dollar fell a full 1.4% to be at US$0.7188 on Saturday morning, thanks to oil and iron ore prices, but has rebounded somewhat this morning to US$0.7203 thanks to the positive Chinese data released over the weekend.

The SPI Overnight nevertheless closed down 73 points or 1.5% on Saturday morning.

The Week Ahead

It’s the big one on Wednesday night. You may have heard about it. The Fed will hold a policy meeting and provide quarterly forecast updates, and Janet Yellen will hold a quarterly press conference.

It is not expected that any US data release ahead of that meeting will affect the Fed’s decision. This week’s releases include the CPI, housing sentiment and the Empire State activity index on Tuesday, housing starts and industrial production along with the Fed statement on Wednesday, and leading economic indicators and the Philadelphia Fed activity index on Thursday.

Friday is the quarterly quadruple witching derivatives expiry in the US, which itself often provides for heightened volatility, and being so soon after the Fed decision one presumes this may well be the case.

Japan and the eurozone will release trade and industrial production data this week and both the ZEW and IFO surveys will be closely watched in Europe.

New Zealand will release its September quarter GDP result on Thursday.

Australian data releases are thin on the ground this week, other than house prices and vehicle sales tomorrow. Tomorrow also sees the release of the minutes of the RBA’s December meeting and the government will deliver the mid-year budget update. An RBA Bulletin will be released on Thursday.

On the local stock front there is a trickle of AGMs this week including those of both ANZ Bank ((ANZ)) and National Australia Bank ((NAB)) on Thursday.

The ASX sees its own form of “quadruple witching” expiry on Thursday, and on Friday the recently announced changes to S&P/ASX index constituents come into effect.

Rudi is now off on his annual break and thus will not be making any media appearances until the new year.

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

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

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

Well here it comes, we hope. On Wednesday night the Fed will announce a 25 basis point rate rise. At least that’s what all the world believes. Janet Yellen will hold a press conference. The Fed will also provide a quarterly update of forecasts so assuming the rate hike is a given, the focus of attention will be on the pace of further hikes to come based on FOMC projections.

Tonight sees important retail sales numbers in the US, along with consumer sentiment and the PPI, but at this stage they are unlikely to impact on the Fed’s decision.

Tomorrow sees Beijing delivering China’s November industrial production, retail sales and fixed asset investment numbers.

Throughout the week, US releases include the CPI, housing sentiment and starts, industrial production and the Empire State and Philly Fed activity indices. Friday’s brings the quadruple witching derivatives expiry which can often lead to volatility.

Europe will be keeping an eye on inflation data, as well as the German IFO business and ZEW investor sentiment surveys, for clues as to whether the ECB may yet up the QE ante.

The Bank of Japan meets next week but no policy change is expected.

The local market will also see a “quadruple witching” on Thursday as quarterly futures, futures options, index options and stock options all expire together. On Friday changes to S&P/ASX index constituents, announced last week, will become effective.

On the economic front, the release of the minutes of that last RBA meeting and an RBA Bulletin will be the highlights.

National Australia Bank ((NAB)) is among a handful of companies holding AGMs next week.

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

The Overnight Report: Respite

By Greg Peel

The Dow closed up 82 points or 0.5% while the S&P gained 0.2% to 2052 and the Nasdaq added 0.4%.

Good News is Bad News

Economists were bracing themselves yesterday for a weak local jobs report. Not because they believe Australia’s economy is in trouble and unemployment is mounting – indeed, quite the opposite – but simply because when last month’s report suggested 56,100 new jobs were added, they all fell about in hysterics.

As if!

While suspicion has been mounting for some time that the ABS dart board had well and truly fallen off its hook, economists were at least prepared to be polite last month and suggest the October result probably was a case of statistical noise. The series is volatile, they acknowledged, and hence the November numbers would probably see a correction back to a more realistic result, while maintaining an underlying positive trend.

Yesterday’s number suggested 71,400 new jobs added.

This time there were just looks of exasperation. Struggling to remain polite, CBA’s economists summed up the mood in saying “There will be many doubters”. Still, various other employment indicators have been quite positive, CBA admits, such as the ANZ job ads series, and the underlying trend is a more believable 25,000 new jobs per month.

The November result, fantasy or not, was not well received by the stock market yesterday. In a week dominated by ever-falling commodity prices, for once it was not the resource sectors that led the index down. Energy fell 0.4% but materials was up 0.7%, while the banks fell 1.5%, the telco 1.1% and utilities 0.8%. If the October jobs report suggested the possibility the RBA would not be cutting its cash rate any further, the November report has killed off any thought of another cut altogether. As the Fed prepares to raise, goodbye yield.

The ASX200 was down around 40 points in the morning yesterday on further commodity price and Wall Street weakness, and when the jobs number came out, fell another 40. That took us, for about the umpteenth time this year, back down through 5000. Then the technical trade came into play, and late buyers pushed the index back to a more respectable loss of 42 points on the day, well clear of the 5000 mark.

Forex traders have given up all hope of another RBA cut, as is evident in a 0.9% rally in the Aussie to US$0.7291 despite the US dollar index being up 0.6% at 97.93, but they could well change their minds again tomorrow.

Love That Bottom

WTI crude fell again last night, by another 1.7%, and now Brent has joined the sub-40 club. Crude prices themselves have thus yet not quite bottomed but Wall Street clearly believes a bottom is in sight. For the second session in a row, energy stocks were most sought after. The S&P energy sector rose 1.2% last night following Wednesday night’s 1.3% gain, and after four down-days in a row, Wall Street finally managed a rally all round.

Despite those four down-days, Wall Street’s bounce off the September lows has meant the 50-day moving average on the S&P500 is now very close to crossing over the 200-day, which is called a “Golden Cross” and signals peace, love, harmony and bullishness for all evermore thereafter.

It’s all a complete load of crap of course, but some people do like to hold onto to these little fantasies. Don’t they Santa?

The Golden Cross will be triggered, it is assumed, next week when the Fed announces a rate hike and Wall Street takes off. Tonight sees the release of PPI and retail sales data, and next week sees CPI and housing sentiment ahead of the Fed meeting, but the market is convinced the Fed has already made its decision. As to being convinced the market will then rally is another matter, because everyone is assuming that will be the case.

Indeed, the Dow was actually up 200 points around 3pm before fading quickly away at the close.

Commodities

West Texas crude is down US64c to US$36.73/bbl and Brent is down US64c to US$39.74/bbl.

The pickers were out in the local materials sector yesterday, it would seem by the aforementioned 0.7% rally against the general index trend. But iron ore is down another US80c overnight to US$37.50/t.

Aluminium producer China Hongqiao yesterday announced the immediate curtailment of 250,000t of production, but still couldn’t manage to ignite the aluminium price on the LME, which closed flat. All base metals closed flat except for nickel which fell 1.5%. It seems in the run-up to year-end, nothing is going to excite world weary metals traders at the moment. We can only hope China Hongqiao’s capitulation is a sign of more to come from China.

The rally in the US dollar helped gold down US$4.50 to US$1072.30/oz.

Today

Despite a rally on Wall Street, the SPI Overnight closed down 11 points or 0.2%.

US November retail sales data will be the hot topic of conversation tonight, given the numbers will account for the Thanksgiving weekend shopping spree. The PPI and consumer sentiment numbers are also due.

Tomorrow brings China’s data dump for November, featuring industrial production, retail sales and fixed asset investment numbers.

Westpac ((WBC)) will hold its AGM today.

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

The Overnight Report: Not This Time

By Greg Peel

The Dow closed down 75 points or 0.4% while the S&P lost 0.8% to 2047 as the Nasdaq lost 1.5%.

Nice Bottom?

I suggested yesterday that perhaps the time was nigh for some bottom-picking in resource sector stocks, particularly in energy, given what appeared to be quite the capitulation trade in oil markets on Tuesday night. As it turned out, only three sectors finished in the green yesterday within a 0.5% fall in the index. One was utilities, up, 0.3%, while materials rose 0.1% and energy rose 0.4%.

But it appears someone had a red hot go at index bottom-picking in general at 11am yesterday. Having opened down 40 points and plateaued, the ASX200 suddenly shot back up to the flat line in a blink. It then began a slow drift down in the afternoon.

Momentum was probably deflated by yesterday’s local data releases.

Consumer confidence fell by 0.9% in Westpac’s December survey. That’s not really what retailers want to hear before Christmas. The two consumer sectors finished down 0.6% yesterday. However, the index remains on the optimistic side of the ledger, at 100.8, and is up from this time last year.

The fall in the index is mostly due to a lack of confidence in the economy going forward, out to five years, rather than right now, which remains fairly buoyant. There is thus no need to fear the Grinch. Household goods retailers, who have had a cracking couple of years, need also not cry into their egg nog, based on yesterday’s housing finance numbers.

The value of all housing loans fell 6.0% in October to slow to an annual pace of growth of 8.4%. Efforts by the regulator to cool runaway investment loans has clearly worked, given loans to investors fell by 6.1% and are now slowing at an annual rate of minus 9.2%. But, repricing of mortgage rates has not completely deterred owner-occupier borrowers, as o-o loans rose 0.1% to maintain a healthy growth rate of 21.1%.

Given it is the owner-occupiers and not the investors who will be buying all the furniture, spending on household goods should remain supported for now, and clearly there’s a lag effect. But builders and building materials providers will not be too thrilled that the investment housing boom has clearly now run its course. Industrials were the worst performer yesterday, down 0.9%. Falling loan numbers in general are not encouraging for the banks, which were down 0.8%, although the metrics of NAB’s UK demerger has not been met with great enthusiasm either.

Yesterday also saw the release of Chinese inflation data for November. A rise to 1.5% annual for the CPI, up from 1.3% in October, suggests Beijing’s stimulus measures might finally be having some effect. But industrial overcapacity remains rampant, as indicated by a 5.9% annualised fall in the PPI. That’s unchanged since October at least, but represents the 45^th consecutive month of declines.

Too Soon?

The bottom-pickers were indeed poised for action on oil markets last night. When weekly US crude inventory data showed an unexpected drop in stocks, WTI shot up to US$39/bbl. Given the US oil and stock markets are currently attached at the hip, the Dow shot up 200 points as a result.

But then reality interfered.

Corresponding heating oil inventory data showed an unexpected rise, even as the US heads into winter. And while crude inventory levels may have fallen in one week, there’s no getting past the fact they are still as high as they have been in 80 years of data. The rapid WTI bounce quickly ran out of steam, reversing to a slight fall in price on the session.

The Dow subsequently closed down 75 points. It was not the day.

Commodities

West Texas crude is down US20c at US$37.37/bbl, while Brent has managed a slight gain of US17c to US$40.38/bbl.

Global divergence was apparent in a 1.1% fall for the US dollar index to 97.35 as the euro rallied. Weak oil prices are bad for the US market, but good for a European market that imports all its energy. The irony is that it is the US about to raise interest rates, while eurozone has just cut. But the fall in the greenback provided little support for commodity prices.

Base metal prices were all slightly higher last night, other than nickel which was flat, but no metal managed a 1% gain.

If we’re on the lookout for bottoms, there no sign of such yet in iron ore. It’s down another US50c at US$38.30/t.

Gold has managed to gain US$3.00 to US$1076.80/oz, while the Aussie is up 0.3% to US$0.7229.

Today

The SPI Overnight closed down 23 points or 0.5%.

Australia’s November jobs numbers are out today. Always good for a giggle.

Market darling CSL ((CSL)) will hold its annual R&D day today.

Rudi will make his final TV appearance for 2015 today at noon, on Sky Business' Lunch Money.

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

The Overnight Report: All About The Oil

By Greg Peel

The Dow closed down 162 points or 0.9% while the S&P lost 0.7% to 2063 and the Nasdaq fell 0.1%.

Capitulation?

In depth analysis is not required to figure out why the ASX200 closed down 0.9% yesterday. Energy was down 6.4% and materials 3.4%, as both benchmark prices for oil and iron ore are now under the psychological US$40 mark. All other sectors traded off gains and losses of around a half a percent.

The big fall in the energy sector was compounded by Woodside Petroleum’s ((WPL)) announced withdrawal of its bid for Oil Search ((OSH)), thus removing a takeover premium from the Oil Search price. To explain the big fall in BHP Billiton ((BHP)), again, one must remember that while BHP is mostly thought of as an iron ore producer, it also has a large energy division.

The unfortunate reality for the market in general is that while recent falls can be squarely blamed on the resources sectors, as opposed to market-wide concerns, a lot of technical damage is being inflicted on the index. The 5100 level is considered support which, if breached, suggests another move down towards 4900. However, if investors can take anything away from the performance of Australian stocks in 2015, it is that index-tracking has been a disastrous strategy this year. Stock-picking has ruled, particularly outside of the large caps, with only one or two exceptions (CSL comes to mind).

It was probably never going to make much difference what China’s November trade numbers, released yesterday, looked like. It was not a day to be brave when playing the resources. Weak numbers would have been met with a “Yeah, well there you go,” and strong numbers would have been trampled in the stampede anyway.

As it was, the numbers offered a balance of sorts. They were weak, but not as weak as expected. Exports fell 3.7% year on year in November compared to 3.6% in October, but that was not as bad as expected, and imports fell only 5.6% following a 16.0% fall in October. Forecasts had suggested another double digit fall.

It is interesting to note the impact of China’s August currency devaluation. In USD terms, exports fell 6.8%, better than 6.9% a month ago, and imports fell 8.7%, better than the previous 18.8%. The numbers look worse in dollars, but is there a trend of stability emerging?

That’s a big question for 2016. Meanwhile, more immediately, have we seen the bottom for oil and iron ore prices? Monday night’s 6% trashing of oil had a hint of capitulation trade about it. Iron ore’s decline has been rather more orderly, so it is difficult to tell when that might stop. Iron ore is also beholden to Beijing’s efforts to reduce excess steel capacity – a slow process – while Beijing has no control over oil markets. That’s all down to US shale producers and OPEC.

Overnight WTI initially fell again, but found some support under the US$37/bbl level before closing only slightly lower on the session. It would be a brave trader who would suggest we’ve definitely now seen a bottom, and bottom-pickers who moved in too soon mid-year have been taken out on stretchers. But with all the talk of which US oil companies are now set to go to the wall, implying reduced supply, it may be time to look at those companies that can survive and maintain dividends. If you are stout of heart, that is. At least, that’s the call from some stout-of-heart US fund managers right now.

Wider Implications

WTI crude fell initially in last night’s session by about another dollar before finding support and rallying to be up slightly. It is currently down slightly on the session. The Dow fell 245 points in the morning before rallying back to be down 160 points. It was all about oil.

Traders were clearly hiding in the big tech space while the oil story played out. Hence we see the Nasdaq flat on the session. The S&P split the difference.

It might be all about oil, but wider implications threaten the US financial sector. Billions had been lent to mostly smaller shale oil companies by mostly smaller regional banks in the US at pervading low interest rates, against hedged barrels. Those hedges have now rolled off, the Fed is about to begin a tightening cycle, and many a shale producer was already burning cash under US$60/bbl, let alone under 40.

Wall Street is thus nervous about the flow-on effect into the financial sector. This is not the case in Australia. Outside of BHP, Australia’s Big Oil names are heavily exposed to LNG rather than crude, and the big LNG projects are financed mostly through pre-organised offtake agreements and, as is the case recently for Santos for example, fresh equity. Australia’s banks are negligible lenders to the energy sector.

Until oil can find a bottom, or at least some stability, the spectre of energy sector defaults and bankruptcies will worry Wall Street. The irony is, of course, that the more oil companies go bankrupt, or at least throw in the towel, the more likely the oil price is to stabilise on reduced production.

Commodities

West Texas is down US5c to US$37.57/bbl and Brent is down US45c to US$40.21/bbl.

In Australia, the focus is as much on iron ore as it is on oil, whereas in the US, oil is the far more dominant stock market sector of the two. Iron ore has not seen 6% overnight plunges and is not prone to such volatility, being more of a China-dominated rather than global market place and trading nothing even remotely close to the volumes that go through the oil market each day.

There is no doubt concern, nevertheless, that as the iron ore price continues to quietly slide – it’s down another US10c to US$38.80/t – there appears no reason for a bottom-picking cavalry to suddenly appear for a short-covering scramble to hint at possible consolidation. Thus junior Australian iron ore miners who are burning cash are facing heightened financial risk. But again, Australia’s banks are not in the business of lending vast sums to junior miners.

On the LME, activity has almost ground to a halt. Traders suggest end-of-year blues and next week’s Fed meeting are keeping the punters away at the moment. Last night saw mixed and smallish moves among the base metals, with the highlights being one percent falls for nickel and tin and a one percent rally for lead.

The commodity price issue has taken further toll on the Aussie dollar, which is down another 0.8% at US$0.7208. The US dollar index is also down, by 0.2% to 98.44, and gold is relatively steady at US$1073.80/oz.

Today

The SPI Overnight closed down 23 points or 0.5%. A breach of 5100 threatens for the ASX200.

Yesterday’s NAB business confidence survey was fairly benign, but today we’ll see Westpac’s consumer equivalent which has particular importance at this time of the year. We’ll also see housing finance data, which is also a strong focus of attention at present.

Beijing will release Chinese inflation data today.

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

The Overnight Report: Wasted Energy

By Greg Peel

The Dow closed down 117 points or 0.7% while the S&P fell 0.7% to 2077 and the Nasdaq lost 0.8%.

The Bad Oil

One year ago the world assumed that the regular December OPEC meeting would bring about announced production cuts to stem the tide of the falling oil price, as that’s what OPEC had always done in the past. The WTI crude price had fallen from above US$100/bbl to US$60 at that time. But OPEC did not cut.

Instead, as it turns out, OPEC, and Saudi Arabia in particular, increased oil sales at whatever price obtainable in order to protect market share, leaving it to the US shale producers to provide the production cuts given it was they who had brought about global oversupply. In late January WTI hit US$45.

Signs of apparent US production reduction, via lower rig counts, took oil back to US$60 in June but supply volumes just kept going up. WTI almost went through US$40 in August before stabilising, but overnight, in the wake of another OPEC meeting featuring no announced production cuts, West Texas has fallen US$2.43 or 6% to US$37.62/bbl – its lowest level since 2009.

This seems a delayed reaction. The OPEC meeting was held on Friday night and oil markets traded only slightly lower on the session, probably because no one really expected OPEC to cut anyway. Maybe Wall Street needed the weekend to think about it, away from the euphoric fog of Friday’s jobs number and Mario Draghi’s reassured commitment to QE. OPEC is backing a combination of US shale reduction and growing global demand to stabilise prices in 2016. But right now, US crude supply continues to grow and global demand, particularly that from China, is sluggish.

This scenario was apparently not lost on one or more investors who decided to slam Australian oil stocks yesterday. The ASX200 opened up 78 points, erasing the previous session’s “Draghi Disappointment” falls, in concert with the big rally on Wall Street. But in moved the energy sector sellers, and by lunchtime the index was flat, where it remained for the rest of the session. The telcos were the only other sector to see notable selling, down 1.9%. Otherwise all sector moves were negligible bar energy, which fell 4.6%.

It was smart selling, in retrospect. Oil prices did not start the tumble that has taken WTI well below 40 and Brent knocking on the door until after the local close yesterday.

Rock and Roll

It’s been a wild ride for Wall Street these past three sessions. Dow down 250 points on Thursday night on Draghi disappointment, up 350 points on Friday night on jobs and Draghi back-tracking, down 100 points last night on the oil price slide. The Dow was down 200 points at one stage last night, so at least there are some prepared to buy.

Oil did not impact upon European markets last night, as one might expect given Europe is an oil & gas importer, whereas Australia is an exporter and the US is a self-sufficient producer (if we bring along Canada and Mexico). Responding to US jobs and Draghi at the first opportunity last night, the German stock market jumped 1.3% and France 0.9%. There are oil names listed in London, but the FTSE only fell 0.2%.

The flow-on issue for Wall Street with regard falling oil prices is credit defaults. US business television has already been publishing lists of oil companies deemed most likely to go bankrupt were oil to fall below 40, but before bankruptcy comes default. US banks, many of the smaller regional variety, previously lent money to shale oil aspirants on the basis they hedge their production at the time. Those hedges, which would have been placed anywhere up to US$100/bbl, have been rolling off this year and rollover values at US$40/bbl mean an incapacity to service loans.

Having experienced a GFC in silly home loans, a still nervous Wall Street is always on the lookout for new GFCs in the making. There has been much concern that surging US auto sales these past few years are the result of cheap finance and “subprime” car loans, but it turns out car dealers have actually been quite tight with their finance criteria. For a while now oil loans in a low interest rate environment have been a source of angst. The jury is still out on whether a wave of oil company defaults will set in train a wave of bank failures, and whether that will reach to the high end.

The Fed is set to commence raising interest rates next week.

Commodities

As noted, West Texas crude is down US$2.43 or 6% at US$37.62/bbl. Brent is down US$2.41 or 5.5% at US$40.66/bbl. Even the US natgas price fell 5.5% last night.

The moves have little to do with the US dollar, which is up only 0.3% on its index at 98.64.

Base metals actually saw some short-covering on Friday night on the strong US jobs number, which cements a Fed rate rise. Last night traders seemed to have changed their minds nevertheless, in what has been described as a slow day that highlights the rapid approach of year-end. Copper and tin fell 1%, aluminium, nickel and zinc fell 2%.

That other member of the sub-40 club, iron ore, is down another US50c to US$38.90/t.

Gold’s moment in the sun didn’t last, confirming a short-covering scramble on Friday night. Gold is down US$15.20 at US$10.71.30/oz.

Today

Although oil prices crashed overnight, the Australian market arguably saw its oil-related sell-off yesterday. The SPI Overnight closed down 14 points.

The NAB business confidence survey is out locally today. China will release November trade numbers.

National Bank ((NAB)) has provided an update on the progress of its UK demerger.

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

The Monday Report

By Greg Peel

There is little point in analysing the big fall in the local market on Friday, as it was all about “Draghi Disappointment”. Suffice to say it was a market-wide sell-off, consistent with falls around the globe, triggered by the announced extension to ECB stimulus, and on Friday night Mario Draghi eased concerns and effectively assured markets the ECB is still ready with shock and awe if necessary.

Alongside yet another positive US jobs report, which cements a rate hike from the Fed next week, Friday night saw the Dow turn a 250 point drop on Thursday night into a 370 point rally. European markets did not participate in the rebound during their sessions as Draghi spoke in New York after they had closed.

Lock it in

Ahead of the release of the US non-farm payrolls report for November, Wall Street was reeling in its expectations. Assuming the big surge in the October report to be a seasonal blip of sorts, some commentators were talking a mere 100,000 new jobs. But not only did the November result come in at 211,000, the October number was revised up for a total of over 300,000 job additions.

The unemployment rate remained unchanged at 5.0% on a slight tick-up in the participation rate. The only stumbling block was wage growth, which eased to an annualised 2.3% from October’s 2.5%. But that alone is not going to stop the Fed.

Whether or not one believes the Fed had already made its decision, the November jobs report locks in a December rate hike once and for all, as far as Wall Street is concerned. As is oft noted in this Report, the biggest enemy of markets is uncertainty, and uncertainty has reigned throughout 2015 in regard to Fed policy, up until Friday night. Certainty was arguably worth about half of the subsequent rally on Wall Street, which saw the Dow close up 369 points or 2.1%, the S&P gain 2.1% to 2091, and the Nasdaq rally 2.1%. The “technical damage” done to the indices from Thursday night’s big drop was more than repaired.

The other half came thanks to Mario Draghi.

“Well, of course”

It is important to note that while ECB president Mario Draghi has been consistent in his hints that QE would be extended from December, and consistent in his “whatever it takes” mantra over the past few years, never did he actually provide any numbers that should be expected at the ECB’s December policy meeting last week. It was left to the markets to assume the quantum.

The market assumed a 20 point cut to the ECB’s bank deposit rate and some increase above the prevailing E60bn per month of bond purchases. Thus when a 10 point cut and no increase were delivered, the market spat the dummy. Mostly because the market had set loaded itself up long or short as appropriate – long US dollar, short euro for example – to the point that if Draghi had delivered on assumed numbers, there may even have been a “buy the fact” rally in the euro, for example. Disappointment meant the biggest move in the euro since 2009.

Mr Draghi, it seems, got a bit of a shock at just how big the moves were on Thursday night, and just how destabilising they were for markets when the whole point of central bank stimulus is to provide some stability. But he had an immediate opportunity to set things straight in a speech he was due to deliver in New York on Friday night.

In that speech he emphasised that while the ECB only extended QE to a level the market was disappointed with at the December policy meeting, there is “no limit” to what the ECB is prepared to do and the central bank will act “without delay” to bump up the stimulus in 2016 if deemed necessary. European markets were already closed when Draghi spoke, but Wall Street, which had arguably been oversold on the ECB knee-jerk reaction, was open, and ready to reverse Thursday night’s moves.

The comical moment came in the Q&A panel session after Draghi’s speech, in which former Bank of England guv’na Merv King evoked chuckles from the crowd when he asked Draghi whether his speech was in direct response to the market carnage the night before. “No, not really,” Draghi replied, “it…um…well, of course”. Hilarity ensued.

It’s a relief to see a bit of Italian self-deprecation in contrast to the typically po-faced Janet Yellen.

As to whether the strong US jobs report was the main driver of Wall Street’s rally on Friday night, or Draghi, or both, it doesn’t much matter. Clearly Draghi held sway over the US bond market, given the ten-year yield fell 5 basis points to 2.15%. This is the wrong direction for a certain rate hike, but the right direction to reverse the carry trade rally in yields on Thursday night which was prompted by big jumps in European yields, following ECB disappointment.

Similarly, gold posted an ECB response. While additional stimulus in Europe is a positive for the gold price in isolation, Fed tightening and a stronger greenback are more pervasive for USD-denominated gold. With expectations strengthening that the Fed will raise next week, gold has been sold down heavily, talk of triple-digits has prevailed, and everyone had set themselves short. The disappointing ECB package only served to reaffirm short positions.

So despite the US jobs report, gold surged US22.00 to US$1086.50/oz on Friday night. Draghi’s comments were enough to trigger a short-covering scramble. The rally came despite the US dollar index also rallying, as the euro rebounded, by 0.7% to 98.37.

Commodities

The LME was well and truly closed when Draghi spoke in New York, so base metal traders only had the US jobs report to respond to. A strong jobs number implies a Fed rate rise and thus a strong dollar, thus weaker commodity prices. That is if you ignore the fact a strong US jobs report implies a healthy US economy, which is good for commodities. Once again, the base metal market had set itself very short, and thus on the jobs numbers, a short-covering scramble was triggered.

Copper rose just under 1%, lead, nickel and zinc all rose just under 2% and aluminium jumped over 2%. Tin sat still.

The oil markets weren’t ignoring US jobs and Draghi’s comments on Friday night, but the overriding influence was the OPEC meeting also underway. While no one really expected the Saudis to concede to production cuts, disquiet among OPEC members who all have, Saudi Arabia included, heavily bleeding national budgets, meant that maybe there would be some talk of production cuts in 2016.

The Saudis proved defiant however, and continue to assume a combination of rising global demand and falling US shale oil supply will lead to oil price stability returning at some point in 2016. Oil prices had jumped on Thursday night due to the terrorism implications of the San Bernardino massacre, and following the OPEC meeting fell back from whence they came. West Texas is down US$1.07 to US$40.05/bbl and Brent is down US80c to US$43.07/bbl.

Iron ore cares not for central bank policy outside of China. It is official – iron ore is now sub-40. The spot price fell US90c on Friday night to US$39.40/t.

The Aussie dollar is caught in a bit of a push me-pull you situation at the moment under the influence of both global and domestic central bank policy, as well as commodity prices. It was down 0.2% on Saturday morning at US$0.7340.

The SPI Overnight closed up 31 points or 0.6% on Saturday morning.

The Week Ahead

We can now all start tediously debating just when the second Fed rate rise might be. Oh joy.

US data releases drop off a bit this week and ahead of Wednesday week’s Fed policy meeting. The important data releases this week are all on Friday, being November retail sales, which include “Black Friday” and the general Thanksgiving weekend shopping spree, and the PPI and fortnightly consumer sentiment. Next week sees the CPI ahead of the FOMC meeting.

China is back in the frame this week. November trade numbers are due tomorrow and inflation numbers on Wednesday. The usual data dump of industrial production, retail sales and fixed asset investment numbers will occur on Saturday.

Locally we’ll see the construction PMI today along with ANZ’s job ad series. Tomorrow it’s NAB’s monthly business confidence survey, and on Wednesday Westpac’s consumer confidence survey along with housing finance data. On Thursday it’s our own November jobs numbers.

The local AGM season is all but over but there remain some stragglers including Westpac ((WBC)), who will host on Friday. National Bank ((NAB)) is due to update on the UK situation tomorrow and CSL ((CSL)) holds its annual R&D Day on Thursday.

This week, Rudi will give his final presentation (the first after publishing his book) to members of Australian Shareholders Association (ASA) in Canberra on Tuesday. He'll make his final TV appearance for the year on Sky Business on Thursday at noon. There will be no more Weekly Insights until late January.

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

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

Get 2 Weeks free trial

Sign Up

Member Login

Tag Archives: United States

The Overnight Report: We Have Lift Off

The Overnight Report: Ahead Of The Fed

The Overnight Report: High Yield Horrors

The Monday Report

Next Week At A Glance

The Overnight Report: Respite

The Overnight Report: Not This Time

The Overnight Report: All About The Oil

The Overnight Report: Wasted Energy

The Monday Report