Tag Archives: United States

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

On Sunday summer time begins in relevant Australian states. From Tuesday morning the NYSE will close at 7am Sydney time.

Monday is a public holiday in NSW, the ACT, Queensland and South Australia. The ASX is open but there will be little in the way of any broker research. FNArena will publish the Monday Report as usual.

Next week is Golden Week in China. Markets will be closed all week.

Ahead of the holiday, Caixin will publish its September manufacturing PMI today and Beijing will publish the official manufacturing and service sector PMIs tomorrow.

For other markets, Monday is manufacturing PMI day, and Wednesday service sector PMI day.

The first week of the month is jobs week in the US. The ADP private sector number is due on Wednesday and non-farm payrolls on Friday. Other US data releases during the week include construction spending, vehicle and chain store sales, factory orders and trade.

A busy data week in Australia sees the manufacturing, services and construction PMIs, ANZ job ads, building approvals, retail sales and the trade balance. On Tuesday, Philip Lowe will release his first monetary policy statement as RBA governor and not wish to upset the status quo.

The number of stocks going ex-div is now beginning to dwindle while next week Bank of Queensland ((BOQ)) will deliver its earnings report and BHP Billiton ((BHP)) will hold investor briefings.


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article 3 months old

The Overnight Report: The Ghost Of Crisis Past

By Greg Peel

The Dow closed down 195 points or 1.1% while the S&P lost 0.9% to 2151 and the Nasdaq fell 0.9%.

Energised

One doesn’t have to look very far to see why the ASX200 was up 1.1% yesterday. On the supposed agreement reached by OPEC to instigate a production freeze/cut, the local energy sector was up 6.3%.

The materials sector chimed in with 2.8%, bearing in mind that aside from stronger base metal prices overnight, BHP Billiton ((BHP)) is an oil crossover.

We then drop a long way down to industrials, which rose 1.2% because that’s where oil sector service companies reside. Beyond that, sector moves where insubstantial. Of yesterday’s Top Ten movers to the upside, positions one through seven were all oil & gas or oil & gas services companies.

Oil & gas producer BHP rose 4.7% yesterday, which is unsurprising, but iron ore rival Rio Tinto ((RIO)) rose 3.7% despite being an oil consumer, not producer. Overnight in London, BHP is up 6.5% and Rio 4.5%.

The potential OPEC freeze is as much symbolic as it is fundamental. It underscores a groundswell of belief that has been building this past month or two, that February 2016 marked the bottom of the commodity price cycle.

Oil has stabilised in the 40s when earlier there were warnings of it heading towards the 20s. Iron ore has stabilised in the 50s when analysts were assuming a fall back through the 40s. The world had all but written off coal as a commodity but thermal coal has rallied back strongly and met coal has gone through the roof. Mine closures are driving nickel higher. Even copper has finally found a bit of strength.

The OPEC deal is, symbolically, almost a sign of confirmation. The early movers have already been switching out of first half 2016 plays – yield stocks, which had become overvalued – and back into cyclical plays. The biggest cyclical play of them all is commodities.

Another sector that has seen money withdrawn in favour of such switching is financials. Today is going to be a different day on Bridge Street.

Too Many Memories

Wall Street was bugling along doing very little last night up until around midday. The European stock markets were closed when Bloomberg reported ten hedge funds had withdrawn their capital positions with the Deutsche Bank prime brokerage. Hedge funds lodge capital with their prime broker, and in many cases a number of brokers, as a slush fund from which trades can be made and/or as collateral against risk positions in derivatives and other instruments.

The withdrawals suggest the hedge funds have reduced, or eliminated, their counterparty risk with Deutsche. The bottom line is, were Deutsche to go under, that capital would never be seen again. The volume and price of Deutsche credit default swaps is also rising, either as an outright trade or as a hedge against collateral held. As soon as “CDS” creeps back into the discussion, minds are jolted back to 2008.

If one were to do a word-count of everything uttered on business television this morning, both in the US and locally, the most used word would be “Lehman”.

Which poses a problem in itself. The world would probably be less concerned over the state of Deutsche’s capital and liquidity positions if 2008 had never happened. But it did, and investors are starting to play it safe lest the September of US election year 2016 starts to look like the September of US election year 2008. And next week it’s October.

Deutsche Bank shares fell 7% on the NYSE last night. Angela Merkel has said it will not provide the bank with any assistance in paying the US$14bn fine owed to the US Department of Justice. However, the German government cannot stand back and watch Deutsche go under. In Germany, Deutsche is Australia’s Big Four all wrapped into one. In the world, Deutsche is the biggest holder of financial derivatives.

Deutsche Bank cannot, nevertheless, be bailed out with taxpayer money under rules introduced by the ECB since the GFC. It can only be “bailed in”, meaning first the shareholders lose their money, then the bondholders lose their money, then depositors lose their money above the government guarantee level. We saw this in Cyprus in 2013.

That is not to say Deutsche is Lehman and 2016 is indeed 2008. Commentators have been quick to point out much is different. But if hedge funds start pulling their capital, it can’t be long before shareholders really start to head for the exits. If that happens, depositors won’t be far behind.

Wall Street did not close on its lows last night but it wasn’t far off. It was all about the banks.

Meanwhile, the US June quarter GDP result was revised to 1.4% growth last night, up from 1.2%. No one much noticed.

Commodities

West Texas crude gained another 1.2% in rising US58c to US$47.74/bbl.

Lead leapt 3.4% on the LME last night while ever volatile nickel fell 2.5%. Zinc rose 1.5% and copper and aluminium rose 0.5%.

Iron ore rose US20c to US$56.10/t.

The US dollar index is up slightly at 95.49 and gold is down slightly at US$1319.90/oz. One might expect a rush into the safe haven of gold if the word “Lehman” is being bandied about, whether justifiably or not, but 2008 reminds us that when stocks are plummeting and margins are being called, investors have to throw their gold overboard.

The Aussie jumped up the night before on the strong oil price and last night came right back down, falling 0.7% to US$0.7634.

Today

The SPI Overnight closed down 34 points or 0.6%.

It will be an interesting day on the local bourse. On the one hand we have building strength in the resource sector, underscored by last night’s big moves up for BHP and Rio, and on the other we have the banks, which are no doubt the thinking behind weakness in the futures this morning.

There’s one helluva long list of local and global economic releases on the calendar today.

In Australia we see private sector credit and new homes sales.

Japan will provide a monthly data dump of inflation, production and unemployment numbers.

Caixin will jump in early with its China manufacturing PMI for September because next week in China is Golden Week. The country will shut down this evening and not reopen until October 10. Beijing will release its official September manufacturing and service sector PMIs tomorrow.

The US will see the Chicago PMI tonight along with consumer sentiment and personal income & spending, including the all-important PCE measure of inflation.

Monday is a public holiday in NSW, the ACT, Queensland and South Australia. The ASX is open, but few banks and brokers will be. There will be no research to speak of. FNArena will thus publish a Monday Report but that will be all we can provide.

On Sunday night summer time begins in relevant states in Australia. This means come Tuesday morning, the NYSE will close at 7am Sydney time.

Rudi will link up with Sky Business this morning, through Skype, to discuss broker calls around 11.05am. Later he will appear in the studio for Your Money, Your Call Fixed Interest, 7-8pm.
 

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: Oil Shock

By Greg Peel

The Dow closed up 110 points or 0.6% while the S&P gained 0.5% to 2171 and the Nasdaq rose 0.2%.

Flat

Yesterday morning the Dow had closed up 133 points and the SPI Overnight had closed down 6 points. I suggested the disparity reflected the fact the Australian market had rallied back from early lows thanks to the Trump-Clinton debate and hence it was Wall Street playing catch-up.

No one told the computers, which is, I assumed, why the ASX200 bizarrely spiked up 30 points on the opening rotation yesterday morning before the humans sent it straight back down again to the flatline, where it then spent the rest of the session.

While most sectors closed little changed yesterday there were some big movers. Energy fell 1.2% as expected on the lower oil price, which was driven down by Saudi Arabia killing off any idea of an agreement being reached at the meeting in Algeria.

Energy sector traders will have whiplash today. Never trust any comment coming out of OPEC.

On the buy-side we saw a 0.9% gain in consumer staples thanks to a 2% rally in Woolworths ((WOW)) following the supermarket’s legal victory over Masters JV partner Lowes. And we saw a 2.2% spike for utilities thanks to a 6% pop in AGL Energy ((AGL)) following the announcement of a buyback and increased dividend payout ratio.

Beyond that there seemed little incentive to do anything much.

My God, there is a wolf

For over a year oil prices have been undergoing regular spikes on suggestions from OPEC members an agreement to cut oil production is in the offing. No one ever believes the suggestions, and the oil price always falls back down again, but it still rises each time just in case, one day, it might actually happen.

Oil prices rallied ahead of the meeting in Algeria on the same tired old talk no one really believed, and sure enough yesterday dropped again when Saudi Arabia insisted the meeting was not one at which an agreement would be reached.

Last night the weekly US inventory numbers surprised to the upside so oil fell further, that is until a shock Reuters report hit the wire.

OPEC has agreed to limit production to 32.5-33.0 million barrels per day, down from August’s 33.2mbpd level, beginning in November. The cartel will nut out the details at its formal meeting in November but it appears that in order to appease Iran and other members suffering their own individual problems, such as Nigeria, exemptions will be granted.

Once the new level has been established OPEC will then encourage non-OPEC members to get on board to establish global production limits.

Good luck with that.

The news sent oil price surging back in the other direction and currently WTI and Brent are up 5% over 24 hours. There are, of course, some points to consider.

Throughout its history, OPEC has set production quotas that have never been adhered to. The two other global swing producers are Russia and the US. Russia has often spoken to OPEC about production cuts but nothing has ever eventuated. There is no way the US would get into bed with OPEC. Not after what happened in the seventies.

Indeed, if OPEC does actually cut production and oil rises back above US$50/bbl, more idled US shale oil rigs will be swung back into action. And can anyone see Putin agreeing to cut production if the US does not?

But, maybe it’s all a step in the right direction. OPEC economies are bleeding, including that of Saudi Arabia. We’re never going to see an oil price back in triple digits in the foreseeable future, but at least we won’t see US$20/bbl.

The Dow was down 50 points early in the Wall Street session when the OPEC news hit the wires. Investors piled back into the Exxons and Chevrons of the world and a hundred point rally was achieved by the close.

In other news, US durable goods orders were flat in August after a strong July, beating expectations of a 1.5% drop. But taking out lumpy transport orders left a 0.4% fall.

Deutsche Bank has announced it will sell its insurance business, as a means of shoring up its crumbling balance sheet. Deutsche shares jumped 3%.

The Deutsche Bank news is interesting, as it raises a structural question with regard banks across the globe. Bank analysts in Australia have for a long time been suggesting that perhaps the simplest way for Australian banks to satisfy new capital requirements in a world of stricter regulations and low earnings growth is to sell off their wealth management and life insurance businesses to wealth managers and insurers, and stick to good old fashion banking.

It’s hard to argue, given life insurance in particular has been an unwanted drag on already tepid bank earnings.

Commodities

West Texas crude is up US$2.22 or 4.9% at US$47.16/bbl.

If we take the view that stronger oil prices are positive for global growth, we might see why all base metals were up last night, although only lead exceeded a 1% gain.

Iron ore fell US30c to US$55.90/t.

The US dollar index is down slightly at 95.39 and gold is US$5.60 lower at US$1321.40/oz.

Stronger oil prices have pushed the Aussie up 0.3% to US$0.76.90.

Today

The SPI Overnight closed up 41 points or 0.8%. Watch that energy space.

The US June quarter GDP result will be once again revised tonight. Economists are expecting a slight improvement.

There is another round of ex-divs on the local market today and Aristocrat Leisure ((ALL)) will provide an investor briefing.
 

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: Clinton Confidence

By Greg Peel

The Dow closed up 133 points or 0.7% while the S&P gained 0.6% to 2159 and the Nasdaq rose 0.9%.

Ebb and Flow

The ASX200 plunged 60 points on the opening rotation last night, as the computers went wild on the possibility of a European bank going to the wall. As is so often the case in today’s trading environment, humans then stepped in to steady the ship. But there was not a lot of enthusiasm to start buying ahead of what was arguably the most anticipated presidential candidate debate in history.

The debate kicked off at 11am Sydney time and immediately the ASX200 began to rally. The index then flattened through the course of the one and a half hour ordeal (can you imagine having to sit through Turnbull/Shorten for a full 90 minutes?) and thereafter rallied in a second wave. The opinion is Clinton emerged a victor, or more realistically, an under-prepared Trump was a clear loser.

The rally back did not so much represent the opinion of Australian investors on the matter but rather what was going on in offshore markets at the time. The Dow futures rallied, suggesting a stronger session for Wall Street last night. The Mexican peso soared, suggesting forex traders had clearly given the debate to Trump.

What we can conclude from last night’s action is that global financial markets want a Clinton victory. By default, market capitalists are typically Republican supporters. But The Donald is not your average Republican and even if his fiscal policies are more appealing to Wall Street, the thought of Trump holding the launch codes is just too frightening. Hillary Clinton has very few fans on Wall Street, but it’s better the devil you know.

So yesterday afternoon the European banking crisis was put aside. The local financials sector ultimately closed down 0.8% nonetheless to provide the biggest market cap influence in the final 0.5% market loss. What we didn’t see was an offset from the energy sector which we might have assumed given the oil price had rebounded. But again, our own time zone came into play.

With the OPEC meeting yet to be held, Iran declared it had no interest in freezing production. Hardly a surprise, given Iran has said all along it will only consider a freeze once it has returned to pre-sanction production levels. So the meeting will again be a dud, but there is scope for an agreement to be reached at the regular OPEC meeting at the end of the year, assuming that by then Iranian production will have reached the target.

Oil futures fell on the news and as a result, the local energy sector closed down 0.8%. All sectors finished in the red yesterday bar healthcare, which jumped 1.3% thanks to ever popular CSL.

Status Quo

As all commentators are noting, there are two more presidential debates yet to be held and a vice presidential debate to boot before America goes to the polls. History suggests many an undecided American voter makes up their mind after the first debate, but history also shows winners of the first debate do not always become president.

Few on Wall Street like Obamacare, Dodd-Frank or the TPP but The Donald is just too much of an unknown factor and the greatest enemy of markets is uncertainty. A Democrat victory implies maintenance of the status quo, and while not encouraging, it’s better than the alternative. So sayeth the market.

Realistically, last night’s rally on Wall Street occurred before the market opened. The Dow futures had rallied 0.6% on the debate and the Dow closed up 0.7%. There was a bit of a stumble early given the drop in the oil price, also already in place thanks to electronic trading. But oil did manage to come back from a fall closer to 3% to this morning be down only 1.5%.

Wall Street also saw data early in the session that showed the Conference Board’s monthly consumer confidence index had risen to 104.1 to represent the highest level of confidence since August 2007, just before the world started to fall apart. This news had a double impact.

Firstly, strong consumer confidence is very good news for an economy 70% reliant on domestic consumption. Secondly, history shows that strong consumer confidence numbers heading into an election typically signal a return of the incumbent party. This makes logical sense.

The morning session was still affected by lingering bank fears nonetheless, until a US Department of Justice official came out to say Deutsche Bank could have its US$14bn mortgage-related fine reduced if it is prepared to cooperate with the authorities. Deutsche Bank shares didn’t exactly rebound on the news but they did steady, allowing Wall Street to focus more specifically on domestic politics.

The US ten-year bond yield nevertheless continued to slide, down 3 basis point to 1.56% last night, in line with ongoing weakness in the German equivalent as this latest bank crisis plays out.

Commodities

The Donald, it appears, is a risk factor. Aside from US bond yields which are playing a different game, last night saw Wall Street up, the US dollar up, the Aussie dollar (perceived as a risk currency) up, and gold, the main sovereign risk indicator, down. In other words, it was ‘risk off” all round last night on Clinton’s perceived victory.

The US dollar index is up 0.2% at 95.47, the Aussie is up 0.4% at US$0.7667, and gold is down US$10.90 at US$1327.00/oz.

West Texas crude is down US69c at US$44.94/bbl.

It was another mixed bag for base metals, with nickel, lead and zinc all up 1% and copper and aluminium down 1%.

Iron ore fell US20c to US$56.20/t.

Today

The SPI Overnight closed down 6 points. We can interpret the mild weakness as a suggestion Wall Street’s debate-related rally last night was already reflected in yesterday’s comeback for the ASX200 from opening lows, and that oil price weakness had already been assumed.

OPEC will meet tonight but nothing is expected.

Janet Yellen will make a bi-annual testimony before the House financial committee tonight, and US durable goods orders numbers will be released.

AGL Energy ((AGL)) and ASX ((ASX)) will hold AGMs today and there are a handful of ex-divs, including Myer ((MYR)).

Rudi has swapped his usual Thursday appearance on Sky Business and thus will make his appearance today, 12.30-2.30pm.
 

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

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

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

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article 3 months old

What If Donald Trump Wins?

Analysts sift through Donald Trump's economic policies to suggest how the financial markets will react if he wins the US presidency.

-Trump's economic policies are highly inflationary, with large tax reductions planned
-Australian dollar to weaken as US dollar rises on cash repatriation and higher bond yields
-Lift in tariffs negative for bulks and base metals before likely stimulus response from China
 

By Eva Brocklehurst

What will it mean for global financial markets if Donald Trump wins the US presidency? Analysts from Commonwealth Bank sift through his economic policies to date and note these, overall, are very inflationary. Assuming such policies pass through the US Congress the analysts anticipate higher US bond yields, a flatter yield curve, higher US equity markets and a stronger US dollar.

Donald Trump proposes to reduce income taxes in order to lift household and business spending, meaning the US economy would grow at a more rapid rate given consumption accounts for 70% of the country's GDP. The CBA analysts believe the reduction in the company tax rate to 15% from the current scaled variable rate of 15-35% would result in a higher re-rating of US equities as increases in net profit valuations surge. US corporates would repatriate profits, now they are subject to less tax, into the US economy, thus lifting the US dollar.

Mr Trump also proposes to boost infrastructure spending and abolish regulations which inhibit job growth but has provided few details, and the inflationary aspects are expected to evolve over time. His proposal to wind back environmental restrictions that inhibit energy investment is likely to have a mixed impact on oil, as increased supply may put downward pressure on prices but extra demand may absorb this supply.

Other policies are protectionist, such as re-negotiating the North American Free Trade Agreement and applying tariffs and duties on “countries that cheat”. These are considered likely to result in higher US import costs, inflation and lower US exports, even if other countries and China do not retaliate.

The analysts acknowledge policy positions are subject to change but the initial response to a Donald Trump win is likely to mean a lift in the US dollar, given the implications of higher inflation and US interest rates as well as capital inflows. The CBA analysts expect the Australian dollar could decline by up to 10% over a 12-18 month period because of the stronger US dollar and weaker Chinese and Asian economies, with some downward pressure on Australian energy export prices.

There may be some support for the local currency as US-led global equity markets lift, and also as base metal prices are driven higher by stronger US economic growth. The analysts also expect the decline in the Australian dollar will reduce the change of additional official rate reductions from the Reserve Bank. The analysts expect a Trump victory will produce a short-term commodity price reaction and it will probably be treated like a risk event, such as the recent decision by Britain to leave the European Union.

The negative impact on bulk commodities and base metal prices from the proposed 45% lift to the tariff on Chinese imports is likely to be mitigated by China enacting a round of stimulus. With this in mind the commodity price reaction is expected to first be negative and then positive once China responds.

Iron ore will also be more immune, the analysts contend, to the negative consequences of additional tariffs, given US tariffs already exists on some Chinese steel imports. Moreover, there is also the question of how effective tariffs specifically applied to China will be, given the diversity in the global manufacturing supply chain. It is likely tariffs will need to be placed on other countries as well and it is not clear if Donald Trump is willing to take this step.

Analysts at Seeking Alpha believe investors should prepare for more volatility as the election approaches. If Donald Trump wins they expect a broad sell-off, which could be an opportunity to buy those stocks which may benefit from a Trump presidency.

Lower tax rates and the proposed tax holiday for cash parked overseas – US companies hold around US$1.2 trillion in cash abroad – could mean more capital expenditure, mergers & acquisitions, dividends and share repurchases. The analysts expect this to be good for the US stock market in the longer term.

Seeking Alpha analysts expect gold might benefit in the uncertain environment of a Trump victory, with stocks such as SPDR Gold exchange traded fund (ETF) and iShares Gold ETF possibly spiking in the days following the election.

The analysts suggest the promise of a massive reduction in energy red tape via the repeal of the Clean Power Plan and Climate Action Plan could mean support for SPDR Energy Select Services ETF and the VanEck Vectors Coal ETF. Defence companies such as Raytheon and Northrop Grumman should benefit from the proposal to boost defence spending. Biotech stocks which have been under pressure from Hilary Clinton's criticism of drug pricing policies may also rebound on a Trump win, such as the iShares NASDAQ Biotech ETF.

Seeking Alpha analysts agree the plans for infrastructure spending and massive tax cuts would mean a large issuance of Treasuries. Hence US bond yields would rise. Their last word of advice is: Avoid all Mexican stocks and the peso if Donald Trump wins.
 

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article 3 months old

The Overnight Report: Deutsche Uber Alles

By Greg Peel

The Dow closed down 166 points or 0.9% while the S&P lost 0.9% to 2146 and the Nasdaq fell 0.9%.

Fresh Fear People

It seems the Germans have been front and centre of corporate news these past twenty four hours.

While Woolworths ((WOW)) has suffered through its Masters failure, with problems still ongoing, the biggest negative influence on Australia’s established supermarkets recently has been the incursion of Aldi. Now the news is another German chain, Lidl, is eyeing off prospects downunder.

This news sent Woolworths shares down 2% yesterday, dragging the consumer staples sector to a market-leading 1% loss. On the flipside, the potential of a new player in the game meant a good day for the retail REITs, with Scentre Group ((SCG)), Vicinity Centres ((VCX)) and Westfield ((WFD)) all enjoying gains.

It was also a good day for serial laggard SAI Global ((SAI)) following a takeover bid from private equity.

Otherwise the focus was on the energy sector, with the oil price having fallen 3% on Friday night. Energy stocks duly opened weaker and dragged down the ASX200, but oil prices began to recover over the Asian session and in the end, the local energy sector closed flat.

In the ongoing soap opera that is OPEC, On Friday night we saw oil futures sell off heavily following comments from the Saudis that this week’s meeting is merely a consultation and no agreement on a production freeze is expected to be reached. But since then the Saudis have flipped the game around once more, suggesting they are prepared to actually cut production rather than offer what is really a meaningless freeze at record levels.

Could there be any skerrick of truth in this suggestion? History would suggest no, but risk would suggest it’s best to play it safe. So this morning the WTI price has recovered 2%.

The wash-up in Australia yesterday was a pretty flat close across most sectors, including the banks. That could change this morning.

Don’t Mention Lehman

Unlike US and Australian banks, European banks have not spent the period since the GFC rebuilding and then reinforcing their balance sheets, whether willingly or under regulatory pressure. Instead they have been forced to deal with ongoing trading losses as the European economy has shifted from crisis to crisis, from Grexit to Brexit, without ever gaining meaningful traction.

Earlier this year, as one by one the big names in European banking reported significant losses, share prices began to sink like stones. Leading charge was Deutsche Bank. But Deutsche was able to right the ship, and the sector, by exploiting a zero interest rate environment to instigate a significant share buyback. This has nevertheless only proven to be a temporary reprieve.

The US Department of Justice has spent the last year handing out massive fines to all banks operating in the US which relate to mortgage sales dating back to pre-GFC. Recently, Deutsche copped a US$14bn fine. Once upon a time this was a lunch bill for Germany’s leading bank. But now Deutsche is wondering just where it might find the money. Angela Merkel has ruled out a government bail-out. The fear is Deutsche may need to raise capital.

Deutsche shares fell 7% last night and took the global banking sector down with them. The recovery in the oil price provided some balance but not enough to prevent 0.9% falls in the major indices. It is also assumed some nervous investors were moving to the sidelines ahead of the circus that is the first US presidential debate, due to kick off later this morning Sydney time.

Commodities

West Texas crude is up US94c or 2.1% at US$45.63/bbl.

Clearly base metals traders are not currently focused on any macro themes. Last night saw aluminium up 1.5% and lead, which had fallen on Friday night, up 1.5%, nickel down 1%, copper down 0.5% and zinc flat.

Iron ore fell US10c to US$56.40/t.

The US dollar index is down 0.2% at 95.30 and the Aussie is up 0.2% at US$0.7636 but gold is rock steady at US$1337.90/oz.

Today

The SPI Overnight closed down 44 points or 0.8%. Yesterday it was oil, today it is the banks expected to lead the market lower.

While presidential debates normally having little impact on financial markets, this time it’s potentially different. Asian-zone markets will be first responders if there is any major stumble, and the assumption is any apparent ascension by The Donald would evoke a disquieting feeling of dread.
 

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

article 3 months old

The Monday Report

By Greg Peel

Sea of Green

It was a text book rally on the local market on Friday as the index tracked a 45 degree straight line from the bottom left of the chart to the top right, closing on its highs. The ASX200 pushed solidly past the 5400 resistance level and for the first time in a while, every sector finished in the green.

The resource sectors were the underperformers, posting only small gains, but they had had their moment in the sun on Thursday following the Fed meeting. Notably, telcos won the day with a 2% gain while the other yield sectors of utilities, banks and staples all pushed up over 1% in an otherwise consistent market-wide run.

Things are looking a little different this morning following a sharp drop in the oil price on Friday night which saw the US energy sector leading Wall Street lower. The same will no doubt be repeated today locally but mostly confined to the energy sector rather than across the market.

Wolf!

The unofficial OPEC meeting planned for the end of the the oil conference in Algeria this week started out as simply a good opportunity to have a chat while everyone’s present, then became a formal meeting at which a production freeze would be discussed and possibly agreed upon, and now is back to merely a “consultation”, according to the Saudis, after which it is unlikely any agreement will be reached.

What a shock.

WTI was down 4% at one stage on Friday night before settling back to close down 3% on Saturday morning.

While Saudi Arabia has offered to lower its production from record levels as part of an agreement, as long as everyone’s on board, Iran is still in the process of ramping up its production post the lifting of sanctions. It would not be too much of a burden on the Saudis to freeze at a near record production level but Iran is not interested in being stuck, after all its time in the wilderness, at a level representing under-capacity.

Perhaps when full capacity is reached Iran might come to the table, but until such time there’s really no point in contemplating any sort of OPEC freeze. Yet still the market prices one in each time, only to be disappointed, each time.

In other news that no one should be too surprised about, iPhone7 sales have not been as flash as expected in the opening weekend. We recall that on better than expected iPhone7 pre-sales, Apple shares ran up 12% recently.

On Friday night they fell 1.5%, which is not a lot under the circumstances but America’s biggest company need only blink to shift all the indices by a margin. Between oil and Apple, the Dow closed down 131 points or 0.7%, the S&P down 0.6% to 2164, and the Nasdaq down 0.6%.

Apple had said all along that following the step-up in technology that was the iPhone6, the iPhone7 would only be incrementally different. The next step-up will come with next year’s iPhone8. So the fact sales of the 7 have apparently fallen short of comparative sales of the 6 is no real surprise.

With central bank shenanigans not over in the near term, Wall Street’s attention now turns once again to earnings results, with September quarter numbers being reported from next week. US stock markets remain near all-time highs but forecasts are yet again for a net earnings decline, albeit only 2% for the S&P500 this time rather than numbers around the 6% mark or worse that have preceded the last few quarters.

Commodities

West Texas crude fell US$1.41 or 3.1% to US$44.69/bbl.

After a solid Fed-related run the night before, base metals returned to being mixed on smaller moves on Friday night. Lead fell 1.5%.

Iron ore rose US20c to US$56.50/t.

Gold is barely changed at US$1337.10/oz.

The US dollar index is 0.2% higher at 95.51 and the Aussie is 0.3% lower at US$0.7618.

The SPI Overnight closed down 24 points or 0.4% on Saturday morning, thanks to oil.

The Week Ahead

The oil conference in Algeria begins tonight and the OPEC “consultation” is set for Wednesday night.

The US will see new home sales tonight, Case-Shiller house prices, Conference Board consumer confidence, the Richmond Fed activity index and a flash estimate of September services PMI on Tuesday, and durable goods on Wednesday.

On Thursday it’s pending home sales, the trade balance, and the “final” revision of September quarter GDP. An upgrade to 1.3% from 1.1% is expected. Friday it’s personal income & spending, Michigan Uni fortnightly consumer sentiment and the Chicago PMI.

Japan will see retail sales numbers, industrial production, unemployment and inflation late in the week.

There’s an awful lot of central bank chatter set for this week, including from the BoJ governor (twice), the ECB president and no less than ten different speeches from Fedheads across the week, the last being from Janet Yellen.

It’s a quiet economic week for Australia until Friday, when private sector credit and new home sale numbers are due.

On the local stock front there’s another handful of ex-divs to work through.

Rudi will appear on Sky Business on Thursday, 12.30-2.30pm and again on Friday, via Skype link around 11.05am to discuss broker calls. Later on the Friday he'll participate in Your Money, Your Call Fixed Interest, 7-8pm.
 

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article 3 months old

Next Week At A Glance

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


By Greg Peel

The central bank circus has left town for now. Next week the focus will be on the OPEC circus.

On Monday through Wednesday next week an oil conference will be held in Algiers. Following the conference on the Wednesday, OPEC will hold what is now a formal meeting. On several occasions to date Saudi Arabia has talked the talk on a production freeze but each time this has come to nought. The main stumbling block has been Iran.

Having only just been allowed to export oil again, there was no way Iran was going to re-enter the market only to be hit by a production freeze. But now, supposedly, Iran is prepared to talk.

Supposedly. With grains of salt at the ready, we await Wednesday night.

US data releases next week include new and pending home sales and house prices, consumer confidence, durable goods, trade, personal income & spending, the Richmond Fed index and the Chicago PMI. The final revision of June quarter GDP will also be released. “Final” unless it is revised again on the release of the first estimate of September quarter GDP.

But it’s old news.

There’s a dearth of economic releases in Australia until we get to Friday, when private sector credit is due.

On the local stock from there are still some ex-divs to work through but the fact we are now seeing the odd company AGM reminds us that October is when the AGM season really ramps up.


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article 3 months old

The Overnight Report: Afterglow

By Greg Peel

The Dow closed up 98 points or 0.5% while the S&P gained 0.7% to 2177 and the Nasdaq rose 0.8%.

Well Resourced

In the footsteps of the BoJ, the Fed was next to give the Australian market cause to recover yesterday. But buying was by no means evenly spread.

Finally we did see the beaten down junior telcos catch a bid, sending that sector up 1.0%, but while yield stocks had been the biggest victim of Fed rate rise fears leading into the September meeting, they did not recover any ground yesterday. The banks and consumer staples were both flat, and utilities fell 0.7%.

While industrials and healthcare put in decent performances, it was left to the resource sectors to drive the index higher. Energy rose 2.1% and materials 2.6%.

If yield stocks and resources were sold down ahead a Fed meeting that might have brought a rate hike, why have only resources recovered on no rate hike? Perhaps it’s because yield stocks were being called overvalued two weeks ago and resource stocks were not.

The odds of a December Fed rate hike have now firmed to over 60%. Is it worth pushing the PEs of yield stocks back up again over the next three months just to go through the same Fed hike sell-off? What we’ve likely seen is a rebasing to more realistic valuations.

Resource stocks were never called overvalued, rather there was only concern among analysts that rallies in the prices of iron ore, coal and oil would not prove sustainable. But those analysts have quietly begun to change their tune. There may yet be some price pullback, but more and more commentators have decided the trough in commodity prices is now in place, and the outlook for resource companies is much brighter following cost cuts and debt reductions. Cash is flowing in abundance.

A stronger US dollar is still the enemy of commodity prices, and a Fed rate hike would push the greenback higher, but at the end of the day demand and supply rule the commodity space.

That said, I noted yesterday that we’d have to wait until this morning to see how base metal prices responded to the no Fed rate hike given the LME was closed when the action started on Wall Street. Well, base metal prices all soared last night.

Gold has stalled following Wednesday night’s rally while oil is higher again and iron ore is up. It should be another good day for the resource stocks on the local bourse, with the futures suggesting up 27.

That would take the ASX200 up to 5400 once more.

Now What?

Suddenly there was a vacuum of anticipation, debate and argument last night on Wall Street given the central bank race has now been run and, as far as equity markets are concerned, won. So it’s back to TINA.

Given more than half of the market now believes a December Fed rate hike is inevitable, and that it will have to happen either way for the Fed to avoid losing whatever skerrick of credibility it has left, that reality is not much of a threat. One 25 basis point hike over the space of twelve months, with the prospect of another one not being for yet another twelve months, is little impediment to buying into the one market offering any sort of return.

It’s dangerous of course – buying stocks simply because there is no alternative, and at some point overvaluation calls must begin to strengthen if Wall Street just keeps on keeping on. Each move up in the Nasdaq at the moment is a new all-time high, but there are some themes running behind the scenes that are actually based on reality.

The aforementioned call of a trough in commodity prices is one. The undeniable advance of technology is another.

There’s a lot of data out in the US next week but we have three months to worry about any trends (no one believes the Fed would hike in November ahead of one of the most critical presidential elections in memory). The greatest focus will be on the OPEC meeting next week, which apparently has now been declared “formal” rather than “informal” as previously suggested.

Why? Is there a big announcement coming?

Next week will be the last in the historically worst trading month of the year, before we enter the historically scariest trading month of the year – October.

Commodities

There was no mucking around on the LME, and maybe a few short positions ahead of the Fed meeting. Lead rose 1%, zinc 1.5%, copper 2% and aluminium and nickel 3%.

Iron ore is up US90c at US$56.30/t.

West Texas crude is up US48c at US$46.10/bbl.

After its twenty dollar jump on Wednesday night, gold is just a tad higher at US$1336.70/oz.

The US dollar index is another 0.1% lower at 95.37 and the Aussie is 0.1% higher at US$0.7643.

Today

The SPI Overnight closed up 27 points or 0.5%.

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

The calendar for Australian stocks is blank today. Not even an ex-div (among broker-covered stocks).

Rudi will link up with Sky Business through Skype at around 11.05am to discuss broker calls.
 

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article 3 months old

The Overnight Report: Double Header

By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2139 and the Nasdaq rose 0.1%.

Poised

It was a wild old opening on the local market yesterday as the ASX computers worked through the process of matching out orders left over from Monday’s abbreviated session. When the dust settled the ASX200 came out relatively flat but for one rather notable move in the telcos sector.

One consistent theme of the August results season was some big drops among those “new world” and often smaller names that had been bought up into overvalued territory, thus risking a stampede to the exits on even the slightest hint of disappointment. Yesterday TPG Telecom ((TPM)) underscored that theme with its out-of-cycle report.

TPG has been among the popular stocks of 2016, rising over 30%. Yesterday’s result was largely in line with forecasts but weaker guidance came as somewhat of a shock, and the stock plunged 21% to basically wipe out the year’s gains. Subsequently, the telcos sector was the worst performer on the day with a 2.6% drop.

Despite no one expecting any shocks from the minutes of the September RBA meeting, released late morning, the stock market still fell in response. Perhaps some were hoping that while the September statement provided no suggestion of an imminent rate cut, the minutes might. They didn’t.

The board reiterated that “the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time”. This conclusion does not rule out another rate cut, but provides no reason to believe there’s one around the corner.

The index nevertheless climbed back in the afternoon to a slight positive close. The only other sector to finish in the red on the day was energy, down 0.9% despite a flat oil price. Materials rose 0.7% on better metals prices. These two sectors have been playing topsy-turvy for the past few days.

From a technical perspective, the index struggled back to close just over 5300 – a nice springboard position to contemplate the impact of whatever happens over the next 24 hours.

The Bank of Japan will deliver its policy statement at some time today. The BoJ is not into standard release times, and if you go to its website the scheduled time of release is “undecided”. With Tokyo a couple of hours behind Sydney, we may still be in the dark on the close.

In a tale of two central banks, it’s a case of whether the BoJ eases or remains on hold and whether the Fed tighten or remains on hold. While markets are mostly convinced the Fed will do nothing, the BoJ’s track record of surprising and the fact it is known the board members are split down the middle means nobody really has a clue what today might bring.

One More Sleep

It is really quite tedious the way these quarterly Fed meetings have become major market “events” but unfortunately that’s the world we now live in. Wall Street was expected to be quiet last night and it stuck to the script.

There was some surprise when data showed US housing starts dropped 5.8% in August, when only the night before the housing sentiment index surprised to the upside. But the drag came from the south, which suffered extensive flooding in the month.

The Fed funds futures are pricing in around a 15% chance of a rate hike. On the other hand, there are still those sticking to their guns that the Fed is set to spring a surprise, notably Barclays, Bank Paribas and US bond guru Bill Gross, formerly of Pimco.

What is agreed upon is that were the Fed to indeed surprise, the market would not like it. Were it not to hike, the market will probably just bungle along again towards the election.

There is no more that can be said at this point.

Commodities

It was zinc’s turn to have a pop on the LME last night, rising 2.3%. Nickel kicked on its recovery with a 1.4% gain while copper rose 0.6%.

Iron ore was unchanged at US$55.30/t.

West Texas crude is up US12c to US$43.30/bbl.

Gold is again little changed at US$1314.60/oz.

The US dollar index is up 0.1% at 95.98 and with no sign of an RBA rate hike, the Aussie is up 0.2% at US$0.7553.

Today

The SPI Overnight closed down 9 points.

I think we’re all aware there are a couple of central bank meetings coming up.

Kathmandu ((KMD)) and Nufarm ((NUF)) will release earnings results today and Newcrest ((NCM)) is among a small group going ex.
 

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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