Tag Archives: United States

article 3 months old

The Overnight Report: Jittery

By Greg Peel

The Dow closed down 3 points while the S&P closed flat and the Nasdaq lost 0.2%.

No Hack

Futures traders had called for a flat opening on the local market yesterday and they were bang on – the market didn’t open at all. When it did eventually open at 11.30 the ASX200 immediately fell 23 points, probably driven by sellers who still haven’t been able to fill out the census and feared something sinister.

Just a technical glitch, the ASX declared, and quickly the index was back to flat again, before once again the exchange crashed at 2pm. No amount of scrambling from the geeks could prevent the umpires eventually abandoning play for the day.

The futures are showing down 5 points this morning, but the focus will be not on whether this proves accurate but on whether the exchange opens at all. The ASX has insisted this was not a hack, so presumably the geeks have put in an all-nighter and things should be up and running as normal.

Yesterday was not normal nonetheless, and there were likely a lot of players who elected to stand aside. There was a weakish lead from Wall Street to contend with but just as well this didn’t occur on a day promising elevated volatility. In the wash-up, the flat close was made up of a gain for materials balancing out a fall for energy, and falls in the consumer sectors of discretionary, staples and healthcare balanced by a small gain for the banks.

Beyond that, we can pretty much write yesterday off. We can assume a lack of volatility in the lead-up to the BoJ and Fed meetings on Wednesday and with Wall Street dead flat last night, not a great deal is expected today.

The Great Unknown

The flat close on Wall Street gave the impression the market did absolutely nothing last night as it awaits the central bank meetings but in fact the Dow was up a hundred points early, then down 50 and up 50 before finally going nowhere.

The initial rally was linked to the oil price. Venezuela declared last night a deal among OPEC members to freeze production is imminent, with OPEC set to hold an extraordinary meeting in Algiers this weekend. Those who are prepared to believe, or who just don’t want to be caught out, sent oil prices higher early in the session and the stocks indices followed.

Those who don’t believe there will be a wolf this time either then sent oil prices back down again, to flat, and dutifully the stock indices followed suit.

The only other news of influence on Wall Street last night was the monthly housing sentiment index, which showed a jump to 65 from 59 when assumptions were for no change. This 50-neutral index now suggests home builders are feeling more confident than they have so far this year.

Otherwise, it’s all about central bank speculation. Commentators agree that while the Fed’s decision is of vital importance, perhaps more important is what the Bank of Japan decides several hours earlier. The BoJ is known to be split down the middle on policy direction, leading to speculation it could either cut further into the negative or, given easing simply has not worked for Japan to date, surprise by going completely the other way, perhaps winding back QE.

It’s a great unknown, as is what the Fed might do. While few believe the Fed will hike based on the data, there are those who believe the FOMC will hike anyway just to save face and restore some credibility. What is agreed is that Wall Street has not priced in a September rate hike, and if there is one, the initial response could be ugly.

But then it may come down to what the BoJ does first.

Commodities

West Texas crude is up a cent at US$43.18/bbl.

There was suddenly a bit of action on the LME last night, with nickel jumping 4%. Zinc and lead rose 1% while copper slipped a little.

With China back on board, iron ore fell US20c to US$55.30/t.

Gold is relatively steady at US$1312.80/oz.

The US dollar index has dropped 0.2% to 95.86 but the Aussie has shot up 0.6% to US$0.7535, probably on vision of Malcom Turnbull strutting around the NYSE last night chatting to all and sundry.

Today

The SPI Overnight closed down 5 points.

It is hoped that at 10am, the ASX will open.

The minutes of the September RBA meeting will be released today, chronicling Glenn Stevens’ last meeting in the chair, with nothing of any great consequence expected.

TPG Telecom ((TPM)) will release its earnings results today.

Rudi will skype-link up with Sky Business today at 11.15am to discuss broker calls.
 

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

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

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article 3 months old

The Monday Report

By Greg Peel

Oversold

The local market decided on Friday that the Fed was not going to hike this week or, if it does, relevant stocks have been sold down far enough to take that into account. With the FOMC meeting now only three days away, no US data releases with the power to make a difference in the meantime, and Fedheads “blacked out” from making comments, nothing will change from here.

But that doesn’t mean we know what the Fed is going to do. The odds still favour no hike, however there’s a lot of “But I wouldn’t be surprised if…” going around. Anyway, soon we’ll know.

We may not get much action between now and Wednesday, when the Bank of Japan meets, and Wednesday night, when the Fed statement is delivered, and to underscore that likelihood, the SPI futures closed unchanged on Saturday morning. Japan is closed today and there are no local data releases of note.

The RBA will release the minutes of the September meeting tomorrow but they are unlikely to tell us anything new.

It was a strong session on the local bourse on Friday nonetheless. Having been the biggest loser over the last couple of weeks, utilities finally bounced back with a market-leading 2.3% gain. Telcos (+1.6%) and the banks (+1.1%) joined in the yield stock recovery but the rally was market-wide. Materials did little and staples struggled to 0.5% but otherwise other sectors posted around 1-1.5% gains.

Energy posted a 1.2% gain but that could change today. The oil price was up on Thursday night and down on Friday night and energy stocks have returned to their earlier bad habit of flying up and down on every little swing in oil prices, usually to go nowhere much.

Otherwise we’re in for another week of central bank watching.

Apple’s Week

The US CPI rose 0.2% in August when 0.1% was expected, taking annual headline inflation to 1.1%. The core CPI, which in particular excludes weak oil prices, rose 0.3% to 2.3%.

Once upon a time, Ben Bernanke’s targets to trigger the normalisation of US rates were 5% unemployment and 2% inflation. Unemployment is at 4.9% and inflation is at 2.3%. By rights, we should be having a rate hike.

But it’s not that simple. For starters, the Fed prefers the PCE measure of inflation over the CPI and that’s still under 2%. And does it make sense to ignore oil prices as if they have no impact? On the labour front, the 4.9% unemployment rate masks a record low participation rate and a high percentage of Americans without a job who don’t even bother trying, suggesting there remains plenty of slack in the labour market.

This is why there is no cut and dry expectation on Fed policy.

Wall Street has adjusted just in case. Two Fridays ago Wall Street tumbled as Fedheads made the case for a rate hike in September. From that new base, last week saw the S&P500 climb back ten points. Seven of those ten points are entirely attributable to the 12% rally in Apple shares. So ex-Apple, Wall Street has still very much adjusted for the elevated chance of a rate hike.

Does this mean, therefore, that if the Fed doesn’t hike this week, and Janet Yellen does not say anything definite enough that would lock in a December hike, that Wall Street will rally hard?

Maybe, but again, we’ll just have to wait and see. And the BoJ meets first.

Friday night’s session on Wall Street may have been a little better but for another dip in oil prices, courtesy of another increase in the US rig count, and a US$14bn fine slapped on Deutsche Bank which dates back to mortgage lending pre-GFC. Deutsche shares plunged 9%.

Banks in general were sold down in sympathy, largely because of regulatory fears and not because of Fed speculation.

Thus the Dow closed down 88 points or 0.5%, the S&P lost 0.4% to 2139 and the Nasdaq dropped 0.1%. On Friday night Apple shares finally gave back 0.5%, just as the iPhone7 actually hit the stores.

Commodities

West Texas crude fell US54c to US$43.17/bbl.

Base metal moves in London were mixed, with no price moving more than 1%.

With China on a holiday, iron ore remained unchanged at US$55.50/t.

The interesting thing about these smallish moves in commodity prices is that the US dollar index was up a solid 0.8% on Friday night at 96.04. This was attributed to the bigger than expected gain in the CPI, which in theory strengthens the odds of a Fed rate hike.

It was enough to see gold down US$4.10 to US$1310.00/oz but the US ten-year bond rate remained unmoved at 1.70%.

The Aussie is down 0.3% at US$0.7489.

The SPI Overnight, as noted closed unchanged.

The Week Ahead

The Fed statement will be released on Wednesday night, Janet Yellen will hold a press conference thereafter, and updated FOMC forecasts will be published.

The Bank of Japan will meet on Wednesday. Japanese markets are closed today and Thursday.

US data this week include housing sentiment tonight, housing starts on Tuesday, house prices, existing home sales, leading economic indicators and the Chicago Fed national activity index on Thursday, and a flash estimate of September manufacturing PMI on Friday.

The eurozone and Japan will also flash PMIs on Friday.

In Australia we’ll see June quarter house prices tomorrow along with the RBA minutes. On Thursday RBA governor Phillip Lowe will make his inaugural testimony before the House of Reps economic committee.

On the local stock front, Orocobre ((ORE)) will report earnings today, TPG Telecom ((TPM)) tomorrow, Kathmandu ((KMD)) and Nufarm ((NUF)) on Wednesday and Brickworks ((BKW)) and Premier Investments ((PMV)) on Thursday.

There are still a few ex-divs to work through, particularly on Thursday.

Rudi will appear on Sky Business on Tuesday, through Skype-link, to discuss broker calls at 11.15am. On Thursday he'll return in the studio from 12.30-2.30pm and again between 7-8pm for the Switzer Report. On Friday, he'll repeat the Skype-link up to discuss broker calls at around 11.05am.
 

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)

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

There’s only one event that matters next week – by Thursday morning our time the Fed will finally have put us out of our misery.

Briefly, at least. Assuming no rate rise, and we can’t be absolutely sure, attention will then turn to three months of debating a December rate rise. Along with the September policy statement, Thursday morning will feature a press conference from Janet Yellen, including a Q&A, and also the infamous “dot points”, which outline each FOMC member’s forecast of interest rate trajectory over the next couple of years.

But the day before the night of the Fed meeting, the Bank of Japan will also hold a policy meeting. Word is that the BoJ board is split down the middle between those believing a move further into the negative for the cash rate is the right thing to do and those who don’t.

So once again markets will find themselves completely beholden to central bank policy.

And the minutes of the September RBA meeting will be released next week.

Back in the real world of actual data (if data is ever actually real) the US will see housing sentiment and starts, house prices and existing home sales next week along with leading economic indicators, the Chicago Fed national activity index and a flash estimate of September manufacturing PMI.

It’s a quiet week for Australian data, with June quarter house prices the only real highlight.

On the local stock front, next week will feature earnings results from Kathmandu ((KMD)), Nufarm ((NUF)), Orocobre ((ORE)), Brickworks ((BKW)) and Premier Investments ((PMV)).

The ex-divs are starting to thin out now but there are quite a few on Thursday in particular.


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article 3 months old

The Overnight Report: Love That Bad News

By Greg Peel

The Dow closed up 177 points or 1.0% while the S&P gained 1.0% to 2147 and the Nasdaq rose 1.5%.

Seeking the Bottom

If you were a typical sports commentator, you’d say yesterday’s session on the local market was a game played in three halves.

It was expiry day for September quarter futures and index options, which can be blamed for early volatility that saw the ASX200 down 25 points very briefly before recovering to be only slightly down. That was the first half.

The second half saw the release of the jobs numbers late morning.

If we’re going to talk good news and bad news, yesterday’s local employment data for August provided a feast.

The good news is the unemployment rate fell to 5.6% from 5.7%. The bad news is 3,900 jobs were lost when economists had forecast a 15,000 gain. The decrease in the unemployment rate came courtesy of a decrease in participation, implying more people have given up finding work.

The good news is the loss of 3,900 jobs breaks down to a decrease of 15,400 part-time jobs and an increase of 11,500 full-time jobs. This mix bucks the trend of past months in which net job gains have all been about increases in part-time positions as full-time positions fell. But the bad news is this switch did nothing to improve the “underemployment” rate – the number of people who have jobs but would like more hours – which rose to a record 8.7%. As a consequence, hours worked fell by 0.2% to be up only 0.7% year on year.

The good news is these data justify an RBA rate cut.

It looked like the algos were in full swing on the data release given an initial plunge in the index (lower unemployment equals RBA rate cut less likely) followed by an equally sharp snap-back (fewer jobs, lower participation, higher underemployment, fewer hours worked equals rate cut more likely).

It pays to read the fine print before barging in, but no one’s told that to the computers yet.

From that point the dust settled, and the index proceeded to track a straight-line rally toward a close of up 12 to end the third and final half.

The low of the day was 5204, which is very close to technical support at 5200, but also an index option strike price and thus a magnet on expiry day. But if we’re trying to determine at what point the market has sold down yield stocks on Fed rate hike fears, we have perhaps found it in the banks, which rose 0.6% on the day to provide the bulk of the upside, but not in utilities and telcos, which continued to fall by 1.1% and 0.9% respectively.

The biggest winner on the day was materials, up 0.9% on the bounce in base metal prices, and the biggest loser was energy, down 1.2% on the lower oil price. While commodity prices are also under the spell of Fed policy, the metal price bounce was attributed to stronger Chinese data and the oil price drop was attributed to US inventory moves. Thus in both cases the fundamentals of demand-supply outweighed the esoterics of central bank intervention.

Today is another day, and after last night it looks like a September Fed rate rise is off the table once more. The futures are suggesting up 33 points. Will we finally see some support come in for beaten down yield stocks, or has that ship simply sailed?

The Growth Cycle

US retail sales fell by a greater than expected 0.3% in August to mark the first decline in five months. As the US economy is consumer-driven, retail sales are an important growth indicator.

But to add to the woes, industrial production fell 0.4% having risen in the past two months, the producer price index moved 0.0%, the Empire State activity index remained in contraction and expansion slowed for the Philly Fed activity index.

As has often been suggested by Wall Street commentators, if interest rates had already returned to normal by now the Fed would be talking rate cuts, not rate hikes. But all talk is of rate hikes and their timing, and on last night’s data it is assumed (until it isn’t again) September is off the table.

And maybe December too. Pass the champagne.

So the US stock indices rallied on the bad news is good news theme. However, the extent of the excitement over no rate hike is clouded yet again by another 3.4% jump in Apple shares – the third consecutive daily gain of around 3%.

The first two gains were courtesy of unexpected record sales for the new iPhone7. Last night’s gain came on news the iPhone7 Plus – same as the iPhone7 but with power steering and seven air bags – has sold out.

So Apple yet again led all three major stock indices higher, and yet again dragged other Big Tech names along with it. The sudden interest in Big Tech is not about the Fed not hiking, but about the Fed hiking eventually one way or the other. One by one equity strategists across the globe are suggesting it’s time to exit the search for yield and re-enter the search for cyclical growth. Record sales of iPhones (in contrast to the overall US August retail sales result) suggest Big Tech is a solid and, given these companies are now long established, safe place to be.

So just how much of last night’s rally can we really attribute to bad news is good news? Consider that the US dollar index fell, as one would expect, but only by 0.1%. Consider that gold dropped US$8.50/oz when it should have gone the other way, and that the US ten-year bond yield is up one basis point at 1.70% when it should have fallen.

While the stock market will remain its volatile self, particularly at this time of the year, other markets appear to be suggesting there can’t be much more to gain even if the next Fed rate hike is pushed further out in time. Might as well pack the bags now.

Commodities

And then we can look at commodities. West Texas crude duly recovered, but is only up all of US3c at US$43.71/bbl.

Having jumped up on Wednesday night thanks to China, base metal prices were all down 0.5-2%, except copper which held its ground, when no rate hike suggests the opposite. But again, it’s a fundamental issue – weak US sales, industrial production, regional activity…why would this inspire stronger base metal prices?

Iron ore is unchanged at US$55.50/t.

Gold is down US$8.50 at US$1314.10/oz.

The US dollar index is down only 0.1% at 95.25 but the Aussie has leapt back 0.6% to US$0.7516.

Today

The new December SPI Overnight closed up 33 points or 0.6%.

The changes to the S&P/ASX index components come into effect today so the index trackers will be busy. Following from yesterday’s local expiry it’s the quadruple witching expiry on Wall Street tonight, the August CPI will be released.

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

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

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

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

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article 3 months old

The Overnight Report: Appletised

By Greg Peel

The Dow closed down 31 points or 0.2% while the S&P was flat at 2125 as the Nasdaq rose 0.4%.

Finally

Yesterday the local market finally decided enough is enough, at least for the time being. Despite the Dow falling 250 the ASX200 eked out a small gain, supported by the fact the local market has been leading global fear of a Fed rate rise, not following it.

The index has fallen over 7% from its most recent high when Wall Street has managed about 3%. The irony is, the US Fed funds futures market is still only pricing in around a 20% chance of a rate hike next week. If we don’t get one, do we go rushing back up again?

Or has reality finally bitten for the likes of the infrastructure stocks, REITs and telcos which have done nothing wrong other than to have proven too popular among desperate yield seekers? If there is no Fed rate hike next week, the odds of a December hike firm considerably. Is there any point in buying these names back up in the meantime?

Well yes there is – reliable yield – but perhaps the market has now learned what the top end of valuation for yields stocks should be. Yesterday we saw the banks bounce back and Telstra come back strongly, but we still saw selling in utilities. Falls in iron ore and oil prices ensured the resource sectors were the balancing factor on the day.

The other side of the coin is, of course, the support local yield stocks enjoy from local investors thanks to domestic monetary policy. Will the RBA cut again? Economists seem to believe so but the central bank itself is certainly not providing any hints. Were the Fed to raise next week the need for the RBA to cut again is diminished, given the Aussie should fall and thus ease that particular “complication”.

The August rate cut is still being cited as reason for Australian consumers remaining reasonably confident. Yesterday’s Westpac survey showed confidence has inched up again this month by 0.3% following last month’s RBA-inspired 2% jump. At 101.4, the index suggests optimists are just outnumbering pessimists at this time. But we are 8% more confident than a year ago.

Today we see the local jobs lottery, which while rarely much of a stock market mover does play into the currency and RBA policy.

Big Tech

Wall Street also largely stalled last night following three sessions of volatility, which had followed 43 sessions of a total lack of volatility. With the WTI price again falling close to 3%, it was again down to Apple and friends to balance the indices.

Apple had been sold down extensively in the lead-up to the launch of the new iPhone7 on the basis that all along Apple had said the 7 won’t be a lot different to the 6, but wait for the tenth anniversary model iPhone8 next year, that’ll be a cracker! So why would anyone buy the 7?

Because there are just too many Apple zealots out there. Much to everyone’s amazement, the iPhone7 has broken sales records. Having rallied 2.5% on Tuesday night, last night America’s biggest company gained another 3.5%. And along for the ride came all of Apple’s mates, the Big Tech names like Microsoft, Facebook, Amazon and Netflix.

A lot has been said about the TINA trade – there is no alternative. But while TINA largely refers to yield, which is why Wall Street has seen the same stretched valuations for utilities, telcos et al, there is also the matter of where does one go to try to find any growth? “New world” companies are one place, like your Teslas and cloud companies and so forth, but these come with commensurate risk. Dusty old Big Tech has an established track record.

Maybe next year will be more interesting, when, it is expected, some of the bigger “disruptors” will go public, such as Uber and Airbnb.

We recall that a week ago, oil prices bounced back hard on the surprise of substantial drawdowns of crude apparent in US weekly inventory numbers. Oil has fallen back this week following the IEA’s downgrade to global demand forecasts, and last night the latest US weekly data were released.

While the numbers showed nothing particularly exciting for crude, the oil market was flummoxed by a big build in products, ie gasoline etc. So an already nervous oil market went into selling mode again. But what also surprised last night was a sudden and sharp bounce in base metal prices.

Commodities

Global stock market weakness these past few sessions has been driven by Fed rate hike fears, which have driven up the US dollar and thus kept a lid on commodity prices. Last night Wall Street stalled at lower levels and the US dollar index slipped back 0.2% to 95.34.

This appeared to provide LME traders with the confidence to buy the metal they would otherwise have bought the night before on the reasonably positive Chinese monthly data dump. Copper, which has gone a whole lotta nowhere for some time, jumped 2.6%.

Aluminium rose 1.5%, zinc rose 1.8%, and lead shot up 3.8%. Alas nickel, which has been sold down heavily in recent sessions, couldn’t catch a bid.

On the other hand, iron ore fell another US70c to US$55.50/t.

West Texas crude is down US$1.29 or 2.9% at US$43.68/bbl.

On the dollar’s dip, gold is up US$4.20 at US$1322.60/oz.

The Aussie is relatively flat at US$0.7569.

Today

The SPI Overnight closed down 19 points or 0.4%, suggesting we take back yesterday’s hard-earned gains.

We have a very big day/night ahead of us for global economic data.

New Zealand will release its June quarter GDP this morning and Australia’s jobs numbers will be out late morning.

Chinese markets will be closed for the next two days.

The Bank of England will hold a policy meeting tonight.

And hang on to your Fed-watching, data-dependent hats, tonight in the US sees numbers for retail sales, industrial production, business inventories, the PPI, and both the Empire State and Philly Fed activity indices.

Among another handful of stocks going ex-div on the local market today, Myer ((MYR)) will release its earnings result.

Rudi will appear on Sky Business 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

The Overnight Report: Oil In The Mix

By Greg Peel

The Dow closed down 258 points or 1.4% while the S&P lost 1.5% to 2127 and the Nasdaq fell 1.1%.

Lined Up

The Dow had rebounded 250 points, the futures were suggesting up 79 and as the opening rotation was completed at 10.30am yesterday on the local market, the ASX200 was up 56 points. And that was the end of it.

The sellers were lined up waiting and wasted no time in sending the index back down on a steady path towards the red. Perhaps these were sellers who were caught in the headlights on Monday and had failed to respond. Or perhaps there is sufficient belief the Australian yield trade no longer deserves a premium.

When we break down the sector action we see only four sectors actually finished in the red yesterday: energy, banks, telcos and utilities. Other than acknowledging Woodside’s dividend, energy is the odd one out. The other three are yield sectors. Oil prices began to slip in Asian trade late afternoon on the release of an IEA report – more on that later – putting pressure on energy stocks.

There was a short-lived blip in the downward trajectory yesterday when China released a monthly data dump showing positive, if not runaway, signs.

Chinese industrial production rose 6.3% year on year in August, above July’s 6.0% and ahead of 6.2% expectation. Retail sales rose 10.6%, above 10.2% in July and beating 10.3% expectation. Fixed asset investment rose 8.1% year to date, ahead of 7.9% to July and beating 8.0% expectation.

But as I have noted before, the local market is not paying that much attention to China at the moment, so down we went again.

It is also notable that the Dow futures had begun to drop in the afternoon as well, likely picking up on the oil theme, suggesting a weak start for Wall Street last night. And indeed, the Dow closed down 258 points, cancelling out Monday night’s rebound. The good news is the Dow was down almost 300 at one stage, so Wall Street did not close on its lows.

Many Factors

The bad news is that given stats released showing record initial sales for the new iPhone, Apple shares rose 2.5% on the day, being the only Dow component to finish in the green. Had America’s biggest company fallen along with the market in general, it would have been quite a bit worse.

Oil was the major talking point on Wall Street last night. The International Energy Agency yesterday cut its 2016 demand growth forecast by 100,000 barrels per day to 1.3mbpd, and 2017 to 1.2mbpd, citing weaker economic growth in China and India.

Oil prices subsequently fell 2.5% which is not that dramatic, probably because there is still an assumption there may be some sort of deal struck at the upcoming OPEC meeting. But all along the weak oil story has been one of a supply glut, while steady demand growth has been assumed. Now that demand is being questioned, it’s another story again.

Other than oil, lingering fears of a Fed rate hike in September are still weighing on Wall Street. This is evident in that fact the US dollar index is up 0.5% at 95.56, gold is down US$9.00 and the US ten-year yield, which did not fall back on Monday night, closed up 6 basis points at 1.73%.

And then there is the Donald Trump factor. Yet again last night a trader suggested on US business TV that the market is concerned about a Trump presidency, particularly now he is closing the gap in the polls to Clinton, and because he publicly lambasted the Fed and Janet Yellen and that is simply not something a president does.

America is back from holidays. It is the month of September. Volatility has returned.

Commodities

West Texas crude is down US$1.09 or 2.4% at US$44.97/bbl.

Nickel was again the big loser on the LME, falling a further 2%. Zinc fell 1%, lead rose 1% and aluminium and copper were slightly weaker.

Iron ore fell US$1.30 to US$56.20/t.

Gold is down US$9.00 at US$1318.40/oz.

The stronger greenback has the Aussie down 1.3% at US$0.7464.

Today

The SPI Overnight closed down 11 points or 0.2%. This muted response to the much bigger fall on Wall Street suggests Australia was leading yesterday’s action and thus we don’t need to double up and follow.

But given current skittish sentiment, anything could happen.

What will happen is Westpac will release its monthly consumer confidence survey today.

July industrial production numbers out of the eurozone will be closely watched.

There is another handful of stocks going ex today.

Rudi will be presenting in front of AIA members (and others) at the Chatswood Club tonight, 11 Help Street. Starts at 7.15pm.
 

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article 3 months old

The Overnight Report: Fedheads Or Fedtails

By Greg Peel

The Dow closed up 239 points or 1.3% while the S&P gained 1.5% to 2159 and the Nasdaq rose 1.7%.

Lemmings

I took an each way bet this time yesterday in suggesting maybe local investors would assume the Australian market had already seen a Fed rate hike-related sell-off and as such look to pick up some bargains, or perhaps we’d simply see “one of those panic 100 point drops we suffer every now and then”. Clearly, panic set in.

At yesterday’s close, fears of a Fed rate hike, surfacing late August, had manifested as 6.1% plunge for the ASX200. That’s 6% wiped off the Australian stock market for the sake of US rates going from 0.50% to 0.75%. At Friday night’s close, the S&P500 had fallen 2.9% for the same reason. Talk about coughs and colds.

But clearly it was a capitulation session yesterday on the local market as the resources sectors, industrials and utilities were sold down by 3%, the banks, healthcare, info tech and consumer discretionary by 2% and the staples and telcos by 1.5%. On such “outperformance”, clearly Woolies and Telstra had already suffered enough.

Yet last night we saw a rebound on Wall Street. And given the futures are up 79 points this morning which, funnily enough, is exactly what they were down yesterday morning, presumably we’ll see a rebound on the local market today as well.

However if we do rebound today, it won’t be because local investors have decided yesterday’s sell-off was indeed overdone given the selling that preceded it and nor will it be because investors have decided 25 bips on the Fed rate is really no big deal in the scheme of things. It will be because another Fedhead came out last night and this time spoke dovishly.

So if we rebound today, it will be because maybe there won’t be a Fed rate hike next week. If there is, one can only assume we’ll go down again, maybe all the way back to our old friend 5000.

And if there isn’t, who’s going to be game enough to buy the market back up ahead of the December Fed meeting, which would solidly firm as a rate hike chance?

But on the other hand…

Last night Fed governor Lael Brainard (sorry, who?) suggested “prudence” is required with regard rate hikes. The Fed governor is an official with a permanent vote on the FOMC unlike the Fed presidents of the various regions who form part of the FOMC on rotation.

Another little-known Fedhead also piped up on the dovish side while better-known Atlanta Fed president Dennis Lockhart suggested a hike would require “serious discussion”.

The good news is we have now entered a Fedspeak blackout period ahead of the Fed meeting. They will all now have to shut the hell up. The bad news is we still have over a week to wait. It has been suggested Brainard was sent out last night to “calm” the markets, following Wall Street’s big plunge on Friday night. If only these idiots could just keep their bloody mouths shut in the first place.

There is quite a lot of US data to be delivered between now and the Fed meeting so no doubt they will have the ferry swaying from side to side. Interestingly the Bank of Japan will also hold a policy meeting next week – on the day before the Fed statement is released that night.

On another interesting note, it was suggested by a Wall Street trader on US business TV this morning that Friday night’s sell-off was not just about the Fed, but also about the latest North Korean nuclear missile test vis a vis the thought of Donald Trump being the man with the US launch codes.

And on a final interesting note, Eric Rosengren’s comments on Friday night sparked the sell-off in US stock markets, a rise in the US dollar, a plunge in gold and a rally in US bond yields. Last night Brainard’s comments caused a rebound in US stocks and a dip in the US dollar, but gold and the US ten-year yield are unmoved.

Commodities

West Texas crude fell 3% on Friday night and last night rose US33c or 0.7% to US$46.06.

Base metal prices all fell bar nickel but last night only copper managed a slight bounce, while aluminium fell another 0.5% and lead and zinc fell 1.5%, and nickel copped a 2.5% hiding.

Iron ore is unchanged at US$57.50/t.

Gold is as good as unchanged at US$1327.40/oz.

The US dollar index is down 0.2% at 95.13 and following its big plunge on Friday night, the Aussie is up 0.3% at US$0.7565.

Today

The SPI Overnight closed up 79 points or 1.5%.

China will release its monthly industrial production, retail sales and fixed asset investment numbers today.

NAB will release its local business confidence survey.

A handful of stocks go ex today, including CSL ((CSL)) and Healthscope ((HSO)).

Rudi will link up with Sky Business around 11.15am, through Skype, to discuss broker calls.
 

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Fed Sell-Off

There’s little point in trying to over-analyse the drop on Friday in the Australian market given Wall Street fell 2.5% on Friday night. But let’s make a comparison.

The Australian market loped along through almost the entire August result season doing very little on a net index basis. Only towards the end of the month did we see the market begin to fall, not because of earnings results but because of rising fears of a Fed rate hike in September.

As we entered September, US economic data releases began to look weak – the August jobs number being a case in point – hence markets relaxed a little on the assumption the Fed would not be hiking this month. But despite the weak data, Fedhead rhetoric continued to be hawkish. The feeling grew that weak data or not, the Fed was going to raise. Even if only to save face.

Australian yield stocks have been carrying a premium for some time now, not just because they are attractive to local investors but because they are attractive to foreign investors who otherwise are looking at zero to negative returns available on alternate investments. Australia’s comparatively high dividend yields are very attractive not only compared to US interest rates, but compared to US dividend yields. On Wall Street, 2% is considered an attractive return.

So whether or not anyone believed the Fed would raise, fear took hold. As a consequence, a trickle of selling on the Australian market has largely turned into a flood in September, and we can pretty much attribute the selling to Fed policy, which has implications not just for yield differentials but for commodity prices and beyond.

The ASX200 hit its recent peak on August 24. By Friday’s close it had fallen 4%. The S&P500 hit its recent peak – an all-time high – on August 15. Prior to Friday night’s session, it had fallen 0.4%.

Do you see where I’m going here?

Of Straws and Camels

On Friday night Boston Fed president Eric Rosengren joined the chorus of Fedheads suggesting the US economy was sufficiently in balance to imply gradual rate increases are appropriate. The Dow fell 394 points or 2.1%, the S&P fell 2.5% to 2127 and the Nasdaq fell 2.5%.

It was the first move in excess of 1% for the S&P500 since July 8. But we have had a procession of Fedheads coming out to make the same suggestion as Rosengren these past sessions with little impact, so why, all of a sudden, does Wall Street tank on one more similar comment?

One reason is that Rosengren has up to now been among the doves on the FOMC. And he has not said anything much of late. It is not insignificant for him to change his tune. But most likely Rosengren simply was the straw that broke the camel’s back. For the past month Wall Street has been saying they wouldn’t, would they? They might, could they? And even though there are still plenty of people insisting they won’t, well, maybe they just might.

Wall Street opened lower on Friday night and just kept on going, tracking a very straight line downwards to the close as more and more traders joined in. Many of those traders have only just come back from vacation. But there was no real panic.

There was no real panic because many have been expecting exactly this, whether it be triggered by a September rate rise or a December rate rise. The US indices have been sitting around all-time highs for no real reason other than central bank policy dictates there’s no alternative. Not only have traders been waiting for such a move, they’ve been looking forward to such a move.

At this stage Wall Street has fallen 2.5%. Not such a big deal. There could be more selling, but there are plenty of buyers lined up for just such an opportunity.

To underscore the fact Friday night was all about Fed policy speculation, the US dollar index rose 0.3% to 95.35, gold fell US$10.40 to US$1327.80/oz and the US ten-year bond yield rose 6 basis points to 1.67%.

From Australia’ perspective, the SPI Overnight closed down 79 or 1.5% points on Saturday morning. If accurate, that would take us down towards the next level of technical support for the ASX200 at 5250. It would not be surprising, given recent history, were we to see a much bigger capitulation day today – one of those panic 100 point drops we suffer every now and then.

But it would also not be surprising if we saw the buyers move in sooner rather than later. As I noted, the index has fallen 4% to now on Fed rate hike fears. The S&P500 had fallen 0.4%, and now has dropped 2.5%. Is Australia not already ahead of the game?

Commodities

Higher US rates implies a stronger US dollar and thus pressure on commodity prices.

On Friday night West Texas crude fell US$1.58 or 3.3% to US$45.73/bbl.

In London, lead dropped 1.5%, aluminium and zinc around 1% and copper around 0.5%. Nickel held its ground.

In typical independent fashion, iron ore rose US10c to US$57.50/t.

As noted, gold fell 0.8%.

The good news, on the other hand, is that the Aussie fell a solid 1.3% to US$0.7537.

The Week Ahead

Is the Fed data-dependent, as it claims to be, or not? Soft jobs, weak PMIs, low inflation – none of these in the past couple of weeks have silenced the chorus of hawkish Fedspeak. If it does actually remain data-dependent, then there will be a lot to consider towards the end of this week.

Thursday night brings industrial production, retail sales, business inventories, the PPI, the Empire State activity index and the Philadelphia Fed activity index. Friday night brings the CPI and consumer sentiment.

Friday night is also the quadruple witching equity derivative expiry.

The Bank of England will hold a policy meeting on Thursday night, but given its extensive easing at the last meeting and the fact the UK seemingly has shrugged off Brexit there is no change expected.

China will release industrial production, retail sales and fixed asset data tomorrow, ahead of public holidays on Thursday and Friday.

New Zealand will release its June quarter GDP on Thursday.

In Australia we’ll see NAB business confidence tomorrow, Westpac consumer confidence on Wednesday and the August jobs numbers on Thursday.

On Friday the changes to the components of S&P/ASX indices, announced earlier in the month, will become effective.

On the local stock front, we’re still working our way through the ex-dividends. On Thursday, earnings results are due from Myer ((MYR)) and OrotonGroup ((ORL)).

Rudi will appear on Sky Business on Tuesday, through Skype-link, to discuss broker calls around 11.15am. He'll be in the studio on Thursday, 12.30-2.30pm, and does the Skype-link again on Friday, probably around 11.05am.

On Wednesday evening he'll present to the Chatswood chapter of the Australian Investors Association, at the Chatswood Club at 11 Help St. Starts at 7.15pm.


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)

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

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article 3 months old

Next Week At A Glance

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


By Greg Peel

Following on from this week’s lack of action from the ECB, the Bank of England will have its chance to do nothing when it holds a policy meeting next week. It will be justified however, given last month saw a surprisingly extensive stimulus package from the BoE and UK economic data have looked nothing but solid of late.

There will be plenty to fuel further Fed debate towards the end of next week when a raft of US data hit the wires, including industrial production, retail sales, inflation, inventories, consumer sentiment and the Philly Fed and Empire State activity indices.

Friday on Wall Street sees the quadruple witching derivatives expiry.

After posting better than expected trade data this week, next week China will release its monthly round of industrial production, retail sales and fixed asset investment numbers.

Australian data releases this week include the NAB business and Westpac consumer confidence surveys, and on Thursday, the jobs numbers.

On Friday the changes to the components of the S&P/ASX indices, announced last week, become effective.

There’s another round of ex-divs set to handicap the local market next week and Myer ((MYR)) will post its earnings result.


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article 3 months old

The Overnight Report: Central Bank Tango

By Greg Peel

The Dow closed down 46 points or 0.3% while the S&P lost 0.2% to 2181 and the Nasdaq fell 0.5%.

Sell Australia

There were a lot of stockbrokers and traders running around yesterday morning shouting “What the hell just happened?” As the opening rotation concluded on the ASX, the index was down 66 points.

Initial selling took the ASX200 down through the 5400 support level so at that point technical selling was triggered. And of course, as has been the case all week and will continue to be the case, albeit on a diminishing basis throughout the month, the index started with an ex-dividend handicap.

But it appears the selling began in the futures, thus triggering selling in the physical market. A big Sell Australia order hit the boards, most likely from offshore. As it was, this order provided a re-basing of the index from which point we could say the session featured a 28 point rally.

Australia’s July trade data were released yesterday and they looked good at first glance. Exports were up 3% on better commodity prices and imports were down 0.4% on the stronger Aussie. But it was notable that one small and typically volatile component of exports – gold sales – had made a difference in leaping 21%.

Take out gold and exports were still up 2%, and that number should continue to be supported in coming months given big moves up in coal prices and the ramp-up of production and sales of LNG. Bear in mind there’s always a lag effect as contract prices are set before actual sales are completed.

China also released its trade data yesterday, in this case for August, as it only takes Beijing a week to tally up the trade activity of 1.4bn people or whatever the count is these days. Surprisingly, imports rose by 1.5% year on year having fallen 12.5% in July, when economists had expected a 4.9% fall. It was the first monthly rise in imports in almost two years.

Within that imports number was plenty of coal and iron ore. Exports fell 2.8% year on year, but again this was a better result than the 4.0% decline anticipated.

The interesting point about the Chinese trade data, or any Chinese data for that matter, of the last few months is that they’ve generally been pretty bad but haven’t caused any sort of angst for the Australian market. That’s because the assumption is bad numbers simply imply further stimulus from the PBoC and/or Chinese government. So how do we interpret good numbers?

Well if bad numbers evoke a benign response then presumably good numbers do too – it’s just a balance of how much stimulus is required. And as I suggested, we could argue the ASX200 rallied over the course of yesterday as both the local and Chinese trade numbers were published, just from a lower starting point.

All sectors took a beating yesterday, as one would expect from index selling, with the exception of healthcare, thanks to a solid result and 11% share price jump for Sigma Pharmaceuticals ((SIP)). The biggest losses were reserved for the resource sectors which of course contain some of the bigger market cap names. Iron ore and gold prices were also weaker, but a jump in the oil price could not save energy. Consumer staples also took a beating but Woolies went ex.

Another 13 point drop in the futures this morning suggests this bout of weakness is not yet over. On the back of an increased chance of a Fed rate rise in September (if Fedspeak is anything at all to go by), a decreased chance of another RBA rate cut (if we assume the GDP to be too strong), nothing yet out of Japan, perhaps not so much out of China, and as was apparent last night, nothing out of the ECB, the net central bank influence on the Australian market is presently negative, or at least potentially negative.

Not Even Discussed

A rate cut wasn’t expected from the ECB last night but there was an assumption something would be suggested, particularly an extension to the QE program which is scheduled to end in March. The eurozone economy is not exactly firing and Brexit remains a threat.

As it was, Mario Draghi said in his press conference that a QE extension “wasn’t even discussed”. That was enough to send the euro flying.

And enough to foster weakness on Wall Street. The major indices were further hit by a slump in Apple shares prompted by early reviews of the new iPhone7 failing to excite.

The counterpoint was a solid rally in energy stocks on the back of another 2.5% jump in oil prices. If we consider that the inventory data released on Wednesday night hit the wires after Wall Street’s close, oil prices were up over 5%.

There are two organisations which each week publish US oil inventory data – the American Petroleum Institute and the Energy Information Administration -- a day apart. Half the time the two sets of data don’t even come close to matching. But there was no doubting the correlation last night as the EIA numbers suggested the biggest weekly drawdown of crude since 1999.

This result left the oil market pondering whether there is a cyclical indicator here – have we finally reached the point where the supply glut is easing? The problem is, there was a hurricane in the Gulf, which cut off supply. So it’s difficult to tell. Now that Gulf supply is running again, next week’s data will be closely watched.

Commodities

Over 24 hours West Texas crude is up US$1.17 or 2.5% to US$47.31/bbl.

Once again there was not a lot of action in base metals and moves were again mixed. Nickel rose 1% and zinc fell 0.5%.

Iron ore fell US90c to US$57.40/t.

While the US dollar index was up only slightly at 95.04, the ECB’s lack of action was enough to send gold down US$6.80 to US$1338.20/oz.

The Aussie is down 0.4% at US$0.7639.

Today

The SPI Overnight closed down 13 points or 0.2%. The next level to watch for the ASX200 is 5350.

Australian housing finance data are out today and China will release inflation numbers.

There are only a handful of small ex-divs today and Premier Investments ((PMV)) will release its earnings report.

Rudi's link-up with Sky Business via Skype has been delayed this morning and should occur around 11.45am.
 

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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