Tag Archives: United States

article 3 months old

The Overnight Report: Modestly Moderate

By Greg Peel

The Dow closed down 11 points while the S&P was flat at 2186 and the Nasdaq rose 0.2%.

Happy Anniversary

At 0.5% quarter on quarter and 3.3% year on year, Australia’s June quarter GDP growth was as good as in line with expectations and marked 25 years of uninterrupted growth. Bearing in mind the last recession was one we had to have.

It was an unusual start to trading on the local bourse yesterday given the futures said down 10 points and the ASX200 shot up almost 30 points from the open. Then the GDP numbers came out.

You’d think we’d all be thrilled with the sort of growth number any major developed economy would swoon over but no, like the strong Aussie, it’s a complication. Can the RBA justify cutting the cash rate further on this growth number? Low inflation justifies a cut, but the GDP would suggest otherwise.

The Commonwealth Bank economists, for one, are still tipping a November cut to 1.25% but they do make a couple of points from the breakdown of yesterday’s numbers. One is that government infrastructure spending is picking up, which despite Labor’s sad attempt to negatively politicise is just what the RBA wants to see – fiscal support to take the pressure off monetary policy.

Another is that weak wages growth, which is keeping the lid on inflation, is concentrated in the mining states. This suggests the issue is cyclical and not structural, such that as the decline in mining investment abates, so too should wages in the industry stop weakening any further.

Either way, the market didn’t like the strong result, even though it came in pretty much on the money. The index closed the session up only ten points. Funnily enough, the consumer sectors did like numbers as they were the stand-out performers on the day. Retailers like rate cuts, but then they also like economic growth. The offset was energy.

Oil prices were a little lower but the 5% fall in Santos ((STO)) was the main drag on the sector. According to the AFR, the Shanghai Stock Exchange is questioning why a Chinese company took an 11.7% equity stake this year in an Australian company booking huge losses.

Moves in other sectors were benign.

Oh Please

It was another dull old session on Wall Street last night. Supposedly everyone is now back to work after their summer vacations but while volumes have picked up from the previous week, they remain tepid at best.

The highlight, supposedly, of the day was the release of the Fed Beige Book, an anecdotal assessment of the state of the economies of each of the Fed regions. Growth in each region was deemed to be either “modest” or “moderate”, not that anybody much knows what that means or what the difference is. And growth has been M&M in every Beige Book pretty much since about the time QE started.

As I’ve said before, never has a book been so aptly named.

Wall Street scoffed at the Beige Book and scoffed again when a couple of Fedheads came out to tout the usual “it’s time for a rate hike” spiel. No one expects a September rate hike unless it has come to the point the Fed decides to man-up and actually lead the market rather than meekly follow it.

Testament to a slow news day on the Street is that all anyone could seem to talk about was the new iPhone, which everyone agrees is little different to the old one. Still, Apple shares closed higher on the day and hence the Nasdaq once again snuck quietly to a new record high.

Commodities

What Wall Street missed was the late release of a weekly oil inventory report that showed a bigger drawdown than was expected (we play this game every week), hence in electronic trading West Texas has shot up US$1.26 or 2.8% to US$46.14/bbl.

A strike in Chile provided a bit of a boost for the copper price last night but the sellers were lined up for any sign of life and thus copper closed up only 0.7% in London. Nickel rose 1% and lead fell 1.5% in yet another mixed session.

Iron ore fell US30c to US$58.30/t.

After Tuesday night’s pop, gold has fallen back US$4.40 to US$1345.00/oz as the US dollar index bounced off technical support and is up 0.1% at 94.96.

The Aussie is subsequently off 0.1% at US$0.7673, with the in-line GDP result failing to make any impression.

Today

The SPI Overnight closed down 18 points or 0.3%. Not sure why, unless traders expect a response to last night’s hawkish Fedspeak. If accurate we may once again test support for the ASX200 at 5400.

Otherwise we’ll see trade numbers today both locally (July) and from China (August).

Tonight the ECB will hold a policy meeting.

Quite a few ex-divs today, including Woolworths ((WOW)), while Sigma Pharmaceuticals ((SIP)) will release its earnings report.

Rudi will appear twice on Sky Business today. First from 12.30 to 2.30pm and again during Switzer TV between 7-8pm.
 

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article 3 months old

The Overnight Report: Out Of Service

By Greg Peel

The Dow closed up 46 points or 0.3% while the S&P gained 0.3% to 2186 and the Nasdaq rose 0.5%.

Not with a Bang

Glenn Stevens' last monetary policy statement as RBA governor, released yesterday, was benign, and little different to the July statement. After the May rate cut economists were rapidly pencilling in August as the next cut ahead of more in 2017, but by yesterday morning no one was expecting an August cut anymore.

Inflation, or lack thereof, had been the big issue back in May but as we await the release of the June quarter GDP result this morning, the fact it could be as high as 3.4% growth rather puts the need for further stimulus into question, low inflation or not.

Yesterday saw the release of the last component of GDP, being the current account. The current account deficit surprised economists by dropping down to $15.5bn from the March quarter’s $20.8bn when $20.0bn was expected for June, but then the March quarter result was revised down to $14.9bn so what’s the point in being surprised? In fact the deficit widened.

I use the word “fact” advisedly.

The terms of trade in theory rose 2.3% in the June quarter thanks to stronger commodity prices but it’s still down 5.7% from a year ago. Yesterday’s data did not alter economists’ expectations that the pace of growth will have slowed to around 0.5% in June from a shock 1.1% reading in March, but that annual growth will remain an envy-of-the-developed-world 3.4% or thereabouts.

It was a lacklustre session on Bridge Street following no lead-in from Wall Street but clearly there was some give-back after Monday’s surprising surge. Yield stocks that were hot property on Monday eased back. The banks dropped 0.5% for example.

Monday’s rally was all about the US jobs report which apparently killed off, many had decided, the chance of a September Fed rate hike. Yesterday we saw local rate considerations at work. When the current account numbers came out, the ASX200 slipped, likely because they did not alter strong GDP expectations and therefore provided no reason for an RBA rate cut.

After recovering thereafter, the ASX200 slipped again in the afternoon when the RBA statement offered no hint there may have to be another rate cut sometime soon.

The Aussie didn’t do much, given no one had expected anything from the RBA. But that all changed overnight. Glenn Stevens is probably relieved he’s getting out.

No Chance

The Dow initially dropped 40 points from the opening bell last night on the release of the US services sector PMI for August, which showed a sharp drop to 51.4 from 55.5 in July. It’s the lowest reading since February 2010.

But the weakness was short-lived as those investors relieved by weak data, which suggest the Fed will not be hiking in September, moved in and started buying.

The US dollar index plunged 1.0% to 94.84. No doubt to Phil Lowe’s frustration, the Aussie has shot up 1.3% to US$0.7683. The US ten-year bond yield dropped 5 basis points to 1.54% and gold leapt US$22.70 to US$1349.40/oz.

Forget September, we can now all spend three months debating the possibility of a Fed rate rise in December.

We’re back in TINA mode – one might as well buy stocks as there is no other alternative. The Nasdaq hit a new record high last night. It’s hard to find a Wall Street commentator who doesn’t like the high-growth tech sector at present. It’s also hard to find anyone who likes the high-yield sectors such as utilities and telcos, other than the people who keep buying them. Where else can one source income? TINA.

The story in Australia is very similar.

Commodities

A big drop in the US dollar should be good news for commodity prices, but there was little evidence of it last night. Other than in gold of course, but that’s not a commodity.

Oil prices continued to drift lower after the disappointment of the Saudi-Russia announcement of, effectively, no production freezes probably ever. West Texas crude is down US21c at US$44.88/bbl.

Trading on the LME continued to be mixed and largely sedate, although zinc did drop 2% and lead rose 1% while the others did nothing much. Base metals continue to be influenced by individual demand/supply equations.

Iron ore fell US20c to US$58.60/t.

Today

The SPI Overnight closed down 10 points or 0.2%.

The local GDP result will be out late morning.

The Fed will publish its Beige Book tonight which will no doubt be stuck on the usual assessment of modest or moderate growth across Fed regions.

Among another handful of ex-divs today on the local market, Brambles ((BX)), Cochlear ((COH)) and Qantas ((QAN)) stand out.

Rudi will be hosting Your Money, Your Call Equities tonight on Sky Business, 8-9.30pm.
 

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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

Running in Fear

Fear of a September Fed rate rise had been building in the local market as we moved towards Friday, evident in selling in yield stocks. Things came to a head on Friday with forecasts of 185,000 jobs to have been added in the US in August which, it was assumed, would be enough to force the FOMC’s hand.

Nor did it help that the ASX200 broke strong technical support at 5400 from the opening bell, ensuring a weak session. A brief attempt by the buyers to push the index back was destined to fail and when it was all said and done it was a Friday – always a good day to sell, and this time more so given the US long weekend.

The banks led the selling on a cap-weight basis with a 1.0% fall while telcos and healthcare each fell 2.1% to be joint losers among the sectors. Utilities backed up with 0.9% and industrials, which includes some faithful dividend payers, lost 1.1%. Only the resource sectors finished in the green, slightly, thanks to supportive commodity prices and the fact they’d already had a bad week.

But all is forgiven. The US jobs number fell short, and the futures are suggesting an opening gain of 31 points, which would take the ASX200 back over 5400 and potentially stave off more substantial weakness.

Couldn’t have been worse

As far as US monthly jobs results go, August’s result on Friday night was nothing short of frustrating. At 151,000, the number fell short of 185,000 estimates.

But not that short. The bottom line is, 151,000 is not a number to end Fed speculation one way or the other. Indeed it is a number that has divided economists and ensured we’ll be arguing the case back and forward for another two weeks.

Had the number been in excess of 250,000, as was the case in both June and July, the assumption would be yes, the Fed will raise this month, and now we can all get on with it. Had the number been something like 120,000 we could have said no, clearly the Fed won’t raise this month, and now we can all get on with it, at least until it’s time to start discussing December.

But at 151,000, and an unchanged unemployment rate of 4.9%, half the market is saying yes, it’s still enough, and the Fed has been setting us up for a hike. The other half of the market is saying that a number short of estimates, and a drop-back in wages growth to 0.1% for the month, means no, a hesitant Fed will have an excuse to hesitate once more.

So take your pick.

The various markets took their picks on Friday night, in either direction.

The US dollar index initially plunged on the jobs release, suggesting no hike, before turning around and closing up 0.3% at 95.88. A stronger dollar should be a drag on gold, but gold is up US$11.20 at US$1324.80/oz, suggesting no hike.

The US ten-year bond yield closed up 3 basis points at 1.60%, suggesting a hike. Commodity prices were both up and down. The US stock markets opened up on the news – probably suggesting relief that there would not be a hike, before dropping mid-session as the debate raged, and finally recovering to a modest gain on the day.

The Dow closed up 72 points or 0.4%, the S&P gained 0.4% to 2179, and the Nasdaq rose 0.4%.

Not even a US jobs number day could break the Dow/S&P run of sessions of no move in excess of 1% in either direction, which has now extended to forty.

So how do we interpret these moves? We don’t. We’ll likely just have to wait till September 22.

Commodities

West Texas crude closed up US69c at US$44.22/bbl, suggesting the technical bounce off 43 was more influential than jobs.

Aluminium fell 1.5% but lead rose 0.5% and nickel and zinc rose 1%, with copper off a tad.

Iron ore rose US60c to US$59.00/t.

As noted, gold jumped US$11.20.

With the US dollar index up 0.3%, the Aussie is actually up 0.2% at US$0.7570.

And also as noted, the SPI Overnight closed up 31 points or 0.6% on Saturday morning.

The Week Ahead

US markets are closed tonight. It’s a quiet week thereafter for US data, but the Fed’s Beige Book will be released on Wednesday.

It’s far from a quiet week in terms of Australian data.

Today we’ll see the service sector PMI, along with everyone else except the US, which will publish tomorrow night. We’ll see the local construction PMI on Wednesday.

In terms of other monthly data, today it’s ANZ job ads, on Thursday it’s the trade balance, and on Friday it’s housing finance.

In terms of June quarter data, today we’ll see company profits and inventories and tomorrow the current account, including the terms of trade. On Wednesday the GDP result will be released. Expectations are for an ease-back in quarterly growth to 0.4%, down from March’s shock 1.1%, but for the annual rate to increase to 3.2% from 3.1%.

The RBA will hold a policy meeting tomorrow but no change is likely, given (a) they moved last month, (b) they usually don’t move ahead of a GDP result and (c), there’s no clarity around Fed policy.

The ECB will hold a policy meeting on Thursday, just to add to the fun.

China will release trade numbers on Thursday and inflation on Friday.

On the local stock front, we’ll see out-of-cycle earnings reports from Karoon Gas ((KAR)) tomorrow, Sigma Pharmaceutical ((SIP)) and Xero ((XRO)) on Thursday and Premier Investments ((PMV)) on Friday.

It’s a big week for companies going ex-dividend, acting as a natural drag on the index.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls at 11.15am. He'll be in the studio twice on Thursday. First from 12.30-2.30pm and again for an interview on Switzer TV between 7-8pm. He'll repeat the Skype-link up around 11.05am on Friday.


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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)

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

As always, it is difficult to know just how Wall Street will respond to a good/bad/indifferent jobs number tonight, and even more difficult to know what the Fed might think. Typically, the smart money stays out of the market on jobs day given potentially wild volatility before moving in response in the next session.

In this case, the US Labor Day long weekend will mean we’ll have to wait until Tuesday night. US markets are closed on Monday night.

This means the US services PMI for August will be published on Tuesday, while all others will post on Monday.

The Fed Beige Book will be published on Wednesday but then attention will move to the ECB, which will hold a policy meeting on Thursday.

Following on from yesterday’s PMIs, China will be in the frame once more with Caixin’s services PMI and official trade and inflation data due next week.

The RBA will hold a policy meeting on Tuesday. While economists are still predicting further cuts it is unlikely the RBA will double up in September, particularly given the chance the Fed might go the other way.

The Australian June quarter current account and trade balance are also out on Tuesday ahead of Wednesday’s GDP result. On a monthly basis, we’ll also see ANZ job ads, trade and housing finance data next week.

On the local stock front we’ll see off-cycle earnings reports from Kathmandu ((KMD)), Sigma Pharmaceutical ((SIP)) and Premier Investments ((PMV)). There will also be a lot of stocks going ex-dividend.


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article 3 months old

The Overnight Report: Mixed Messages

By Greg Peel

The Dow closed up 18 points or 0.1% while the S&P was flat at 2170 and the Nasdaq rose 0.3%.

Holding On

Yesterday’s weakness on the local market was all about the resource sectors, which in turn is all about Fed policy. Lower commodity prices ensured both energy and materials fell 1.7% although in the case of materials, we have to count back the effect of BHP Billiton ((BHP)) going ex.

Having had a solid run from the Brexit rebound on better than expected commodity prices, the resource sector names have now suffered an investor exit. While demand/supply fundamentals still underpin – oil being the obvious case in point – commodity prices have over that period been supported by the assumption the Fed would not be raising its cash rate in September and perhaps not in December either.

Now that assumption has reversed, the US dollar has thus risen, and dollar-denominated commodity prices have come under mathematical pressure. We note also the next worst performing sector on the local market yesterday was utilities, down 0.5%, which suffers via the the Australia-US interest rate differential.

Elsewhere, sector moves were mixed and less dramatic. It is notable that the ASX200 was down 32 points late morning before turning around to come back almost to square mid-afternoon, ahead of a final drift-off. At its nadir the index hit 5405 and technically, 5400 is the support line.

Whereas the month of August was dominated by individual stock moves during results season, September has opened with a return to the macro influence of economic data. Australia’s data releases were quite mixed.

The mass media were calling the June quarter private capital expenditure result (-5.4%) another shocker – sky’s falling and all of that – but indeed quite the opposite is true. We know that resource sector spending is continuing to fall as mining investment exits its boom and LNG projects reach completion. But the fall in June quarter “mining” spending was actually not as great as forecast.

We are looking to non-mining spending to carry the can and indeed it rose during the quarter. The other important element of yesterday’s capex data is capex intentions, and here we saw an upgrade to FY17 spending intentions. The June quarter represents the third estimate, and things are heading in the right direction.

We know that the decline in “mining” spending will soon exhaust itself. While it won’t reverse, it will stop dragging down the net numbers, It’s then up to non-mining to drive economic growth. Here, a lot depends on just how sharply the housing boom cools off, and on the positive side, just how helpful other sectors can be, for example, inbound tourism.

Because Australian consumers are not exactly doing their bit at the moment. Retail sales growth was flat in July when 0.3% growth was forecast. Following only 0.1% gains in both May and June, annual sales growth has fallen to a tepid 2.7%.

Aside from being a reflection of stiff retail competition (down, down etc) in dollar terms, weak sales growth is a reflection of just how misleading the current unemployment rate is. The ongoing increase in part time jobs at the expense of full-time jobs – both counted equally as a “job” in the official unemployment rate number – is resulting in weak wages growth and subsequently, weak consumption.

What is the RBA to do? The capex data were pleasing but the sales data were not. And Sydney/Melbourne house prices continued to rise in July despite assumptions a peak must surely soon be reached. Having staved off concerns over a housing investment bubble via stricter lending standards, the RBA is now faced with owner-occupiers piling in to fill the gap. These O-Os, as they’re called, are more likely to stretch their budgets to accommodate a hefty mortgage than investors who at least pick up rent, and negative gearing.

Can the RBA afford to cut rates again?

The central bank can probably afford to ignore yesterday’s Australian manufacturing PMI for August which indicated a collapse into contraction at 46.9, down from 55.4. I’ve said this before, but it seems very strange that every other economy on the planet manages to only ever post incremental monthly PMI changes but Australia’s manufacturing PMI leaps all about the place like a cricket on steroids. Maybe it’s because Australia’s manufacturing sector is so tiny, or it’s just too small a sample, but either way, credibility is lacking.

It’s a different story in China, albeit there are other doubts about the value of Beijing’s data. Beijing’s official manufacturing PMI sparked all sorts of excitement yesterday by rising back to 50.4 from 49.9 in July. Big whoop. Aside from Caixin’s equivalent falling to 50.0 from 50.6, Beijing is trying to shift away from being an export economy. Beijing’s service sector PMI fell to 53.5 from 53.9.

And that’s more concerning.

PMI Plunge

Japan’s manufacturing sector managed to slow its pace of decline in August. The PMI rose to 49.5 from 49.3, but Japan is totally reliant on exports so it’s hardly a good result. The eurozone equivalent slipped to 51.7 from 52.0 which we might say was all about Brexit but if it is, the Poms have clearly made the right decision.

The UK PMI shocked everyone in rebounding to 53.3 from 48.8.

The US equivalent, on the other hand, fell to 49.4 from 52.6, when economists had forecast 52.0.

On this news, early in the session on Wall Street, the US dollar index plunged 0.4% and stayed there. The Dow plunged a hundred points. But hang on, if the Fed is data-dependent then surely here is clear evidence a rate rise is not a good idea. Subsequently, the US stock indices rallied back again.

It’s just what we need – more confusion over what the Fed might do this month. And tonight we have the jobs report.

In the meantime, last night represented the 39th consecutive session in which the neither the Dow nor S&P has moved more than 1%.

Commodities

The US dollar index is down 0.4% at 95.64 on the assumption a September rate rise is by no means a given, if indeed it ever was. This is good for commodity prices.

All base metals moved to the upside in London, with lead, nickel and zinc each rising more than 1%.

Gold rose US$5.10 to US$1313.60/oz.

Iron ore dropped US60c to US$58.40/t but as I often note, iron ore does its own thing. But clearly no one told the oil market a weaker greenback is a good thing.

West Texas crude has lost another 3%, down US$1.30 at US$43.53/bbl. Once 45 was breached it was going to take more than Fed policy to calm the nerves.

The Aussie has matched the greenback’s fall in rising 0.4% to US$0.7550.

Today

The SPI Overnight closed down 12 points.

US jobs tonight, which is about all that really matters, but note that S&P/ASX will announce pending index component changes today before they become effective in two weeks.

And Fortescue Metals ((FMG)) goes ex.

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

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

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

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article 3 months old

The Overnight Report: Under Pressure

By Greg Peel

The Dow closed down 53 points or 0.3% while the S&P lost 0.2% to 2170 and the Nasdaq fell 0.2%.

Fed Fear

Welcome to September, historically the worst month of the year for stocks. Indeed, over the hundred year history of the Dow, only one month of the year has averaged a loss, and that is September.

But it’s just an average.

The last day of the local earnings season ended with a bit of a whimper. There were not that many companies left to report but it’s the first time in the last three weeks there have not been some significant up/down moves in reporting stocks to highlight.

There were still some moves – Harvey Norman ((HVN)) rose 2.7%, Independence Group ((IGO)) fell 3.7%, Adelaide Brighton ((ABC)) fell 4.2% -- but nothing in the teens or worse as we have seen often this season.

It was otherwise a weak session, on a beta rather than alpha basis. Late morning the ASX200 was down 66 points and it was looking like the market was set to book a real shocker, with technical selling backing up fundamental nerves. Chartists have been calling the market lower if the index failed to hold above 5500, which it hasn’t.

Some buying came in to stabilise things through the afternoon but across the sectors, ultimate weakness can very much be put down to Fed fears. As we entered the August result season, the assumption was the Fed was no chance of raising in September and possibly not in December either. As we exited the result season, there now is a very real chance the Fed could hike this month and maybe even in December as well.

Even if the Fed funds futures are still only pricing in around a 33% chance of a September hike, it pays to be safe. And for many an Australian company impacted by US interest rates, there’s a lot of premium to give back.

A Fed rate hike means a stronger US dollar and that means weaker commodity prices, particularly gold. Gold has drifted down since Jackson Hole but not yet tanked. It is nevertheless hard to find any Australian gold stock with a Buy rating from a stock analyst. Result season featured many a solid operational result from the goldminers, but a consistent call of overvaluation from analysts, even on a bullish gold price forecast.

Result season featured many a strong result from defensive yield-payers in the market, but again, Buy ratings were very hard to find. REITs in particular have drawn a lot of overvaluation calls. If the US rate rises the value of Australian yield stocks to offshore investors slips slightly, and many are carrying premiums.

Then we have the double-whammy stocks. They include resource sector names paying solid dividends, such as the Big Two miners and a couple of Big Gas names, and they include yield stocks with direct US exposure, which would lose out on both the currency translation and the interest rate differential.

Yesterday saw materials lead the market down with a 2.4% drop, backed up by energy with 1.1%. Utilities lost 1.0% and defensive consumer staples 1.3%. The banks and telcos were also sold, but hung in there with only 0.4% drops.

We may only have to wait until tomorrow night to decide whether there will indeed be a Fed rate hike this month. If the US jobs report comes in as anything other than very bad, Wall Street is going to start to lock a rate rise in. Unfortunately the FOMC decision will not be announced until September 22, so we’ll have to suffer three weeks of tedious Fed speculation.

On a brighter note, yesterday’s release of local July sector credit numbers showed steady, if not surging, credit demand.

In annual growth rate terms, overall credit is up 6.0%, down from 6.2% in June. Total housing credit growth has slipped to 6.6% from 6.7% (and 7.5% a year ago) because investor loan growth has fallen to 4.8% from 5.0% in June and double-digits in the first three quarters of 2015. Owner-occupier loan growth has slipped to 7.6% from 7.7% but June marked the highest rate in six years. At 6.2%, business loan growth is up from 4.9% a year ago.

Not shooting the lights out, but enough to be comfortable with.

Weak Close

After five consecutive months of rallies, August saw the Dow close lower, having featured fresh all-time highs mid-month.

All talk on Wall Street is, of course, about the Fed, and specifically about tomorrow night’s jobs report and just what it might imply. The current forecast is for 185,000 new jobs and that is considered enough to keep the Fed talking rate rise.

Last night the ADP private sector report showed 175,000 new jobs created in August, in line with non-farm payroll predictions.

As we have witnessed this year, US jobs reports can be extremely volatile and often their veracity is questioned, particularly given large revisions are common in subsequent months. But again, Wall Street is looking at being safe rather than sorry.

With pressure on commodity prices it didn’t help that the weekly US oil inventory numbers showed a greater than expected build in crude and a lesser than expected drawdown of gasoline. The US dollar index was flat last night at 96.02 but risk is to the upside and thus commodity price risk is to the downside. Oil prices fell 3%.

Fedheads were also out and about again pursuing their favourite pastime of trying to confuse Wall Street into submission. The bottom line is two spoke with dovish tones and one with hawkish tones but of the three, only the hawk is an FOMC voting member.

US stock markets thus continued their modest correction. There is no great expectation a September rate rise would unleash a major plunge – most agree 25 basis points is neither here nor there and everyone would just like to settle the matter one way or the other – but September is the month of volatility so the jitters, at least, may run through the markets.

Tonight will probably be a quiet one on Wall Street ahead of the jobs report, but that is never certain.

Commodities

West Texas crude is down US$1.43 at US$44.83/bbl.

The build-up of commodity price fear is being reflected in mining stocks but metal prices have not exactly buckled. Last night saw aluminium fall 1% but lead rise 1.5% and the other base metal were little moved.

Iron ore is unchanged at US$59.00/t.

Gold is down US$2.00 at US$1308.50/oz.

The Aussie is up 0.1% at US$0.7520.

Today

The SPI Overnight closed down 19 points or 0.4%. Aside from current momentum to the downside, and technical weakness, the energy sector will be under pressure today.

It’s the first of the month so across the globe, including in Australia and the US, manufacturing PMIs will be released. China will release both its manufacturing PMI and service sector PMI.

In Australia we’ll also see August house prices and June quarter private sector capex, the latter being one of the RBA’s most closely watched data sets.

No more earnings reports. Woohoo! But do be reminded we are now very much into that which comes after – the ex-dividend season. Among those stocks going ex today is BHP Billiton ((BHP)).
 

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article 3 months old

The Overnight Report: Still Fisching

By Greg Peel

The Dow closed down 48 points or 0.3% while the S&P lost 0.2% to 2176 and the Nasdaq fell 0.2%.

Surf’s Down

SurfStich ((SRF)) floated not quite two years ago at a dollar, hit two dollars at the beginning of this year, and proceeded to step-jump down on a series of profit warnings before losing half its value yesterday in one fell swoop, to now be trading at ten cents. Echoes of another well-known surf wear company.

It doesn’t pay to miss guidance in this market.

The bigger story yesterday on the local market was a case of another one bites the dust. Gateway Lifestyle ((GTY)) became another member of the fledgling residential aged care sub-sector to disappoint with its result, sending its shares down 13%. Having already dropped 17% the day before for the same reason, peer Estia Health ((EHE)) copped another 15% beating, while Japara Healthcare ((JHC)) and Regis Healthcare ((REG)) rounded out the sub-sector whitewash with 3.5% falls.

It was a great story – ageing population, lack of affordable housing, longer time spent in retirement – and initially analysts were very keen on these names. That is until share prices started to run ahead of value. It’s still a great story, but not at any price.

It was left to healthcare stalwart Ramsay Health Care ((RHC)) to right the sector ship, rising 8% on a strong result despite having already rallied 34% from its February low. Hospitals are safer than retirement villages it would seem.

It’s been a difficult year for financier FlexiGroup ((FXL)) but a good result saw its shares up 8%. The winner on the day was nevertheless naval boat builder Austal ((ASB)), which had a torrid year and having popped 13% on its result on Tuesday, kicked another 14% yesterday.

Beyond yesterday’s round of alpha moves was the underlying beta story of an ASX200 trying to get back to 5500 on a strong lead from Wall Street. It did, for a heartbeat on the open, before drifting back again all day. Sector moves were mixed and showed little coherence.

Today is effectively the last day of the result season. From here on it’s mostly penny dreadfuls reporting before we hit a few out-of-cycle larger name reporters next month. Then it will be back to focusing on the macro, which simply means central bank watching.

United We Stand

There’s a photo doing the rounds that has Wall Street’s attention. It shows the three top-end Fedheads – chair Janet Yellen, vice chair Stanley Fischer and New York Fed president William Dudley -- sharing a drink and a joke before a backdrop of Wyoming pasture at Jackson Hole. A typical happy snap from one of those annoying photographers ever present at conference drinkies?

No, say commentators. It represents a staged attempt to convey unity. And therefore it is an implicit indication that what Stanley Fischer said on Friday about the possibility of two rates hikes, and his suggestion that Janet Yellen’s speech backed up this possibility, is real. Fischer spoke again last night, effectively reiterating his comments by suggesting it is impossible to say the next Fed rate hike would be “one and done”.

Markets are beginning to pay attention. The US dollar index jumped another 0.5% to 96.05 last night and, finally, gold responded, falling US$12.70 to US$1310.50/oz. Only the bond market remains unconvinced, with the ten-year yield unmoved at 1.57%.

For stock markets it’s really a case of “25 basis points, so what?” Wall Street has had all year to prepare for this minor tightening that’s never come. But maybe 50 basis points might be a different story. The biggest movers up over 2016 have been the US yield stocks, particularly utilities and telcos.

And tomorrow is September – historically the worst month of the year for stocks. The next FOMC decision will be released on September 22 and being a quarterly meeting, will also feature a press conference from Janet Yellen. These relatively new press conferences are seen as the perfect opportunity to make a policy change and then explain it. If Friday night’s US jobs report is a biggie, things could get interesting.

But it wasn’t really the Fed that spooked Wall Street into some mild selling last night, again on negligible volume. The biggest influence was the US$14.5bn tax battle between Apple, Ireland and EU. Apple shares fell and dragged down other Big Tech names as tax fears flooded Silicon Valley.

Then there was that US dollar jump, which sent commodity prices south and thus prompted falls in the energy and material sectors.

Commodities

West Texas crude is down US69c at US$46.26/bbl.

Base metal traders had their first real chance to respond to Jackson Hole last night given the LME was closed on Monday night, but price falls were relatively mild.

Iron ore rose US20c to US$59.00/t.

It was left to gold to post the bigger fall.

The Aussie is pleasingly down 0.8% to US$0.7510 on greenback strength.

Today

Those US resource sector falls will likely flow over into the local market today, with the Big Two miners being sold heavily overnight. However, the SPI Overnight closed up 6 points.

Private sector credit data for July are due locally today while the ADP private sector jobs report in the US will provide a precursor for Friday’s non-farm payrolls.

The results season wraps up today with last hurrah reports from Adelaide Brighton ((ABC)), Harvey Norman ((HVN)) and Independence Group ((IGO)) among a handful of others.

Rudi's weekly appearance on Sky Business has been pulled forward by 24 hours. Watch him on the channel today, 12.30-2.30pm.
 

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article 3 months old

The Overnight Report: Confusion Reigns

By Greg Peel

Breakdown

The ASX200 opened weaker yesterday and once 5500 was breached, technical selling was swiftly triggered. It is the first big macro move the local market has seen since the beginning of August. Yesterday had little to do with the final throes of result season.

Initial weakness was all about the Fed. The wash-up from the Jackson Hole symposium is that there will be a rate rise in 2016, maybe even two. Or at least, that’s what the Fed wants markets to believe. Reality may yet be quite different.

The Australian market is very much yield-based and thus attractive to investors from low interest rate economies. Even the big-cap resource companies are major dividend payers. Each incremental move up in US interest rates reduces the US-Australia interest rate differential gap, making Australian yield stocks incrementally less attractive.

Beyond this macro theme, we could say it was a case of a market that hasn’t been able to go up for a month, so it had to go down. Patience ran out. On balance, the earnings result season has been seen as a positive one, featuring a solid net gain in earnings if we take out BHP Billiton. Yet all month the index has struggled to move much above 5550, frustrating investors. Time to sell and regroup.

There were still some notable individual stock stories among those reporting yesterday.

When you’re in a hot new sub-sector, you can’t afford to miss guidance. Residential aged care provider Estia Health ((EHE)) found this out the hard way yesterday and dropped 17%. Peers Gateway Lifestyle Group ((GTY)) and Japara Healthcare ((JHC)) were dragged down in the wash, falling 4% and 6% respectively.

On the other side of the ledger, naval boat builder Austal ((ASB)) has had a torrid 2016 so a good result for that company saw the stock up 13%. It’s been a very up and down year for biotech Mesoblast ((MSB)), which is not surprising given the stock is basically a binary bet on stem cell technology. It jumped 8%.

Another big loser was popular gold stock Evolution Mining ((EVN)), but a 9% plunge was all about a dilutive rights issue.

Outside of these individual moves, the selling on the day was market-wide. Interestingly, the only sector to finish in the green yesterday, slightly, was telcos, despite Telstra ((TLS)) being the daddy of all yield stocks.

Is the Fed really going to hike? That is the question upon which there is no agreement.

Each Way Bet

On further contemplation, Wall Street has decided that what Janet Yellen said at Jackson Hole on Friday night was no different to what she’s being saying for months. For months she’s been saying a rate rise is possible and yet one never comes.

It was Stanley Fischer who threw the spanner in the works by suggesting not only is there likely to be a rate rise before year-end, there could well be two, and that Janet Yellen’s speech corroborates such an assumption. On that basis, Wall Street is now primed for this Friday night’s jobs report which, if solid, could signal the rate rise in September no one was expecting last week.

Yet still there are those scoffing at the suggestion there could be any rate hike in 2016.

If Brexit fears killed off the possibility in June, and July was too early to be safe the Brexit shrug-off would last, then November is clearly not a possibility as it is right before the presidential election, and that may well also rule out September in the run-up to the election. That just leaves December, until some other excuse comes along.

It will, of course, come down to the data, or so the Fed keeps telling us despite seemingly paying no attention to any numbers. Last night’s data release showed US personal consumption rose 0.3% in July as expected and incomes rose 0.4%.

The Fed’s preferred measure of inflation, personal consumption & expenditure (PCE), was flat on the headline and up 0.1% on the core. Annually, headline inflation was up 0.8% (still carrying the oil price drop) and core inflation was up 1.6%, still well shy of the Fed’s 2% target.

Recently the Fed has been contemplating whether 2% is really the right target to have. Bottom line, there was nothing in last night’s data to settle any rate rise dispute.

Last night investors piled into US banks. Why? Because they benefit from rising rates. Two days to think about it, and US stock markets have decided yes, there will be a rate rise.

Last night saw the US ten-year yield fall 7 basis points to 1.57%, having risen 6bps on Friday night in response to Jackson Hole. Friday night’s knee-jerk reaction probably reflected just how long everyone is in the bond market. Last night’s move suggests the bond market has decided nah, there’s not going to be a rate rise.

Take your pick. Gold has still not moved, in either direction, and that’s usually where nerves are on display.

When it was all said and done, the Dow rallied a hundred points on one of the lowest volume days of the year. It’s the last week of the summer holidays and Friday night’s jobs report be likely be critical, so what bother playing?

Commodities

West Texas crude is down US34c at US$46.95/bbl.

It was August bank Holiday in the UK last night, so the London Metals Exchange was closed.

Iron ore fell US30c to US$58.80/t.

Gold is up US$2.70 at US$1323.20/oz.

Having shot up on Friday night, the US dollar index is up 0.1% at 95.58. The Aussie is up 0.2% at US$0.7573.

Today

The SPI Overnight closed up 18 points or 0.3%. Can 5500 be regained on Wall Street strength?

Locally we’ll see building approvals numbers today. The US will see house prices and consumer confidence tonight.

Ramsay Health Care ((RHC)) is the big name reporting today while FlexiGroup ((FXL)) and Slater & Gordon ((SGH)) should provide some interest, among others.

Rudi will Skype-link with Sky Business at around 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

Wrap of events affecting the market on Friday night and the weekend and a preview of the week ahead.

By Greg Peel

Testing Support

For the last three weeks, which have been dominated by result season, the ASX200 has traded largely sideways. On a couple of occasions the index has had a good look at the 5500 support level on the downside but quickly recovered back into the range.

After two consecutive sessions on the weaker side, the index is now sitting at 5515 with the futures showing down 4 points this morning, suggesting, today’s earnings reports notwithstanding, that 5500 level is chance of coming into play. A breach would be short- term bearish.

The 26 point fall for the index on Friday was mostly to do with the banks. Over the last couple of weeks the big banks have seen some buying, despite three of them not participating in the August round of August reports, and late last week they were sold again, taking the financials index down 0.8% on Friday. Investors possibly decided it best to take profits in case Janet Yellen confirmed a rate hike at Jackson Hole on Friday night.

Yet we didn’t see the same reaction in the other yield sectors, with utilities flat and telcos actually the best performer on the day, rising 0.7%. Meanwhile, industrials posted the biggest percentage fall of the session in dropping 1.0%.

Among the stocks reporting on Friday, the biggest winner was Super Retail ((SUL)) with a 6% jump while Coca-Cola Amatil ((CCL)) featured on the downside with a 4% fall and Select Harvests ((SHV)) was the biggest loser on the day with a 7% drop. Otherwise, the tables of biggest gainers and decliners were dominated by moves in stocks that had already reported over the week.

It reminds us that reporting season is not just a one day picnic for reporting companies.

With 250 of the 300-odd August reporting stocks covered by FNArena database brokers now having reported, it is notable that the percentage of beats (on FNArena’s assessment) has slipped back to 31% from having run at a consistent 36% ahead of last week. Misses remain fairly stable on 25%.

We also note that recommendation upgrades from brokers have made up a little bit of ground against downgrades, with the up/down ratio slipping to 1.7 from above 2.0 a week ago.

There are three more days to go in the season, but we are very much in wind-down mode such that the volume of companies reporting drops way down from the dramatic peaks of late last week. We’ve also seen almost all of the bigger names now done and dusted.

As the week progresses, economic data will again begin to take centre stage.

Fisching

Fed chair Janet Yellen declared in Jackson Hole on Friday night the case for a Fed rate hike is “strengthening”. As such, a move to normalisation would be “appropriate” but any move would be “gradual” and, of course, dependent on the data.

Wall Street yawned. Nothing new here, as expected. There might be a rate hike in December. But then…

Speaking in a TV interview following Yellen’s speech, Fed vice chair Stanley Fischer suggested Yellen’s remarks were consistent with the chance of two rate hikes this year, in September and December.

Nobody saw that coming. In response, the US dollar index shot up 0.8% and the US ten-year bond yield jumped 6 basis points to 1.63%, leaving behind the range in the 1.50s it’s held for about a month. The Dow closed down 53 points or 0.3% and the S&P -0.2% to 2169 while the Nasdaq rose 0.1%.

Not that anyone really believes Stanley Fischer. The prevailing view is that it’s better to talk up a rate hike to ensure Wall Street is prepared for one when it comes, even if that’s not until December. There remains a lot of talk in the market about there not being a rate hike in 2016 at all, and that’s even the view of at least one rogue FOMC member.

But it’s jobs week in the US this week. On the strength of Fischer’s comments, if Friday night’s non-farm payroll number proves to be a solid or better than expected result, Wall Street will likely prepare for a September rate hike just in case.

Interestingly, Fischer’s comments were also made in the context of the first revision of US June quarter GDP, released on Friday night, which showed a dip to 1.1% from an initial 1.2% estimate. If the Fed is data-dependent… But in the same interview, Fischer dismissed the June quarter GDP as being too long ago to be relevant.

Commodities

An 0.8% jump in the US dollar index to 95.48 was always going to be a big headwind for commodity prices on Friday night, and the prospect of two rate hikes a more medium term breeze. But as it was, commodity prices fell by very little.

West Texas crude fell US9c to US$47.29/bbl.

Base metal prices were mostly weaker, but not by much.

Iron ore did fall US$2.00 to US$59.10/t, but iron ore tends to play its own game.

The interesting one is gold, which only fell a dollar to US$1320.50/oz. By rights it should have fallen a lot more, but watch gold tonight. It has a habit of waiting an extra day to respond.

The Aussie’s fall of 0.7% to US$0.7560 matched the greenback’s gain.

The SPI Overnight closed down 4 points on Saturday morning.

The Week Ahead

It will be a big week in the US for a data dependent Fed.

Tonight sees personal income & spending, and the Fed’s preferred PCE measure of inflation. Tuesday it’s house prices and consumer confidence, Wednesday the Chicago PMI, pending home sales and the private sector jobs report, and Thursday sees construction spending, chain store sales, vehicle sales and the manufacturing PMI.

Friday it’s that all-important jobs number, alongside factory orders and trade. There follows the Labor Day long weekend in the US, unofficially signalling the end of the summer holidays.

Thursday is the first of the month so it’s manufacturing PMI day across the globe, as well as both manufacturing and the services PMI from China.

In Australia we’ll see building approvals tomorrow and private sector credit On Wednesday. On Thursday, June quarter private sector capex will have the RBA’s attention alongside retail sales, house prices and the manufacturing PMI.

On Friday S&P/ASX will announce pending quarterly changes to the components of the ASX200 and other indices, ahead of the changes becoming effective two weeks hence.

In the last three days of result season, numbers are due from the likes of Beach Energy ((BPT)), Macquarie Atlas ((MQA)), Ramsay Health Care ((RHC)) and Adelaide Brighton ((ABC)) amidst many more small names.

Investors should otherwise be aware we will now hit a heavy period of stocks going ex-dividend, and that index handicap will extend all the way through September.

Wesfarmers ((WES)) and Woodside Petroleum ((WPL)) will go ex today and BHP Billiton ((BHP)) on Thursday, alongside many more this week.

Rudi will appear on Sky Business on Tuesday morning 11.15am, via Skype-link, to discuss broker calls. He'll re-appear on Thursday between 12.30pm-2.30pm and again on Friday, via Skype-link, at around 11.05am.
 

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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 are still plenty of reports to get through over the last three days of the month and thus the local earnings season, but nothing like the volume we’ve seen in the latter part of this week. Life returns to normal with September.

Then we can all get some sleep.

We need to keep an eye on dividends from here nevertheless. We’ve already seen many a stock go ex as earnings season has progressed but the pace picks up a bit next week and continues into September, acting as a natural drag on the index.

As to whether the world will look different next week or not will come down to Janet Yellen’s speech at Jackson Hole tonight. My tip is no change. Wall Street will have time to ponder any ramifications over the Labor Day long weekend. US markets are closed on Monday night.

Then it’s jobs week. US non-farm payrolls are out next Friday following private sector numbers on Wednesday.  Data across the week include personal income & spending, house prices, pending home sales, consumer confidence, construction spending and chain store and vehicle sales.

Thursday is the first of the month so that means manufacturing PMIs from across the globe and both manufacturing and the service sector PMI from Beijing.

Australian data next week include the manufacturing PMI as well as building approvals, private sector credit and retail sales.

On Friday, pending changes will be announced to S&P/ASX index components ahead of becoming effective two weeks hence.


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