The Monday Report

This story features JB HI-FI LIMITED. For more info SHARE ANALYSIS: JBH

By Greg Peel

It was a relatively flat session on Bridge Street on Friday, if we take out energy (up 1.3%) and materials (up 0.6%). Talk of the oil price finding a bottom drove a recovery for Australian energy stocks late in the week, and on Friday night’s performance for oil prices, the punters may just prove prescient.

West Texas crude settled up 8% on Friday night. Settlement occurs in the early afternoon but trading continues electronically. By late afternoon, when FNArena takes its 24-hour “snapshot”, WTI was up US$2.97 or 6.7% to US$47.57 and Brent was up US$2.93 or 6.0% to US$52.08/bbl. The inspiration was news the US rig count dropped by 94 in the previous week – the biggest drop since 1987. Throw in short-covering and the scramble was on. It would appear the Saudis are winning the staring competition.

Many a trader has cited movements in the WTI price as the major driver of US stock markets of late, but on Friday that wasn’t to be. Wall Street opened to the news the first estimate of December quarter GDP suggested 2.6% growth, well below forecasts of 3.2% and a far cry from the September quarter’s 5.0%. The response was a sell-off in the Dow to the tune of around 150 points by midday.

So much for the Fed’s call of “solid” growth. But wait. If the US economy is not growing as strongly as expected, perhaps the Fed will hold off on its first rate rise. By 2.30pm, the Dow was back to square.

That may have been a reasonable place to finish the session, but it was the last day of the trading month. The GDP news was enough to send investors piling into US bonds once more, and the usual end-of-month benchmark matching added more impetus to buy. The US ten-year yield fell 8 basis points to 1.67%, while the thirty-year fell 7.5bps to 2.24% and another new all-time low. The ten-year yield fell 49.4bps in January – the steepest one month drop since August 2011.

Whether stock traders were simply watching the bond market, or end-of-moth squaring was also the case, or both, the Dow crashed in the last hour to finish down 251 points or 1.5%. The S&P fell 1.3% to 1994 and the Nasdaq lost 1.0%.

So ended a turbulent week, fuelled by oil price speculation, confusion over exactly what the Fed’s latest statement is implying and some mixed quarterly US earnings results. The Dow closed down around 400 points for the week.

One may have expected the weak GDP number to take some wind out of the soaring US dollar’s sails but the news coincided with the release of a flash estimate of eurozone CPI for January, which showed the first negative reading in five years, of minus 0.02%. The euro subsequently fell once more, leaving the US dollar index little changed at 94.74.

The Aussie is up 0.2% to US$0.7782 ahead of tomorrow’s RBA meeting.

End-of month book squaring was also cited as a reason why base metals found some strength on Friday night, along with rumours Beijing may be considering another rate cut. Copper, nickel and zinc all rose over 1% while aluminium rose 2%.

Iron ore fell US60c to US$61.70/t, and closed down US$4.20 for the week.

The SPI Overnight closed down 22 points or 0.4%.

On Sunday Beijing released its official manufacturing PMI for January, which showed a drop to a 28-month low of 49.8 from 50.1 in December. Speculation of another Chinese rate cut ahead may well be on the money.

The Aussie dollar will be a focus of attention this week. Were it not for a higher than expected underlying CPI reading last week, many in the market would have assumed the RBA will cut its cash rate tomorrow. But then, with bond yields plunging internationally, there is still a very good chance. The stumbling block may be the Aussie, which has fallen steeply since the December meeting. Is this enough of a rate cut proxy in itself? Perhaps. But if the RBA does not cut tomorrow, the Aussie will no doubt surge.

And what will the RBA think of China’s PMI?

It’s manufacturing PMI day across the globe today, including HSBC’s take on the Chinese number. Australia, Japan, the eurozone and US will all follow with their numbers. Wednesday sees the global round of service sector PMIs.

Retailer JB Hi-Fi ((JBH)) reported a slight decrease in profits for the first half of its financial year.

On Wednesday Rudi will make his maiden appearance on Sky Business as host of Your Money, Your Call, 7-8pm.

Rudi will also appear on Sky Business on Wednesday at 5.30pm and on Thursday, at noon.
 

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

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