The Monday Report

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World Overnight
SPI Overnight (Jun)	6236.00	0.00	0.00%
S&P ASX 200	6251.30	+ 52.60	0.85%
S&P500	2907.41	+ 19.09	0.66%
Nasdaq Comp	7984.16	+ 36.80	0.46%
DJIA	26412.30	+ 269.25	1.03%
S&P500 VIX	12.01	– 1.01	– 7.76%
US 10-year yield	2.56	+ 0.06	2.24%
USD Index	96.97	– 0.23	– 0.24%
FTSE100	7437.06	+ 19.11	0.26%
DAX30	11999.93	+ 64.73	0.54%

By Greg Peel

Bank on it

On Friday morning the local futures were 21 points higher before the open despite a flat session on Wall Street. The iron ore price had risen overnight but otherwise I suggested futures strength likely reflected the fact the ASX200 dipped below the technical level of 6200 on Thursday, but managed to close just above.

That would perhaps trigger another round of technical buying, and indeed it did. By 11am on Friday the index had basically booked in its 52 point gain for the day.

Buying was not, nevertheless, market-wide. While almost all sectors enjoyed comfortable gains, healthcare (-0.4%) and materials (-0.2%) sat it out, the latter despite the iron ore price. Profit-taking in these sectors was evident last week, and Friday saw an apparent rotation into a couple of sectors that had been left behind in the recent rally – consumer staples (+1.8%) and, most notably, financials (+1.6%).

Investors piled back into the banks at a time a new race to the bottom on mortgage pricing threatens margins. And ahead of earnings results on Friday night for US banks JP Morgan and Wells Fargo. For some reason Australian banks like to follow US banks on occasion.

Telcos (+0.9%) and utilities (+1.0%) also had strong sessions, so there was no particular “risk on” theme evident, just selective buying.

China released March trade data on Friday, which were mixed at best but appeared to have no impact on the Australian market.

Chinese exports jumped 14.2% year on year in March when a 7.3% gain was forecast. It looks good, until one takes into account February exports fell -20.8%. Chinese data are not seasonally adjusted, so what we see is the usual noise surrounding the Chinese New Year period of dip (February) and recovery (March). Net them out and the picture is not as rosy.

Moreover, imports fell -7.6% in March after also falling, by -5.2% in February. Forecasts were for only a -1.3% drop.

Last month’s PMI data raised hopes the Chinese economy had bottomed out and was on the road of stimulus-driven recovery. Last month’s trade data do not necessarily give weight to this hope.

With the ASX200 now poised between 6200 support and 6300 resistance ready to see what happens next. Despite a rally on Wall Street on Friday night, our futures closed flat. We head into a short week ahead of Easter and thereafter Anzac Day with school holidays underway across the country. We also head into the thick of US earnings season.

Cheers for the Mouse House

In a strong session on Wall Street on Friday night, the Dow (+1.0%) outperformed the S&P500 (+0.7%) thanks in particular to two stocks.

Disney unveiled its highly anticipated streaming service on Friday night and an 11% pop for the stock suggests it’s a goodun’. It was the best day for Disney shares in a decade and the stock hit a new all-time high.

What do we sell to fund our Disney buying? Streaming rival Netflix lost -5%.

JP Morgan posted better than expected earnings and that stock jumped 4.7%. CEO Jamie Dimon also boosted sentiment by suggesting “Even amid some global geopolitical uncertainty, the U.S. economy continues to grow, employment and wages are going up, inflation is moderate, financial markets are healthy and consumer and business confidence remains strong”.

All big bank stocks took a ride on JP Morgan’s coat tails ahead of their own earnings reports this week, except for Wells Fargo, which reported a beat on earnings but guided to lower margins ahead. That stock fell -2.6%. Wells Fargo is also still without a CEO. JP Morgan is the only pre-GFC bank left in the Dow, with Goldman Sachs joining subsequently.

The financials sector led Wall Street higher on the day but there was also excitement in the energy space, after Chevron (Dow) announced the takeover of smaller Anadarko Petroleum, sending Anadarko up 32%. The takeover fuelled expectations of further M&A in the sector, with the oil rig count in the Permian Basin alone now greater than that of all of the Middle East.

Consolidation awaits.

Commentators also pointed to “strong” Chinese data as another driver on Friday night, albeit with the caveat discussed above.

The S&P500 is now within 1% of its all-time high, with no resolution on trade as yet. Positive early bank results typically raise hopes for a strong season overall, but this is not a given. It is nevertheless a widely held assumption forecasts were marked down too hard earlier in the March quarter when the R-word was being bandied around, suggesting upside surprise is on the cards.

Bring it on.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1289.80	– 2.10	– 0.16%
Silver (oz)	14.95	+ 0.01	0.07%
Copper (lb)	2.95	+ 0.04	1.50%
Aluminium (lb)	0.83	+ 0.00	0.04%
Lead (lb)	0.87	+ 0.00	0.28%
Nickel (lb)	5.88	+ 0.02	0.38%
Zinc (lb)	1.36	+ 0.02	1.64%
West Texas Crude	63.79	+ 0.08	0.13%
Brent Crude	71.48	– 0.08	– 0.11%
Iron Ore (t) futures	95.80	+ 0.80	0.84%

Metals prices seemed to enjoy the Chinese data, although a weaker US dollar added support.

The oils did not respond.

Gold found no support from the weaker greenback.

The Aussie did, rising 0.7% to US$0.7175. They must have all been short again.

The SPI Overnight closed unchanged.

The Week Ahead

The Chinese turnaround, or not, story will be in focus this week as Beijing releases the March quarter GDP result on Wednesday, although this is expected to be lower than the prior quarter. Perhaps more relevant will be industrial production, retail sales and fixed asset investment numbers for the month of March, noting the quarter is always impacted by the new year break.

The US releases its industrial production data on Tuesday, trade on Wednesday and retail sales on Thursday. The Fed Beige Book is out on Wednesday.

The minutes of the March RBA meeting are due tomorrow and Thursday brings the local March jobs numbers.

On the local stock front, quarterly report season begins to ramp up in earnest and AGMs also begin to flow. I will update on a daily basis.

Today sees a production report from Iluka Resources ((ILU)) and OZ Minerals ((OZL)) holds its AGM.

All major markets outside Asia are closed on Friday.

Rudi will appear on Your Money today, midday-2pm.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BAL	BELLAMY'S AUSTRALIA	Downgrade to Neutral from Buy	Citi
BOQ	BANK OF QUEENSLAND	Downgrade to Lighten from Hold	Ord Minnett
BPT	BEACH ENERGY	Downgrade to Neutral from Outperform	Credit Suisse
BSL	BLUESCOPE STEEL	Downgrade to Equal-weight from Overweight	Morgan Stanley
CSR	CSR	Downgrade to Neutral from Outperform	Macquarie
MFG	MAGELLAN FINANCIAL GROUP	Downgrade to Neutral from Buy	Citi
STO	SANTOS	Downgrade to Underperform from Neutral	Credit Suisse

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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