Tag Archives: Europe & UK

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.
 

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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: Labor Day Lull

By Greg Peel

Odd Jobs

The difference between 151,000 jobs added in the US in August and the 185,000 predicted led to a 1% rally for the Australian stock market yesterday. Go figure.

The point is Australian stocks sensitive to US interest rates – resource companies producing US dollar-denominated commodities and yield payers attractive to US investors – had been sold down last week on building speculation, post Jackson Hole, that the Fed was moving to raise its cash rate at the September FOMC meeting. The shortfall in jobs had many, but not everyone, in the market now assuming September is off the table.

So, as you were. Everything that was sold down came roaring back yesterday – the resource sectors, the banks, the telcos – to ensure the ASX200 made it comfortably back above critical support at 5400. Now we wait for the actual Fed meeting.

It was not, however, a good day for all sectors.

We’ve seen it in medical services, we’ve seen it in childcare, we’ve seen it in vehicle leasing and now we’ve seen it in residential aged care. Adding insult to the injury of disappointing earnings results last month, yesterday the three listed residential aged care stocks were absolutely trashed on the implication of likely new government regulations. At one point Estia Health ((EHE)) was down 30%, having already fallen a long way from its pre-result peak, and peers Japara Healthcare ((JHC)) and Regis Healthcare ((REG)) were not faring much better.

At the final bell each closed down 12%, 15% and 17% respectively. It was a capitulation. Not helping either recently was news the founder of Estia had sold his entire stake post-result.

In economic news yesterday, Australia’s service sector PMI went the same way as manufacturing PMI and collapsed, to 45.0 in August from 53.9 in July. Given tomorrow will see a GDP print in the order of 3% growth, we’ll also ignore this one.

Meanwhile, company profits rose over the June quarter by a greater than expected 6.9%, to be flat year on year. Manufacturing was the star performer with a 23% leap (See: PMI joke?) while mining chimed in with 14% thanks to the commodity price recovery. Construction fell 28% because the ongoing decline in resource sector construction out-weighed the residential construction boom.

The June quarter GDP remains on track to be over 3% (annual).

ANZ’s job ads series showed a solid 1.8% rebound in August after a weak July, to be up 8% year on year.

The RBA will meet today and do nothing, for the various reasons I outlined yesterday, and because Glenn Stevens is unlikely to do anything unexpected in his last statement.

Brexit Worries?

Caixin’s take on China’s service sector PMI showed a rise to 52.1 in August from 51.7 in July, in contrast to the official number. Japan still can’t take a trick – its equivalent fell into contraction at 49.6 from 50.4.

The eurozone saw a dip to 52.9 from 53.2 but the star of the show was the UK, which saw a jump back into expansion at 52.9 from 47.4. Once again we say Brexit Schmexit.

The US PMI is out tonight.

Commodities

Oil prices shot up by 5% at one point last night, in a thin market in the absence of the US, as it was reported the Saudis were set to make a “significant statement” at the G20 meeting. The assumption was an agreement between the Saudis and Russia to freeze production.

Prices soon retreated nonetheless when the announcement turned out to be one of agreeing to set up a working group to monitor the oil market. Led, one presumes, by Sir Humphrey Appleby. But West Texas crude is still up a net US87c or 2% at US$45.09/bbl.

Elsewhere, commodity markets were largely quiet in the absence of the US. In London, aluminium fell 1% and lead rose 1% but the other base metals moved little.

Iron ore fell US20c to US$58.80/t.

Gold is roughly steady at US$1326.70/oz.

The US dollar index is off 0.1% at 95.77 and the Aussie is up 0.2% at US$0.7584.

Today

The SPI Overnight closed down 20 points or 0.4%, probably suggesting yesterday’s bounce-back was a bit over-enthusiastic.

The last of the local GDP component releases is due today in the form of the June quarter current account, which includes the terms of trade.

As noted, the RBA statement will be released at 2.30pm today and the board will shoot off to the pub to toast Stevo.

There are a few more stocks going ex locally today.

Rudi will appear on Sky Business, via Skype-link, 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

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.
 

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: All Eyes On The Hole

By Greg Peel

The Dow closed down 33 points or 0.2% while the S&P lost 0.1% to 2172 and the Nasdaq fell 0.1%.

Another Mixed Bag

A fall of 21 points represents one of the big moves for the ASX200 over the course of this result season but the market started with a handicap yesterday of lower oil and metals prices. The banks also saw some selling after having been bought up this week. Outside of these influences, it was another familiar day of sharp moves both up and down amongst the day’s individual earnings reporters.

The biggest sector fall on the day was registered by the smallest of all sectors, info tech. It fell 2.0% thanks to a miss from accounting software company MYOB ((MYO)) and a subsequent 10% share price drop.

The biggest move up was registered by consumer staples. It rose 2.4% thanks to a 4% gain for big cap Woolworths ((WOW)). Woolies actually missed consensus but did show signs of some sales improvement, which was enough to worry the many shorters of the stock. Woolies is the most heavily shorted Top 20 stock by a margin.

Western Areas ((WSA)) picked a bad day to disappoint given nickel prices were also down 3% overnight. The stock has flown these past months on the nickel price recovery and thus fell 13% yesterday. The biggest fall was reserved for oil explorer AWE ((AWE)), down 15%.

Education provider 3P Learning ((3PL)) has been sold down all year so a beat was worth a 15% pop, while Southern Cross Media ((SXL)) has traded sideways all year but jumped 12%.

Other notable moves among the big boys were a 4% gain for perpetual performer Amcor ((AMC)) and a 4% gain for underperformer Perpetual ((PPT)).

No macro themes amongst the results, and no sector themes either. Although we should acknowledge a sector theme that has been emerging all year and has perhaps now caught the attention of those who hadn’t been paying much up to now. Software is the new black.

Discounting MYOB, which has been around for as long as we’ve all had to do a BAS, we note two stocks that took off on their results on Wednesday kicked on with it yesterday. Altium ((ALU)) gained another 8% and iSentia ((ISD)) 5%.

Watch the weather, it’s clouding over.

Tell us about it Janet

Wall Street is setting itself up for disappointment, and knows it.

Tonight Fed chair Janet Yellen will deliver a prepared speech on the subject of the policy tools available to central banks and whether or not they remain relevant in today’s world. She is not there to make a policy commitment. The Jackson Hole symposium is academic in nature. It’s not an FOMC meeting.

The problem is former chair Ben Bernanke used Jackson Hole as means of flagging major, experimental policy changes to give markets a heads-up and to dampen volatility. A rate hike is not QE. The fact that Janet Yellen is attending the symposium this year when she doesn’t have to, and didn’t in her first year, has led Wall Street to believe she’s there to make a definitive statement on interest rates.

Yet no one really believes she will actually do so.

If she says nothing, or simply bangs out the same old line, there will be much frustration. There was much frustration last night when two Fedheads individually popped up to support a rate rise sooner rather than later. They are known hawks, and the market just really wishes Fedheads would just shut the hell up. They are part of the problem, not the solution.

The Fed is data-dependent, it so it endlessly tells us. Last night’s data released showed that having fallen for the prior two months, durable goods orders rebounded a better than expected 4.4%. Okay then, let’s have a rate rise.

The feeling now on Wall Street is that the Fed won’t raise in September, but will raise in December, simply because it’s been telling us all year that rate rises are planned and December’s the Last Chance Hotel. If not, they will look like idiots, if they don’t already.

On a side note, there was much hope in the wake of the Brexit rebound and reasonable data out of Europe lately that the closely watched German IFO survey of business sentiment would show improvement this month. Instead the index fell to 106.2 from 108.3, which is considered a sharp drop.

Commodities

West Texas crude bounced back last night, up US58c to US$47.38/bbl.

Other than a 1% gain for zinc, base metal prices barely moved.

Currency played its part. The US dollar index was unmoved at 94.73 and ditto the Aussie at US$0.7615.

Iron ore fell US40c to US$61.10/t.

Gold is slightly lower at US$1323.80/oz.

Today

The SPI Overnight closed up 5 points.

It’s been quiet all week on Wall Street in the summer heat, with the long countdown to Jackson Hole soon to end. The first revision of US June quarter GDP is also due tonight.

We have now struggled over the very steep hill that was the past two days of the earnings season. From today, the number of companies reporting each day begins to drop off as we head towards the end of the month.

Today’s highlights include Coca-Cola Amatil ((CCL)), Cabcharge ((CAB)) and Super Retail ((SUL)).

Rudi will Skype-link up with Sky Business to talk 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)

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

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: Eying The Highs

By Greg Peel

The Dow closed up 17 points or 0.1% while the S&P gained 0.2% to 2186 and the Nasdaq rose 0.3%.

Surprise Surge

Now where did that come from? There we were, happily cruising along sideways in the local market as share price responses to the beats and misses of earnings reports largely cancelled each other out. Then suddenly the index is up almost 60 points.

We faded to the close for only a 38 point gain but still we bucked the trend of the month of very low market volatility masking plenty of movement in individual stocks. I’d like to say the gain was all about a day when all the earnings reports lined up together to spark share price jumps but that was not the case.

On the upside, we did see some positive moves from the reporters on the day such as Charter Hall Group ((CHC)), Virtus Health ((VRT)) and Vocus Communications ((VOC)) but at the top of the leader board were stocks having already reported over recent sessions, including IPH, Bellamy’s, Whitehaven Coal and BlueScope Steel.

On the downside, the biggest loser on the day was Monadelphous ((MND)) with an 18% plunge, which dragged down energy services peer WorleyParsons ((WOR)) by 6% ahead of its own result today. Also high on the loser board were previous reporters Bapcor, Cover-More and aged care names Japara and Estia.

So it was still very much a cancel-out day as far as earnings were involved. Yet if we look at the sector moves, they line up fairly evenly to the upside other than energy, which suffered from the lower oil price. The banks rose 0.9%, despite nothing new. Healthcare rose 1.0% thanks to some buying in heavyweight CSL. A 0.9% gain for the telcos included buying in Telstra. All the big caps, it seems, copped a bid.

Someone was executing a Buy Australia trade. At least that’s my assessment.

The index futures are pointing to another decent opening today, but overnight we did actually have some positive macro influences to play off. And one London broker’s upgrade to Glencore and peer BHP Billiton ((BHP)) should also provide a boost.

Otherwise, today is the biggest day of this result season in terms of number of companies reporting.

Shrugged Off

There were grave fears for a struggling European economy when the UK surprisingly voted to jump ship. Last night a flash estimate of eurozone composite (manufacturing and services) PMI for August suggested a level of 53.3, up from 53.2 in July, being the month in which the Brexit vote was held.

While a 0.1 gain is hardly shooting the lights out, the point is economists had forecast a drop in the gauge on the assumption Brexit would have impacted on business and consumer confidence. The PMI helped boost European stock markets, sending Germany up 0.9% and France up 0.7%, while the UK market rose 0.6% in sympathy.

The Dow subsequently opened up almost a hundred points from the bell, before quietly fading as the day progressed. A similar flash PMI estimate for the US was not quite as flash, but that didn’t matter as Wall Street cheered on new home sales.

Sales of new homes in the US jumped 12.4% in July to be 31% higher than a year ago, marking their highest level in eight years. Eight years ago the US housing bubble was about to burst.

Thriving new home sales is great news for an economy as domestically-focused as the US. Aside from the implications for builders, new homes mean a flow-on into sales of furniture and appliances and everything else one fills a house with. Indeed, the Australian market has been witnessing exactly that for the past few years.

Of course, strong US economic data also brings the elephant back into the room. We might consider Wall Street’s all-day drift off from the opening peak to reflect Fed rate rise speculation. The Nasdaq moved into new blue sky territory before closing under, and the S&P500 went very close before slipping away. The Dow remains around a hundred points shy of its recent all-time high.

There is unlikely to be too much speculation regarding Fed policy for the rest of the week given Janet Yellen will speak in Jackson Hole on Friday and then presumably more will be known. Otherwise, why is she there?

Mind you, it would be classic Yellen to turn up and say absolutely nothing of substance.

Commodities

West Texas crude was up around a percent during last night’s session in the new October delivery contract which does rather support my suggestion yesterday that Monday night’s drop was simply an expiry thing. WTI has since faded nonetheless to be up US16c at US$47.57/bbl.

The positive eurozone news did little to fire up London metal markets. Zinc jumped 1% but copper fell 1% and the others moved little in either direction.

Iron ore rose US50c to US$61.60/t.

The US dollar index is flat at 94.55 and gold is just a tad lower at US$1336.90/oz.

The Aussie is 0.3% lower at US$0.7612.

Today

Tonight Wall Street will see whether existing home sales can match new home sales but before that we’ll see Australian June quarter construction work done.

And then there are all those reporters.

They include Blackmores ((BKL)), Boral ((BLD)), MG Unit Trust ((MGC)) (aka Murray Goulburn, that’ll be interesting), Qantas ((QAN)), Qube ((QUB)), Spotless ((SPO)), Wesfarmers ((WES)) Westfield ((WFD)) and the aforementioned WorleyParsons, among many, many more.

Also note Telstra ((TLS)) goes ex today.
 

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article 3 months old

The Overnight Report: Fedspeak Returns

By Greg Peel

The Dow closed down 84 points or 0.5% while the S&P lost 0.6% to 2178 and the Nasdaq fell 0.7%.

The Big Loser

The mass media, it seemed, was prepared to call a state of emergency last night after BHP Billiton ((BHP)) posted its biggest loss in history and slashed its dividend. Of course the market has had plenty of time to anticipate such a result, and as such BHP shares closed up 0.5% yesterday.

Much was also made of the massive write-down of US shale oil assets bought, it can now be said with hindsight, at the top of the market. It may be the Not-So-Big Australian’s biggest ever loss but it’s certainly not the first time the company has spent big on expansion and subsequently crashed and burned.

Yesterday saw another session in which the macro played very little part, leaving individual stock moves on earnings results to dominate proceedings. Domino’s Pizza ((DMP)) underscored the reality that when you’re priced for perfection, you’ll be punished for falling short. The market sliced 4% off Domino’s but saved the big selling for another popular growth stock, G8 Education ((GEM)). It lost 12%.

InvoCare ((IVC)) is as about as defensive as a stock can be and hence is subject to overpricing in today’s low interest rate world, so no one sent flowers as its shares fell 4%.

On the winners’ side of the ledger, Challenger ((CGF)) showed retirees are prepared to lock in low interest rates for their lifetime and as such its shares rose 1.5%, while apartment builder Mirvac ((MGR)) gained 3% on its earnings beat.

The ASX200 hovered around the flatline for most of yesterday’s session but there was a bit of a stumble when the minutes of the August RBA meeting were released.

“In coming to their policy decision, members noted that the recent CPI data had confirmed that inflation was likely to remain low for some time. They also observed that while prospects for growth were positive, there was room for stronger growth, which could be assisted by lower interest rates.”

This excerpt from the minutes is the nutshell explanation of why the board cut the cash rate to 1.50%. There was nevertheless nothing in the minutes to suggest the RBA will be cutting again in a hurry, nor any suggestion otherwise. Investors in yield stocks were likely hoping for a hint of the next rate cut, and subsequently we saw telcos down 1.1% and utilities down 0.8% in the session.

These were the biggest sector falls on the day, other than consumer discretionary which fell 1.1%. Misses from both Domino’s and G8 had investors reassessing other high-flying names in the sector trading at elevated PEs.

Providing the balance to the upside were the resource sectors, thanks to ongoing oil price strength and a rebound in base metal prices. Energy rose 1.1% and materials 0.8%.

Hawks Fly

A new triple-high for arguably the most unloved bull market in the history of Wall Street will always represent a point at which downside risk becomes elevated, and likely to manifest in the slightest little thing. Of particular note is the fact the consistent leaders in the US market over the course of 2016 have been the yield plays, particularly telcos and utilities.

At historically rich PEs, yield plays are very much open to interest rate scares so when New York Fed president and FOMC member William Dudley said last night said he thinks a September Fed rate hike is a possibility, nervous investors bailed.

Wall Street is relatively inured to Fedheads babbling on and making suggestions that never come to pass, or at the very least are ultimately overridden by queen of the doves, Janet Yellen. But just as oil prices have been rising on the potential no one gives any credit to, of Saudi production cuts, yield stocks fell last night on the potential of a September rate hike no one believes will happen.

Certainly there was nothing in last night’s July CPI release to suggest a rate hike is imminent. The headline CPI rose by only 0.1% to be up a mere 0.8% for the year, still impacted by low oil prices and food deflation. Take these out, and the annual core rate fell to 2.2% from 2.3% in June.

The Fed prefers the PCE measure of inflation to the CPI, but the CPI suggests little inflation-based support for a rate hike nonetheless.

That said, US industrial production rose 0.7% in July to mark its biggest gain in 20 months and housing starts rose by 2.1% to the second highest rate since the GFC.

The drop in yield stocks overwhelmed yet another strong night for the energy sector as the rally in the oil price continued. Another 1.5% gain suggests perhaps the shorts are not yet out of the market. But then there was the small matter of the US dollar to impact on commodity prices last night.

On Fedspeak, stocks fell and bonds rose a couple of basis points but the US dollar index did completely the opposite of what a rate hike suggests in falling 0.9% to 94.79. The reason for the counter-intuitive drop was a sharp rally in the pound.

US inflation may be benign but a surprise jump up in the UK CPI brought into question the scope the BoE may have of further combatting Brexit fallout with monetary easing.

Commodities

West Texas crude is up US70c at US$46.41/bbl.

The US dollar drop provided no support for base metals. Copper stood still again but lead, nickel and zinc all fell close to 1%.

Iron ore rose US$1.80 to US$61.80/t.

The dollar certainly impacted on gold, given it rose US$7.00 to US$1345.60/oz when a rate rise would have it going the other way.

Today

The SPI Overnight closed down 6 points.

Australia’s June quarter wage price index is out today and will be watched closely in the context of possible further RBA rate cuts.

The minutes of the July Fed meeting are out tonight.

Locally, today is the biggest day in the earnings season so far in terms of volume of stocks, and tomorrow will be that much bigger. Highlights today include CSL ((CSL)), QBE Insurance ((QBE)), Stockland ((SGP)) And Health Cares Primary ((PRY)) and Sonic ((SHL)).

Note that Commonwealth Bank ((CBA)) goes ex today.
 

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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: Awaiting Jobs

By Greg Peel

The Dow closed down 2 points while the S&P closed flat at 2164 and the Nasdaq rose 0.1%.

Dead Cat

Yesterday saw yet another session on the local market in which the index took off sharply in one direction on the opening rotation, only to reverse steadily throughout the day. Yesterday the ASX200 shot up 44 points from the open before managing a mere 10 point gain by the close.

It seems the computers decided early that all would be forgiven following Wednesday’s steep falls and we’d be back on track towards the highs once more, but investors had other ideas. It is interesting to note, as revealed in yesterday’s Short Report, that the prior rally up to 5600 featured widespread reductions in short positions across the market, suggesting once the nervous shorters were cleaned out, there was no real reason to be there.

Hence we saw the plunge on Wednesday to more realistic valuations and hence yesterday’s attempts at a rapid reversal were thwarted. The futures are stronger again this morning but it would appear, as results season begins to unfold, the market is where it wants to be.

The bulk of the index gain yesterday came down to a 2% jump for energy following oil’s recovery off the US$40/bbl mark. Volatility ensures energy could just as easily be down by as much in coming sessions. Healthcare was the big underperformer yesterday, falling 1.2% as investors took profits on CSL ((CSL)) in particular. Having been slammed these past few sessions, consumer discretionary managed a 0.4% gain.

Which was counter to the data released yesterday. Consumer staples also rose 0.5% despite June retail sales managing only a 0.1% gain to take annual growth down to a tepid 2.8%.

The result provides justification for the RBA’s rate cut decision but there is nevertheless a misleading element to the low number. Low dollar value of sales is a result of two main factors – very low wages growth and discounting. But given low wages growth, consumers are benefitting from discount wars as an offset, particularly in supermarkets.

There was also good news among the data yesterday, with figures showing inbound tourism to Australia is up a significant 12% year to date. The number of Chinese tourists reached an all-time high. Presumably the number of Poms amidst that total will start to decline given the drop in the pound but hey, who are we to complain?

Fight them on the beaches

Markets were set for an expected rate cut from the Bank of England last night but there was still some nervousness that guvna Mark Carney would not act, having declined to do so at the last meeting immediately after the Brexit vote. As it was, the opposite proved true.

Not only did Carney cut the BoE cash rate for the first time in seven years, to 0.25% from 0.50%, representing the lowest level since 1694, he expanded the bank’s government bond purchase program (QE) and introduced corporate bond purchases as well. And he also introduced an exemption for banks on a long criticised reserve requirement that effectively amounts to double-counting of safe assets.

The extent of the package surprised markets. The FTSE jumped 1.6%, the pound fell once more, and the UK ten-year yield fell to an historically low 0.6%. The German equivalent fell further into the negative and the US equivalent fell 4 basis points to 1.50%.

Wall Street rose from the open on the news but quickly fell again, before posting a very typical pre jobs reports, middle of summer session. Ostensibly no one was quite inspired to do anything much.

Commentators agree that if tonight’s jobs number comes in close to expected, around about 160-180,000, not a lot will happen then either. The number will have to be either as shockingly low as the May number or as surprisingly high as the June number to spark a reaction, and even then, another wild number is going to leave Wall Street doubting the veracity of the data.

Commodities

The drop in the pound saw the US dollar index up 0.3% to 95.81 but unfortunately on the cross-rates, the Aussie is up 0.5% at US$0.7627. It’s all very well to cut the cash rate, but the impact is lost if everyone else does too.

Strength in the greenback helped base metal prices lower, with all of aluminium, copper and nickel falling over 1%.

Iron ore fell US$1.80 to US$58.90/t.

West Texas crude ignored the dollar, and rose US66c to US$41.81/bbl.

Given QE in any major economy is supportive of gold, it also ignored the dollar in moving slightly higher to US$1360.40/oz.

Today

The SPI Overnight closed up 17 points or 0.3%.

The RBA will issue a quarterly Statement on Monetary Policy today, ahead of tonight’s US jobs report.

Capilano Honey ((CZZ)) may buzz in with an earnings report today although I have conflicting dates from different brokers.

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

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article 3 months old

The Overnight Report: Fightback

By Greg Peel

The Dow closed up 41 points or 0.2% while the S&P gained 0.3% to 2163 and the Nasdaq added 0.4%.

Bashed

Well the pitchforks are certainly raised and blood is being spat. It was heartening to see respected CLSA bank analyst Brian Johnson on the ABC news last night pointing out that what may be lost on the mortgage swings of less-than-the-RBA rate cuts has been gained on the retiree roundabout of increased term deposit rates. But who’s going to listen?

Retiree enclaves don’t win elections, mortgage belts do. So we’ll overlook the retirees and just go for the politically popular with the great unwashed. Bash, bash, bash. If capitalism isn’t working, perhaps the government could re-nationalise CBA. And on the former RBA governor’s not unreasonable call to investigate bank funds management divisions, he may be proved redundant. Analysts suspect the banks will be looking to offload these divisions in their desperate attempts to meet stricter capital requirements in the low growth environment.

The 2% fall in the financials sector yesterday provided the bulk of the index plunge. We can cite several reasons for bank selling – they were bought up ahead of the rate cut, their mortgage “repricing” measures are insufficient to overcome margin pressure, European banks posted some woeful results the night before, and the pitchforks are out.

Thereafter, the biggest falls were posted by the other sectors that were heavily bought ahead of the rate cut – consumer discretionary and utilities. Lesser falls were posted elsewhere and the resource sectors proved largely resilient.

It was somewhat of a capitulation trade, and as I suggested yesterday, it’s not unhealthy ahead of reporting season proper to rebase below inflated levels that might otherwise have led to small “misses” on earnings leading to panic stock-dumping. The trend, according to the chartists, remains bullish. There may also have been some fear yesterday that Wall Street’s apparent breakdown the night before might be the start of something bigger. Last night’s trade suggests otherwise, and the local futures are looking positive this morning.

Just a Blip

On Tuesday night the S&P broke down from its lengthy 2165-75 trading range which technically seemed onerous but in summer-thin, lackadaisical Wall Street trade in which central banks provide the safety net, not fundamentally significant. Suffice to say, the S&P is back at 2163 this morning and the Dow has reversed a seven-day losing streak.

Oil had a lot to do with it, or more specifically, gasoline. The weekly US inventory numbers came out last night and showed less of a build in gasoline stocks than was feared, hence WTI crude rebounded 3.6% with a bit of help, one assumes, from short-covering.

There was also mildly positive news on the data front, with ADP’s private sector jobs report showing a better than forecast 179,000 additions. Wall Street is pencilling in 185,000 for Friday night’s non-farm payrolls. We do need to bear in mind, however, that (a) the ADP report has a poor correlation record and (b) economists have been way off the mark with their forecasts these past couple of months.

A result of 185,000 would be fair to muddling – enough to restore some hope in the US economy following the weak GDP report but not enough to reignite Fed rate hike fears. On that subject, two Fedheads last night individually suggested at least one rate hike is still possible for 2016, although one is hard pressed to find anyone on Wall Street agreeing.

But if it is another number closer to 300k than 200k, as it was in June, there could be some mild panic. The ADP number was nevertheless enough to send the US dollar index up 0.5% overnight and force some consolidation in gold, which is down five bucks.

Aside from Friday night’s US jobs report, markets are looking to tonight’s Bank of England meeting. Immediately after the surprise Brexit vote result the BoE assured a rate cut would follow if necessary, but at the subsequent scheduled meeting the BoE did nothing. The post-Brexit bounce allowed more time to assess the issue.

The governor did, nonetheless, hint a rate cut was probably still likely, and that’s what the market has priced in for tonight. Volatility may transpire if one is not forthcoming.

Commodities

West Texas crude is up US$1.43 at US$41.15/bbl.

Base metals continue to move back and forth but aren’t making any headway. Only lead posted a move in excess of 1% last night, to the downside, while the others posted gains.

Iron ore is unchanged at US$60.70/t.

Gold is down US$5.10 at US$1357.70/oz, with the US dollar index up 0.5% at 95.53.

The Aussie is down 0.2% at US$0.7588.

Today

The SPI Overnight closed up 27 points or 0.5%.

Rio Tinto ((RIO)) reported after the bell last night and while in the interim the media has made much of the 50% profit decline, the result met expectations.

Earnings reports are due today from Downer EDI ((DOW)), Suncorp ((SUN)) and Tabcorp ((TAH)), among others.

June retail sales numbers are out locally today and tonight the focus will be on the BoE.

Rudi will make his weekly appearance on Sky Business today, 12.30-2.30pm.
 

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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

We await what the Bank of Japan has in store today and tonight we see first estimates of June quarter GDP for both the eurozone and the US. Next week, the local earnings result season begins in earnest.

Monday is a bank holiday in NSW. The ASX is open but things may be a little slow. It’s the first of the month nonetheless so we’ll see a round of manufacturing PMIs from across the globe, and both manufacturing and services for China. Services PMIs for the rest of the world are due on Wednesday.

The RBA will meet on Tuesday and at this stage the market sees a rate cut as a 50/50 bet. During the week we’ll see numbers for building approvals, trade and retails sales as well as the PMIs. The RBA will also issue a quarterly Statement on Monetary Policy.

The Bank of England will also meet next week but having not made any policy changes following the Brexit vote, and with the Brexit process yet to be triggered, it is likely the BoE will continue to wait and watch.

US data next week include construction spending, personal income & spending, vehicle sales, chain store sales and factory orders. Being the first week of the month it’s jobs week, thus we’ll private sector numbers on Wednesday and non-farm payrolls on Friday. The Fed does not meet again until September.

Several companies will post earnings next week, including Rio Tinto ((RIO)), Downer EDI ((DOW)), Tabcorp ((TAH)), Suncorp ((SUN)) and Virgin Australia ((VAH)).
 

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