Tag Archives: Europe & UK

article 3 months old

The Monday Report

By Greg Peel

Predictable

The dip overnight on Wall Street provided an excuse but realistically it was an all too predictable session on the ASX on Friday assuming no unexpected news. We had a solid run-up during the week, profits are often locked in ahead of a weekend, and next week sees critical central bank meetings that offer reason to move back to the sidelines to see what transpires.

The consumer sectors had been leaders in the rally over the week, so no great surprise they were the underperformers on Friday. Telcos also came in for some more selling, but otherwise downward moves across sectors were minimal and materials posted a sole gain with a 0.2% increase.

The pullback put the ASX200 pretty much on the 5500 level, which is rather neat, and suggests a pivot point for what happens next. The technicals remain generally bullish at this stage but we’ll still need some sort of fundamental justification to move into the next up-leg.

While markets across the globe may go quiet early this week ahead of the Fed meeting and statement release on Wednesday night, in Australia we will also see the release of June quarter CPI numbers on the Wednesday ahead of the Fed. The RBA has left the door open for an August rate cut were the June numbers to again be weak. Economists are forecasting weak numbers.

We also saw falls in commodity prices on Friday night, which should weigh on the ASX200 this morning.

Poised

The focus on Wall Street this week is clearly on the Fed, although US indices did manage slight gains on Friday night. The Dow closed up 53 points or 0.3%, the S&P gained 0.5% to 2175 and the Nasdaq rose 0.5%. The Dow and S&P both posted new highs.

On the US earnings front, the trend continues to be positive, or at least “less bad”. General Electric’s (Dow) result disappointed somewhat on Friday but with 100 of the 500 S&P stocks now having reported, the running change in earnings per share is minus 4.2% compared to a consensus forecast ahead of the season of minus 5.3%.

There are still 400 stocks to report over the next couple of weeks.

Meanwhile, the early earnings trend may be positive, thus justifying Wall Street strength, but the indices were again led by telcos and utilities on Friday night. The hunt for yield continues to override any notion of economic improvement.

US economic data have nevertheless been positive this month, and the trend continued on Friday night. A flash estimate suggested the US manufacturing PMI for July would come in at 52.9, up from 51.3 in June and well ahead of 51.5 forecasts.

It is this sudden turnaround in US data that has Wall Street assuming the Fed must now be seriously looking at a rate hike sooner rather than later, given the feared Brexit disaster did not transpire. Up until this month US data had been a bit too mixed to assure a hike, and the shockingly weak May jobs number was the cruncher. But since the June jobs number came screaming back, a string of very positive releases including retail sales, industrial production and various housing numbers has followed.

There is no hike expected on Wednesday night. But markets will be looking to see just what sort of hint the FOMC may be prepared to provide of a September move.

The Fed is under no pressure to hike this week, which is handy given Friday brings a Bank of Japan policy meeting. Strictly the Fed should not be in any way beholden to what Japan does, but given some form of shock & awe is being assumed out of Tokyo, the FOMC will no doubt be keen to see what that is before having to make its own decision.

Commodities

The issue of a Fed rate hike is one commodity markets will be concerned about. While the justification for a hike – stronger US economy – is positive for commodity prices, a consequentially stronger US dollar is not. The US dollar index rose 0.5% to 97.35 on Friday night.

An outage of a commodity trading platform during the Asian session meant many traders were cut off from base metal markets as trading shifted over to London, ensuring very light volumes were then traded on the LME. This didn’t stop nickel falling 3%, although nickel has been the outperformer of late, while other metals fell by small amounts except aluminium. It’s been the underperformer of late, and rose slightly.

Iron ore fell US40c to US$55.70/t.

West Texas crude fell US29c to US$44.25/bbl.

Gold doesn’t quite know whether it’s Arthur or Martha at the moment, as it shifts back and forward inside a 1320-40 range. Friday night’s jump in the greenback prompted a fall of US$8.60 to US$1322.10/oz.

The strong greenback ensured the Aussie was down half a percent at US$0.7455 on Saturday morning.

The SPI Overnight closed up 4 points on Saturday morning.

The Week Ahead

Fed on Wednesday night, BoJ on Friday.

Ahead of the Fed meeting, the US will see new home sales, Case-Shiller house prices, consumer confidence and the Richmond Fed index on Tuesday, and pending home sales and durable goods on Wednesday. Thereafter, Friday will bring the first estimate of US June quarter GDP.

The UK will report its GDP on Wednesday, and the eurozone on Friday, although both reflect a pre-Brexit Europe.

Along with the BoJ meeting on Friday, Japan will see a raft of June data, including inflation, retail sales, industrial production and unemployment.

On the local stock front, the last of the resource sector quarterly production reports merge this week with early movers in what is otherwise the August result season.

Among the production reporters we’ll see Newcrest Mining ((NCM)) today, Fortescue Metals ((FMG)) and Independence Group ((IGO)) on Wednesday, and Origin Energy ((ORG)) on Friday.

Thursday will bring earnings reports from CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)) and ResMed ((RMD)).

Thursday also sees the Macquarie Group ((MQG)) AGM, at which guidance will be updated.

Rudi will appear on Sky Business via Skype-link on Tuesday to discuss broker calls, 11.15am. Then on Wednesday he'll host Your Money, Your Call, 8-9.30pm. On Thursday he'll re-appear in the studio, 12.30-2.30pm and later that day he'll join Switzer TV on the channel. On Friday he'll repeat the Skype-link up at around 11.05am.
 

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

The Fed will meet next week and release its latest monetary policy statement on Wednesday night. While no rate change is expected, the odds are firming once more for a September hike, given the markets’ shrugging off of Brexit and a run of strong US data. Further clues will be sought.

The Bank of Japan meets on Friday and while it’s always difficult to know what might transpire, markets are assuming fresh stimulus of some kind will be announced. The resounding win by the government in the recent upper house election supposedly provides a mandate to attack the persistently strong yen once and for all.

These two meetings will be very much the focus of next week, possibly keeping markets at bay until developments are known. But the US reporting season rolls on, and next week also sees initial June quarter GDP estimates from all of the UK (Wednesday), US and eurozone (Friday).

There will be more data releases to ponder in the US next week, including house prices, home sales, consumer confidence, durable goods, the Richmond Fed index and Chicago PMI.

Friday will not only bring the BoJ meeting but also a dump of Japanese data, including inflation, industrial production, retail sales, and unemployment numbers.

Ahead of the Fed release on Wednesday night, Australia’s June quarter CPI numbers will be released. We recall it was the weak March quarter CPI numbers which prompted the RBA into a swift rate cut in May, and almost universal expectations of an August rate cut are based on expectation of more weak numbers in next week’s release.

In the local market, next week will see a late rush of resource sector quarterly production reports coinciding with the first trickle of early season corporate earnings releases.

Production reporters include Newcrest Mining ((NCM)), Fortescue Metals ((FMG)), Independence Group ((IGO)) and Origin Energy ((ORG)).

Earnings reporters include CYBG Plc ((CYB)), Henderson Group ((HGG)), GUD Holdings ((GUD)) and ResMed ((RMD)).

Macquarie Group ((MQG)) will also hold its AGM next week at which a guidance update is always a potential share price mover.


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article 3 months old

The Overnight Report: Consolidation

By Greg Peel

The Dow closed down 77 points or 0.4% while the S&P lost 0.4% to 2165 and the Nasdaq fell 0.3%.

Stall

The ASX200 posted its tenth gain in eleven sessions yesterday but conviction waned as the day wore on. After such a solid run, not only recovering the Brexit plunge but far overshooting it, it is inevitable that a pullback of some extent should occur as profits are booked.

Having opened up over 40 points, the index closed only up 24. With Wall Street also finally seeing some consolidation last night, the futures are suggesting an open of down 32 points this morning.

Healthcare was again the star yesterday, having previously been a bit of a laggard in the rally. It rose 1.5%, outperforming more modest and relatively even gains in other sectors. The exceptions were materials, which fell another 0.4% having led out the rally from the start, and telcos, finally seeing a dip of 0.1%. Utilities were still in favour nonetheless, rising 0.6%.

The materials sector should continue to play more of an “alpha” (stock-specific) game through to next week as more quarterly production reports roll in, and as they wrap up we’ll be into the reporting season proper.

Technically, the ASX200 has done all the right things in rising to 5500. The next target should be 5800 but first we need to get past a couple of significant central bank meetings and then we need to see a successful reporting season.

Banking It

A market can’t make new highs forever, which is why nobody much minded that Wall Street pulled back last night. There were some good and not so good earnings reports on the day, but Wall Street is now looking ahead to next week’s central bank meetings and deciding to move to the sidelines.

The Fed will release its policy statement on Wednesday. A rate hike is not expected at this meeting but in the constant ebb and flow of Fed speculation, September is now firming as a good chance. Brexit has been a storm in a tea cup and recent US data, including jobs, housing industrial production and retail sales have all been solid – solid enough to put the onus on the Fed to explain why it would not raise.

The US ten-year yield has moved back up from its Brexit low of 1.36% to now sit at 1.56%. Gold has stopped rising, although it’s interesting to note that having fallen around US$15 on Wednesday night understandably, gold last night rallied back US$15.40 to US$1330.70/oz on only a 0.3% retreat for the dollar index to 96.88.

Next Friday the Bank of Japan will meet. No one knows for sure what it has in mind, but ever since the Abe government won a sweeping majority in the recent upper house election the market has assumed that whatever it is, it won’t be pop gun stuff. Mind you, I have noted before that whenever the world assumes big things from the BoJ it does nothing, and vice versa.

And on that subject, nothing is exactly what the ECB did last night, unsurprisingly. Mario Draghi pledged low rates for longer and a continuation of QE into 2017, and perhaps beyond, but saw no reason to introduce any new measures. The ECB’s status quo decision follows the Brexit rebound and a similar decision by the Bank of England last week.

Had any combination of the BoE, ECB and BoJ been forced to act swiftly to stave off post-Brexit disaster, the Fed would have an argument that staying put is the sensible option. We still await the BoJ.

And just to underscore the argument for a Fed rate hike, US existing home sales rose 1.1% in June to the strongest rate since February 2007.

Commodities

There is talk of Libya being able to recommence export from an oil terminal and that had a negative impact on oil prices last night. However, the West Texas contract rolled over into September front month delivery and often we see some selling at expiries. It’s down US$1.21 to US$44.54/bbl.

Aluminium continues to suffer from building inventories and it was down another 1.5% last night in London. The Philippines story continues to drive nickel, which rose 1.5%, while the other metals were quiet.

Iron ore rose US$1.00 to US$56.10/t.

On the dip in the greenback, the Aussie is up 0.4% at US$0.7495.

Today

The SPI Overnight closed down 32 points or 0.6%. And it’s Friday.

Japan, the eurozone and US will all post flash estimates of July manufacturing PMIs today/night.

Santos ((STO)) and OZ Minerals ((OZL)) will post production reports today.

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

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

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

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

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article 3 months old

The Monday Report

By Greg Peel

Scripted

I suggested on Friday morning the local market would likely open to the upside on overnight strength before fading in the afternoon as traders took profits following a week-long rally, unless Beijing had something to say about it. Well Beijing did have something to say about it, but the market still played to script.

China posted GDP growth of 6.7% in the June quarter, in line with the March quarter result and beating expectations of 6.6%. Industrial production grew 6.2% year on year in the month of June, up from 6.0% in May and beating expectations of 5.9%. Retail sales rose 10.6%, up from 10.0% and beating 9.9%. Fixed asset investment grew 9.0% year to date, down from the 9.6% pace in May and below 9.4% expectations.

On face value, these appear to be a pretty encouraging set of numbers with the exception of fixed asset investment. To the ASX200, they were worth 20 points at midday, taking the index from up 20 points, and ready to fade, to up 40 points. But then the sellers arrived on cue.

Economists do not, however, suggest these were numbers out of China that offer relief. Within the GDP result, growth in private investment, representing 60% of all investment, fell to a record low for the quarter. This leaves the government to carry the can. On that note, the 9.0% growth rate in fixed asset investment to June is the lowest since 2000, suggesting the government is easing off on the infrastructure stimulus.

The June retail sales number was indeed encouraging, but in a way China’s economy is a bit like Australia’s in that it is trying to transition away from a previous model. Can the growth of China’s consumer economy offset the slowdown in the export-driven sectors? Not if private investors are not on board. Beijing can beef up the stimulus again, as everyone expects it will, but just how many airports and railway lines can you build for the sake of it?

Local traders may have had a closer look at the Chinese data, after the computers had had first shot, and decided they were not so hot after all. The index faded all afternoon.

But importantly, the index has clearly breached the 5400 resistance level, meaning that will now become support. Wall Street took a breather on Friday night and the local futures finished down 11 points on Saturday morning, so 5400 will now be the pivot level for the decision as to whether we have reason to push higher.

That will likely come down to the US earnings season now underway and the local earnings season due to start next month.

Almost

Had the S&P500 closed even a tenth of a point higher on Friday night, it would have been the first Monday to Friday run of all-time highs for the index since 1998. But alas, the S&P closed down two points at 2161. The Dow closed up 10 points but that only marked four days of rally. The Nasdaq lost 0.1%.

The fact the 1998 record was not achieved underscores the reality that markets do not usually go up five days in a row. Wall Street was all set for a similar session of Friday profit-taking after a very strong week, but instead hung in there. It is a positive sign.

Traders have also pointed to other positive signs in the Russell small cap index catching up to its large cap counterparts post Brexit and indeed outperforming on the upside. This suggests the rally has breadth. And a further six basis point gain for the US ten-year bond yield to 1.59% equates to over 20bps from the Brexit low and an indication the safe haven money is coming back out again.

The ongoing element traders have been pointing to for several post-GFC years is the level of cash still on the sidelines. If investors decide they have no choice but to deploy that cash in a low interest rate world, stock market upside could be substantial.

The US CPI rose 0.2% in June, in line with expectation. The increase was largely due to the oil price which many believe should ease off after the summer driving season. Annual inflation is only 1.0%, reflecting the initial big drop in oil prices. Core inflation, without oil, is 2.3%. This should be enough to prompt the Fed into hiking but for three reasons.

Firstly, the Fed prefers the PCE measure of inflation, and that is still running under 2%. Secondly, the Fed did not hike in June because of Brexit risk, and despite the rebound in markets a rate hike is not expected at the July meeting either, on a “too soon” basis. Thirdly, wages fell 0.2% in June. Lack of wage growth suggests a subdued inflation outlook.

But US retail sales jumped 0.6% in June when 0.1% was expected. It’s the third consecutive solid gain.

The big earnings result on Friday night came from the banks. Citigroup posted a beat and Wells Fargo posted in line. The shares of both closed down on the day, but this was more a case of a Friday after a week-long rally and the fact JP Morgan’s solid result on Thursday night had traders amped up for strong beats on Friday night.

As of this week, the earnings reports will come thick and fast, with a lot of Dow names in the frame. If Wall Street is to hang on to or exceed new all-time highs, it will need the run of results to be as positive as the early numbers have suggested.

Commodities

Since we’re focusing on records today, we can also note the 0.6% jump in the US dollar index to 96.69 on Saturday morning ended the strongest week for the dollar against the yen since 1999. The yen has been plunging basically since “Helicopter” Ben Bernanke met with officials in Tokyo early in the week, sparking speculation the BoJ may be prepared to use “helicopter money” as a last ditch effort to soften the yen and boost the Japanese economy.

Helicopter money directly refers to hand-outs of printed money to the populace as a form of stimulus, analogously dropped from helicopters. In the GFC, the famed “Pennies from Kevin” is a local example. But it can also mean other drastic stimulus measures, such as the BoJ buying government bonds and then forgiving the debt. Whatever the case the policy is highly inflationary, but given a low inflation world and over two decades of deflation in Japan, hyperinflation is not considered a risk.

The jump in the greenback on Friday night helped aluminium, copper and nickel down around 0.5% on the LME and lead down 1.5%, with zinc rising 0.5%.

Iron ore fell US20c to US$57.80/t.

Oil traders cited the better than expected China GDP and US retail sales in sending West Texas crude up US73c to US$46.23/bbl, despite the US rig count marking its sixth week of gains in seven.

Gold held its ground against the strong greenback in rising US$2.50 to US$1337.10/oz.

The Aussie is down 0.7% on the strong greenback at US$0.7580.

The SPI Overnight closed down 11 points or 0.2% on Saturday morning.

The Week Ahead

All eyes will be on the ECB on Thursday night when it holds a scheduled policy meeting. But given the wold has quickly recovered from Brexit fears, and the Bank of England elected not to react, it is likely Draghi will keep his powder dry.

The US will see housing sentiment tonight, housing starts on Tuesday and existing home sales, the Chicago Fed national activity index, the Philadelphia Fed activity index, FHFA house prices and leading economic indicators on Thursday. Friday sees a flash estimate of July manufacturing PMI, and Japan and the eurozone will offer the same.

Japan is closed today.

The minutes of the July RBA meeting are due tomorrow and otherwise, NAB’s June quarter business confidence summary on Thursday provides the local data of note this week.

It will be a bit different on the local stock front however, as the quarterly reporting season ramps up.

Western Areas ((WSA)) will report quarterly production today, Rio Tinto ((RIO)) and Oil Search ((OSH)) tomorrow, BHP Billiton ((BHP)) and Woodside Petroleum ((WPL)) on Wednesday, South32 ((S32)) on Thursday and Santos ((STO)) and OZ Minerals ((OZL)) on Friday, among others during the week.

Rudi has returned from two weeks of touring Victoria and Queensland. He will appear on Sky Business via Skype-link on Tuesday, 11.15am, to discuss broker calls. On Thursday he'll return to the studio at Macquarie Park, 12.30-2.30pm and on Friday he'll do the Skype-link again around 11.05am.
 

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

Once we get past the Chinese data today, global economic data releases are fairly thin on the ground until later next week. A potentially significant highlight on Thursday will be the scheduled ECB policy meeting.

Last night the Bank of England did not cut its cash rate as most expected, and as had been earlier hinted at, basically because markets have recovered since their Brexit fit and the pound has rebased to a more helpful level for the UK economy. As the world quickly recovered from the Brexit news, the ECB also suggested it may not need to do anything drastic beyond policies already in place. And the euro is also lower. So we shall see.

In the US, next week brings housing sentiment and starts ahead of Thursday, which sees existing home sales, house prices, the Chicago Fed national index, the Philadelphia Fed index and leading economic indicators. On Friday the US, eurozone and Japan will all flash July manufacturing PMI estimates.

Australia’s calendar is also virtually devoid of data releases next week, although the minutes of the July RBA meeting are due on Wednesday.

There will be more action in the stock market nevertheless.

Next week sees the resource sector quarterly reporting season shift up a gear, with reports due from the likes of BHP Billiton ((BHP)), Rio Tinto ((RIO)), Oil Search ((OSH)), Woodside Petroleum ((WPL)), Santos ((STO)), OZ Minerals ((OZL)), South32 ((S32)) and Western Areas ((WSA)), among others.


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article 3 months old

The Overnight Report: Risk Back On

By Greg Peel

The Dow closed up 134 point or 0.7% while the S&P rose 0.5% to 2163 and the Nasdaq gained 0.6%.

Hit for Six

I suggested in yesterday’s report that it may not be the day in which the ASX200 manages to breach the brick wall of resistance at 5400. Ultimately I was proven wrong, but it was no simple feat. On my count, the index rose above that level before pulling back to or below that level six times in choppy trading yesterday before the final assault.

At 2pm, just when it looked like the sellers may just win on the day, we turned and rallied to a close of 5411. With Wall Street up again last night, we may cement that breach today, although it’s interesting to note the S&P500 closed up half a percent in the US but the futures are only suggesting 0.1% for the local index today.

Bridge Street has seen its sixth consecutive up-day. But aside from Monday’s big surge, it’s been a grafting, somewhat cautious climb. On the other side of 5400, there’s a bit of a “Now what?” feel.

We actually saw a positive jobs number yesterday. On face value the net 7,900 jobs added fell short of 10,000 expectations but the big surprise was the mix – 38,400 full-time jobs were added and 30,600 part-time jobs were lost. For the past several months, apparently strong employment results have been misleading, given growth has been almost entirely led by the addition of part-time jobs. A job is a job on the ABS count, be it full or part-time. But part-time jobs mean fewer hours worked, thus lower net wages, thus limited positive economic impact.

So to see this sudden and sharp turnaround is heartening. We also saw the unemployment rate tick up to 5.8% because of increased participation – more people trying to find work – which again is an encouraging sign.

It’s not yet enough to suggest inflation is about to pick up again, so there is no reason yesterday’s jobs numbers would prevent the RBA from cutting in August once the June quarter CPI result is known.

After a very strong run this week, the resources sectors finally saw some profit-taking yesterday. Materials fell 1.3% and energy 0.6% to be the only sectors to finish in the red. The banks have also been a significant driver of the rally to 5400, but they had another positive session yesterday with a 0.8% gain. Elsewhere, gains were roughly even, but the defensive sectors continue to remain just as popular, indeed if not more popular, than cyclicals overall.

The new buzz word on acronym-obsessed Wall Street is STUB – staples, telcos, utilities and bonds. With Wall Street at new all-time highs, the outperformers in 2016 to date have been the people who make toothpaste, the people to whom one pays one’s phone, electricity and gas bills each month, and government-issued fixed interest. Investments that quietly yield while carrying limited risk.

In Australia, the picture is not dissimilar, if we substitute the likes of a pizza chain in for staples and toll roads for utilities, for example. The question is: how high can we continue to go on defensives? To get cyclicals up and running again – meaningfully -- we need some central bank stimulus.

Some days are Dimon’s

The Bank of England did not cut its cash rate last night, defying an 80% chance priced into the futures market. While this sounds like a trigger for major volatility, it wasn’t.

It wasn’t, because between the time BoE guvna Mark Carney suggested he would likely cut the cash rate and now markets have moved from Brexit panic to Brexit complacency, and from a collapse in the pound to…well…a still-collapsed pound. In other words, the BoE does not need to cut the cash rate to stop a market crash, nor to try to force currency devaluation. Markets have recovered and the pound has re-based, which alone should provide the additional economic stimulus the UK needs through this ongoing period of uncertainty.

The response on the UK stock market was a 0.2% fall. The response on Wall Street was…hey did you see JP Morgan’s result!

Right up to the last minute, analysts were marking down their forecasts for JP Morgan’s (Dow) June quarter earnings. We could thus say it was always going to be easier to post a “beat”, but as it was the bank’s result was very impressive not just in its EPS, but in the breakdown of where it made money and where it didn’t lose it. Most notable was a solid performance in consumer-related banking, and most comforting was no attempt to use Brexit as any sort of excuse.

The US banks have been enjoying a rally back from initial Brexit lows, just as Australian banks have been doing, and as such have been leaders in the push to new all-time highs. The banks themselves are nevertheless a very long way from all-time highs. JPM’s result helped float all US banks last night and thus lead this latest move into blue sky. Tonight sees results from Wells Fargo and Citigroup.

The other talking point on Wall Street last night was the June producer price index release. It posted the biggest jump in more than a year in rising 0.5% on the headline against 0.3% expectation. It was all about the oil price rebound nonetheless, and the core PPI remains in the doldrums.

Wednesday night on Wall Street saw a bit of a pause, as stock indices steadied and a bit of money flowed back into bonds and gold. It was as if Chris Froome had come off his bike and had to jog for a bit. Last night saw the stock rally kick back in, gold fall back again and the US ten-year yield rise 6 basis points to 1.53%, as Froome got back on a bike.

Commodities

The US dollar index is down 0.3% at 96.09 following a mild bounce in the pound on no rate cut. But gold is down US$7.70 at US$1334.60/oz.

Copper took a breather last night in a session which saw all other base metals mildly higher.

Iron ore fell US70c to US$58.00/t.

West Texas crude rose US39c to US$45.50/bbl.

The Aussie is 0.4% higher at US$0.7633.

Today

The SPI Overnight closed up 6 points. It’s a Friday, we’ve had six up-days in a row and we’re sitting just above what was major resistance. A bit of profit-taking today?

Beijing may have something to say about that. China’s June quarter GDP result is out today, alongside June industrial production, retail sales and fixed asset investment numbers.

Retail sales will also be in focus in the US tonight, amidst the big earnings reports.

On the local stock front, Whitehaven Coal ((WHC)) and Mt Gibson Iron ((MGX)) post quarterly production reports today.
 

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: Caution At The Top

By Greg Peel

The Dow closed up 25 points or 0.1% while the S&P was flat at 2152 and the Nasdaq fell 0.3%.

Struggling

On a technical basis, the ASX200 trading at over 5300 since Monday suggests further upside towards 5800 is on the cards. The index still has to get through brick wall resistance at 5400, and thereafter there has to be a fundamental reason to support further gains.

With the world now settling down again following immediate Brexit fears, albeit still wary of further possible bouts of volatility, the local market may need to wait until the reporting season next month to find a new driver. Meanwhile, yesterday’s session may have been positive but there remained an air of caution.

The big movers yesterday were the resource sectors, thanks to big commodity price jumps. Materials was up 2.0% and energy 1.5%. But only three other sectors finished in the green yesterday – the banks, telcos and utilities. All offer yield as their primary attraction, not cyclical growth.

It was not a straight line rally yesterday either. After a spurt up on the opening rotation, interest faded. Late buying then righted the ship. There were also the Chinese trade numbers for June to consider.

Exports fell a slightly worse than expected 4.8% year on year following May’s 4.1% drop. Imports fell 8.4% compared to 0.4% in May, when a 5.0% fall was expected. While the numbers are not very positive there is no great panic, given Beijing is expected to rev up the stimulus any moment now beyond renminbi devaluations.

The index closed yesterday at 5388. Following a flat session on Wall Street and the futures up only 8 points this morning, today is unlikely to be a day to retest 5400. We also had oil falling back last night.

The local June jobs numbers are out today but nothing particularly market-moving is anticipated. There will likely be some caution in the market today ahead of tonight’s Bank of England policy meeting.

For so long, we’ve not been particularly interested in BoE meetings. The UK’s economic surge following the London Olympics brought expectations of a likely rate hike from a post-GFC 0.5%, but that surge soon faded and for the past few years the UK has simply bungled along, stuck on the same cash rate.

Tonight is expected to see a rate cut. BoE guvna Mark Carney has already hinted at one and the local market is pricing in an 80% chance. The risk to global markets, both to the downside and upside, is either no cut or a full 50 basis points to zero. A 25bps cut will no doubt be a non-result.

Let’s see some results

If Australia now needs to wait for results season, the same is true on Wall Street where quarterly results are now trickling through. So far we’ve seen earnings beats from Alcoa and rail company CSX, while fast food conglomerate Yum Brands is up around 5% in the aftermarket as we speak, having reported after the bell.

It’s early days, and as late as last night analysts were still downgrading their expectations for JP Morgan’s result, due tonight. JPM will be the first of the big banks and first Dow stock to report.

Having hit new highs in the S&P and Dow, Wall Street stalled last night. In Tuesday night’s session we saw a rush out of the safe havens of gold and Treasuries but last night gold clawed back ten dollars and the ten-year yield fall back 4 basis points to 1.47%.

This week’s US Treasury auctions of three-years and ten-years struggled to find any buyers. Last night’s thirty-year auction was a different story. Buying interest was the strongest it has been since September last year for a yield of 2.17%. That’s not a lot more than the current inflation rate but if we bear in mind last night Germany issued its first ever ten-year bund with a negative coupon, and that Swiss fifty-year bonds are currently trading negative, a 2% thirty year backed by the US economy looks like manna for pension fund managers at this time.

But that 2.17% settlement rate is still the lowest on record. Welcome to the new normal.

The latest Fed Beige Book was released last night. This anecdotal assessment has had US economic growth fluctuating between “modest” and “moderate” for so long now traders have stopped taking any interest. Never has a publication been so aptly named.

Commodities

It was that time of the week last night when the US weekly oil inventory numbers are released, and as usual they surprised. The drawdown on crude was not as big as expected and persistently high levels of gasoline stocks in the middle of summer have the market concerned.

Having jumped 6% on Tuesday night, West Texas crude is currently down US$1.51 or 3.2% at US$45.11/bbl. Having tried and failed at 50, it looks like 45 will be the pivot level for WTI for the time being.

Copper kicked on with a further 1% gain last night on the LME but nickel and zinc fell back 1%.

Iron ore fell US10c to US$58.70/t.

Gold is up US$9.60 at US$1342.30/oz with the US dollar index down 0.2% at 96.35.

The Aussie is off 0.2% at US$0.7606.

Today

The SPI Overnight closed up 8 points.

As noted, the local jobs numbers are out today but the big drawcard is the BoE meeting tonight.

Iluka Resources ((ILU)) and Transurban ((TCL)) will post quarterly reports today.
 

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article 3 months old

The Overnight Report: Now The Dow

By Greg Peel

The Dow closed up 120 points or 0.7% while the S&P gained 0.7% to 2052 and the Nasdaq rose 0.7%.

Resistance

Two weeks ago we were worried about the ASX200 falling through 5100. Yesterday the index had a good look at 5400. And to a great extent it’s all about politics.

Eight years ago Barrack Obama said “Yes we can”. On Monday night the Tories said “Theresa May”. At the height of Brexit concerns, and the depth of global markets, the transition from David Cameron to new UK prime minster was expected to take three months. But Cameron is currently wrapping the glassware and souveniring ash trays as we speak.

May may have been anti-Brexit, and bears a scary resemblance to a certain predecessor, but her rapid ascent to PM has ended at least one period of Brexit-related uncertainty. Presumably the Brexit button will now be pushed, but markets have come to acknowledge that the process of exit is actually going to take time, and that time has the capacity to smooth the transition.

On the weekend the Abe government won a landslide victory in the Japanese upper house. On Monday Malcolm Turnbull achieved a majority. That’s actually yet to be confirmed, but who would argue with Anthony Green?

Political uncertainty has thus been dampened. Political certainty means fiscal mandate. Fiscal policies, backed by central bank monetary support, are shortly expected to be underpinning the economies of Japan, China and perhaps even Australia. The bottom line is there’s no reason not to buy stocks.

The ASX200 scored a ton on Monday, and yesterday waved its bat at 50 points up before the air became a bit rarefied. The 5400 level has been brick-wall resistance these past few months. At 5391, the profit-takers moved in. And fair enough – there were plenty of profits to be had.

As the index fell back to close up only 16 points, profits were taken on the cyclicals that have led this recent surge. But defensives continue to be sold, underscoring the “risk on” nature of this rally as opposed to the yield-driven rallies of the previous months. Banks, as I noted yesterday, sit somewhere in between, and closed higher again yesterday. Materials won the day with another 0.9% jump.

Materials is set for another good session today, assuming the stock market hasn’t already jumped the gun. Global stimulus is a boon for commodities prices. Base metal, iron ore and oil prices all surged overnight. The offset is gold – which is not a commodity but a currency – which has fallen overnight in “risk on” fashion.

NAB released its June business confidence survey yesterday, which was conducted post-Brexit but pre-election. Despite the volatility Brexit unleashed, the confidence index (looking ahead) rose to 6.1 from 3.0 in May and the conditions index (right now) rose to 12.0 from 9.7. Stock markets like business confidence. The RBA also pays attention as well.

Sky’s the Limit

Last night the Dow closed at 18,347, above the previous all-time closing high of 18,312 set in May last year. The Dow briefly traded above the all-time intraday high of 18,351 before slipping back a tad. At 2152, the S&P500 has breached 2150 resistance and is now trading in blue sky. The S&P mid-cap and S&P small cap indices also traded up to all-time highs last night, suggesting the rally has breadth.

Supporting the breadth were relatively solid volumes on Wall Street last night. Rising volumes at new highs have chartists all excited. The Nasdaq is still short but is back over 5000 and as of last night, back in positive territory for the year. Still lagging is the Russell small cap, which contains a lot more smaller caps than the S&P small cap, and the Dow Transports.

Proponents of Dow Theory would suggest the rally in the Dow Industrials cannot be sustained unless the Dow Transports is leading the way. Proponents of Dow Theory wear boaters and striped jackets and dance the Charleston.

Confirming the swing to “risk on” in the US were last night’s twenty dollar fall in gold and a further 8 basis point jump to 1.51% in the US ten-year yield. The US Treasury has been holding bond auctions this week and suddenly the buyers have disappeared.

Wall Street’s rally of the past two sessions has come without any economic data releases of note and just the one earnings report from a major cap company. Alcoa posted a beat. JP Morgan will report on Thursday night.

What will derail the rally? Well, that’s the scary part. It’s being driven by central bank smoke and mirrors. To justify the surge in global PEs we’ll need to see supportive, hard fundamental evidence. This particular US earnings season will be an important one.

Commodities

West Texas crude is up US$1.87 or 4% at US$46.62.

Aluminium closed up 1.5% on the LME, copper, lead and zinc 2.5% and nickel 4%.

Iron ore closed up US$3.40 or 6% at US$58.80/t.

Gold is down US$21.60 at US$1332.70/oz.

All commodity price movements occurred on a flat US dollar index, unmoved at 96.52.

Far from unmoved is the Aussie, which is up another 1.2% at US$0.7623. Over to you Glenn.

Today

The SPI Overnight closed up 30 points or 0.6%. 5400 is 57 points away.

China’s trade numbers for June are out today.

Westpac will release its June consumer confidence survey result.

The Fed will publish its Beige Book tonight.
 

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article 3 months old

The Monday Report

By Greg Peel

Breather

The local stock market took a breather on Friday, following two weeks of Brexit volatility and election uncertainty and ahead of Friday night’s US jobs report. Nothing new is known about potential Brexit fallout, but by Friday it at least looked like the Coalition would be able to form some sort of government.

By this morning it looks quite possible the Coalition will be able to form a majority government. This reduces the risk of a possible credit rating downgrade. On Friday night the Aussie went soaring, up 1.2% by Saturday morning to US$0.7564 despite the US dollar index being little changed.

But during Friday’s local session, it seems everyone went to lunch. The only movement of any note was a further 0.6% drop for the utilities sector, as “overbought” calls continues to hit home.

Yer Kidding

The US added 287,000 jobs in June, trashing estimates of 170,000. Mind you, estimates have been none too flash of late, given 170,000 was about the assumption for May as well, minus the 35,000 striking Verizon workers. May’s number came in at 38,000.

It was assumed the May result would be revised up with the June result, being such an anomaly, but instead it was revised down, to 11,000. We now have two consecutive anomalies, so economists prefer to average out to provide a three-month running indicator, which after the June result is 147,000 per month. Late in 2015, when the Fed decided to hike, that average was running at 200,000 plus.

Not only were more jobs created in June, but more hopeful workers re-entered the market, meaning the unemployment rate rose to 4.9% from 4.7%. Average wages rose 0.1% for a 2.6% annual rate.

Under normal circumstances, Wall Street would take the June jobs numbers as reason to expect a Fed rate hike in July. The response in the stock market would then be torn between good jobs result means economic growth, which is good, and good jobs result means higher borrowing rates, which is bad. But no one expects the Fed to hike in July because despite stock markets rallying across the globe, Brexit still provides for uncertainty.

So the Fed won’t hike this month. Maybe September, if the data continue to look positive in the meantime, but even then, probably not. So what does this mean? It means you can have your cake, being strong jobs growth, and eat it too, because the Fed will keep rates low. There is no reason not to buy stocks.

The Dow closed up 250 points or 1.4%, rising back over the 18,000 mark. The S&P rose 1.5% to 2129. The all-time closing high is 2130. The Nasdaq gained 1.6%.

But was this a “risk on” rally? No. Not only did investors buy stocks on Friday night, they also bought bonds and gold – the safe havens. The US ten-year yield fell 2 basis points to 1.37% and gold rose US$5.60 to US$1365.40/oz. Typically on a positive jobs number, and thus increased Fed rate hike expectations, investors would sell bonds and gold and buy stocks. In this case, stocks were bought because there is no alternative.

It’s hard to find any commentator that doesn’t believe US stocks can continue to rally under such circumstances. It is even more difficult to find anyone who is not nervous, given the lack of any fundamental drivers. The VIX volatility index fell back to 13 on Friday night, suggesting abject complacency.

Fundamentals will come home to roost from this week, however, as we enter the US June quarter reporting season. Alcoa reports tonight, and then there’s a gap to week’s end when the first of the big banks report.

As has become the trend, earnings forecasts are weak going into the season, offering up the opportunity of a “beat”, but a bit of a hollow one. Net S&P500 earnings are forecast to fall 5%.

Commodities

The US dollar index was steady on Friday night at 96.28, which is again not what one would expect from such a stellar jobs number. Base metal traders were therefore able to see the result as economically positive, hence we saw copper up 0.5%, aluminium and nickel up 1.5%, and zinc 2.5%.

For the oil market it’s a case of being torn between good economic data and the risk of further oversupply as US rigs kick back into gear above US$50/bbl. So oil prices did nothing, with West Texas steady on US$45.16/bbl.

Iron ore was unchanged at US$55.20/t.

The Week Ahead

After a flat close to last week, the SPI Overnight closed up 61 points or 1.2% on Saturday morning.

The Bank of England will hold a scheduled policy meeting on Thursday night. Given post-Brexit indications from Mark Carney, the market will be very surprised if there is no rate cut from 0.5%. Zero is a possibility.

This week will bring China back into focus.

Over the weekend we saw the release of China’s June CPI, which fell to a five-month low 1.9% from 2.0% in May. On Wednesday we’ll see June trade numbers and on Friday, industrial production, retail sales and fixed asset investment numbers.

And we’ll see the June quarter GDP result. The market is forecasting 6.6%, down from 6.7% in May.

In the US, the Fed Beige Book will be released on Wednesday ahead of CPI, retail sales, business inventories and consumer sentiment numbers on Friday.

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

On the local stocks front, this week heralds the beginning of the quarterly reporting season, which includes resource sector production reports and many a trading update from non-resource companies.

This week’s highlights include production reports from Alumina Ltd ((AWC)) tomorrow and Iluka Resources ((ILU)) and Whitehaven Coal ((WHC)) on Thursday. Transurban ((TCL)) will also report on Thursday.

Rudi will not make any appearances on Sky Business this week as he'll be presenting to investors on Gold Coast and in Brisbane.
 

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

All eyes will, as usual, be on the US jobs numbers tonight. The question is as to whether there is any number sufficiently positive to suggest the Fed may yet, in the wake of Brexit, look to raise this year.

With that result out of the way, attention will turn back to China next week. June inflation data will be released on Sunday, trade numbers on Wednesday, and industrial production, retail sales and fixed asset investment numbers on Friday. Friday also brings the June quarter GDP result.

The Bank of England holds a policy meeting on Thursday night. There will be much surprise if the UK cash rate is not cut from 0.5%, perhaps to zero.

US data releases next week include inflation, retail sales, inventories, consumer sentiment and the Empire State activity index, all at the end of the week. The Fed Beige Book is due on Wednesday.

On Monday night Alcoa will report June quarter earnings, unofficially kicking off the US result season.

Locally we’ll see housing finance numbers and the NAB business and Westpac consumer confidence surveys. Thursday it’s the June jobs numbers.

Australia also enters a quarterly season next week of trading updates and resource sector production reports. Alumina ((AWC)), Iluka Resources ((ILU)), Whitehaven Coal ((WHC)) and Transurban ((TCL)) are among next week’s reporters.
 

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