Tag Archives: Japan

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

China will release May industrial production, retail sales and fixed asset investment numbers on Sunday.

Australian markets are closed on Monday.

The short week will see the NAB business and Westpac consumer confidence surveys and the May jobs numbers.

The Bank of Japan will hold a policy meeting on Thursday. Rates further into the negative? The German ten-year yield has now almost hit zero. The Bank of England will also meet on Thursday but nothing will happen ahead of the Brexit vote.

The Fed will hold its policy meeting on Wednesday, with expectations for a rate hike now near zero. What will be important is the language of the statement and Janet Yellen’s press conference.

US data releases pick up again next week, and feature retail sales, inventories, industrial production, inflation, housing sentiment and starts and the Empire State and Philly Fed activity indices. Friday is a quadruple witching expiry of equity derivatives.

While local companies continue to hold investor days, corporate news is now thin on the ground as we approach year-end.


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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 first revision of US March quarter GDP will be released tonight. Wall Street is hoping for some improvement on the first estimate of a disappointing 0.5%. Janet Yellen will also speak tonight. Recent Fedspeak has been far more hawkish, suggesting the Fed is preparing the market for a June rate hike.

Will Yellen typically kill the mood with her more dovish tone? Otherwise, trading is sure to be thin on Wall Street tonight ahead of the Memorial Day long weekend. The US is closed on Monday.

Across next week the US will see house prices, consumer confidence, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, the Fed Beige Book and the manufacturing and services PMIs. Most importantly, the May US jobs report will be released on Friday – likely the final swing factor in the June rate hike decision.

Wednesday is the first of the month and that means manufacturing PMIs across the globe, and both the official Chinese manufacturing and service sector PMIs. The rest of the world releases services PMIs on Friday.

The ECB will hold a policy meeting on Thursday.

Australia will be included in the PMI releases, and we’ll see monthly data for building approvals, retail sales and trade. We will also see March quarter numbers for company profits, inventories and the terms of trade ahead of Wednesday’s release of March quarter GDP.

ALS ((ALQ)) will release its earnings report on Monday but thereafter, corporate events begin to thin out as we head into EOFY.


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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 US will release April retail sales numbers tonight which might go some way to confirming whether US consumers simply aren’t buying, or just not buying from bricks & mortar, given a very weak run of chain store quarterly earnings results this week.

Tonight also sees the eurozone’s March quarter GDP result.

Tomorrow Beijing will release Chinese retail sales, industrial production and fixed asset investment numbers for April.

Japan will release its March quarter GDP result next week, in a busy week for US data.

They include numbers for housing sentiment, starts and existing home sales, industrial production and inflation, as well as the Empire State, Philly Fed and Chicago Fed activity indices. The minutes of the April Fed meeting are also due.

The minutes of the May RBA meeting are out on Tuesday but between last week’s rate cut and the Statement on Monetary Policy, the market has a pretty clear idea of where the RBA is headed.

Australia’s jobs numbers are also out next week and the release of the March quarter wage price index kicks off the run-down to the GDP result in two weeks’ time.

Next week will see earnings results from Elders ((ELD)), DuluxGroup ((DLX)), James Hardie ((JHX)) and Oxforex ((OFX)) while Woodside Petroleum ((WPL)) will hold an investor day and several more AGMs are scheduled.
 

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article 3 months old

The Overnight Report: Buy In May

By Greg Peel

The Dow closed up 117 points or 0.7% while the S&P rose 0.8% to 2081 and the Nasdaq gained 0.9%.

Westpacked

Westpac ((WBC)) reported its interim result before the opening bell yesterday morning and when the bell rang, the market proceeded to plunge 70 points without a blink. But it was all about the banks. When the market closed down only 9 points it was still all about the banks -- the only sector to finish in the red.

Westpac reported a miss on earnings due to an increase in bad debt provisions for some high-profile companies that have gone to or very close to the wall over past months, such as Arrium ((ARI)) and Slater & Gordon ((SGH)). Investors were relieved the dividend remains intact, albeit it’s the first time in a while Westpac has not raised its dividend (from the previous six month period).

Westpac is not, of course, alone in its exposure to high-profile names. Thus while Westpac shares closed down 3.5% yesterday, shares of the other three all closed down around 2%. Yet while Westpac’s earnings result missed analyst forecasts, the one unknown analysts were at pains to cite in their result previews was such corporate exposure, as well as more general exposure to loans in the mining states and also the NZ dairy industry. In other words, it was a “miss” but not entirely a surprise.

Which is possibly why the financials sector closed down 1.6% yesterday having been down around 3% at the 11am nadir. Meanwhile, Telstra’s ((TLS)) announcement it was going to spend millions to end constant outages in its mobile network was well received, as were its buyback plans, sending the telco sector up 2.8% and offering those selling banks another yield stock alternative to switch into. Materials rose 1.4% on another jump in the iron ore price but beyond that, all other sectors posted only modest gains.

Bank problems are not macro problems. ANZ Bank ((ANZ)) will report today (it has by now - see below) and National Bank ((NAB)) on Thursday. In these two cases, dividends will be critical.

Another bank will also take the spotlight later today. Will the RBA cut? Half the market says yes and half says no. Employment is strong, the terms of trade is looking a lot healthier, house prices continue to rise, as yesterday’s data confirmed, and business confidence has dipped but remains robust, as yesterday’s NAB survey revealed, but the Aussie remains elevated on the weaker greenback and inflation is going backwards.

I believe the question will come down to whether or not the RBA believes another 25 point cut will make any difference. Notwithstanding the fiscal side of the equation, which could all change tonight. Has the central bank been allowed a look at the budget ahead of today’s meeting? Not sure how that works. The budget is a week early. My tip is no cut, but I will not be shocked if I’m wrong.

Around the Grounds

Australia’s manufacturing PMI dropped to 53.4 in April from 58.1 in March. Japan’s hit a three-year low 48.2, down from 49.1, the eurozone ticked up to 51.7 from 51.6, and the US fell to 50.8 from 51.8, On Sunday Beijing’s China result was published as 50.1, down from 50.2, and the UK and Caixin China numbers are out tomorrow.

Buffeted

On a weak close to April trading on Friday night, Wall Street traders came in late to set themselves long ahead of the weekend. Typically traders square up ahead of a weekend, but this weekend saw the annual Berkshire Hathaway shareholders meeting. The Oracle has a history of rallying the troops, and sure enough those traders were right. All agreed last night’s hundred point rally in the Dow was all down to Warren Buffet.

Apart from the historical precedent, traders noted that the rally lacked any real investor conviction. Volumes were low, and pretty much have been for some time now in this rally no one’s all that convinced about. It is nevertheless worth noting that oil prices fell in the session, so we can say that the direct correlation no longer stands.

Unless oil prices fall back out of bed, which some are expecting.

After seven days of falls, the Nasdaq finally rose last night, and indeed outperformed the other indices. Again this was attributed to Buffet, who talked up Amazon and the FANG stocks while admitting he doesn’t understand the new-tech sector. That’s why his fund is in IBM and Amex and did rather poorly last year. Buffet still couldn’t help Apple last night nonetheless, which was down for an eighth straight session – its worst run in 18 years.

Commodities

Data suggest OPEC has now boosted its production levels since the failed meeting in Doha. Each monthly increase represents a new record. The suggestion is OPEC producers want to squeeze production as hard as they can to set the highest record they can before the regular June OPEC meeting, at which point they can then agree to freeze.

West Texas is down US$1.10 at US$44.89/bbl and Brent is down US$1.41 at US$45.96/bbl on the new July delivery contract.

There is also some fear in the market that oil’s April rally was very much supported by Chinese government stockpiling, as Beijing took advantage of low prices. There is only so much storage space, and at some point Chinese buying will stop.

Then there’s the issue of how much further the greenback can fall, and whether it’s due a bounce. The dollar index is down another 0.5% at 92.57 and greenback weakness has also been very supportive of commodity prices this past month.

Gold is the classic case in point, although it is relatively steady this morning at US$1290.90/oz having briefly traded up to 1300 overnight.

The LME was closed for the UK public holiday, so no base metal trading last night.

The holiday in Singapore also means iron ore is unchanged at US$65.20/t.

The drop in the greenback means the Aussie is up 0.8% at US$0.7664. The forex cowboys will be oiling their saddles prior to 2.30pm.

Today

The SPI Overnight closed up 12 points or 0.2%.

Late Breaking News: ANZ has just announced its first drop in profit in seven years and has cut its dividend by 7%.

On the local economic front, we have building approvals this morning, the RBA statement this afternoon and the federal budget tonight.

On the local stock front, beyond ANZ, Woolworth’s ((WOW)) will release quarterly sales numbers today, Goodman Group ((GMG)) will issue a quarterly report, Transurban ((TCL)) will host an investor day and omigod what a stupid name media ((OML)) will hold its AGM.

Rudi will skype-link with Sky Business to discuss broker calls around 11.15am today, then appear as guest on Thursday (12.30-2.30pm), re-appear on Switzer later that same Thursday (between 7-8pm) and then Skype-link again on Friday, probably around 11.05am.
 

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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

Tonight will see the release of the first estimate of eurozone March quarter GDP. The US will see personal income & spending data, including the Fed’s preferred PCE measure of inflation.

Last night’s weak US GDP number would suggest a June rate hike from the Fed is now less likely, although the decision by the Bank of Japan not to cut further has some suggesting the Fed’s door is now open in June.

On Sunday, Beijing will release China’s April manufacturing and services PMIs.

Australia, Japan, the eurozone and US will all release manufacturing PMIs on Monday. China and the UK will be closed for May Day on Monday, so the UK and Caixin China manufacturing PMIs are due on Tuesday. Services PMIs are due on Wednesday with the UK and Caixin again a day later.

Other data releases for the US next week include construction spending, vehicle and chain store sales, factory orders, trade and productivity. Wednesday sees the ADP private sector jobs report for April and Friday brings the all-important non-farm payrolls numbers.

Tickets are now hard to come by for the RBA’s monetary policy announcement on Tuesday. Some economists had already forecast a May rate cut on the strength of the Aussie but as commodity prices continued to rally, not all economists held fast. Then came this week’s CPI disinflation shock. About half the market is now tipping a cut on Tuesday.

Aside from PMIs, Australia will also see building approvals, retail sales and trade numbers next week.

On the local stock front, it’s bank earnings season. Results are due from all of Westpac ((WBC)), ANZ Bank ((ANZ)), National Bank ((NAB)) and Macquarie Group ((MQG)).

The quarterly updates and investor days continue to flow, with Telstra ((TLS)) among the highlights next week.  Woolworths ((WOW)) will report quarterly sales. The AGM season also starts to hot up from next week.
 

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article 3 months old

The Overnight Report: Sell-Off

By Greg Peel

The Dow closed down 210 points or 1.2% while the S&P fell 0.9% to 2075 and the Nasdaq dropped 1.2%.

Rock’n’Roll

It was a wild old session on the local bourse yesterday as a clear determination to buy was interrupted by the Bank of Japan’s determination not to do anything.

The trend in recent times has been for the BoJ to move on monetary policy when no one is expecting a move and to stay put when the world is convinced a move is afoot. The yen has been nothing but strong ever since the BoJ moved its cash rate into the negative in January so the expectation was that the central bank would have do something at its meeting yesterday – head further into the negative or at least pump QE purchases up further.

But the decision was to wait for longer to give negative rates more time to play out. On that note, the Nikkei index plunged 3.6% and the yen soared once more. Locally, the ASX200 was sitting at a peak of up 52 points at 1pm when the BoJ decision hit the wires, and six minutes later was only up 11 points.

But by 2.30pm the index was back up 47 points before closing up 37. The BoJ caused no more than a computer-driven blip, it would seem.

When the dust settled, the theme of the day appeared to be a continuation of Wednesday’s trade when the shock CPI result had the market assuming an RBA rate cut is nigh, maybe even as soon as next Tuesday. The sectors that led the rally were consumer discretionary (1.2%) and staples (1.8%), energy (1.8%), materials (2.8%) and industrials (0.8%).

The consumer sectors benefit from lower rates putting more money in punters’ pockets, the resource sectors have been enjoying the commodity price bounce but have found earnings tempered by the strong Aussie, and many an industrial earns its revenues offshore. No other sector much moved. We might have expected the banks to be sold given they are hampered by lower rates, but a 0.1% gain suggests no one wants to do anything too rash ahead of next week’s earnings results.

The Aussie fell 2% on Wednesday’s CPI result and was heading further south yesterday when the yen took off. The US dollar index is down 0.7% this morning and the Aussie is up 0.4% at US$0.7626 – still about a cent down from where it was pre-CPI.

Technical Trigger

The past few quiet but strong sessions on Wall Street have not had traders convinced, with many looking forward to a pullback to provide a more attractive entry point. The first key support level on the S&P500 before last night was 2087, followed by 2075. The US indices had wobbled around all session up to 2pm, balancing out the BoJ, some M&A announcements and earnings reports, including that of Facebook (up 7%). Then billionaire investor Carl Icahn told CNBC he had sold out of Apple.

Down went Apple shares, and so too the Dow. Icahn went on to imply that indeed he didn’t much like the US stock market at all right now. Down went everything. The S&P breached 2087 and a hole opened up.

The S&P stopped falling at 2075.

The session had begun on Wall Street with the release of the first estimate of US March quarter GDP growth, which came in at a paltry 0.5%, below 0.7% expectation. That makes three March quarters in a row the US economy has stalled. In 2014 and 2015 it was all about being snowed in for most of the quarter. While 2016 also featured one record-breaking “Snowzilla” event, weather was not really a factor this time.

Which makes expectations for this year’s June quarter interesting. In the past two years, everyone assumed, correctly, that the June quarter would see a rebound purely on the weather factor. There is no weather factor this time. Yet some analysts are suggesting that the BoJ’s decision not to cut further means the Fed has a clearer path to a June rate hike.

If there is to be a rebound this year, it will come down to the US dollar. The strong dollar hit multinational earnings hard in the March quarter but it has now fallen back substantially, much to the BoJ’s chagrin.

Commodities

West Texas crude is up another US55c to US$45.88/bbl and Brent is up US69c to US$47.89/bbl.

Between the BoJ and the GDP, the US dollar index is down 0.7% at 93.74. This is enough to support both oil prices and base metal prices, with aluminium, lead, nickel and zinc all up a percent or so, although copper stayed put.

Iron ore is down US$1.10 at US$60.00/t.

The US dollar drop provided a boost to gold, which is up US$20.60 at US$1266.40/oz.

Today

The SPI Overnight closed down 8 points.

I suggested yesterday the 52 point SPI Overnight move looked “ambitious”, but was proven wrong when the index peaked out up 57 points. This morning, one might think a 200 point drop in the Dow would elicit a bit more caution than an 8 point drop in the SPI. It would appear that the local index simply wants to go up.

Australia’s March quarter PPI numbers are out today, proving colour to the shock CPI result. We’ll also see monthly private sector credit.

The Nikkei will have a breather today given Japan is closed. The eurozone will release its first estimate of March quarter GDP tonight. The US will see personal income & spending data, including the Fed’s preferred PCE inflation measure.

Beijing will release China’s April PMIs on Sunday.

On the local stock front, today will see production reports from Origin Energy ((ORG)) and AWE ((AWE)) while Genworth Mortgage Insurance ((GMA)) will provide a quarterly update.
 

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

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

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article 3 months old

The Monday Report (on Tuesday)

By Greg Peel

Friday

Friday’s local session was a game played in two halves. Taking a lead from Wall Street, which having rallied up to psychological levels on its major indices decided it was time to take some profits, the ASX200 fell sharply from the open.

It nevertheless appeared to be more of a case of buyers standing aside rather than sellers piling in, thus when the morning’s opening rotation was complete and close to 50 points were lost, the buyers were ready to get in at better levels. If we truly are in rally mode right now, such dips offer welcome opportunities for previous slow movers.

So by lunch time the index was back to square. But then someone pointed out that it was a long weekend, and thus Friday afternoon was all about drifting off again as traders locked in what should have been some solid short term profits and got out of the city as soon as possible.

We can always take such Fridays with a grain of salt. The profit-taking tale is most obvious if we look at the biggest sector fall on the day, that of materials, which dropped 2.4% on a day iron ore had rallied 7%. You don’t see that too often. But given the likes of BHP and co had run up some 30% from their lows as the iron ore price pushed sharply higher, it seemed like a great opportunity to lock that in. Particularly if that 7% jump seemed like a possible blow-off top.

The fall in energy was less dramatic at 1.1%, but oil prices were actually down a tad. Elsewhere, the two standout sectors in what was otherwise a fairly general pullback were the banks, which didn’t move, and utilities, which were hit 1.7%.

Interesting that the banks, which have also seen a run good run this month, should not see any notable profit-taking a day after a major broker issued a warning that the two smaller members of the Big Four could well cut their dividends next month.

As for utilities, well I noted in Friday morning’s Overnight Report that selling on Wall Street was driven mostly by yield sectors, including utilities, following a week of gains for the US ten-year bond yield. It looks like the local market saw this as a lead.

Friday Night

The Dow closed up 21 points or 0.1% to scrape back over 18,000. The S&P was flat at 2091 as the Nasdaq tumbled 0.8%.

If Bridge Street’s session was a game played in two halves, Wall Street’s session on Friday night was a game played across two halves of the market.

We tend to call stock such as Microsoft and Google “old tech” because they’re last century’s stars while the likes of a Facebook or a Netflix represent the “new tech” of the new millennium. But if we put those two together and call them “new(ish) tech” we can compare them to what we might call “very old tech”, such as railroads.

After the bell on Thursday night, earnings misses were posted by Microsoft and Google. This clearly put the frighteners through the market on Friday night, such that all tech names were unloaded in a hurry, new or old. That’s why the Nasdaq was down 0.8%.

But two major railroads posted solid results and went for a run, sending the Dow Transports (separate to the Dow Industrials) surging. Within the Dow Industrials, General Electric – the only remaining company to have been included in the first ever Dow Jones Average – posted an earnings beat while Caterpillar, which has seen the going very tough as commodity prices collapsed, suggested the bottom is nigh.

Honeywell, another old world stock (even aerospace is an old industry), also posted an earnings beat. Having run up strongly ahead of their releases, all three of these industrials saw slight dips on the day, but the distinction is clear. McDonalds is another Dow stock that is pretty old world these days, and it posted its best quarter in a very long time.

Hence the divergence on the day between the Dow and the Nasdaq, with the broad market S&P holding fast in the middle.

The US oil rig count fell by another 8 rigs last week to 343, according to Baker Hughes’ regular Friday report, marking a fifth straight weekly decline. West Texas crude rose US27c to US$43.70/bbl on Friday night and Brent rose US39c to US$45.12/bbl.

Zinc and nickel missed out on an otherwise strong session on the LME, which saw aluminium, lead and tin all up 1% and copper just a little shy.

Sentiment has clearly swung to the positive in commodities markets (and not just in rocks, but in agriculturals as well it should be noted). Recent strength has come despite the US dollar index having rebounded rather sharply over the week. It was up another half a percent on Friday night at 95.12.

This was good for the Aussie, which was able to come down 0.4% to US$0.7710 despite the big jump in the iron ore price, but not good for gold, which fell US$15.80 to US$1232.20/oz.

On Saturday morning the SPI Overnight closed up 26 points or 0.5%.

Monday Night

The US dollar index fell back again last night, by 0.4% to 94.79. The Aussie, however, is little changed from Saturday morning at US$0.7714.

And having been a feature of Friday night’s trade, the Dow Transports also fell back again last night.

Tech names continued to remain under pressure nonetheless, with all eyes on Apple’s earnings report tonight. But across Wall Street in general last night was a case of entering a new week which is not only loaded with earnings results and heavy on economic data releases, but which also sees two significant central bank policy meetings – those of the Fed and the Bank of Japan.

No one expects anything much different from the Fed on Wednesday night but the market will still look for any clues as to whether June might still be considered a rate hike possibility. The Bank of Japan has markets somewhat concerned nevertheless, as no one’s at all sure what might transpire. At its last meeting the BoJ lowered its cash rate into the negative, yet the yen has done nothing but rise ever since.

Could the BoJ go even further into the negative? While central bank stimulus around the globe is usually welcomed by stock markets, Japan’s negative rates represent an experiment that many worry could have unintended consequences.

Speaking of unintended consequences, Beijing is currently caught between a rock and a hard place as it tries to provide ample liquidity to the Chinese economy to prevent a sharp decline in growth while at the same time trying to keep a lid on debt, and potential asset price bubbles.

Over the weekend the PBoC requested that China’s major banks pare back their lending targets to 70% of what they were at the beginning of the month.

Oil prices fell from the open last night and helped the Dow down to almost a 150 point drop, but as oil eased back and other influences took over, Wall Street recovered. The Dow closed down 26 points or 0.2% while the S&P lost 0.2% to 2087 and the Nasdaq fell 0.2%. The uniformity of the index fall, traders suggests, signals positioning ahead of the central bank meetings rather than micro forces.

So since the ASX closed for business on Friday, the Dow was up 21 and then down 26. Just to drive home the fact little has changed on a net basis since Friday, the SPI Overnight closed up 26 points on Saturday morning and down 25 points this morning for a net one point gain.

Oil prices fell last night because Kuwait production is back in full swing following the three-day strike, and the country intends to increase its production levels. Iraq is close to reaching a production record, Iran continues to ramp up, and Saudi Arabia is close to completing a major oil field expansion.

If you can’t freeze it, pump it as fast as you can. It is probably surprising that this morning, West Texas crude is down only US71c at US$42.99/bbl and Brent is down US34c at US$44.78/bbl.

Volumes on the LME were to the low side last night as metal traders, too, await this week’s central bank meetings. In thin trading, copper lost what it gained on Friday night, zinc fell 2% and lead fell 3%.

A spot iron ore price is proving difficult to get hold of this morning, probably because of the long weekend, but I can report a price being quoted this morning after two sessions of US$66.07/t, down from US$68.70 on Thursday night.

Gold is up US$5.70 at US$1237.90/oz.

The Week Ahead

As noted, the Fed will release its April policy statement on Wednesday night and the Bank of Japan will meet on Thursday, as will the Reserve Bank of New Zealand.

A busy week for US data releases, coinciding with the busiest week for US earnings results, sees durable goods orders, Conference Board monthly consumer confidence, Case-Shiller house prices and the Richmond Fed index tonight, pending home sales on Wednesday and the first estimate of March quarter GDP on Thursday. The market is forecasting a mere 0.7% annual growth rate.

Friday sees personal income & spending, the Chicago PMI and Michigan Uni fortnightly consumer sentiment.

The UK will publish its first estimate of March quarter GDP on Wednesday and the eurozone will follow suit on Friday.

While attention will be focused on the BoJ on Thursday, Japan will also see monthly releases for inflation, unemployment, retail sales and industrial production ahead of a public holiday on Friday.

Monetary policy debate downunder will focus this week on Wednesday’s release of the March quarter CPI numbers, followed on Friday by the PPI.

On the local stock front, this week brings another mix of resource sector quarterly production reports, quarterly updates from other sectors, investor days and AGMs.

Production report highlights this week include those from Independence Group ((IGO)) on Thursday and Origin Energy ((ORG)) on Friday. ResMed ((RMD)) will release quarterly earnings on Wednesday, Mirvac Group ((MGR)) will issue a quarterly report on Thursday, and Thursday also brings investor days from Cochlear ((COH)) and Computershare ((CPU)).

Rudi is on leave this week.
 

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

It’s a long weekend in Australia this weekend, lest we forget, which means there’ll be two offshore sessions to consider when local trading resumes on Tuesday. These will be covered by next week’s Monday Report (on Tuesday).

It’s a big week next week in the US, featuring a Fed meeting, the first estimate of March quarter GDP, and a raft of monthly data to boot. These include new and pending home sales, durable goods, consumer confidence, personal income & spending, including the Fed’s preferred PCE inflation measure, the Richmond Fed index and Chicago PMI.

Next week will also feature monetary policy meetings for the Bank of Japan and RBNZ, while the UK and eurozone will also publish initial GDP estimates.

Australia’s inflation update will be addressed by the release of the March quarter CPI next week. Monthly private sector credit numbers are also due.

The local quarterly update season rolls on next week, with Independence Group ((IGO)) and Origin Energy ((ORG)) offering highlights among resource sector reports and Mirvac Group ((MGR)) among the non-resource reporters. Cochlear ((COH)) and Computershare ((CPU)) will hold investor days while ResMed ((RMD)) will release March quarter earnings.


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article 3 months old

The Monday Report

By Greg Peel

Comeback

It was looking pretty ugly for the ASX200 at the open on Friday, with early falls suggesting we could be in for one of those pre-weekend capitulations as sentiment turned sour once more. But having opened down 70-odd points, the index very quickly found buying support.

The early drop took us down through 4900, which suggests the impetus to buy at that point was largely a technical one. Or we might simply note that every time the index has fallen through 5000 this year, and even down towards 4800, it has subsequently recovered to trade back over 5000 every time.

Outside of a 1.3% fall in the insignificant info tech sector on Friday, the banks and energy led the index to its close of down 26 with 0.8% falls. Thereafter, sector falls were lighter and fairly uniform, but for utilities which managed the only gain on the day, up 0.2%.

Sentiment this week will centre on the first of the US earnings results, along with the first quarterly reports from local stocks.

Bring it on

Janet Yellen appeared at a gathering of Fed chairs past and present after the close of US trading on Thursday evening. Joined by Volker, Greenspan and Bernanke, it was not really the forum for Yellen to be spouting any significant change of heart on current monetary policy. Not that she was likely to anyway, and she didn’t.

The yen pulled back against the US dollar ahead of the open on Wall Street on Friday after its surging run on Thursday. Prime Minister Abe had previously ruled out intervention but on Friday Japan’s finance minister said he may act against a “one-sided” yen.

The easing yen allowed the US stock markets to open with some strength, taking the Dow up 150 points in the first half hour as oil prices posted another 5% jump. On the 2016 correlation, it was a no brainer for a solid session in US stocks. But this month that correlation has broken down.

The Dow closed up 35 points or 0.2% while the S&P gained 0.3% to 2047 and the Nasdaq was flat.

Oil prices may be bouncing around a lot, but at the moment they’re not really getting anywhere. The lack of overall direction, despite day to day volatility, has meant stock traders have moved on to concentrate on other drivers. This week that means corporate earnings, which by some measures have been now forecast to fall as much as a net double digit percentage.

Forecasts have actually been getting weaker and weaker this past couple of weeks, which tends to suggest they have become a little overblown to the downside. The proof of the pudding awaits over the course of the next month. Alcoa reports tonight, then there’s a bit of a gap to week’s end when the big bank results start to flow. The pullback from the highs for the indices on Friday night, despite oil holding onto 5% gains, likely reflects squaring up ahead of the first earnings numbers.

Commodities

Last week’s US data showed a surprise drop in crude inventories. On Friday night, the Baker Hughes rig count showed a drop to 354 from 362 a week earlier and 760 a year ago. While the third straight week of lower rig counts was no great shock, the oil market is beginning to see the numbers lining up and moving in the right direction.

No one expects this weekend’s meeting in Doha to result in any meaningful supply freeze agreement between OPEC and non-OPEC members, but on last week’s US data it probably doesn’t matter that much anymore. There may yet be some disappointment if nothing eventuates in Doha, but on the wider scheme of things, earlier talk of WTI having to go back to test its US$26 low is now waning.

West Texas was up US$2.08 or 5.5% at US$39.61/bbl on Saturday morning and Brent was up US$2.26 or 5.7% at US$41.85/bbl.

Stronger oil prices provided incentive for a more positive session on the LME. Copper and zinc rose 0.5%, tin 1%, aluminium 1.5% and nickel 2%.

Iron ore fell US50c to US$53.30/t.

Gold was relatively steady at US$1238.40/oz.

The US dollar index fell 0.3% to 94.19, helping the Aussie to rise 0.6% to US$0.7551.

The SPI Overnight closed up 20 points or 0.4% on Saturday morning.

The Week Ahead

US earnings results will be closely watched at the beginning and end of this week. US date releases this week include retail sales, inventories, the PPI and Fed Beige Book on Wednesday, CPI on Thursday, and industrial production, fortnightly consumer sentiment and the Empire State activity index on Friday.

China will release its March quarter GDP result on Friday. Forecasts suggest 6.7% growth, down from 6.8% in December.

Ahead of that release, Chinese monthly inflation numbers are due today, trade on Wednesday, and industrial production, retail sales and fixed asset investment on Friday.

Housing finance numbers are due out in Australia today. Tomorrow sees the NAB monthly business confidence survey and Wednesday the Westpac consumer equivalent. The monthly jobs lottery takes place on Thursday and on Friday the RBA will release a Financial Stability Review.

On the local stock front, Energy Resources of Australia ((ERA)) is due to release its March quarter production report today, thus kicking off the resource sector quarterly production reports season. Fortescue Metals ((FMG)) reports on Wednesday and Whitehaven Coal ((WHC)) on Thursday while Rio Tinto Plc ((RIO)) will hold its London AGM on Thursday night.

The non-mining quarterly report/update/ investor day season will be kicked off by IOOF Holdings ((IFL)) on Wednesday followed by Bendigo & Adelaide Bank ((BEN)) and Transurban ((TCL)) on Thursday.

Rudi will first appear on Sky Business on Tuesday, via Skype-link around 11.15am, then again for two hours on Wednesday morning (10-midday), on Thursday he'll be back from 12.30-2.30pm and finally he'll do another linkup via Skype on Friday morning, probably 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

The Overnight Report: The Rising Problem

By Greg Peel

The Dow closed down 174 points or 1.0% while the S&P fell 1.2% to 2041 as the Nasdaq fell 1.5%.

Fail

The ASX200 did not make it back to 5000 yesterday, peaking out at midday at 4984 as momentum stalled. Having already jumped over 3% the day before on a turnaround in the oil price, the energy sector managed only a 1.4% gain despite oil prices being up 3% overnight.

The market appears not yet convinced there is any reason for a push above 5000 at this point. When that’s the case, the only other way is down. Last night Wall Street provided the incentive for a possible lower low to be established today on this most recent down-leg.

While news that Arrium had placed itself into voluntary administration was hardly a shock to the market yesterday, it does highlight the extent of the reversal of fortunes of Australia’s economy from the heady days of the China-driven “super-cycle”. Is the steel industry in Australia set to go the way of the car industry? BlueScope’s hanging in there, but unlike Arrium, BlueScope doesn’t mine iron ore. And it sells Colorbond rooves, not construction girders.

If Arrium goes under so does the town of Whyalla, and that means increased unemployment. Arrium can’t move the market anymore but it can impact on sentiment.

Only the telcos and consumer discretionary finished in the red yesterday. The banks managed a 0.3% gain but that might change today.

Watch the Yen

The Japanese yen is the world’s “safe haven” currency. This might seem strange given the Japanese economy has been in the doldrums for 25 years but it was Japan’s persistent deflation that long ago created the “yen carry trade” that has served to drive the value of risk assets globally ever since.

Given Japan’s ultra-low interest rates, which existed long before the GFC, investors can borrow in yen at next to nothing and invest in the likes of the US, Europe or Australia to receive an “arbitrage” return on the yield differential. This requires selling yen and buying the currency of the target assets. That “arbitrage” only works so long as yen exchange rates remain relatively stable. If global risk begins to increasingly worry carry trade investors, foreign assets are sold and yen loans repaid. The result is a rising yen. The yen thus appears to be a “safe haven” currency because whenever risk increases, the yen rises.

Last night the yen hit its highest level against the US dollar in almost 18 months. The yen’s rise has been exacerbated by weakness in the US dollar since the Fed started backing down on its rate rise plans. Wall Street had not been paying a lot of attention up to now but when last night the Japanese government said they would not intervene in the currency, the world took notice. The last time the yen hit this level the Bank of Japan shocked the world by announcing a massive expansion to its QE program. More recently the BoJ has cut its cash rate into the negative. Last night the BoJ confirmed it will “undertake additional monetary easing measures if necessary”.

Which opens up the prospect of the Japanese cash rate going even further into the negative. The issue here is the “race to the bottom” among central banks, each equally desperate to devalue their currencies so as to maintain export competitiveness. If Japan goes again, then Europe would likely have to follow, and China. The Fed would likely need to hold out on raising for longer.

Hence the US ten-year bond yield fell 6 basis points to 1.69% last night. The German equivalent fell to 0.09%. The German yield curve is negative almost up to ten years. How does a bank make money on loans if rates are negative that far out on the curve?

Well they don’t. Last night European banks came under renewed selling pressure. The German index closed down 1.0%. On Wall Street, the primary driver of last night’s fall was a hammering of the financial sector.

And that, of course, prompted renewed calls of “overdone” and “oversold” when it comes to the US banks. Outspoken JP Morgan CEO Jamie Dimon, for one, described his bank as so well capitalised it is a “fortress” that would remain standing even if every other bank in the country went under.

With oil prices coming off slightly last night after Wednesday night’s big rally, there was no oil correlation support provided to offset weakness in the hefty financials sector. Yet traders are not overly concerned. Most have been expecting a pullback following the sharp rebound rally off the mid-February lows. Some are even salivating at the prospect of cheaper entry prices ahead of the earnings season, which begins next week. Earnings expectations have been marked down so low as to suggest, as has so often been the case in past quarters, that upside surprise is almost inevitable.

Commodities

West Texas crude is down US20c at US$37.53/bbl and Brent is down US22c at US$39.59/bbl.

Constant talk of slowing global growth is not providing any incentive to buy base metals, outside of supply curtailments. Last night copper fell 3%. Zinc fell 2.5%, nickel 2% and aluminium 1%. Only tin bucked the trend.

Iron ore is unchanged at US$53.80/t.

Despite the soaring yen, counter-balancing moves in other currencies sees the US dollar index steady at 94.49. But the “safe haven” shift means gold is up US$18.00 at US$1240.30/oz.

Which developed economy has not recently joined in the “race to the bottom” among central banks, nor even adjusted to account for it? The Aussie is down 1.25% at US$0.9505.

Today

The SPI Overnight closed down 74 points or 1.0%.

Coincidently, Japan will release its February trade data today.

Locally, REITs Dexus Property ((DXS)) and Investa Office ((IOF)) will hold extraordinary shareholder meetings today to discuss the proposed takeover by Dexus of management of Investa’s portfolio.

Rudi will skype-link with Sky Business this morning, around 11.30am, to discuss broker calls.
 

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