By Greg Peel

Sea of Green

It was a text book rally on the local market on Friday as the index tracked a 45 degree straight line from the bottom left of the chart to the top right, closing on its highs. The ASX200 pushed solidly past the 5400 resistance level and for the first time in a while, every sector finished in the green.

The resource sectors were the underperformers, posting only small gains, but they had had their moment in the sun on Thursday following the Fed meeting. Notably, telcos won the day with a 2% gain while the other yield sectors of utilities, banks and staples all pushed up over 1% in an otherwise consistent market-wide run.

Things are looking a little different this morning following a sharp drop in the oil price on Friday night which saw the US energy sector leading Wall Street lower. The same will no doubt be repeated today locally but mostly confined to the energy sector rather than across the market.

Wolf!

The unofficial OPEC meeting planned for the end of the the oil conference in Algeria this week started out as simply a good opportunity to have a chat while everyone’s present, then became a formal meeting at which a production freeze would be discussed and possibly agreed upon, and now is back to merely a “consultation”, according to the Saudis, after which it is unlikely any agreement will be reached.

What a shock.

WTI was down 4% at one stage on Friday night before settling back to close down 3% on Saturday morning.

While Saudi Arabia has offered to lower its production from record levels as part of an agreement, as long as everyone’s on board, Iran is still in the process of ramping up its production post the lifting of sanctions. It would not be too much of a burden on the Saudis to freeze at a near record production level but Iran is not interested in being stuck, after all its time in the wilderness, at a level representing under-capacity.

Perhaps when full capacity is reached Iran might come to the table, but until such time there’s really no point in contemplating any sort of OPEC freeze. Yet still the market prices one in each time, only to be disappointed, each time.

In other news that no one should be too surprised about, iPhone7 sales have not been as flash as expected in the opening weekend. We recall that on better than expected iPhone7 pre-sales, Apple shares ran up 12% recently.

On Friday night they fell 1.5%, which is not a lot under the circumstances but America’s biggest company need only blink to shift all the indices by a margin. Between oil and Apple, the Dow closed down 131 points or 0.7%, the S&P down 0.6% to 2164, and the Nasdaq down 0.6%.

Apple had said all along that following the step-up in technology that was the iPhone6, the iPhone7 would only be incrementally different. The next step-up will come with next year’s iPhone8. So the fact sales of the 7 have apparently fallen short of comparative sales of the 6 is no real surprise.

With central bank shenanigans not over in the near term, Wall Street’s attention now turns once again to earnings results, with September quarter numbers being reported from next week. US stock markets remain near all-time highs but forecasts are yet again for a net earnings decline, albeit only 2% for the S&P500 this time rather than numbers around the 6% mark or worse that have preceded the last few quarters.

Commodities

West Texas crude fell US$1.41 or 3.1% to US$44.69/bbl.

After a solid Fed-related run the night before, base metals returned to being mixed on smaller moves on Friday night. Lead fell 1.5%.

Iron ore rose US20c to US$56.50/t.

Gold is barely changed at US$1337.10/oz.

The US dollar index is 0.2% higher at 95.51 and the Aussie is 0.3% lower at US$0.7618.

The SPI Overnight closed down 24 points or 0.4% on Saturday morning, thanks to oil.

The Week Ahead

The oil conference in Algeria begins tonight and the OPEC “consultation” is set for Wednesday night.

The US will see new home sales tonight, Case-Shiller house prices, Conference Board consumer confidence, the Richmond Fed activity index and a flash estimate of September services PMI on Tuesday, and durable goods on Wednesday.

On Thursday it’s pending home sales, the trade balance, and the “final” revision of September quarter GDP. An upgrade to 1.3% from 1.1% is expected. Friday it’s personal income & spending, Michigan Uni fortnightly consumer sentiment and the Chicago PMI.

Japan will see retail sales numbers, industrial production, unemployment and inflation late in the week.

There’s an awful lot of central bank chatter set for this week, including from the BoJ governor (twice), the ECB president and no less than ten different speeches from Fedheads across the week, the last being from Janet Yellen.

It’s a quiet economic week for Australia until Friday, when private sector credit and new home sale numbers are due.

On the local stock front there’s another handful of ex-divs to work through.

Rudi will appear on Sky Business on Thursday, 12.30-2.30pm and again on Friday, via Skype link around 11.05am to discuss broker calls. Later on the Friday he'll participate in Your Money, Your Call Fixed Interest, 7-8pm.
 

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)

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

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

By Greg Peel

Running in Fear

Fear of a September Fed rate rise had been building in the local market as we moved towards Friday, evident in selling in yield stocks. Things came to a head on Friday with forecasts of 185,000 jobs to have been added in the US in August which, it was assumed, would be enough to force the FOMC’s hand.

Nor did it help that the ASX200 broke strong technical support at 5400 from the opening bell, ensuring a weak session. A brief attempt by the buyers to push the index back was destined to fail and when it was all said and done it was a Friday – always a good day to sell, and this time more so given the US long weekend.

The banks led the selling on a cap-weight basis with a 1.0% fall while telcos and healthcare each fell 2.1% to be joint losers among the sectors. Utilities backed up with 0.9% and industrials, which includes some faithful dividend payers, lost 1.1%. Only the resource sectors finished in the green, slightly, thanks to supportive commodity prices and the fact they’d already had a bad week.

But all is forgiven. The US jobs number fell short, and the futures are suggesting an opening gain of 31 points, which would take the ASX200 back over 5400 and potentially stave off more substantial weakness.

Couldn’t have been worse

As far as US monthly jobs results go, August’s result on Friday night was nothing short of frustrating. At 151,000, the number fell short of 185,000 estimates.

But not that short. The bottom line is, 151,000 is not a number to end Fed speculation one way or the other. Indeed it is a number that has divided economists and ensured we’ll be arguing the case back and forward for another two weeks.

Had the number been in excess of 250,000, as was the case in both June and July, the assumption would be yes, the Fed will raise this month, and now we can all get on with it. Had the number been something like 120,000 we could have said no, clearly the Fed won’t raise this month, and now we can all get on with it, at least until it’s time to start discussing December.

But at 151,000, and an unchanged unemployment rate of 4.9%, half the market is saying yes, it’s still enough, and the Fed has been setting us up for a hike. The other half of the market is saying that a number short of estimates, and a drop-back in wages growth to 0.1% for the month, means no, a hesitant Fed will have an excuse to hesitate once more.

So take your pick.

The various markets took their picks on Friday night, in either direction.

The US dollar index initially plunged on the jobs release, suggesting no hike, before turning around and closing up 0.3% at 95.88. A stronger dollar should be a drag on gold, but gold is up US$11.20 at US$1324.80/oz, suggesting no hike.

The US ten-year bond yield closed up 3 basis points at 1.60%, suggesting a hike. Commodity prices were both up and down. The US stock markets opened up on the news – probably suggesting relief that there would not be a hike, before dropping mid-session as the debate raged, and finally recovering to a modest gain on the day.

The Dow closed up 72 points or 0.4%, the S&P gained 0.4% to 2179, and the Nasdaq rose 0.4%.

Not even a US jobs number day could break the Dow/S&P run of sessions of no move in excess of 1% in either direction, which has now extended to forty.

So how do we interpret these moves? We don’t. We’ll likely just have to wait till September 22.

Commodities

West Texas crude closed up US69c at US$44.22/bbl, suggesting the technical bounce off 43 was more influential than jobs.

Aluminium fell 1.5% but lead rose 0.5% and nickel and zinc rose 1%, with copper off a tad.

Iron ore rose US60c to US$59.00/t.

As noted, gold jumped US$11.20.

With the US dollar index up 0.3%, the Aussie is actually up 0.2% at US$0.7570.

And also as noted, the SPI Overnight closed up 31 points or 0.6% on Saturday morning.

The Week Ahead

US markets are closed tonight. It’s a quiet week thereafter for US data, but the Fed’s Beige Book will be released on Wednesday.

It’s far from a quiet week in terms of Australian data.

Today we’ll see the service sector PMI, along with everyone else except the US, which will publish tomorrow night. We’ll see the local construction PMI on Wednesday.

In terms of other monthly data, today it’s ANZ job ads, on Thursday it’s the trade balance, and on Friday it’s housing finance.

In terms of June quarter data, today we’ll see company profits and inventories and tomorrow the current account, including the terms of trade. On Wednesday the GDP result will be released. Expectations are for an ease-back in quarterly growth to 0.4%, down from March’s shock 1.1%, but for the annual rate to increase to 3.2% from 3.1%.

The RBA will hold a policy meeting tomorrow but no change is likely, given (a) they moved last month, (b) they usually don’t move ahead of a GDP result and (c), there’s no clarity around Fed policy.

The ECB will hold a policy meeting on Thursday, just to add to the fun.

China will release trade numbers on Thursday and inflation on Friday.

On the local stock front, we’ll see out-of-cycle earnings reports from Karoon Gas ((KAR)) tomorrow, Sigma Pharmaceutical ((SIP)) and Xero ((XRO)) on Thursday and Premier Investments ((PMV)) on Friday.

It’s a big week for companies going ex-dividend, acting as a natural drag on the index.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls at 11.15am. He'll be in the studio twice on Thursday. First from 12.30-2.30pm and again for an interview on Switzer TV between 7-8pm. He'll repeat the Skype-link up around 11.05am on Friday.

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)

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

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

Wrap of events affecting the market on Friday night and the weekend and a preview of the week ahead.

By Greg Peel

Testing Support

For the last three weeks, which have been dominated by result season, the ASX200 has traded largely sideways. On a couple of occasions the index has had a good look at the 5500 support level on the downside but quickly recovered back into the range.

After two consecutive sessions on the weaker side, the index is now sitting at 5515 with the futures showing down 4 points this morning, suggesting, today’s earnings reports notwithstanding, that 5500 level is chance of coming into play. A breach would be short- term bearish.

The 26 point fall for the index on Friday was mostly to do with the banks. Over the last couple of weeks the big banks have seen some buying, despite three of them not participating in the August round of August reports, and late last week they were sold again, taking the financials index down 0.8% on Friday. Investors possibly decided it best to take profits in case Janet Yellen confirmed a rate hike at Jackson Hole on Friday night.

Yet we didn’t see the same reaction in the other yield sectors, with utilities flat and telcos actually the best performer on the day, rising 0.7%. Meanwhile, industrials posted the biggest percentage fall of the session in dropping 1.0%.

Among the stocks reporting on Friday, the biggest winner was Super Retail ((SUL)) with a 6% jump while Coca-Cola Amatil ((CCL)) featured on the downside with a 4% fall and Select Harvests ((SHV)) was the biggest loser on the day with a 7% drop. Otherwise, the tables of biggest gainers and decliners were dominated by moves in stocks that had already reported over the week.

It reminds us that reporting season is not just a one day picnic for reporting companies.

With 250 of the 300-odd August reporting stocks covered by FNArena database brokers now having reported, it is notable that the percentage of beats (on FNArena’s assessment) has slipped back to 31% from having run at a consistent 36% ahead of last week. Misses remain fairly stable on 25%.

We also note that recommendation upgrades from brokers have made up a little bit of ground against downgrades, with the up/down ratio slipping to 1.7 from above 2.0 a week ago.

There are three more days to go in the season, but we are very much in wind-down mode such that the volume of companies reporting drops way down from the dramatic peaks of late last week. We’ve also seen almost all of the bigger names now done and dusted.

As the week progresses, economic data will again begin to take centre stage.

Fisching

Fed chair Janet Yellen declared in Jackson Hole on Friday night the case for a Fed rate hike is “strengthening”. As such, a move to normalisation would be “appropriate” but any move would be “gradual” and, of course, dependent on the data.

Wall Street yawned. Nothing new here, as expected. There might be a rate hike in December. But then…

Speaking in a TV interview following Yellen’s speech, Fed vice chair Stanley Fischer suggested Yellen’s remarks were consistent with the chance of two rate hikes this year, in September and December.

Nobody saw that coming. In response, the US dollar index shot up 0.8% and the US ten-year bond yield jumped 6 basis points to 1.63%, leaving behind the range in the 1.50s it’s held for about a month. The Dow closed down 53 points or 0.3% and the S&P -0.2% to 2169 while the Nasdaq rose 0.1%.

Not that anyone really believes Stanley Fischer. The prevailing view is that it’s better to talk up a rate hike to ensure Wall Street is prepared for one when it comes, even if that’s not until December. There remains a lot of talk in the market about there not being a rate hike in 2016 at all, and that’s even the view of at least one rogue FOMC member.

But it’s jobs week in the US this week. On the strength of Fischer’s comments, if Friday night’s non-farm payroll number proves to be a solid or better than expected result, Wall Street will likely prepare for a September rate hike just in case.

Interestingly, Fischer’s comments were also made in the context of the first revision of US June quarter GDP, released on Friday night, which showed a dip to 1.1% from an initial 1.2% estimate. If the Fed is data-dependent… But in the same interview, Fischer dismissed the June quarter GDP as being too long ago to be relevant.

Commodities

An 0.8% jump in the US dollar index to 95.48 was always going to be a big headwind for commodity prices on Friday night, and the prospect of two rate hikes a more medium term breeze. But as it was, commodity prices fell by very little.

West Texas crude fell US9c to US$47.29/bbl.

Base metal prices were mostly weaker, but not by much.

Iron ore did fall US$2.00 to US$59.10/t, but iron ore tends to play its own game.

The interesting one is gold, which only fell a dollar to US$1320.50/oz. By rights it should have fallen a lot more, but watch gold tonight. It has a habit of waiting an extra day to respond.

The Aussie’s fall of 0.7% to US$0.7560 matched the greenback’s gain.

The SPI Overnight closed down 4 points on Saturday morning.

The Week Ahead

It will be a big week in the US for a data dependent Fed.

Tonight sees personal income & spending, and the Fed’s preferred PCE measure of inflation. Tuesday it’s house prices and consumer confidence, Wednesday the Chicago PMI, pending home sales and the private sector jobs report, and Thursday sees construction spending, chain store sales, vehicle sales and the manufacturing PMI.

Friday it’s that all-important jobs number, alongside factory orders and trade. There follows the Labor Day long weekend in the US, unofficially signalling the end of the summer holidays.

Thursday is the first of the month so it’s manufacturing PMI day across the globe, as well as both manufacturing and the services PMI from China.

In Australia we’ll see building approvals tomorrow and private sector credit On Wednesday. On Thursday, June quarter private sector capex will have the RBA’s attention alongside retail sales, house prices and the manufacturing PMI.

On Friday S&P/ASX will announce pending quarterly changes to the components of the ASX200 and other indices, ahead of the changes becoming effective two weeks hence.

In the last three days of result season, numbers are due from the likes of Beach Energy ((BPT)), Macquarie Atlas ((MQA)), Ramsay Health Care ((RHC)) and Adelaide Brighton ((ABC)) amidst many more small names.

Investors should otherwise be aware we will now hit a heavy period of stocks going ex-dividend, and that index handicap will extend all the way through September.

Wesfarmers ((WES)) and Woodside Petroleum ((WPL)) will go ex today and BHP Billiton ((BHP)) on Thursday, alongside many more this week.

Rudi will appear on Sky Business on Tuesday morning 11.15am, via Skype-link, to discuss broker calls. He'll re-appear on Thursday between 12.30pm-2.30pm and again on Friday, via Skype-link, at around 11.05am.
 

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

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

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

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