The Australian share market looks to open steady today, having received mixed overseas leads. Wall Street’s key indices closed with little changed as investors considered the political unrest in Egypt against generally encouraging earnings reports, ahead of Friday’s key US jobs data. At home Australians will be waking up to assess the damage caused by Cyclone Yasi, that tore through Queensland overnight.
On Wednesday, the Dow Jones Industrial Average, closed 2 points up to 12,042, S&P500 eased 4 points to close 1,304 and the NASDAQ lost 1 point to close 2,750.
European stocks were mixed: London’s FTSE up 42 points, Paris down 6 and Frankfurt closed steady.
To Asian markets, stocks were higher: Hong Kong’s Hang Seng was up 426 points, Tokyo was up 183 points and China’s Shanghai Composite was closed.
The Australian share market finished higher on Wednesday. The S&P/ASX 200 Index lifted 44 points to close at 4,797 and on the futures market the SPI is up 2 points.
Turning to currencies and the Australian Dollar at 8:50AM was buying $US1.0092, 62.36 Pence Sterling, 82.31 Yen and 73.08 Euro cents.
Economic news: Due out today, the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index for January. The Australian Bureau of Statistics building approvals and international trade in goods and services both for December. And also, the Federal Chamber of Automotive Industries monthly car sales for January 2011.
Company news: On Wednesday shares in Telstra Corporation Ltd (ASX:TLS) rose 0.72 per cent to close at $2.79. Telstra’s turnaround plan looks set to cost over the projected $1 billion in the current financial year but is expected to result in more customer numbers, according to the Australian Financial Review. The AFR says Telstra’s mobile phone business has benefited from Vodafone Hutchison Australia’s network problems and that the telco plans to make further gains by injecting over $450 million that it had budgeted for promotions and larger handset subsidies. According to the report Telstra is also gearing up to spend $150 million on regaining fixed-line market share, $250 million on redundancies and $100 million on other expenses. In the 2010 financial year, Telstra booked a net profit of $3.9 billion.
Yesterday shares in News Corporation (ASX:NWS) closed 1.69 per cent up at $16.86. News Corporation has reported a 153 per cent jump in second quarter net profit to $637.6 million for the three months to 31 December 2010. In the same period the media company posted EBIT of $1.28 billion, up 81.2 per cent from the same quarter the year before. News Corp chairman and chief executive Rupert Murdoch says the growth reflects mounting vigour of the company’s global channels business. In the year ended 30 June 2010, News Corp generated a net profit of $3.1 billion.
To ex-dividends: No companies are going ex-dividend today, but coming up tomorrow is Australian Foundation Investment Company with an $0.08 cent fully franked dividend.
To commodities: Gold is down $8.20 to $US1,332 an ounce for the April contract on Comex, silver is down $0.23 to $28.29 for March and copper is steady at $4.54 a pound. Oil is up $0.09 at $90.86 a barrel for March light crude in New York.
The US ADP private sector employment report supported the view that the US economy was picking up|
|steam. The private sector added 187,000 jobs in January following on from the downwardly revised|
|247,000 jobs added in December. The January result was well ahead of expectations. The non-farm|
|payrolls report on Friday is expected to show a rise of 145,000 jobs for January. |
|European shares edged higher on Wednesday. Mining shares posted solid gains in response to |
|higher metal prices. The STOXX Europe 600 Resources index gained 2.1pct as copper prices |
|remained near record highs. In London, banks found good support on improved investor sentiment. |
|Standard Chartered rose 1.7pct. The FTSEurofirst index rose by 0.2pct with the UK FTSE up 1.6pct|
|and the German Dax was higher by 1.5pct. |
|US sharemarkets were mostly unchanged on Wednesday with stocks managing to hold on to the |
|previous sessions sharp gains. The strong employment data was tempered by the fresh clashes |
|between authorities and citizens in Egypt. With an hour of trade, the Dow Jones index was up by |
|14pts or 0.1pct with the S&P 500 down 0.1pct and the Nasdaq was higher by 4pts or 0.2pct. |
|US treasuries fell again on Wednesday (yields higher). Better-than-expected economic data |
|supported a switch away from safe-haven assets. The US treasury department said it will auction |
|$72 billion in notes next week – in line with expectations. US 2yr yields rose by 5pts to |
|0.66pct and US 10yr yields rose by 4pts to 3.49pct. |
|The US dollar strengthened against major currencies In European and US trade on Wednesday. The |
|Euro fell from highs near US$1.3855 to US$1.3775, and was near US$1.3795 in late US trade. The |
|Aussie dollar fell from highs around US101.25c to US100.55c, and was around US100.80c in late US |
|trade. And the Japanese yen eased from 81.40 yen per US dollar to around JPY81.80, and was near |
|JPY81.60 in late US trade. |
|US crude oil prices pared early gains following the rebound in the US dollar. The release of the|
|weekly inventory data also pressured oil prices. US crude stockpiles rose 2.6 million barrels |
|last week as refiners rebuilt stockpiles following the sharp drawdown late last year. The Nymex |
|crude oil contract rose by US9 cents (0.1pct) to US$90.86 a barrel. London Brent crude fell by |
|US21c to US$101.53 a barrel. |
|Base metal prices mostly held on to the previous session’s gains on the London Metal Exchange. |
|However the recovery in the US dollar did pressure commodities in late trade. Aluminium fell |
|1.2pct while Lead gained 0.5pct. And the gold price eased on Wednesday as the US dollar |
|strengthened. The Comex gold futures price lost US$8.20 an ounce to US$1,332.10. |
|Ahead: In Australia, data on building approvals and trade data is released. In the US, the ISM |
|non-manufacturing index and factory orders are released.
Outlook: Aus shares set to open weaker January 14, 2011 09:21 AM
Australian shares look to open weaker this morning following mixed overseas leads. Wall Street closed steady as investors took note of weak unemployment figures. Commodities eased after recent gains.
US economic news: Federal Reserve Chairman Ben Bernanke says the US economy is strengthening, with three to four per cent growth likely this year. He cautioned that despite the growth, unemployment would not reduce at a rapid rate. The Department of Labor’s weekly jobless claims report showed the number of Americans filing new unemployment claims jumped to 445,000 last week, higher than expected. The Commerce Department reported the Producer Price Index rose 1.1% in December. The trade balance was virtually unchanged at $US38.3 billion.
On Thursday, the Dow Jones Industrial Average, closed 24 points weaker to 11,732. S&P500 fell 2 points to close 1,284 and the NASDAQ down 2 points to close 2,735.
European stocks were mixed: London’s FTSE fell 27 points, Paris up 30 and Frankfurt up 6.
To Asian markets, stocks were higher: Hong Kong’s Hang Seng up 113 points, Tokyo up 77 points and China’s Shanghai Composite up 6 points.
The Australian share market finished stronger on Thursday. The S&P/ASX 200 Index lifted 71 points to close at 4,795 and on the futures market the SPI is down 13 points.
Turning to currencies and the Aussie Dollar at 8:35AM was buying 99.74 US cents, 63.02 Pence Sterling, 82.62 Yen and 74.67 Euro cents.
Company news: On Thursday shares in Rio Tinto Ltd (ASX:RIO) gained 2.18 per cent to close at $87.05. Rio Tinto Alcan says the Queensland floods are severley affecting the supply of aluminium from smelters near Gladstone. Flooding has cut road and rail access between Gladstone and Brisbane and the port is closed, preventing deliveries. Rio advises alternative arrangements are being investigated. For the year ended 30 June 2010 Rio Tinto reported a net profit $7.4 billion.
Yesterday shares in Telstra Corporation Ltd (ASX:TLS) rose 0.7 per cent to close at $2.87. The nation’s major telcos are facing a bill of more than $50 million and three months of build time to repair communication systems damaged but the Queensland floods. Tens of thousands of people have been left without mobile, landline or internet access. On Thursday Telstra’s director of service delivery said communication services in Brisbane would be back up and running within four days. Central and Western Queensland face a wait of up to 18 days without service. Telstra reported a yearly profit of $3.94 billion to June 30 2010.
To ex-dividends: There are two companies going ex-dividend today. Abacus Property Group with an 8.25 cent unfranked dividend. Viterra with a 5.14 cent unfranked dividend. Coming up next week are Euroz and Mirrabooka Investments.
To commodities: Gold is up $1.20 to $US1,387 an ounce for the February contract on Comex, silver is down $0.28 to $29.26 for March and copper is down $0.03 to $4.38 a pound. Oil is down $0.46 at $91.40 a barrel for February light crude in New York.
It was another savage session for Treasuries overnight with the 10yr yield spiking up to a high of 3.33% (+14bp from 1630) before a bid developed to calm things down. As I write, the 10yr is up about 5bp to 3.24%, the 5yr +7bp to 1.85% and the 2yr +7bp to 0.62% – 10yrs have had their biggest two day move since September 2008 which is quite remarkable. The $21bn 10yr treasury auction wasn’t even that bad, wasn’t that good, but it wasn’t that bad with cover at 2.92 compared to 2.8 last month and a 12 auction average of 3.07.
So it looks like those tax cuts have caused a bit of a long squeeze and there is plenty of chatter about how the additional stimulus, well the continuing stimulus, may result in the Fed cutting short their Qe2 plans, which is awesome if you live in fairyland and think Bernanke was actually targeting growth or inflation (or whatever else is convenient for him to mention).
For others, the Bernank is just monetising debt and trying to force a rebalancing of global growth, in which case the tax extension is unlikely to force a re-think of Qe2 (quite the opposite). Either way though, treasuries are a sell, although how much further they can go is unclear. I had thought that 3.25% would be the upper limit in this new range although we’re pretty much there already. And then of course there is the global data which continues to surprise on the upside. It’s pretty obvious that material 2H slowing didn’t eventuate and Q4 growth is looking rock solid; it not inconceivable that 10yrs could be closer to 4% over coming weeks.
Check out global industrial production, it is recovering at a rapid clip and German industrial production, out last night, again surprised on the upside. At 2.9% the October production figure was almost 3 times the market expectation. German exports dipped in the same month, yep sure, but this comes after a very strong September figure. It’s all good. Even the Brits are having a good run with their manufacturing output and according to the Confederation of British Industry, this may get better still with the new orders index rising to -3 (highest in over 2yrs) from -15 and a median expectation of -13. With all that to consider I think there is only one way for bonds to go (medium term).
Equities on the other hand, had a reasonably lacklustre session, the major indices in Europe between -0.4% and +0.4% with not much activity in the US either. With about 30mins to go the S&P500 is up only 0.2% (1226), the Dow is about 5pts lower (11354) while the Nasdaq is up 0.3% (2605). Financials look to be having a great session so far, up 1.4% and leading the overall index higher. Otherwise, technology and consumer stocks were the other main outperformers with basic materials industrials, utilities and energy stocks the main deadweight’s. The SPI for its part is 0.3% higher at 4714.
Commodities were mixed overnight with copper up another 1.4% although crude was down 0.3% ($88.43) and gold fell about $19 to $1383. Otherwise AUD is little changed at 0.9791, EUR is 24pips higher at 1.3257 while JPY also pushed a little higher and sits at 84.05. Sterling in contrast had a solid session rising 86pips to 1.5798 on the back of that manufacturing orders data.
That’s about it for price action, there were a couple of other news worthy item including the RBNZ which kept rates unchanged at 3% as expected. If anything though, the Bank has become more dovish and its pretty clear they aren’t going to do anything for a while. I’ll write more about this at a later date, but suffice to say I don’t think things are as bad as the Bank thinks, but certainly there won’t be any Bank action for a while yet. Finally, US mortgage applications fell 0.9% in the week to December 3 although applications for new purchases rose 1.8%.
Looking to the day ahead, there is some reasonably decent data today, including the final estimate of Japanese GDP, NZ credit card spending data and of course the Australian labour force print (1130). The median market expectation is that employment will rise 20k with the unemployment rate expected to slip to 5.2% from 5.4%. I’m not too far off that with 15k and 5.3%. As to the risks, I think they are fairly symmetric. History tells us its all to the upside, although jobs growth has been exceptionally and consistently strong, so it would be reasonable to expect a moderation at some point. Tonight, watch out for German CPI (final estimate), the BoE’s decision (some people are seriously talking about more money being printed) and US jobless claims.
Unfortunately it doesn’t appear that Ireland’s bailout has done much to stymie the contagion. Spanish 2yr bond yields rose to 3.7% from 3.48% while the 10yr rose to 5.42% from 5.17% (spread to bunds at a record high). Italian (10yr spread to bunds also at a record) and Portuguese yields were also up and in a move that makes no sense at all, Ireland ’s 10yr bond yield rose to 9.25% from 9.19%. It’s a tough one for the Europeans, as most of the ‘solutions’ presented, at their core, once you strip out the rhetoric and deceit, involve dissolving the union; which is hardly a solution at all. Indeed it would make things a lot worse and would do nothing to aid regional stability over the long-term.
But other than these extremist rantings, there is not a lot in the way of reasonable or practical advice on how to restore order. It‘s hard to see what will act as a circuit breaker to be sure. The market is in a frenzied state at the moment with no clear catalyst for change. Even agreement on the long-term European Stability Mechanism – a permanent European bailout facility agreed to on Sunday, failed to stop the rot. To me it seems that, rather than try and placate the market (which isn’t working), Spain and Portugal may find it more beneficial to have to look at the whole system, the process of how they raise money and issue debt. It’s not a process that appears to be working for the peripherals at the moment. The system is breaking down and it would probably pay for them to think outside the square. Food for thought at least.
Needless to say, eur was hammered again, falling by almost a big figure at the time of writing to 1.3121. Not that this is a bad thing for the euro zone. Sterling was off 35pips to 1.5567, AUD was little changed at 0.9623 while Yen was at 84.26 from 84.07.
There was also little love for European equities, down between 1.7% and 2.2% although moves across the Atlantic appear less sombre. With about an hour of trading to go, the S&P500 is up about 0.03% (1189), although at the low it was down 1.3.%. A late session rally seems to be developing, led by financials, energy and basic materials, in turn, sparked by decent rises in the commodity space. Punters here seem more taken by the stronger thanksgiving retail data in the US . Currently, crude is up 2.4% which, given USD strength, is especially remarkable. Copper is up 0.3% and gold rose smalls to $1367. Elsewhere the Dow is off 20pts to 11071, the Nasdaq is down 0.2% (2529) and the SPI is 0.2% lower at 4611.
Now on the debt side, treasury notes did rally, with the 5 and 10yr treasury yield off about 6bp each to 1.49% and 2.82%. Note however that both are well above pre-QE2 rates. The 2yr didn’t do a great deal and is off only 2bp. Considering everything going on, these moves aren’t huge and there still seems to be a great reluctance to take bonds higher (in price) and that’s with the Fed buying an additional $9.4bn of Treasuries last night. Aussie futures were a few ticks higher (on a 5 tick range) with 3s at 94.92 and 10s at 94.52.
There wasn’t a lot of data to speak of last night. The key release was probably the euro zone economic confidence survey which rose to 105.3 in November from 103.8. Interesting to see that European businesses and consumers don’t seem to be phased by the ‘debt crisis’. Otherwise the Bank of England report that 47k new mortgages were approved in October. In the US , Obama is proposing a 2yr public sector wage freeze.
There is a fair bit of data to watch today. We kick off at 0845 with Kiwi building permits. At 10 we get South Korean industrial production with Japanese industrial production out at 1050. Aussie data includes RP data-Rismark’s house price series (1030), and RBA Assistant Governor speaks at 11 and then building approvals, private credit and the current account (all at 1130). Tonight, watch out for euro zone CPI and unemployment and then in the US, we get house prices, consumer confidence the Chicago PMI and Milwaukie NAPM. Indian GDP is also due out at some point and the Bank of Portugal is due to issue its Financial Stability Report.