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 Australian share market is trading stronger at midday, lead by the miners as stronger base and precious metal prices lifted resource stocks. Gold miners also rallied after gold prices rose in overnight offshore trade, hitting its highest point since mid-November. Copper has also risen to a three-week high.
The S&P/ASX200 index is up 23 points to 4,712, while on the futures market the SPI is up 21 points.
Economics news: The Performance of Construction Index released by Australia Industry Group and the Housing Industry Association shows Australia’s construction sector has contracted for a sixth month in November, with apartment builders reporting the worst conditions in 16 months. The overall construction index fell by 1.8 points in November. Apartment building and house building both took a dive. The survey found firms complaining about difficult market conditions, intense competition and decreasing work from the government’s school building project. Residential builders cited the impact of higher interest rates and weak demand from first home buyers.
Telstra Corporation Ltd’s (ASX:TLS) wholesale division is set to compete with NBN Co and various other wholesalers in the voice and internet services resale market. Telstra Wholesale’s group managing director Paul Geason says the company can keep its wholesale customers after transferring them to fibre if it provides services that NBN can’t such as billing, data hosting, content distribution and television. Shares in Telstra are down 0.36 per cent at $2.79.
Newcrest Mining Ltd (ASX:NCM) says it expects to boost gold output to 3.75 million ounces in the 2014 fiscal year from 2.74 million ounces in 2010. Earlier this year, Newcrest acquired rival Lihir Gold, which mainly operated from Lihir Island in Papua New Guinea. Shares in Newcrest are up 1.22 per cent at $41.59.
Turning to market indices, and the best performing sector is Materials with the index up 127 points to 13,922. Shares in Synergy Metals have advanced 16.67 per cent to $0.007. Shares in Strategic Minerals and Copper Range are also higher. The worst performing sector at midday is Healthcare with the index down 58 points to 8,773. Shares in Cordlife are down 16.9 per cent to $0.295. Shares in Stirling Products and LBT Innovations have also dropped at midday.
To New Zealand: The NZSX50 is down 4 points. Taking a look at the top 4 stocks by turnover, Telecom Corporation of New Zealand is at the top of the list with stock down 1.38 per cent at $2.15; followed by Fletcher Building Group, Sky Network and Contact Energy.
To gold and the dollar: Gold is trading at $US1,421 an ounce and the Aussie dollar is buying 98.84 US cents.
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.
There was little data or news out last night. US bond markets were closed for Columbus day, and action was reasonably muted in the FX and equity space. We’re all still waiting for the Fed, the FOMC minutes tomorrow morning and the run of Fed speak - and that’s not to forget the strong dataflow towards week’s end. Remember this dataflow, and ensuing numbers out over the next few weeks are critical. We are at an important juncture and it doesn’t pay to downplay it. Uncertainty is high and there are a variety of views out there. After this run of data we’ll be a in a much better position to assess some of the downside risks being touted – to determine who is likely to be right. We’ll pretty much have Q3 sorted and we’ll even get a glimpse into Q4. We’ll have a better idea as to whether the global economy will indeed deteriorate as many expect, accelerate or just plod along.
For the moment, markets are still expecting the Fed to print more money and that’s the best bet given their rhetoric. Nevertheless, USD did bounce a bit last night as traders took some profit. At the time of writing, Euro was down almost a big figure to 1.3875, Sterling was off 64pips to 1.5875, AUD was broadly unchanged at 0.9849 and Yen rose to 82.18 from 82.03. While we may have seen a bit of a bounce last night, emerging market concerns about USD weakness clearly remain high. Brazil has already taken measures to impose a tax on foreign bond purchases and Thailand announced yesterday that it is considering a similar action. Hot money flows are already a problem for emerging markets – as, by the by, are rising food prices caused by the falling dollar.
The reality is that if the Fed insists on debasing its currency, we’ll be seeing a lot more of this type of action. So perhaps the PBoC’s decision to hike the reserve requirement by 0.5% to 17.5% (1st move since May) was driven, in part, by these hot money flows. Whatever the case, it is intended as a temporary measure (about 2 months) for the 6 largest banks to help rein in excess liquidity. While we’re on China and the ‘currency wars’ etc I heard the Governor of the BoE say the most sensible thing I’ve heard him say in a while. He suggested that China can’t rebalance its economy in a couple of years. As far as I can tell this is the sticking point. China is actually revaluing the Yuan and while I haven’t seen the US publically declare how much of an appreciation they want, I’ve got no doubt, and history suggests, they want it to be radical. The question for the global economy is whether this is a reasonable expectation.
Moving on, and despite USD bouncing, commodities had a mixed session, with crude down 0.8% to $82.00, copper was up smalls and gold was basically unchanged at $1351. Then to equities; they closed basically flat in the US after a decent session in Europe (+0.3 to +0.4%). The S&P500 was down 0.01% (1165), the Dow was up 0.02% (11008), while the Nasdaq finished up 0.02% as well (2402). By sector there was no major departure from zero. Telco’s and energy were up smalls and industrials and basic materials were down smalls. For Oz, the SPI was up 0.01% (4718).
As mentioned US bond markets were closed and there wasn’t a lot of action elsewhere. Aussie futures ended unchanged (3s at 95.09 and 10s at 94.96) on a 3 to 4 tick range.
So that’s about it. No real data to speak of. To the day ahead and at 1130 we get NAB’s September business survey. No one formally forecasts this series, but I would be expecting a bounce in confidence given the pick up in the news flow and share market rally. Tonight, watch out for UK CPI, the FOMC minutes and a speech from the Fed’s resident hawk – Hoenig.