Australian shares are poised to open little changed with muted trading across Europe and US financial markets closed for a holiday.
ASX futures were up 1 point to 7067 near 4.15am AEDT. The currency edged up 0.1%.
European benchmarks were drifting higher toward their close. Wall Street was closed for President’s Day.
AFR interim profit season calendar: Today’s scheduled results: Abacus Property Group, Ansell, ARB Corp, BHP, Cochlear, Coles Group, IOOF, Monadelphous, Netwealth, OZ Minerals, Pilbara Minerals, Sandfire, Scentre Group, Senex Energy, Sims and Virtus Health
In a note, Stephen Innes chief market strategist at AxiCorp said risk sentiment appears stuck in a continuous weekly loop.
“There is just no stopping the equity markets at the moment,” Mr Innes said. “While that is all very positive for those that are long equities, it has left plenty of people scratching their heads, wondering when the fundamentals might start to reassert themselves.”
Still as Mr Innes and other market watchers point out the resiliency in US equities is being driven by a narrow group: tech.
Societe Generale’s Andrew Lapthorne said the US reporting season so far has revealed weak profitability and slumping buybacks.
“Despite strong markets last year, net income barely moved, with a rise of just 0.3%. More worrying is without the Big 5 companies (Microsoft, Alphabet, Apple, Amazon and Facebook), net income fell 7.5%.
“In part, this is due to higher costs (SG&A) and a significant rise in both interest expense and taxes. That interest costs are rising so quickly despite low interest rates is remarkable and a challenge to policymakers. With all this debt, higher interest rates seem no longer feasible.”
As per buybacks, Mr Lapthorne said tith 80% of the overall value of buybacks reported so far, buybacks are 20% lower in 2019 than 2018 – excluding the Big 5, the figure is down 32%.
“That the Big 5 continue to buy back while the rest cut back no doubt helps explain” their performance divergence this year and in 2019, he also said.
Local: RBA to release minutes from latest board meeting
Overseas data: Euro zone ZEW expectations February; UK ILO unemployment rate December; US NY Empire manufacturing index February, NAHB housing market index February
ASX futures up 1 point to 7067 near 4.15am AEDT
- AUD +0.1% to 67.21 US cents
- Wall St closed for President’s Day
- In Europe late: Stoxx 50 +0.3% FTSE +0.3% CAC +0.3% DAX +0.3%
- Nikkei 225 futures -0.2%
- Spot gold -0.2% to $US1581.57 /oz at 12.08pm New York
- Brent crude flat at $US57.33 a barrel
- US oil +0.1% to $US52.10 a barrel
- Iron ore +2% to $US90.48 a tonne
- Dalian iron ore +2.7% to 639.5 yuan
- LME aluminium -0.1% to $US1721 a tonne
- LME copper bid up 0.9% to $US5811 a tonne
- 2-year yield: US 1.43% Australia 0.76%
- 5-year yield: US 1.42% Australia 0.76%
- 10-year yield: US 1.58% Australia 1.06% Germany -0.40%
- 10-year US/Australia yield gap: 52 basis points
From today’s Financial Review
Chnaticleer: Miners navigate coronavirus shock: Commodity exports from Australia’s big mining companies have proven resilient in the face of disruption to the global economy from the coronavirus. The question is: will the Chinese government underwrite their earnings with a stimulus package?
Has AMP put the worst behind it?: As the memories of the Hayne royal commission fade, investors are adopting a more positive view of AMP’s performance under chairman David Murray.
‘Stealth’ taxes have system on the brink, warns Henry: Tax reform architect Ken Henry warns economically damaging “stealth” tax rises on personal income and companies have left the nation’s revenue at breaking point.
The latest data provided by China on people infected with coronavirus indicates a decline in new cases but “every scenario is still on the table” in terms of the epidemic’s evolution, the World Health Organization said on Monday.
Tedros Adhanom Ghebreyesus, WHO director-general, told a news conference in Geneva that China’s detailed paper on more than 44,000 confirmed cases provided insight into the age range of infections, disease severity and mortality rates.
Dr. Mike Ryan, head of WHO’s emergencies programme, asked whether the outbreak was a pandemic, said: “The real issue is whether we are seeing efficient community transmission outside of China and at the present time we are not observing that”.
What are US investors thinking? Last week’s AAII sentiment survey found that the percentage of individual investors describing their short-term outlook as “neutral” rose to a five-week high. Optimism also rose while pessimism plunged.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 7.5 percentage points to 41.3%. The increase puts optimism above its historical average of 38.0% for the third time in five weeks.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 1.4 percentage points to 32.3%. The historical average is 31.5%.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 8.8 percentage points to 26.4%. Though a large drop, it only puts pessimism at a three-week low. The historical average is 30.5%.
All three indicators are currently within their typical historical ranges.
London’s FTSE 100 recovered from two sessions of losses on Monday, as China’s moves to counter the economic impact of the coronavirus epidemic soothed some of the nerves which have dominated the past fortnight’s trading.
The FTSE 100 climbed 0.4%, with all but one sector in positive territory, while the midcap index rose 0.2%.
NMC Health, which has been the target of a Muddy Waters’ short-selling attack since December, erased earlier losses to end 3% higher after the hospital operator said its founder B.R. Shetty has resigned as non-executive chairman.
Jupiter Fund Management added 4% on the same index, touching a 1-1/2-year high, after it agreed to buy Merian Global Investors in a deal that will make it Britain’s second-largest retail funds provider.
Germany’s Thyssenkrupp has shortlisted two private equity consortia in the sale of its 16 billion euro ($17 billion) elevator unit, dealing a blow to Finland’s Kone, which withdrew from the closely watched deal.
Potentially Europe’s biggest private-equity deal in 13 years, the transaction is now in its last stages and could come to a head next week when Thyssenkrupp’s supervisory board is scheduled to meet.
Capital Economics on Japan: “We don’t expect Japan’s economy to bounce back quickly from Q4’s contraction. But even if we are right, bonds may still not do as well as equities.”
CE sees Japan’s 10 year yield 0.0% and the yen at 110 against the US dollar at the end of 2020.
“By contrast, we expect the Nikkei 225 to make gains of around 6% from now to end-year. This might seem odd given our relatively bearish view of Japan’s economy. But Japanese corporations included in the Nikkei 225 generate roughly 50% of their revenues abroad. And we expect global growth to pick up from here (as long as virus containment measures are further relaxed in the coming weeks).”
Hong Kong stocks rose to the highest level in almost four weeks on Monday as Beijing stepped up policy stimulus to cushion the economic impact from the coronavirus outbreak.
The Hang Seng index closed up 0.5% at 27,959.60, after touching its highest level since January 22. The Hang Seng China Enterprises index gained 0.9%. The sub-index of the Hang Seng tracking energy shares rose 0.1%, the IT sector gained 0.7%, the financial sector ended 0.4% higher and the property sector edged up 0.2%.
The People’s Bank of China cut the interest rate on its medium-term lending on Monday, paving the way for a reduction in the country’s benchmark loan prime rate (LPR), which will be announced on Thursday.
RBC Capital Markets on Aussie v US 10-year yields: “…we no longer expect the 10y AU/US spread to move into a tighter -80bp to -100bp range in H2 from a broad -60bp to -80bp range in H1. We move the take profit on our ACGB Nov-29 vs. UST Aug-29 narrower from -80bp to-70bp, aware that we are flirting with our -53bp stop. The coronavirus and uncertainty around its extent and duration may limit the scope for substantial outperformance in the coming months. Should the negative impact on Chinese and global growth prove larger and more enduring, there is scope for a much large Fed Reserve response than RBA.”
Fund giant warns virus may force RBA’s hand: JPMorgan Asset Management’s fixed income boss Bob Michele says China’s outbreak could have a “significant” impact on growth.
Sterling remained above $US1.30 as investors priced in looser financial conditions under Britain’s new finance minister.
Rishi Sunak was appointed on Thursday when incumbent Sajid Javid unexpectedly quit while Prime Minister Boris Johnson was reshuffling his cabinet. As result, last week ended up being sterling’s best in two months.
Johnson wants to increase spending on everything from infrastructure and police to health and education. Sunak has backed higher public spending, most recently speaking in support of multi-billion-pound transport projects.
Sunak is preparing to ease Britain’s fiscal rules in his first budget, as he comes under pressure from Downing Street to open the spending taps, the Financial Times reported on Friday.
“Building expectations for looser fiscal policy are helping to boost optimism that the UK economy could outperform this year at least relative to downbeat expectations and other major economies,” Lee Hardman, currency analyst at MUFG, said.
“The positive impact on the pound from the improving outlook for the UK’s economy is outweighing the negative weight provided by continued concerns over the UK’s future trading relationships in the near-term,” Hardman said.
Cylone-hit Rio Tinto slashes iron ore production guidance: The mining giant is counting the cost of damage to ports and mines as the production downgrade adds to iron ore price pressure.
Marex Spectron on speculative positioning on LME base metals: the ALI net spec short has swiftly grown to 19.5% of OI or 106k lots. Last year the short in Ali peaked at 32% of OI on the 3rd Sept; and, COPPER has seen spec positioning transition from a marginal net long to a marginal net short of 2.8% of OI or 5.4k lots as at last Thurs. In 2019 spec positioning in Copper ranged from a short of 12.7% of OI (07 Oct) to a long of 17% of OI (30 Dec).
Analysts at loggerheads over earnings season: Top brokers offer contrasting views but they find common ground on two winning themes and the stocks set to profit.
The Australian market retreated a touch as losses among bank stocks offset strong earnings-related gains from Brambles and QBE Insurance.
The S&P/ASX 200 Index fell 5.1 points, or 0.1 per cent, to close at 7125.1 points.