Good Morning from Ascot Securities

MARKETS

“Love flies out the door when money comes innuendo”-Groucho Marx

There was plenty of money flying out the window yesterday as a stronger yen pushed shares of exporters lower to leave the Nikkei down 1.1% at the close.

Nintendo continued to struggle, falling another 5.5% on the day.

All eyes will be on today’s policy decision out of the Bank of Japan.

Of 41 economists surveyed by Bloomberg, 32 think the central bank will announce an expansion of its stimulus program.

Markets have the potential to react markedly if there are any surprises such as no action at all by Kuroda or if he introduces something left of field rather than expanding bond purchases or cutting rates.

European markets were weaker overnight with the Stoxx 600 falling 0.7%.

There was a string of earnings reports out which saw some stocks swing wildly.

Rolls-Royce rose 13.5% after guiding earnings in the second half higher despite announcing a 2.15 billion pound pre-tax loss.

Lloyds Bank fell 5.8% after announcing it will close 200 branches in the UK and cut 3,000 jobs.

Royal Dutch Shell fell 2.5% as second quarter earnings came in 70% lower.

Anglo American rose 5.4% after announcing a smaller loss than the previous corresponding period.

Volkswagen’s profit fell 57% in the second quarter. VW shares were 3% lower.

The FTSE and DAX lost 0.4% while the CAC was 0.6% lower.
“Keep pushin, keep pushin, keep pushin, keep pushin on
Keep pushin, keep pushin, you know you have got to be so strong
Keep pushin, keep pushin, well even if you think your strength is gone
Keep pushin on” -Birthday boy Neal Doughty (REO Speedwagon)

The S&P just keeps pushing.

Last night the index gained 0.16% to stay within a few points of its all-time high.

The Dow however posted its fourth straight decline, finishing down 16 points after being as much as 100 points weaker at one stage.

Earnings were mixed.

Ford shares slumped 8% on weaker than expected earnings but Facebook rose as much as 4% before closing 1% higher after a sound beat on the top and bottom line.

The fact that the S&P is holding ground is the more remarkable considering the weakness in oil prices.

WTI crude fell another 2% to US$41.10 overnight.

As the chart in Charts of the Day suggests, a disconnect between oil and equities does not last for long.

Ahead of local trade the SPI is 8 points higher.

Chart(s) of the Day

 

“Love, exciting and new

Come aboard, we’re expecting you
Love, life’s sweetest reward
Let it flow, it floats back to you

Love Trade soon will be making another run

The Love Trade promises something for everyone…”

For those gold bugs who are becoming a little jaded as the price has come off its recent highs due to a rising dollar, the metal is about to get a push from a factor that has nothing to do with interest rates and everything to do with love interests.

Historically this time of year gold tends to put together some of its best trading gains when the Love Trade heats up in India.

The wedding season gets under way in a few months and buying interest also tends to strengthen into the Diwali or “Festival of Lights” which this year falls on October 30th.

 

Back in 2014 the correlation between oil prices and the S&P hit a low of 12%.That correlation has risen steadily ever since and now stands at 41%

As oil futures continue to weaken as the summer driving season winds down, chances are the very recent disconnect will come to a halt and equities play catch up to the downside.

 

The price of iron ore into the port of Qingdao rose 3.5 % to US$60.70 a tonne.

That is a gain of nearly 9% for the week and comes on the back of a steep rise in Chinese rebar futures.

Breaking News

JHX – Announced Ryan Sullivan, Executive Vice President and President of James Hardie Building Products Inc., will be leaving JHX effective immediately. With effect from today, Louis Gries, the Company’s CEO, will assume direct responsibility for managing the North American business.

NHF – Major health insurer’s nib, Bupa and HBF today announced plans for an exciting joint venture offering millions of Australians greater transparency and convenience for their healthcare choices.

MGC – Announced that following a competitive tender process WOW has selected a new supplier to manufacture and pack a range of its private label products including cheese, UHT, adult milk powder and cream.

BGA – Advised it has reached agreement with WOW for the supply of a significant component of WOW own label cheese range commencing January 2017.

ASIA NEWS

A big day in the Land of the Rising Sun. Hold on tight to that bowl of Ramen it could get rocky.

SOUTH KOREA

A tale of two economies…

The latest Federation of Korean Industries business sentiment survey index had a reading of 89.5 for August, down from 90.5 in July and marking the third consecutive monthly fall. The index is based on a survey of the top 600 companies in terms of sales. The majority of firms expect their business conditions to worsen in the coming month due to weak demand domestically and abroad…

…But this negative sentiment is not evident in consumers it seems. The combined sales of the three major department stores — Hyundai, Lotte and Shinsegae — increased 11.8 percent on-year last month, while those of major discount retailers — E-Mart, Lotte Mart and Home Plus — edged up 0.9 percent during the same period last year, according to the data compiled by the Ministry of Trade, Industry and Energy. The devil, however, may be in the detail, as there was one extra day of holiday this year and people are finally starting to head back to major shopping malls after MERS. Wonder if they’re whacking it all on the plastic just boost those household borrowings a bit further…

CHINA

The recent floods haven’t just destroyed property and businesses. Pork prices might climb to record prices as thousands of pigs were drowned and the threat of disease post-floods prompts the slaughter of thousand more. Pork has been the major driver of the food component of the CPI and food has around a 35% weighting.

INDIA

The level of optimism among India’s chief financial officers about business environment for the July-September quarter touched a five-quarter high, according to a Dun & Bradstreet survey. The Composite CFO Optimism Index for July-September (Q3 of 2016) rose by around 6% Q/Q and 16% Y/Y.

Philippines

Philippine bonds are rising at a faster rate than any of their Asian counterparts as the market expects the central bank to drop lender’s reserve ratios for the first time in four years. The move, if it comes, is expected to inject at least $1.5B into the financial system. Bloomberg bond indexes indicates government bonds are set for the biggest two-month rally since 2013.

Today The Market Will Be Watching:

– Australia:

* Q2 PPI:

Q/Q, no est. (prior -0.2%)

Y/Y, no est. (prior 1.2%)

* May Private Sector Credit:

M/M, no est. (prior 0.4%)

Y/Y, no est. (prior 6.5%)

– Japan:

* BOJ Rate Decision, Policy Statement, Outlook and Press Conference

* June National CPI, est. -0.4% Y/Y

* June Preliminary Industrial Production, est. 0.5% M/M

* June Unemployment Rate, no est. (prior 3.2%)

* June Retail Trade, est. -1.5% Y/Y

* June Housing Starts, est. -3.0% Y/Y

* June construction Orders, no est. (prior 34.5% Y/Y)

– South Korea June Industrial Output, no est. (prior 2.5% M/M)

– Taiwan Q2 Preliminary GDP, no est. (prior -0.68% Y/Y)

– Earning including NTT Docomo, Mizuho Financial, Sony, Central Japan Railway, East Japan Railway, Denso, Takeda Pharma and Astellas Pharma

And Tonight:

– US:

* Q2 GDP, est. 2.5% Q/Q

* Q2 Preliminary Core Personal Consumption Expenditures, est. 1.7% Q/Q

* July Chicago PMI, est. 54.2

* July Reuters/Michigan Consumer Sentiment Index, est. 90.2

* Baker Hughes US Oil Rig Count, no est. (prior 371

– Eurozone:

* Bank Stress Test Report

* Q2 Preliminary GDP:

Q/Q, est. 0.3% s.a.

Y/Y, est. 1.6% s.a.

* July Preliminary CPI, no est. (prior 0.1%)

* June Unemployment Rate, est. 10.1%

– UK:

* June Consumer Credit, est. £1.4B

* June Mortgage Approvals, est. 65.65K

– Earnings including Merck & Co., Xerox, Exxon Mobil, United Parcel Services, Swiss Re, Senofi, Eni, Barclays, Anheuser-Busch, ArcelorMittal, UBS, Reckitt Benckiser and HeidelbergCement