Here’s your morning market update.
– Local stocks are going to open a little stronger this morning after Federal Reserve chair Janet Yellen gave a somewhat dovish speech overnight saying that the Fed was going to retain accommodative monetary policy for some time yet. ASX Futures trade shows a gain of just 4 points though, which is strange given the strength in the US.
– Yellen’s comments were interesting in the context of last week’s talk of rates rising as soon as 6 months after the end of the Taper and it brings a lot more clarity to what Yellen is really thinking. Our US BI team has a great story saying this might be one of the most dovish speeches ever given by a Fed official, which you can read here but the key takeaway is that Yellen reckons there is still plenty of slack left in the US economy. Which of course there is, otherwise rates wouldn’t be at zeroish, would they?
– So at the close, US stocks ended the quarter on a strong note with the Dow up 0.83% overnight. The Nasdaq is up 1.04% and the S&P 500 rose 14 points to 0.77%.
– In Europe, it was a more sullen end to the quarter with the Bundesbank’s Jens Weidman warning of the risk of running too low interest rates on Sunday (their time). Equally, in a shot across the ECB’s bow, Der Spiegel ran a story saying the German Finance Ministry expects rates to rise, which runs counter to what the market had been thinking. Particularly given that the EU inflation data last night was lower than expected, printing 0.5% year on year. Deflation isn’t too far away but some members of the ECB are in denial.
– So at the close the FTSE fell 0.27%, the DAX dropped 0.33% and the CAC fell 0.44%. In Milan however, stocks rose 0.73% while in Madrid they were up slightly, gaining 0.12%.
– On FX markets, there is no prize for guessing what impact this had on the euro. It climbed back above 1.38 at one point but sits at 1.3777, up 0.17%. Sterling is up 0.15% to 1.6673 as the recovery continues, while USDJPY is a few points from a huge break out technically at 103.16. The Aussie is up as well, buoyed by the better risk sentiment, trading at 0.9273 this morning.
– On commodity markets, Nymex Crude is largely unchanged at $101.49 Bbl, Gold is technically now below $1285 at $1284.10 but Copper is hanging in at $3.05 lb. Corn is up 2.03%, Wheat a smidge, gaining 0.14% and Soybeans rose 1.67%.
On the data front, the RBA decision is out at 2.30pm and while there is no move expected, the market will be hanging on their words. Prior to that we have the AiG Performance of Manufacturing Index and then it is global PMIs, led by HSBC China in our time zone tonight before European and the Americas tonight. German unemployment is out as well and US ISM manufacturing will be watched closely.
Here is CMC Markets’ Stock To Watch from Michael McCarthy:
In the mining services sector, recent share price performance is abysmal, in most cases. The sector faces likely consolidation. That means there will be winners and losers – and picking one of the winners at current share prices could be very rewarding. Transfield Services is one to watch.
At its most recent half-year reporting, TSE guided the market to a full-year profit of $65-70 million – meaning that at current prices it is trading on a multiple of around six times. Since the announcement, TSE confirmed a 20-month, $1.22 billion contract with the Government to provide services in Nauru and on Manus Island.
This firming up of earnings is important. TSE is trading at just 17% of its post-GFC high – and is down 92% on its all-time high. If it survives the industry consolidation, there may be significant upside. If it doesn’t survive, the earnings mean it is more likely to be taken over rather than fail – meaning it has upside in either scenario.
It’s time to put mining services, and Transfield, back on the radar.