2014 just got real. Here’s what you need to know.
– The Labor Day weekend is the end to the summer holidays in the Northern Hemisphere, so traders return to their desks and the focus into year-end begins.
– This year, a lot of that focus will be on the Ukrainian escalation, with Putin doing his best belligerent bear impression over the weekend. More importantly though is the Fed and the end of the QE and, given the data recently – particularly Friday night – how soon rates will start rising in the US.
– Looking first at the data and it is clear that while the US economy may not be back at boom-time levels, the Q2 print of 4.2% is no fluke. Friday saw the release of The University of Michigan’s final consumer confidence survey for August come in at 82.5, topping expectations for a reading of 80.0. Current conditions came in at their highest levels since 2007 – phenomenal.
– Also out was the ISM/Chicago’s PMI for August which printed a massive spike to 64.3, well north of the 56.5 the pundits had been expecting. Personal income and spending disappointed but the order of magnitude was small enough to not trouble those who think the economy is on the mend.
– So at the close, the Dow rose 10 points to 17,090, the Nasdaq was 22 points higher at 4,580 and the S&P 500 made a new all-time closing high at 2,003.26, up 6.5 points.
– In Europe, the German retail sales print of 0.7% for July was less than half the 1.5% expected, which has knocked the year-on-year rate from 1% previously to -1.4% in July – a truly bad outcome. The EU inflation, however, printed 0.3% as expected with the annual rate coming in at 0.9%.
– It all added up to a marginally better stock performance in the UK and the Continent. The FTSE rose 0.21% to 6,820, the DAX was up just 0.08% to 9,470, while the CAC rose 0.34% to 4,381. In Milan stocks rose 0.54% but in Spain, stocks rose just 0.06%.
– The wash-up was that on the ASX the September SPI 200 futures fell 2 points to 5,612. There are a lot of catalysts for trade this week in Australia and around the world after a quiet few weeks and traders will continue to watch 5,580 as a key support.
– Bond markets were very quiet with the US 10s unchanged at 2.34%, German Bunds finishing at 0.89% (still super low) and 10-year Gilts finished at 2.26%.
– On Currency markets, the US data helped knock the euro lower along with comments from ECB member Coeure which seemed to imply the easing is coming this week. It closed the week at 1.3130 and it would seem is soon headed below 1.30. Sterling was lower at 1.6568 also and the Aussie, although still relatively strong, fell back to where it was before the solid Capex data last week. It sits at 0.9230 this morning. USDJPY sits atop 104 once again.
– On Commodity markets, Iron ore for September rose 18 cents to $87.57 while Newcastle Coal for the same month fell 75 cents to $68.70 – its lowest level since July 25. Crude was a bit higher, up 1.5% to $95.84 a barrel, Copper was unchanged at $3.13 a pound, but Gold benefited a tiny bit from the tension between Ukraine and Russia and sits at $1,288 with Silver at $19.41 an ounce. On the Ags, Wheat and Corn fell 1.43% and 1.57% while Soybeans finished up 0.22%.
It’s a US holiday but locally on the data front the AiG Performance of Manufacturing is out this morning along with the TD Securities monthly inflation data. Gross Operating profits will feed into Q2 GDP to be released on Wednesday. HSMC China PMI will be out today as well.
Tonight in Germany, the GDP is very important and there is a raft of Markit and HSBC PMIs out around the world.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Woolworths is a bit of a metaphor for high dividend stocks in this current low interest environment.
With limited upside from new store rollouts in its core food and liquor business, Woolworths could now be classified as a “mature” business in growth terms. Management guidance is for 4-7% profit growth next year.
Woolworth’s current market valuation of about 17.2 times next year’s earnings looks pretty expensive for this sort of growth profile. This suggests its valuation is all about the ability to pay an attractive dividend in a low-interest rate environment, making Woolworths the kind of stock that may come back to earth a bit when the market begins to anticipate higher interest rates.
Bearing in mind that Woolworths is yet to trade ex its 72c dividend, the chart below shows some possible support levels and the approximate forward PE values they would represent if reached in the near future.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC