So the question is: can the record keep being re-written? I find it hard to see this eventuating today; the momentum slowdown on Friday afternoon and the Chinese trade balance on Sunday suggest the ASX is going to struggle to find green today.
What is also becoming apparent is that clients and investors alike are asking themselves this question – would I buy now? Most, if not all, are saying ‘no’ with the standard reason being: ‘everything has run up too hard.’ This is further reason why I see consolidation today.
There was some interesting macro news over the weekend; the major on my radar being upgrades to US non-farm payrolls.
The previous three figures have been upgraded by an average of 120,000 jobs a month, which means the average monthly job increase in the US over the past three months was 336,000. This equates to over one million jobs being created in the last three months. You need to go back to 1997 for the last time this has happened.
The impact of this is not yet fully priced in I believe, as the consensus estimates for the first rate hike to the Fed funds rate is September. The employment data may see this figure coming forward over the next few weeks and may put further upside risk into the USD on rate expectations.
My radar also picked up on this little stat further backing the USD. Despite headlines from the likes of IBM and Procter & Gamble that FX is killing their earnings, on average companies that generate over 25% of revenue in overseas markets have released earnings that have beaten consensus expectations on the revenue and earnings per share line by 8% or more. This is just another reason why the USD will likely remain (on a medium term) the investment currency in the G10.
Ahead of the Australian open
The AUD is likely to be pulled lower in the Asian session. Yesterday China released its trade balance figures and the headline figure masked major concern for exporters to the nation.
The record trade surplus in January was due to plunging imports, as falling commodity prices and weak domestic demand hit January numbers. It is unlikely to pick up in February as Chinese New Year will also distort demand.
It’s also the speed of the decline in imports that is even more concerning for the AUD and the ASX. January numbers showed the biggest decline in more than five years, down 19% year-on-year compared to estimates of a 3.2% decline year-on-year. The stalling property market along with the slowing manufacturing sector all signal that import demand is likely to remain subdued. The PBoC will need to do more than just a 50 basis-point reduction in the reserve requirement ratio to stimulate these sectors.
This week sees Australian reporting season starting in earnest - RIO, CBA and Telstra are all reporting, however it will be CBA and TLS that will likely shape the whole season. The current yield trade will be built around how these two report dividends.
Remember the front- and middle-end of the curve are all well below the new cash rate, Glenn Stevens is speaking today – however it’s at the Bank of China RMB clearing bank launch and I doubt he will be keen to talk domestic issues at an event like this. However, the interbank market is still predicting a 30% chance of a further cut in March; high yield remains king, however the trade is crowded. However, if CBA and TLS produce a higher-than-expected dividend, the trade is likely to bloat.
Australian government bond rates: