The month of madness

It is finally here; one of the more anticipated earning months in a long time as fundamental traders and analysts alike look for signs of the China story, the non-mining ‘revival’ and the state of the underlying economy.

The macro data of the last six months has seen peaks, troughs and left hand turns; this has caused volatility and a lot of commentators to question the validity of some of the current north prints seen over the last four weeks since the major confession session.

All these questions will be answered over the coming month. This week sees a wide range on sectors in play, with healthcare, materials and telecommunications all on the newswires. However, the results that will drive expectations more than any other will be RIO on Thursday.

Although it is only first half results for RIO, several actuals will influence expectations for other stocks. The state of the Pilbara 360 project will be watched closely to see how much the weather has affected production and profit extraction along with Sam Walsh’s cost cutting drive. What will also be key at Thursday’s briefing is the Canadian story; are the iron ore projects really up for sale and if so for how much? How much has the mine slippage at Bingham Canyon copper mine cost?

The actuals will illustrate the demand for materials not just in China but also in the uptake to the home in the US. The world’s largest economy has shown signs of increased demand over the last six months and this may offset the possible losses in China everyone is expecting.

The other part of the RIO results that will be highly influential to the share price is the cost cutting programme. How deep is it? Is the proposed target of $5 billion in cost saving over the next 24 months on track and what additional assets are on the table? All will be released about 19:00 AEST on Thursday.

As it is the first full trading week of the month, Australian data will also be laid on the table. Retail sales figures, the trade balance, the employment change and the unemployment rate all due over the next five days.

The RBA decision tomorrow is almost a non-event. 26 out of 27 economists are calling for a cut tomorrow and the swaps market is currently trading at 91% chance of a 25 basis point cut. The AUD will have most of this cut factored in, what might move the AUD is the language statement.

If the RBA suggest that tomorrows cut is the last for the interim cycle it might see the AUD moving higher as easing relaxes. The other train of thought could see the RBA go the complete opposite direction and change the statement to an easing bias with a dovish outlook. This will drive the AUD and see a second rate cut expectation in the later quarter of the year increasing.

What we have avoided talking about is the election. The fact is, it’s one week ahead of the original date which makes no difference to the market. As far as we can see, what will increase volatility is the prospect of another hung parliament. Current polling suggests both major parties are neck and neck. If this does eventuate on polling day, another three years of cautious trade could be on the cards – whoever wins and the local economy really cannot handle this.          

Moving to the open, we are calling the ASX 200 up seven points to 5124 (+0.14%) as the US again made an all-time high on Friday as unemployment fell, (however non-farm payroll was weaker than expected). This would be the eleventh consecutive north print trading day if it does come to fruition. This has snuck up on people and because the market crossed the 5100 mark relatively easily on Friday, we may see traders testing the support at this point. 

Materials plays look like they may slip today, with BHP’s ADR suggesting the stock should contract by 14 cents today to $35.61 (-0.39%) after falling in London on Friday. Iron ore has popped back above US$130 a tonne, which will put the RIO results in more focus. The year-to-date average of iron ore is $132.11 a lot higher than most had expected. 

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