The week in finance: Miners to deliver record trade surplus


January 29, 2017 12:30:29

After a couple of years of falling earnings, corporate Australia looks set to finally deliver some growth in the February results season.

As usual, it is a slow start with just a few top-200 companies trotting out numbers this week, but a steady churn of rising forecasts has recalibrated earnings growth expectations up 16 per cent for 2016-17.

While that optimism has supported the local market since late last year, the week is likely to start on a downbeat note as weaker than expected US economic growth and some lacklustre quarterly earnings on Wall Street pushed ASX 200 futures down a tad over the weekend.

Markets on Friday’s close:

  • ASX SPI 200 futures -0.2pc at 5,650
  • AUD: 75.46 US cents, 70.50 euro cents, 60.06 British pence, 86.90 Japanese yen, $NZ1.04
  • US: Dow Jones flat at 20,094 S&P 500 -0.9pc at 2,295 NASDAQ +0.2pc at 5,168
  • Europe: FTSE +0.3pc at 7,184 DAX -0.3pc at 11,814 Eurostoxx50 -0.5pc at 3,303
  • Commodities: Brent oil -1.3pc at $US55.52/barrel, Gold +0.2pc at $US1,191/ounce, Iron ore +0.1pc at $US80.22/tonne

Over the week both the US and Australian markets chiselled out solid 1 per cent gains.

Citi’s chief US equity strategist, Tobias Levkovich, noted Wall Street was currently struggling to contemplate rising rates and expensive price-to-earnings valuations.

“It is fair to suggest that equity markets are unlikely to tear it up in rally mode given valuation, the length of the current economic cycle, and neutral investor sentiment readings, but respectable returns still seem probable,” Mr Levkovich told clients in a research note.

“Accordingly, an 8 per cent to 10 per cent total return from the S&P 500 in the next 12 months does not seem shoddy yet some market observers are ready to call in the pallbearers, often citing uncertainties related to the incoming administration.”

AMP Capital’s Shane Oliver said the main theme of the coming results season in Australia would be the resurgent resources sector overshadowing more modest improvements elsewhere.

“Resource company profits are expected to more than double, but profit growth across the rest of the market is likely to be around 5 per cent, led by food producers and retailers, utilities, telcos and building materials companies,” Dr Oliver said.

The unexpected slowdown in the September quarter could take its toll, stalling top-line growth while various corporate bottom lines are still likely to be propped up by ongoing cost-cutting regimes.

The first of the bigger companies out of the blocks with interim profits include the construction engineer Downer EDI, wagering giant Tabcorp, building products supplier G.U.D and tertiary education provider Navitas.

Miners to drive record trade surplus

The extraordinary rebound in resources is likely to be underlined by what could well be a record monthly trade surplus for December when figures are released on Thursday.

The NAB is forecasting a surplus in excess of $3 billion, ahead of the consensus call of $2 billion and more than double November’s $1.2 billion.

It would cap an extraordinary turnaround from the 30 consecutive months to October of large deficits, which led to speculation that ongoing trade weakness could lead to a recession.

The bullish NAB view is supported by surging commodity prices driving a 6 per cent to 7 per cent increase in the value of exports, and record iron ore shipments out of Port Hedland in December.

The current record trade surplus stands at $2.24 billion back in February 2009.

Other key data releases include the NAB business survey (Tuesday) which should see conditions and confidence kicked higher again after recent solid manufacturing data and a moderate increase in private sector credit (Tuesday) on the back of renewed vigour in the investor mortgage market.

Residential building approvals (Thursday) are likely to continue slowing as the apartment frenzy shows signs of rolling over, while house prices — measured by the CoreLogic-RP index — are likely to record another monthly rise, maintaining a heady annualised growth above 10 per cent.

Central banks on hold

Central banks in the US, UK and Japan all meet this week and are all expected to sit pat on their very loose settings.

RBC’s Tom Porcelli said the Federal Reserve’s meeting should come and go with few market implications.

“The Fed is likely to continue to strike a positive tone on the economy and may upgrade its inflation characterisation toward a slightly more hawkish slant in the wake of headline CPI [consumer price index] now breaching 2 per cent,” Mr Porcelli said.

“No [Federal Reserve Chair Janet] Yellen press conference means little scope for major shifts,” he noted.

The Bank of England (Thursday) will not be changing tack either given the significant economic headwinds it could face, while the Bank of Japan (Tuesday) said it would not be doing anything until inflation hits 2 per cent, and that is a long way off.

There is not much in the way of data from China ahead of the Lunar New Year holiday, although both official and unofficial purchasing managers’ index (PMI) readings should show the manufacturing sector is solidly back in expansion mode.


Monday 30/1/17 RBA speech Dep Governor Guy Debelle speaks
Tuesday 31/1/17

NAB Business survey

Private sector credit

Dec: Conditions and confidence solid

Dec: Around 5.5pc Year-on-Year, focus on investor credit

Wednesday 1/2/17

House price index

Manufacturing PMI

Commodity prices

Jan: CoreLogic series, up 10.8pc YoY last month

Jan: Expanding

Jan: Gaining strength, up 9.3pc YoY last month

Thursday 2/2/17 Trade balance Dec: Trade surplus could hit a record $2.4bn
Friday 3/2/17 Services index Jan: Solid expansion in services sector expected


Monday 30/1/17

Newcrest update

OzMinerals update

Evolution Mining update

Q2 production report

Q2 production report

Q2 production report

Tuesday 31/1/17

CYBG update

Navitas results

ERA results

Fortescue update

Origin update

Iluka update

Infigin Energy

Q1 trading for NAB’s UK spinoff

First half earnings for education provider

First half earnings for uranium miner

Q2 production report

Q2 production report

Q2 production report

Q2 production report

Wednesday 1/2/17 G.U.D. results First half results for building products business
Thursday 2/2/17

Downer EDI results

Tabcorp results

First half results for engineer and contractor

First half results for wagering business

Friday 3/2/17 James Hardie update Q3 earnings report


Monday 30/1/17

US: personal income/spending

US: Pending home sales

JP: Retail sales

Dec: Both edging up 

Dec: Likely to bounce back

Dec: Flat

Tuesday 31/1/17

US: Home price index

US: Consumer confidence


EU: Inflation

JP: BoJ decision

Nov: Growing at around 5pc

Jan: At around a 15-year high 

Q4: Forecast growth of 1.7pc YoY

Q4: Still weak around 1.5pc YoY

No change likely, holding at -0.1pc

Wednesday 1/2/17

US: Fed rate decision

CH: Manufacturing PMI

US,EU,JP: Manufacturing PMIs

Rates back on hold

Jan: Official reading expanding 

Jan: All have solid expansion in factory activity

Thursday 2/2/17 UK: BoE decision No change likely
Friday 3/2/17

US: Non-farm payrolls

US: Average hourly earnings

US: Factory orders

CH: Caixin PMI

Jan: Another 170K jobs likely to be added

Jan: Edging up

Dec: Should bounce back from previous fall

Jan: Unofficial factory activity survey also expanding













First posted

January 29, 2017 11:42:52

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