GDP gloom and monetary moves. Tonight, the first estimate for the US economy’s first quarter growth will be released, and then a few hours later the US Federal Reserve releases its post-meeting statement on monetary policy — a lot of info, but little movement is expected.
The US GDP figure is likely to be low — 1.2% (annual and down from a weak 2.2% in the December quarter) or 0.3%, quarter- on-quarter is the current estimate due to the higher dollar, the slump in oil industry spending and the very cold winter. Some economists gloomily believe there could be negative growth. The first-quarter estimate is always the most rubbery and will be revised in the second and perhaps third stabs at a figure in the next two months as more data comes in.
Economists won’t worry about a low figure, believing the improving weather will help current quarter growth. The high value of the currency is cutting into earnings and into demand, but the Fed will take note and hold off changing its signals for the first interest rate rise in the US since 2006.
Indeed, some economists now think there won’t be a rate change in the US this year. UK first quarter growth slowed to a lower-than-expected 0.3% (the forecast was 0.5%). Australia is no longer so out of place. — Glenn Dyer
Prize for dollar rise. The Aussie dollar charged back over 80 US cents this morning as the greenback fell sharply and commodity prices rose — with iron ore up for a ninth day in a low and a smidge under US$60 ($75) a tonne. If this continues, there will be a growing bunch of so-called analysts and media writers with eggy stuff around their gills. But as we have seen in the past with iron ore prices in China, what goes down can go up, and what goes up can again fall.
The latest rise was 0.9%, or US$59.20, and took the price rise since the low of US$46.70 in early April to more than 25%. Gold is up, oil remains on a track for a very strong month. Commodities are rebounding and if it continues the currency will continue rising.
Now the jump past 80 cents does allow the Reserve Bank to cut rates next Tuesday, but will it? There’s a property boom in Sydney and Melbourne to fret over. — Glenn Dyer
Gung-ho may go slow. And also keep an eye on our Kiwi mates tomorrow. The country’s central bank will reveal its decision on interest rates, and no change is expected. But the bank will make it clear that the chances of a rate cut have risen because of low inflation.
A week ago, a senior official at the bank made an unexpected speech in NZ in which a big change in approach was revealed. Assistant governor John McDermott said:
“Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates. There are some areas of uncertainty surrounding the outlook for capacity pressures, including the lingering effects of the recent drought in parts of the country, fiscal consolidation, lower dairy incomes and the impact of the exchange rate on export and import substitution industries.”
That’s a big change in approach for the world’s most gung-ho central bank when it comes to bashing inflation. The RBNZ lifted interest rates four times last year to 3.50% as it worried about inflation and rising growth — then oil prices crashed and inflation disappeared, and now the bank is concerned that might start damaging demand, hence the threat to cut rates. — Glenn Dyer
Less in bank as Twitter tanks. Twitter shares slumped by as much as 26% overnight as the company’s shares resumed trading on the New York Stock Exchange following an unplanned early release of its quarterly results. These showed a big 74% jump in revenues, but a loss of US$162 million (which magically turned into a small profit with a few adjustments).
Profit guidance for the rest of this year was also cut. But investors were not fooled by the profit shuffle and the shares tanked when trading resumed. They ended just over US$41, down 18% on the day. The shares floated in November 2013 of US$26 with an all-time high of more than US$74 in December of the same year.
And Apple’s very strong March quarter profit, lift in dividends and increased buyback had no impact whatsoever on US markets overnight (the results were released after trading on Monday). Apple shares traded in the red all day, despite the 2% rise on Monday in after-hours dealings. — Glenn Dyer
No win for Wynn. The impact of the Chinese Communist Party crackdown on corruption and its knock-on effect for gambling in Macau has been graphically illustrated in the March quarter results of the biggest casino group in the area — Wynn Resorts. Macau accounted for 70% of Wynn’s total revenues in 2014 and overnight that over-reliance helped send the company deep into the red. Wynne reported a 38% plunge in revenues from Macau in the three months (to US$705 million), but a 1% rise in revenues at its Las Vegas casinos to US$386 million.
The plunge in Macau meant that Wynne lost US$44.6 million for the quarter, down sharply from the US$227 million in the same quarter of 2014. Chief executive Steve Wynn told analysts that improvement during the Chinese New Year failed to materialise and that “the depression of the VIP market continues”.
That’s bad news for Packer’s Crown group, which controls 34.3% of Crown Melco, which is in the process of completing another casino in Macau. Wynn Resorts shares fell 10% after trading closed, on top of a 35% fall in the past year. Packer’s Crown shares are up $1 from the start of the year, but down 13.7% from their peak in February, after the interim results. The wider market is higher. — Glenn Dyer
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