article 3 months old

The Monday Report

Daily Market Reports | Nov 21 2016

This story features COMPUTERSHARE LIMITED, and other companies. For more info SHARE ANALYSIS: CPU

By Greg Peel

Switching Back

A choppy and relatively quiet session for the local market on Friday saw the ASX200 rally early, fall back, and finally rally late.

The biggest mover on the day sector-wise was cap weight minnow info tech, rising 1.9% thanks to a 12% bounce-back for iSentia ((ISD)), following its 27% plunge the day before, and the presence of sector gorilla Computershare ((CPU)) which continues to rise on higher interest rates.

Close behind was consumer discretionary, which jumped 1.8% thanks to a 14% rally for Myer following its AGM. Given Myer is around 18% shorted – the most on the ASX – the company would only have to announce the sale of one frock to set a short-covering scramble in train.

The most influential cap weight move came from telcos, up 1.8%, driven by the well-known gorilla in that sector. Given utilities were again in the green, up 0.6%, and the banks were positive, up 0.5%, we can again see the theme of buying back the yield plays that have been so thoroughly brought back to earth pre- and post-Trump on Fed rate hike implications.

The flipside is selling off the commodity plays that have run very far, very fast. The net move for the materials sector on the day was only down 0.3%, but we note the six biggest individual losers on the day were all miners, led by standard bearer Whitehaven Coal ((WHC)). The coal miner led the troops heroically into battle and is now the first to flee.

All in all we seem to now be going through a dust settling exercise following the Trump shock and subsequent mad scrambles. The miners had already run very hard pre-Trump, largely due to Chinese government-driven supply constraints for the bulks and similar supply issues elsewhere for base metals, and Trump’s election sparked the blow-off rally.

On the flipside, yield plays had already been sold down hard on Fed rate rise speculation, and tanked further post-Trump as US rates spiked. As we enter the “lame duck” period between now and January, and move inexorably towards Christmas, traders are taking money back out of the big winners and returning it to the big losers.

Calming Down

The same theme is playing out on Wall Street. Trump’s policy promises may be Street-friendly, but they can’t be implemented overnight. Attention must also be given to the collateral damage of surging US interest rates and a surging US dollar.

The US ten-year yield rose another 6 basis points on Friday night to 2.34%. That represents a full percentage point gain since July and the past two weeks have seen the biggest rally in the ten-year yield in fifteen years.

The implication of both a Fed hike and a Trump administration is stronger US economic growth, which would be good for all. But we have to actually get there yet. In the meantime, higher interest rates are going to drag on some sectors.

The US dollar index rose another 0.3% on Friday to 101.26. That’s a thirteen-year high. The many large, multinational US companies selling everything from toothpaste to iPhones to front-end loaders may also benefit from a stronger US economy, but will be stung selling their products offshore. These are boom times for Chinese copy-cat manufacturers.

The Trump rally has now plateaued and Friday night saw a mild retreat. The Dow closed down 35 points or 0.2%, the S&P lost 0.2% to 2181 and the Nasdaq lost 0.2%. After a couple of weeks of the Dow and Nasdaq moving almost inversely, normal programming has been restored as the market starts to calm down.

It’s a short week in the US this week, featuring three days of a lot of economic data releases crammed in, followed by the Thanksgiving holiday on Thursday, and the Friday half-day session in which skeletons count the tumbleweeds rolling through the NYSE. Now that a vacuum has opened up between The Donald’s victory and The Donald actually being able to do anything, Thanksgiving probably provides a good excuse to square up.

Commodities

West Texas crude continues to hover around the 45 mark, rising US59c to US$45.57/bbl on Friday night.

It was a messy session on the LME, with copper falling 1.5% and nickel almost 4% as aluminium offset with a 0.8% gain.

Iron fell US10c to US$72.70/t.

Having recently seen the stars above the 1300 level, gold is now threatening to retest the 1200 level as the US dollar continues to climb. It fell US$4.40 to US$1208.60/oz.

And just as consistently as the greenback has risen, the Aussie has fallen. Initially strength in the US dollar was diluted by strength in commodity prices, but now that commodity prices are tipping over, and Australian labour data have been weak, the Aussie is plunging. It’s down another 1% at US$0.7340.

The SPI Overnight closed up 7 points on Saturday morning.

The Week Ahead

Tonight in the US sees the Chicago Fed national activity index and on Tuesday its existing home sales and the Richmond Fed index. A crush of data on the Wednesday includes new home sales, FHFA house prices, durable goods, consumer sentiment, a flash estimate of November manufacturing PMI, and the minutes of the November Fed meeting.

That meeting was pre-Trump.

On Thursday all US markets are shut down and on Friday the NYSE closes at 1pm.

The GDP countdown continues in Australia this week with September quarter construction work done on Wednesday and the all-important private sector capex and capex intentions numbers on Thursday.

On the local stock front, earnings reports are due from CYBG ((CYB)) and Technology One ((TNE)) tomorrow and Programmed Maintenance ((PRG)) on Wednesday. Newcrest Mining ((NCM)) will hold an investor day today and it’s another big week for AGMs.

AGM highlights this week include Estia Health ((EHE)), Woolworths ((WOW)) and South32 ((S32)).

Rudi will appear on Sky Business on Tuesday and on Friday this week, both via Skype-link, to discuss broker calls around 11.15am and 11.05am respectively.

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CHARTS

CPU EHE NCM PRG S32 TNE WHC WOW

For more info SHARE ANALYSIS: CPU - COMPUTERSHARE LIMITED

For more info SHARE ANALYSIS: EHE - ESTIA HEALTH LIMITED

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: PRG - PRL GLOBAL LIMITED

For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED

For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED