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The Overnight Report: Just Buy It

Daily Market Reports | Feb 22 2017

This story features MONADELPHOUS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MND

By Greg Peel

The Dow closed up 118 points or 0.65 and has now surpassed 20,700. The S&P rose 0.6% to 2364 and the Nasdaq gained 0.4%.

Winners & Losers

With Wall Street off enjoying an unseasonably warm long weekend, yesterday’s local trade began with no particular lead and no specific macro drivers. It was thus a good day to concentrate on earnings results, and by the end of the day they were all that mattered.

The big winner on the day was resource sector contractor Monadelphous ((MND)), with an 11.5% gain. Mona plays in the same space as energy contracting peer WorleyParsons ((WOR)), which on Monday posted a shocker. There was likely thus some relief built into the share price response after a good result from a stock which, like Worley, has been a comeback kid in the past few months of commodity price rebounds.

Vet’n’pet barn Greencross ((GXL)) was one of those high-flying growth stocks of past years but like many elevated PE stocks has had a tougher time of it of late, and a rather volatile share price. Greencross got the silver yesterday with a 6.8% gain.

Another high-flyer and, recently, highly volatile stock is Vocus Communication ((VOC)), which yesterday took the bronze with a 6.5% gain. Interestingly, Vocus reports today. Hardly a day goes by when this stock does not appear in the Top Ten ASX winners and losers, typically alternating.

On the losers side yesterday we find Independence Group ((IGO)). This has been a nightmare stock to trade of late given nickel does not currently trade on fundamentals, but on the whim of government regulations across Asia. Independence fell -6.2%.

Software company Altium ((ALU)) was another of the past high-flyers, and it fell -5%. Comrade Aconex ((ACX)) fell -6% but it has been rising and falling 6% just about every day since its big profit warning and subsequent -45% share price crash at the end of January.

Those buying Monadelphous on the day may have funded their purchases by selling WorleyParsons. It was down another -5% and will presumably now be in the doghouse for six months until it can post an improved result.

The net result of all of the above was that the ASX200 went nowhere in particular and no one sector stood out, together netting out small ups and downs.

The minutes of the February RBA meeting were released yesterday and contained no surprises. No policy change is foreseen in the near term. But there was an interesting paragraph pertaining to longer term policy. Spot the subtle Trump reference:

“In considering the stance of monetary policy, members viewed the near-term prospects for global growth as being more positive, although recognised the risks from policy uncertainty in the medium term. Stronger growth had contributed to higher inflationary pressures, including higher commodity prices, which had implications for the future stance of monetary policy in the advanced economies in coming years. Long-term bond yields had moved higher in many advanced economies.”

Back for More

On the subject of Trump, has anyone else noticed that sightings of Creepy Clowns across the US have ceased since The Donald moved into the White House?

It was back to business on Wall Street last night. Traders bundied on and bought once more. Overvalued? Well if it is it gets more overvalued every day. The Dow posted its eighth consecutive up-day. That’s now a longer winning streak than in the initial post-election surge.

Excitement over pending tax reform remains the supposed underlying driver. Last night the now infamous White House spokesman suggested a reform package will be announced in two weeks, as was also suggested two weeks ago.

There was some reality to last night’s trade however, with solid earnings reports being posted by retailing giants and Dow components Wal-Mart and Home Depot.

An OPEC spokesman sent oil prices rallying once more by suggesting members are indeed complying with production cut quotas, and by brushing off concerns over accelerated US shale production. Oil prices came back a bit at the death but are around 1% higher, thus energy stocks led the indices higher.

A flash estimate of the US February manufacturing PMI suggested a slowing in expansion to 54.3 from 55.0 (this is Markit’s measure, not ISM’s), but 54.3 is still higher than any reading since March 2015.

So between earnings, commodity prices and economic data, there is some reality apparent in the US. Everything else, at this stage, remains fairy dust until otherwise confirmed. President Trump will make his inaugural State of The Union address next week.

Commodities

West Texas crude is up US40c at US$54.38/bbl on the April contract.

A 0.5% jump in the dollar index to 101.37 has weighed on base metal prices, which are all marginally lower. The standout is nickel, with a -2.5% fall.

No such qualms for iron ore however, which rose another US$1.80 to US$94.50/t.

Gold managed to hold its ground in only falling slightly to US$1236.00/oz.

I don’t usually highlight US natural gas prices, as they represent (to date) a closed shop market. On further warm weather predicted for the US, the Henry Hub futures last night fell -9%. This has no implication for the oil-indexed pricing used by Australian LNG exporters, at least until the US becomes a significant exporter in its own right.

The Aussie is steady at US$0.7681, as commodity price strength continues to offset US dollar strength.

Today

The ASX200 has been effectively stagnant these past couple of sessions, but with Wall Street back in buying mode the SPI Overnight closed up 31 points or 0.5%, which would take us comfortably back over 5800.

RBA governor Philip Lowe will speak today and local data for December quarter wages and construction work done will be released.

The minutes of the last Fed meeting are out tonight.

Fortescue Metals ((FMG)) will be looking to make good on its share price run by reporting today, alongside Woodside ((WPL)), Insurance Australia Group ((IAG)), Stockland ((SGP)) and many more.

Note that CommBank ((CBA)) goes ex today.

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CHARTS

ALU CBA FMG IAG IGO MND SGP WOR

For more info SHARE ANALYSIS: ALU - ALTIUM

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: IGO - IGO LIMITED

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: SGP - STOCKLAND

For more info SHARE ANALYSIS: WOR - WORLEY LIMITED