Daily Market Reports | Apr 20 2017
By Greg Peel
The Dow closed down -118 points or -0.6% while the S&P fell -0.2% to 2338 and the Nasdaq rose -0.2%.
The standout sector in yesterday’s local trade was again telcos, which after several bleak sessions in the wake of TPG Telecom’s ((TPM)) planned move into mobile finally found some bargain hunters. A couple of analyst upgrades to Buy on oversold valuations helped. All of TPG, Telstra ((TLS)) and Vocus ((VOC)) enjoyed strong rebounds to drive the sector up 3.6%.
Also tempting the bargain hunters yesterday were the iron ore miners, which have also suffered steep falls along with the near 40% retracement of the iron ore price. For some time analysts had been suggesting prices in the 90s would be fleeting, with prices in the 60s more realistic. And here we are.
The materials sector was nevertheless a mixed bag, with iron ore strength offset by selling in coal miners, base metal miners and, despite a good rise in the A$ gold price overnight, gold miners. Gold is back down again this morning.
What to sell to fund buying in Telstra and BHP? The banks of course, which continue to offer risk around potentially upgraded capital requirements. Financials fell -1.0%.
Another couple of stocks to attract bargain hunters were Brambles ((BXB)), which provided a positive update yesterday following its shock guidance downgrade not so long ago, and Downer EDI ((DOW)), which has finally scraped together the shareholders to fund its unpopular takeover of Spotless.
It was a day of ups and downs for the ASX200 before the dust settled on the sector moves. Opening below 5800, the index bounced hard to recover most of that loss before drifting away in the afternoon. Having come out of one four-day weekend, we as good as enter another given Anzac Day falls on the Tuesday next week and many a market participant will likely write the Monday off.
The 5800 mark, which offered resistance on the way up to 5900, may offer support, unless traders decide to sell up ahead of the weekend. This weekend sees the French election, and who knows where a US aircraft carrier might pop up?
Earnings and Oil
Morgan Stanley posted Street-beating earnings last night to round off the US big bank results. The final scorecard shows beats from all of JP Morgan (Dow), Citigroup, BofA and MS, a so-so from Wells Fargo and a big miss from Goldman Sachs (Dow).
On Tuesday night the Dow fell -113 points and of that, Goldman Sachs’ -4% drop was worth -77 points. Last night tech dinosaur IBM posted a big revenue miss and fell -8%, contributing -57 points to the Dow’s -118 point fall.
IBM had been dull as dishwater pre-Trump, but took off late last year on blind enthusiasm. Reality has now bitten. Many an analyst had warned that Wall Street had become stretched, pricing in Trump’s pro-growth policies long before any have, or ever will, come to pass. IBM is testament to the downside risk inherent in this March quarter result season. You don’t want to miss.
Goldman and IBM are also testament to the distortion of the Dow Jones price average. The world swooned when the Dow hit 21k, but really it’s all just smoke and mirrors. That’s why your average Wall Street trader ignores the Dow and follows the S&P500.
The Dow also contains Big Oil stalwarts Exxon and Chevron. The weekly US inventory numbers posted last night showed a surprise jump in gasoline reserves when seasonality, being the beginning of the US summer driving season, would normally suggest otherwise. Throw in the fact tonight is the expiry of the WTI May delivery contract and the result is an oil price down over -3% this morning.
IBM and the energy sector took the down down last night, and weighed on the S&P. Meanwhile, the Nasdaq and Russell small cap index had positive sessions.
West Texas crude is down -US$1.77 at US$50.58/bbl.
Has a floor been found following iron ore’s freefall? It’s rebounded US$2.70 to US$64.20/t.
Base metal prices saw some consolidation in London after Tuesday night’s steep falls. Aluminium and nickel rose 0.5% and zinc 1%, but copper fell another -0.5%.
The US dollar index has rebounded 0.3% to 99.80 as trading in the pound and euro settles down. This gave the gold bugs a fright and sent gold down -US8.90 to US$1280.30/oz.
The Aussie is feeling the weight of lower commodity prices. It’s down -0.9% at US$0.7494.
The SPI Overnight closed down 13 points or -0.2%. There likely won’t be any bargain hunting among the energy names today.
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