article 3 months old

The Monday Report

Daily Market Reports | May 29 2017

By Greg Peel

Buyers’ Strike

It was a choppy week for the ASX200 last week with no major themes emerging, and little evidence of market direction. Thursday had looked more promising, with the index closing on its high for both the day and the week, but on the wider picture of a one-month chart, that close did not break the downtrend line.

It was always going to be a battle on Friday against ramifications for the energy sector of a -5% plunge in the price of oil overnight. And so it was that energy proved the worst performer on the day with a -1.7% drop. But when the market opened lower, as expected, there were no buyers to be found. A hole opened up, and down we went to a -50 point loss by late morning.

Only then did buying re-emerge, but it was hard work. The rest of the day saw a slow graft to recover at least some of the initial loss, but around 3.30pm the late weekend sellers hit. The close of down -37 meant a closing low for the week, at 5751.

Metals and bulk prices had only been slightly lower overnight but materials copped a -1.3% sell-off. It had looked like the banks may have made their levy-related lows last week but were hit by fresh selling, down -0.8%. A 0.3% gain for utilities suggested a shift into defensives, yet telcos were down -0.5%.

The theme is evident – big oil, big miners, big banks and the big telco led the market down. Sell “big”.

The biggest ASX200 casualty of the day was Australian Pharma ((API)), which fell -7%. The fact the bargain hunters prompted a 6% gain for last week’s big casualty Sigma Healthcare ((SIG)), formerly Sigma Pharma, suggests perhaps some switching.

One notable gainer was JB Hi-Fi ((JBH)), feeling a bit battle scarred of late on Amazon fears and a general consumer slowdown. It rose 3%, likely due to the surprise result and solid share price pop for US lookalike Best Buy overnight. Amazon already operates in Best Buy’s space.

The week-low close of 5751 is a clear technical inflection point. But the question must again be asked: What is going to push the local market higher? There is certainly no correlation at present with Wall Street, which spent the week making new all-time highs driven largely by Big Tech. Australia has plenty of tech these days, but no Big Tech. We just sell rocks.

The good news, at least, is that oil did rebound 2% on Friday night.

Her Name Was Lola

Commentators had expected a quiet Friday on Wall Street ahead of the Memorial Day long weekend, if for no other reason Thursday was already quiet. They weren’t wrong.

The Dow closed down -2 points, the S&P closed flat at 2415, and the Nasdaq managed a gain of less than 0.1%.

Indeed, the biggest highlight of the day was the arrival of Barry Manilow on the floor of the NYSE late in the afternoon, to ring the closing bell.

There had been some anticipation that today might be the day that one or both of Amazon and Google hit the magic US$1000 per share mark, but it wasn’t to be. Amazon crept to US$995 and Google (Alphabet Class A) to US$993. There is only one stock in the S&P500 already at US$1000, indeed almost US$2000, being Priceline (not a chemist, a discount online travel agent), not counting Berkshire Hathaway at around US$250,000 a look-in.

Much was made during the US earnings season, now all but complete, of a delay this year in Americans receiving their annual tax refunds impacting on earnings in the consumer space. It was hoped that a paltry 0.3% rise in the March quarter consumer spending component of the GDP would prove deceptive and spending would be pushed into the June quarter.

Well as it was that component was revised up to 0.6% in Friday night’s GDP revision to 1.2% growth from a first estimate of 0.7%. This was as expected, so caused no excitement. It’s also a long time ago now, and forecasts for the June quarter sit at 3% or better.

If that is to be, it won’t be thanks to new durable goods orders, which fell in April for the first time in five months. The -0.7% fall was better than -1.0% forecast, but take out lumpy planes, trains and automobiles, and orders still fell -0.4%.

Resultant weakness was nevertheless offset on Friday night by a 2% rebound for the oil price, following Thursday night’s -5% plunge. Otherwise, it was a scramble to get out the door to aforementioned planes, trains and automobiles.

Everybody! At the Copa, Copacabana…

Commodities

I suggested on Friday morning that we’d need to wait for the sell-the-fact profit-takers to be cleared out of the oil market post the OPEC meeting before we knew where oil was going. Friday night saw West Texas crude rebound US$1.18 to US$49.86/bbl.

It is unclear why gold was also strong with the US dollar index up 0.2% to 97.40, but the suggestion is rising geopolitical tension. Supposedly North Korea, the weekend’s G7 meeting and the upcoming UK election are causing anxiety, but then what’s changed? Gold rose US$11.30 to US$1266.70/oz.

Copper was down -1% and lead up 2% in London amidst otherwise small moves for base metals.

Iron ore fell -US$1.00 to US$57.80/t.

The Aussie is slightly weaker at US$0.7445.

The SPI Overnight closed up 7 points.

The Week Ahead

Maybe we might suggest, given the UK election is still over a week away, that rising geopolitical fears have more to do with the “critical” level of terrorism warning in the UK post-Manchester, ahead of a long weekend in that country too featuring many scheduled public events where crowds will gather, including the FA Cup final. And North Korea’s been at it again this morning.

US and UK markets are closed tonight and Chinese markets are closed today and tomorrow.

Wall Street will return to a raft of economic data releases, including Case-Shiller house prices, monthly consumer confidence and personal income & spending on Tuesday, pending home sales, the Chicago PMI and Fed Beige Book on Wednesday, and private sector jobs, construction spending, vehicle and chain store sales and the manufacturing PMI on Thursday.

Friday it’s non-farm payrolls.

Beijing goes early this month with its official manufacturing and services PMIs on Wednesday, while everyone else follows with manufacturing on Thursday.

A busy week in Australia sees building approvals tomorrow, private sector credit on Wednesday, and March quarter private sector capex, retail sales, house prices and the manufacturing PMI on Thursday.

Private sector capex will be an interesting one now that economists are forecasting a mere 0.1% rise in GDP in the quarter.

The corporate mini result season we’ve seen in May now gives way to quieter times as we count down to EOFY. Next week sees G8 Education ((GEM)) and Sydney Airport ((SYD)) holding AGMs and Suncorp ((SUN)) hosting an investor day.

Rudi will appear on Sky Business on Tuesday, via Skype, to discuss broker calls around 11.15am. On Wednesday he'll host Your Money, Your Call, 8-9pm. On Thursday he'll show up twice. First at noon and again on Switzer TV that night, between 7-8pm. On Friday, he'll repeat the Skype experience around 11.15am.
 

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