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The Overnight Report: Labor Day Lull

Daily Market Reports | Sep 06 2016

This story features ESTIA HEALTH LIMITED, and other companies. For more info SHARE ANALYSIS: EHE

By Greg Peel

Odd Jobs

The difference between 151,000 jobs added in the US in August and the 185,000 predicted led to a 1% rally for the Australian stock market yesterday. Go figure.

The point is Australian stocks sensitive to US interest rates – resource companies producing US dollar-denominated commodities and yield payers attractive to US investors – had been sold down last week on building speculation, post Jackson Hole, that the Fed was moving to raise its cash rate at the September FOMC meeting. The shortfall in jobs had many, but not everyone, in the market now assuming September is off the table.

So, as you were. Everything that was sold down came roaring back yesterday – the resource sectors, the banks, the telcos – to ensure the ASX200 made it comfortably back above critical support at 5400. Now we wait for the actual Fed meeting.

It was not, however, a good day for all sectors.

We’ve seen it in medical services, we’ve seen it in childcare, we’ve seen it in vehicle leasing and now we’ve seen it in residential aged care. Adding insult to the injury of disappointing earnings results last month, yesterday the three listed residential aged care stocks were absolutely trashed on the implication of likely new government regulations. At one point Estia Health ((EHE)) was down 30%, having already fallen a long way from its pre-result peak, and peers Japara Healthcare ((JHC)) and Regis Healthcare ((REG)) were not faring much better.

At the final bell each closed down 12%, 15% and 17% respectively. It was a capitulation. Not helping either recently was news the founder of Estia had sold his entire stake post-result.

In economic news yesterday, Australia’s service sector PMI went the same way as manufacturing PMI and collapsed, to 45.0 in August from 53.9 in July. Given tomorrow will see a GDP print in the order of 3% growth, we’ll also ignore this one.

Meanwhile, company profits rose over the June quarter by a greater than expected 6.9%, to be flat year on year. Manufacturing was the star performer with a 23% leap (See: PMI joke?) while mining chimed in with 14% thanks to the commodity price recovery. Construction fell 28% because the ongoing decline in resource sector construction out-weighed the residential construction boom.

The June quarter GDP remains on track to be over 3% (annual).

ANZ’s job ads series showed a solid 1.8% rebound in August after a weak July, to be up 8% year on year.

The RBA will meet today and do nothing, for the various reasons I outlined yesterday, and because Glenn Stevens is unlikely to do anything unexpected in his last statement.

Brexit Worries?

Caixin’s take on China’s service sector PMI showed a rise to 52.1 in August from 51.7 in July, in contrast to the official number. Japan still can’t take a trick – its equivalent fell into contraction at 49.6 from 50.4.

The eurozone saw a dip to 52.9 from 53.2 but the star of the show was the UK, which saw a jump back into expansion at 52.9 from 47.4. Once again we say Brexit Schmexit.

The US PMI is out tonight.

Commodities

Oil prices shot up by 5% at one point last night, in a thin market in the absence of the US, as it was reported the Saudis were set to make a “significant statement” at the G20 meeting. The assumption was an agreement between the Saudis and Russia to freeze production.

Prices soon retreated nonetheless when the announcement turned out to be one of agreeing to set up a working group to monitor the oil market. Led, one presumes, by Sir Humphrey Appleby. But West Texas crude is still up a net US87c or 2% at US$45.09/bbl.

Elsewhere, commodity markets were largely quiet in the absence of the US. In London, aluminium fell 1% and lead rose 1% but the other base metals moved little.

Iron ore fell US20c to US$58.80/t.

Gold is roughly steady at US$1326.70/oz.

The US dollar index is off 0.1% at 95.77 and the Aussie is up 0.2% at US$0.7584.

Today

The SPI Overnight closed down 20 points or 0.4%, probably suggesting yesterday’s bounce-back was a bit over-enthusiastic.

The last of the local GDP component releases is due today in the form of the June quarter current account, which includes the terms of trade.

As noted, the RBA statement will be released at 2.30pm today and the board will shoot off to the pub to toast Stevo.

There are a few more stocks going ex locally today.

Rudi will appear on Sky Business, via Skype-link, at around 11.15am to discuss broker calls.

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CHARTS

EHE JHC REG

For more info SHARE ANALYSIS: EHE - ESTIA HEALTH LIMITED

For more info SHARE ANALYSIS: JHC - JAPARA HEALTHCARE LIMITED

For more info SHARE ANALYSIS: REG - REGIS HEALTHCARE LIMITED