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The Overnight Report: Double Header

Daily Market Reports | Sep 21 2016

This story features KATHMANDU HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: KMD

By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2139 and the Nasdaq rose 0.1%.

Poised

It was a wild old opening on the local market yesterday as the ASX computers worked through the process of matching out orders left over from Monday’s abbreviated session. When the dust settled the ASX200 came out relatively flat but for one rather notable move in the telcos sector.

One consistent theme of the August results season was some big drops among those “new world” and often smaller names that had been bought up into overvalued territory, thus risking a stampede to the exits on even the slightest hint of disappointment. Yesterday TPG Telecom ((TPM)) underscored that theme with its out-of-cycle report.

TPG has been among the popular stocks of 2016, rising over 30%. Yesterday’s result was largely in line with forecasts but weaker guidance came as somewhat of a shock, and the stock plunged 21% to basically wipe out the year’s gains. Subsequently, the telcos sector was the worst performer on the day with a 2.6% drop.

Despite no one expecting any shocks from the minutes of the September RBA meeting, released late morning, the stock market still fell in response. Perhaps some were hoping that while the September statement provided no suggestion of an imminent rate cut, the minutes might. They didn’t.

The board reiterated that “the current stance of monetary policy was consistent with sustainable growth in the Australian economy and achieving the inflation target over time”. This conclusion does not rule out another rate cut, but provides no reason to believe there’s one around the corner.

The index nevertheless climbed back in the afternoon to a slight positive close. The only other sector to finish in the red on the day was energy, down 0.9% despite a flat oil price. Materials rose 0.7% on better metals prices. These two sectors have been playing topsy-turvy for the past few days.

From a technical perspective, the index struggled back to close just over 5300 – a nice springboard position to contemplate the impact of whatever happens over the next 24 hours.

The Bank of Japan will deliver its policy statement at some time today. The BoJ is not into standard release times, and if you go to its website the scheduled time of release is “undecided”. With Tokyo a couple of hours behind Sydney, we may still be in the dark on the close.

In a tale of two central banks, it’s a case of whether the BoJ eases or remains on hold and whether the Fed tighten or remains on hold. While markets are mostly convinced the Fed will do nothing, the BoJ’s track record of surprising and the fact it is known the board members are split down the middle means nobody really has a clue what today might bring.

One More Sleep

It is really quite tedious the way these quarterly Fed meetings have become major market “events” but unfortunately that’s the world we now live in. Wall Street was expected to be quiet last night and it stuck to the script.

There was some surprise when data showed US housing starts dropped 5.8% in August, when only the night before the housing sentiment index surprised to the upside. But the drag came from the south, which suffered extensive flooding in the month.

The Fed funds futures are pricing in around a 15% chance of a rate hike. On the other hand, there are still those sticking to their guns that the Fed is set to spring a surprise, notably Barclays, Bank Paribas and US bond guru Bill Gross, formerly of Pimco.

What is agreed upon is that were the Fed to indeed surprise, the market would not like it. Were it not to hike, the market will probably just bungle along again towards the election.

There is no more that can be said at this point.

Commodities

It was zinc’s turn to have a pop on the LME last night, rising 2.3%. Nickel kicked on its recovery with a 1.4% gain while copper rose 0.6%.

Iron ore was unchanged at US$55.30/t.

West Texas crude is up US12c to US$43.30/bbl.

Gold is again little changed at US$1314.60/oz.

The US dollar index is up 0.1% at 95.98 and with no sign of an RBA rate hike, the Aussie is up 0.2% at US$0.7553.

Today

The SPI Overnight closed down 9 points.

I think we’re all aware there are a couple of central bank meetings coming up.

Kathmandu ((KMD)) and Nufarm ((NUF)) will release earnings results today and Newcrest ((NCM)) is among a small group going ex.
 

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