Daily Market Reports | Oct 20 2016
This story features TABCORP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: TAH
By Greg Peel
The Dow closed up 40 points or 0.2% while the S&P rose 0.2% to 2144 and the Nasdaq was flat.
Fun and Games
The local gaming sector has been very much in the spotlight this week. We saw the casino operators tumble earlier in the week on the news of the arrest of Crown Resorts ((CWN)) employees in China and despite a big initial plunge, and calls of oversold from analysts, Crown and its peers have seen ongoing weakness.
On the flipside yesterday, renewed talk of a merger between the old school tote betting agencies had Tatts ((TTS)) shares up 16% and Tabcorp ((TAH)) up 3% to net out to a leading 1.7% gain for consumer discretionary yesterday.
Otherwise most sector moves were fairly muted in a session that saw a bumpy rally from the open before plateauing out in the afternoon.
There was little excitement generated by China. September quarter GDP came in at 6.7% annual growth as expected and the September retail sales and fixed asset investment numbers were largely as forecast. Industrial production was slightly disappointing.
Perhaps of more interest currently is the Aussie dollar, which despite a Fed December rate hike now being widely expected just continues to track north. It’s up another 0.7% this morning at US$0.7717 which puts it around a technical level that suggests a break-up. We could be at 80 very soon.
The new RBA governor hasn’t helped by talking down the chance of another rate cut but this time around the stronger Aussie is not as ominous as it has been – not as much of a “complication” for the central bank. For this time the Aussie’s strength lends itself not to US dollar weakness thanks to a dovish Fed, crimping Australian economic growth, but to recoveries in the prices of oil, iron ore and especially coal.
So we’re seeing the Aussie run up for the right reasons, being expected improvement in the terms of trade as higher commodity prices flow through with their usual delivery lag.
So long as the Aussie doesn’t run so high as to kill off the revival in the local tourism. Tourism has been running second to a now wobbly housing sector in providing the “non-mining” offset to maintain Australia’s net positive growth. Australia now has to battle the UK as a preferred destination, where as long as you’re not a local you no longer need to mortgage your house to catch a Black Cab.
More Earnings Surprise
As the reports continue to flow, the surprise continues to be to the upside in this US earnings season.
Last night Morgan Stanley posted the last of the Big Bank reports and as has been the case with all of its peers, posted a beat. Smaller regional US banks have also been trotting out better than expected numbers. And last night was the turn of the first of the big oil services companies to report – companies that have suffered greatly through the oil price plunge just as has been the case for their peers downunder.
They, too, posted earnings beats. And it’s not just earnings. The seemingly entrenched post-GFC trend of lower revenues looks like it might be turning around. Net S&P500 earnings growth has swung to the positive at a 0.2% run-rate when an overall decline of 2% was forecast. Revenues are up a net 2.5%.
The other major driver on Wall Street last night was yet again oil. The Saudis continue to talk up the willingness of OPEC and non-OPEC members to join in a production freeze but in the meantime, the tipsters had expected a small rise in US crude inventories last week but instead there was a large drawdown. Thus WTI is up 2%.
Talk now is of oil trading in a US$50-60/bbl range going forward rather than the US$40-50/bbl range assumed previously. That’s enough to ensure positive cash flow for many a global oil & gas producer.
Yet despite an air of greater confidence creeping in, Wall Street is struggling to get excited. Dow up 40 is really neither here nor there when earnings reports are surprising and oil is looking strong.
Aside from calls of over-stretched valuations, Wall Street is no doubt looking ahead to all the near-term uncertainties – the election, the OPEC meeting, the Fed meeting. Not a great time to be rushing in if things don’t turn out as hoped.
And it is October after all. On that note, Happy Anniversary to those who remember.
This morning’s aftermarket earnings reports included American Express (Dow), the shares of which are currently up 5% and EBay, down 6%, and Barbie’s thrilled with a 5% jump for Mattel.
West Texas crude is up US98c at US$51.38/bbl.
The trend (or lack thereof) continues for base metals. Aluminium and nickel are down 1% and lead and zinc are up 1%.
Iron ore was unchanged at US$58.00/t.
The US dollar index was again flat, at 97.88, but gold continues to claw its way back. It’s up US$6.80 at US$1268.80/oz.
The SPI Overnight closed up 7 points.
Today sees the local jobs lottery and just after that release, there’s another one of those debates. The last, thank God.
There hasn’t been much discussion about it but the ECB holds a policy meeting tonight. Taper talk?
It’s a very busy day on the local corporate calendar today.
Brambles ((BXB)) and Westfield ((WFD)) are among those providing quarterly updates.
Ten Network ((TEN)) will release its earnings result.
Rudi will travel to Macquarie Park to appear on Sky Business, 12.30-2.30pm.
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