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The Monday Report

Daily Market Reports | Nov 28 2016

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

By Greg Peel

Drift Up

While a 22 point gain for the ASX200 is quite a positive session, brokers report the local market was deathly quiet on Friday, following no trading on Wall Street on the Thursday night. More of an upward drift than a rally of conviction.

Materials was again among the sector leaders on yet again stronger iron ore and base metals prices, rising 1.2%. But the stand-out theme on the day was support for the beaten-down yield stocks, which over the week saw some tentative bargain hunting. Telcos rose 1.2% and utilities 1.4%.

The only other sector to particularly bother the scorers was consumer discretionary, which rose 1.3% mostly thanks to a 7% jump for Tatts Group ((TTS)). Tatts announced it had entered into an equity swap deal for 10% of rival bookie Tabcorp ((TAH)), seen as a blocking stake designed to prevent a third party spoiling an eventual merger between the two.

While we’re on the subject of consumer discretionary, a word to the new owners of the Good Guys, who have been running saturation TV ads promoting “Black Friday” and Cyber Monday” sales. These are American events relating to Thanksgiving, the relevance to Australia of which is zero. If it’s not bad enough retailers have taken to the trough of Halloween, are they going selling us turkeys in November now as well?

Half Hearted

The irony of course is just as an Australian retailer attempts to find a new bandwagon to jump on, Black Friday and Cyber Monday have all but evaporated in the US, existing now in name only. Thanksgiving sales now stretch out for days.

In years gone by, the Friday half-session on Wall Street would be solely focused on the volume of foot traffic evident at US bricks & mortar retailers, and tonight would be all about the same but online. In last Friday night’s market reports, the focus was on the amount shoppers spent online on the day of the Thanksgiving holiday itself which, for the record, was up 13.6% on last year.

Friday night saw another quadrella record for the US stock market, with all the the Dow, S&P500, Nasdaq and Russell hitting new highs once more. The Russell small cap index posted its fifteenth consecutive positive session, a feat last achieved in 1996. The promise of reduced regulatory barriers and lower tax rates has seen the Russell outperform the larger cap indices since the election.

It was a typically quiet, low volume half-session which saw traders simply carry on the theme of the past three weeks. The Dow closed up 68 points or 0.4%, the S&P rose 0.4% to 2213 and the Nasdaq gained 0.3%. The month of November winds up this week, so we may see some further window-dressing early in the week.

December might be a different story. There is much talk now of a market having run about as far as it possibly could on an election win, and probably further.

Commodities

The US dollar index slipped back 0.3% to 101.48 on Friday night, which typically is supportive of commodity prices. But given commodity prices have rallied hard since the election in lockstep with the surging greenback, there’s no suggestion the dollar had anything to do with Friday night trading on the LME.

Lead jumped 6.8% — its biggest session move in five years. The impetus was a surprise fall in Chinese inventories held by the Shanghai exchange. Chinese lead stocks have declined by 62% since July. Low inventories held in Shanghai and London are not currently an issue for zinc, yet zinc jumped 3.7% on Friday night.

For zinc it is a matter of major mine closures and suspensions, which have pushed the metal up 77% in 2016 to an eight-year high.

Otherwise, aluminium slipped 0.7% on the LME on Friday night and copper and nickel were flat.

Iron ore was at it again, rising another US$2.30 to US$79.20/t. Will we see 80 tonight?

West Texas crude suddenly saw some sharp selling, falling US$1.96 or 4% to US$46.00/t. There was no specific impetus other than the suggestion shorts have begun building ahead of this week’s OPEC meeting, taking advantage of recent price rises to back a lack of agreement on a production freeze being reached.  If an agreement is reached, we will see a rather sharp short-covering rally.

Despite the pullback in the US dollar, gold was flat at US$1183.60/oz.

That pullback nevertheless has impacted on the Aussie, which was up 0.4% at US$0.7437 on Saturday morning.

The SPI Overnight closed unchanged.

The Week Ahead

All eyes will be on Vienna on Wednesday night as OPEC meets to attempt to nut out some sort of production freeze compromise. All year Saudi Arabia has said there will be no agreement if Iran doesn’t join in, and all year Iran has said it won’t join in given it has only just had global sanctions lifted. Now it appears the Saudis are prepared to grant an exemption to Iran.

And to Iraq, and Nigeria, and Libya, if needs be. Indeed, there’ll be so many hands up for exemptions one wonders how any sort of meaningful deal can be struck. We’ll see.

It’s jobs week in the US this week, but with the market pricing in a 100% chance of a Fed rate hike at the next meeting, it’s unlikely the usual attention will be paid.

Tuesday night in the US sees Case-Shiller house prices, monthly consumer confidence and the second revision of US September quarter GDP. Economists are forecasting a tick up to 3.0% from a previous 2.9% growth.

Wednesday it’s pending home sales, personal income & spending, the Chicago PMI and the Fed Beige Book, the latter also being fairly meaningless ahead of Donald Trump getting the keys. Thursday sees construction spending, chain store sales, vehicle sales and the manufacturing PMI, and Friday it’s non-farm payrolls.

Thursday is the first of the month which means manufacturing PMIs across the globe, with Beijing also providing China’s service sector PMI.

In Australia we’ll see building approvals, new home sales and private sector credit on Wednesday and September quarter private sector capex, monthly house prices and the PMI on Thursday. Friday it’s retail sales.

While there are a few late cycle AGMs remaining due for the local market in December, this week otherwise sees a late rush to get meetings out of the way by end-November.

ALS Ltd ((ALQ)) will report earnings tomorrow, followed on Thursday by all of Aristocrat Leisure ((ALL)), Collins Foods ((CKF)), Freelancer ((FLN)), SAI Global ((SAI)), SMS Management & Technology ((SMX)) and Touchcorp ((TCH)).

Sirtex Medical ((SRX)) will hold an R&D day today and CSL ((CSL)) will follow suit on Thursday.

This week we’ll be hearing much talk of the Italian referendum on constitutional reform, which is to be held on Sunday. A loss would be the first step towards Italexit.

Rudi will appear on Sky Business on Tuesday, via Skype, to discuss broker calls around 11.15am. He'll appear in the studio on Thursday, 12.30-2.30pm and use Skype again on Friday, around 11.05am, to discuss more broker calls.
 

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CHARTS

ALL ALQ CKF CSL FLN SMX TAH

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For more info SHARE ANALYSIS: CKF - COLLINS FOODS LIMITED

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For more info SHARE ANALYSIS: FLN - FREELANCER LIMITED

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For more info SHARE ANALYSIS: TAH - TABCORP HOLDINGS LIMITED