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The Monday Report

Daily Market Reports | Dec 12 2016

This story features AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

By Greg Peel

Party Time

Another day, another blow-up for a high PE growth stock, this time Sirtex Medical ((SRX)). The oncology biotech announced a 40% downgrade to guidance on Friday and copped a near 40% fall in share price in response.

It was an otherwise quieter day on the local market on Friday, more of a shuffle-about of sector positions following a solid rally rather than any market theme. We opened modestly higher and drifted through the afternoon. Last Friday and this coming Friday are your classic office Christmas lunch/party dates and as business starts to wind down for the year, less work and more frivolity is ahead.

Sirtex helped drag the healthcare sector down 0.6% but the biggest loser on the day was consumer discretionary, down 1.0%. Among the biggest individual stock losers on the day were the gambling names, led by Crown Resorts, which fell 5% on news authorities in Macau are looking to limit ATM withdrawals.

The leaders on the day were energy, up 1.1% on positive noises from Non-OPEC regarding OPEC’s production cuts, and the banks, up 1.0% because they are back in favour at present alongside their US counterparts.

Utilities also had a decent session, up 0.7%, as investors return to the sector to pick up some pretty decent looking yields following the long running sell-off. It must be said, nonetheless, it’s hard to find any stock analyst suggesting this sector is now a raging Buy on valuation given rising interest rate headwinds are set to persist.

Eyes on 20k

How far can the Trump rally run prior to the man actually taking office? Well all talk on Wall Street now is of Dow 20,000. Friday night saw the Dow gain another 142 points or 0.7% to 19,756, while the S&P rose 0.6% to 2259 and the Nasdaq added 0.5%.

The three major indices made new all-time highs every day last week, for the first time in five years.

It seems the US consumer is a Trump fan as well – probably hard not to be on promised income tax cuts. Michigan Uni’s fortnightly consumer sentiment gauge jumped 4.5% to 98.0, a mere 0.1 shy of the 2015 high which itself was the highest level for the gauge since 2004. Economists had assumed only a 95.0 result.

That was the good news for the day but realistically Wall Street just kept powering on because it is feeding on itself. Signs are that more retail investors are now moving in, providing the rally with greater depth.

For those investors already enjoying the rally, Friday night saw more of the week’s theme of buying up the sectors that had initially been left behind and easing off on the first movers. Again, REITs, utilities, telcos and consumer staples were primary drivers while industrials lagged. It’s not a full-on switch, otherwise Wall Street would not keep rising. It’s just a shift in focus on what to buy next. Leading the Dow higher on Friday night were the likes of Coca-Cola and Nike (both considered consumer staples in the US) which had previously been left at the starting blocks due to the surging US dollar.

The US dollar index was up another 0.5% at 101.06 and this is bringing into focus the dichotomy of large multinationals on the one hand, which face export headwinds thanks to the strong greenback, and small and mid-sized US companies that are domestically focused and thus currency ambivalent. The latter group is a bit of a waking giant post-election.

With the Fed meeting and press conference only days away, the US ten-year bond yield jumped another 8 basis points on Friday night to 2.46%. It’s now well over 100 basis higher than the 2016 low and yet the market is still only expecting a 25 point hike to the Fed funds rate.

The US banks and insurers are loving it.

Commodities

The US dollar should be providing headwinds for commodity prices as well but the trade-off is expectations of a stronger US economy, and as last week’s data suggested, an improving Chinese economy. Friday saw China’s November CPI come in at 2.3% annual, up from 2.1% in November, driven to a large extent by China’s housing boom and subsequent demand for household goods.

LME traders liked the numbers, and hence pushed zinc up 0.5%, aluminium and copper up 1%, lead up 2.5% and nickel up 3%.

More whiplash in iron ore – it fell US$2.30 to US$79.60/t.

And more growing expectations Non-OPEC, basically Russia, will join in with OPEC’s planned production cuts had West Texas crude up US62c at US$51.47/bbl.

Having held relatively flat over the week, Friday night saw gold capitulate to the rising greenback and surging US interest rates. It fell US$12.90 to US$1157.90/oz.

The Aussie, torn between strong commodity prices and the strong US dollar, is down 0.1% at US$0.7449.

The SPI Overnight closed up 23 points or 0.4% on Saturday morning.

The Week Ahead

The Fed policy statement is due out on Wednesday night. The FOMC will update its forecasts and Janet Yellen will hold a press conference. The focus for markets will be on any change in policy thinking post-election, or basically when will the next hike be. Wednesday night’s 25 basis point hike is assumed.

It’s also a busy week for US data releases. Wednesday sees business inventories, industrial production, retail sales and the PPI and Thursday brings the CPI, housing sentiment, the Empire State and Philadelphia Fed activity indices and a flash estimate of the December manufacturing PMI. Friday it’s housing starts.

Friday is also the quadruple witching derivatives expiry.

China will release November industrial production, retail sales and fixed asset investment numbers tomorrow.

In Australia we’ll see September quarter house prices tomorrow along with the NAB business confidence survey, followed by the Westpac consumer confidence survey on Wednesday. Thursday it’s the jobs numbers.

Thursday is also index derivative expiry day on the ASX.

Things are winding down now on the corporate front but there is still a handful of AGMs this week, most notably ANZ Bank ((ANZ)) and National Bank ((NAB)) on Friday.

Rudi will appear on Sky Business on Tuesday, via Skype-link, to discuss broker calls around 11.15am. On Thursday he'll appear between 7-8pm for the Switzer Report. On Friday he'll repeat the Skype-link at around 11.05am.

Rudi will also present twice this week. On Wednesday, starting at 7pm, he'll participate in a Christmas Special organised by the Chatswood branch of the Australian Investors Association (AIA). On Thursday, noon-1pm, he'll do his final presentation for the year on behalf of the Australian Shareholders Association (ASA) in Sydney.
 

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(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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