The Monday Report

This story features FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: FPH

By Greg Peel

Wall Street managed a mild rebound on Thursday night but it was all about bargain hunting in Big Tech stocks, which is not an Australian story. Instead, weakness continued from the open in the local market on Friday, sending the ASX200 down -30 points by midday.

The banks continue to lead the weakness, down another -0.8% on Friday. Between soft results and the bank tax, investors have decided there’s not a lot of joy in the space at present. But on the downside, yield will always provide a floor. The banks fell -3.4% over the week.

The index fell -1.9%, but not before a recovery on Friday afternoon to a close of only down -11. Leading the recovery were the miners, and throughout history it has often been the case of money switching back and forth between the Big Banks and Big Miners. With commodity prices lower but relatively stable, mining stocks appeared to be the recipient of cash from bank sales as materials closed up 1.0% on Friday.

Telcos also found support on yield, rising 0.5%, while the woes continue in the consumer staple space, with the supermarkets and Coke leading that sector down -0.7%. The mixed bag that is industrials was the worst performing sector on the day, falling -0.9%.

Today’s session should start on a brighter note, given Wall Street is slowly dismissing Trump issues and commodity prices were solid on Friday night. The futures closed up 26 points on Saturday morning.

Presumably the latest North Korean missile test will be overlooked.

Out of Sight, Not Out of Mind

Trump departed for Riyadh on Friday night and with him supposedly went last week’s controversy and impeachment concerns. Although the president will not be able to shake it all off too easily. The Dow was up almost 200 points with just under an hour to go when a couple of news stories hit the wires.

One revealed the “nut job” description by the president of the FBI director, and the other suggested investigations into the whole Russian saga had identified one particular connection with a White House official. The stories took some of the gloss off of what was otherwise a solid rebound.

The Dow closed up 141 points or 0.7% while the S&P gained 0.7% to 2381 and the Nasdaq rose 0.5%.

The energy sector led the charge on its own, non-Trump influences. OPEC has all but confirmed, ahead of this week’s meeting in Vienna, that participating producers will agree to the nine month production cut extensions put forward by Saudi Arabia and Russia. WTI jumped 2.4% to be back over US$50/bbl.

On the other side of the roundabout, the US weekly rig count rose on Friday for the eighteenth week in a row.

Wall Street was reminded that US quarterly earnings seasons are drawn out affairs, as two reports caught the market’s attention.

Well known machinery supplier Deere posted a beat, rising 7% and dragging competitor Caterpillar (Dow) up with it. Cat had enjoyed its own strong rally early in the season when it, too, beat estimates. The story of the day was a 15% rise for subscription SaaS company Autodesk, which lifted spirits in that particular space.

The attitude of many a trader is forget Trump, focus on earnings. They are the one bright light, given recent economic data releases have been to the weak side. And the 14% or so jump in earnings the S&P500 will book at season end cannot be attributed to Trump in any way other than sentiment, given he has achieved very little on significant policies in the March quarter.

Commodities

Doubts over China’s economic growth faded over the course of the week, and an injection of liquidity from the government eased concerns. Hence, traders in London suggested, base metals all had a good session on Friday.

A further -0.8% fall in the US dollar index to 97.12 also provided impetus for aluminium and lead to rise 1%, copper and nickel 2% and zinc 3%.

Iron ore rose US70c to US$61.70/t.

The weaker greenback also provided another boost for gold, which rose US$8.80 to US$1255.60/oz.

West Texas crude rose US$1.17 to US$50.51/bbl.

The Aussie rose 0.5% to US$0.7455.

The SPI Overnight closed up 26 points or 0.5%.

The Week Ahead

Trump is on his way to Europe now, which could be interesting. Wall Street is standing by for any new bombshells back in Washington.

The OPEC meeting, on Thursday night, will dominate attention this week with pre-meeting rhetoric suggesting a nine month extension is in the bag.

Wall Street will also be closely watching Friday night’s first revision of US March quarter GDP, with forecasts assuming an improvement from the first, disappointing 0.7% estimate.

Ahead of that result we’ll see the Chicago Fed national activity index tonight, new home sales and the Richmond Fed index tomorrow, and existing home sales, FHFA house prices and a flash estimate of May manufacturing PMI on Wednesday.

Wednesday also sees the release of the Fed minutes from the April meeting. Thursday it’s the trade balance and Friday durable goods orders, fortnightly consumer sentiment and the GDP revision.

In Australia we’ll see March quarter construction work done, on Wednesday, starting off the countdown to our own GDP result.

It’s a busy week for the local stock market.

Fisher & Paykal Healthcare ((FPH)) reports earnings today, Collins Foods ((CKF)), Ozforex ((OFX)) and TechnologyOne ((TNE)) tomorrow, ALS ((ALQ)) and Programmed Maintenance ((PRG)) on Wednesday and Aristocrat Leisure ((ALL)) on Thursday.

There will be several AGMs held across the week, including those of Challenger ((CGF)), OZ Minerals ((OZL)), Adelaide Brighton ((ABC)) and Alumina ((AWC)).

Woodside Petroleum ((WPL)), WorleyParsons ((WOR)) and AMP ((AMP)) will hold investor days and on Thursday, Suncorp ((SUN)) will provide a quarterly update.

Rudi will appear on Sky Business on Thursday at noon and on Friday, via Skype, at around 11.15am this week.
 

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