The Overnight Report: Sell The Fact

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Greg Peel

The Dow closed up 70 points or 0.3% while the S&P rose 0.4% to 2416 and the Nasdaq gained 0.7%.

Corporate News

The futures said up 12 yesterday morning and the ASX200 immediately fell -20 points on the open. Whether this be one big sell order or the computers getting confused is unclear, but once the opening rotation had been settled the index set about rallying 40 points.

It was a real hotch-potch of sector moves yesterday suggesting no particular themes, aside perhaps from both resource sectors moving up on higher commodity prices. Materials (+1.1%) and energy (+1.0%) led the market up but energy may look a bit different today.

Elsewhere it was mostly about individual stock stories having their impact.

Westpac ((WBC)) sold two-third of its holding in BT Investment Management ((BTT)), or 19% of BT, at a -10% discount, with the intention of selling the remaining circa 10% in a year at a -12% discount. BT understandably fell -7% but Westpac recovered from early bank selling. Westpac now has a best-in-show capital ratio of 10.3% post sale.

ANZ Bank’s ((ANZ)) CEO sent out a letter to shareholders outlining the estimated cost of the bank levy, and calling upon the government to legislate for the levy to be fixed and unable to be raised in the future. Given the budget becomes legislation anyway, once passed, before being fiddled with each year, I’m not sure what difference it makes.

ANZ also wants a sunset clause built in, such that the levy is dropped once the budget moves into surplus, given this is supposedly the levy’s intended purpose. Good luck with that one.

Ansell ((ANN)) sold its condom business to the Chinese. Downsizing? The proceeds will be used for a buyback and Ansell shares rose 4%.

Aristocrat Leisure ((ALL)) also rose 4% following a strong result but there were no fun and games among the automotive names following a guidance downgrade from once can-do-no-wrong retailer Automotive Holdings ((AHG)). It fell -10%, blaming the weak economy in WA.

Utilities (+1.0%) was another good performer yesterday, having been sold off on Wednesday, yet telcos were flat. Industrials (+0.8%) also helped offset weakness in the consumer and healthcare sectors.

All up a mixed bag but an apparent attempt to conjure up some market strength. A quick glance at a one-month chart shows the index continues to have these fight-backs, but only to achieve successively lower highs. Not a good technical sign. By contrast, Wall Street continues to post higher highs.

Buy Online

Only a couple of weeks ago Wall Street was bemoaning rumours of the death of the bricks & mortar department store that were not so exaggerated. Iconic names like Macy’s and JC Penney trotted out dreadful earnings results and the retail sub-sector tanked as a whole.

Last night US consumer electronics company Best Buy reported earnings and its share price jumped 22%. Why? Because the company’s online sales jumped 22%. Similar familiar names in the space with an online presence rode on the coat tails and consumer discretionary was the best performing sector on the day.

If we think back to the sixties, what did a department store provide? A one-stop shop. Now the world is a one-stop shop.

OPEC delivered on its production cut extension at its meeting in Vienna. WTI plunged -5%. There are two elements to this, one would suspect. One is the obvious “sell the fact”, given oil prices have rallied strongly these past couple of weeks on growing rumours of such an outcome so once confirmed, it’s time to take profits.

But also as I mentioned this week, there was some speculation production cuts would not only be extended in time but in magnitude. They weren’t.

It must be a tad frustrating for the Saudis to see a -5% fall when the whole idea is to prop the price up, but once the short-term traders clear out, we’ll see where oil goes from there.

And we'll see where the US rig count goes. Suffice to say, energy was the worst performer on Wall Street last night.

The S&P500 hit another new all-time high, as did the Nasdaq. The race is on between Google (Alphabet) and Amazon to reach the US$1000 per share mark, with Amazon almost there. At US$1030, Jeff Bezos would eclipse Bill Gates as the richest man in the world.

The Dow isn’t quite back at its high and the Russell small cap went nowhere. This worries commentators. These new highs are being driven by only a small big cap cohort, mostly Big Tech. The wider market is not participating.

Volumes were nevertheless light on Wall Street and set to get lighter tonight ahead of the Memorial Day long weekend – the unofficial start of summer. The VIX has fallen back under 10.

Be afraid.

Commodities

West Texas crude is down -US$2.65 at US$48.68/bbl.

The US dollar index rose 0.2% to 97.21, boosted by weakness in the pound as the UK posted March quarter GDP growth of only 0.2% following a stellar 2016. Brexit beginning to bite?

Gold is down -US$3.20 at US$1255.40/oz.

Base metals were all flat to positive, but only minimally so, reversing the small falls of Wednesday night.

Iron ore fell -US50c to US$58.80/t.

The Aussie has dropped -0.6% to US$0.7455 which might easily be blamed on the oil price, although much of the fall preceded the OPEC announcement. Weak domestic retail numbers are starting to signal Australia’s GDP may be headed in the same direction as the UK.

Today

The SPI Overnight closed down -3 points.

The US will see the first revision of its March quarter GDP tonight, and hopes are for a result better than the initial 0.7% estimate. Durable goods data are also due.

After a busy week, the Australian corporate calendar is decidedly blank today.

Rudi will connect with Sky Business through Skype at around 11.15am to discuss latest broker moves.
 

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