The Monday Report

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By Greg Peel

Flat Finish

After a rock’n’roll week the ASX200 trundled to a relatively benign close on Friday of up 9 points. The result would have been more positive had it not been for selling in the banks.

Investors unsurprisingly ran from the additional bank levy to be imposed by South Australia. Of more concern to investors than the amount of money itself is the fear all the states might want to get their share of the pie, with the Western Australian treasurer already suggesting a state levy is an “attractive” idea that he will watch with interest ahead of the WA budget in September.

The banks duly fell -0.4% on Friday in a session which otherwise saw healthcare rise 1.4%, materials 1.0% and telcos 0.8% with all other sectors in the green bar utilities (-0.3%). Once again we are reminded of the market cap concentration of the big banks.

REITs were also soft within the financials index as fund managers look to raise funds to take up the Dexus Property ((DXS)) capital raising.

CSL ((CSL)) is having somewhat of a glory run at present, rising another 1.7% on Friday on news of US approval of the company’s hereditary angioedema drug. The healthcare heavyweight  has run up 11% in a fortnight.

Stronger commodity prices overnight prompted some buying in materials but a small recovery in the oil price could only translate into a flat session for energy after a soggy week.

With the index sitting at 5715 it’s fairly equal distance to a recovery of the 5800 resistance level or a break down through moving average support at 5665. Wall Street offered little in the way of a lead on Friday night. Oil again eked out a gain, base metals were mostly positive along with gold, while iron ore slipped.

The financial year ends on Friday so we may yet see some argie-bargie as fund managers attempt to window dress as others offload poor performers ahead of books close.

In the market proper, the FY17 result for Metcash ((MTS)) will be an interesting one today in the face of all that is going on in grocery and hardware.

Flat Finish

The Australian market finished down just over -1% for the week but Wall Street finished both Friday’s session and the week little changed. The Dow closed down -2 points while the S&P gained 0.2% to 2438 as the Nasdaq rose 0.5%.

Tech stocks remain the current driver while in the broader market, energy managed its first gain for the week as oil stopped falling, while healthcare took a breather after a strong few days following the release of the Senate draft proposal for a new healthcare bill, as it appears the new bill will lack full Republican support in the House.

US banks were in the frame as the results of the latest Fed “stress tests” were released. The market was not expecting anything sinister but the call that all 34 banks assessed had “strong” levels of capital that would see them continue lending through a severe recession was a relief nonetheless.

Not so relieving was the flash estimate of the Markit June manufacturing PMI, which showed a fall to 52.1 from 52.7 to mark its lowest level in nine months. I don’t believe this is the way Mr Trump saw things heading.

The result brought into focus a suggestion from St Louis Fed president James Bullard that the FOMC can afford to stop raising rates and wait and see how economic developments and Washington policy debates play out over the next few quarters. A fair call given the Citi “economic surprise” index has done nothing but head south since the March Fed meeting, and Trump’s fiscal agenda continues to drag on in time.

Bullard’s suggestion did not much affect US bond rates, with the ten-year shaving another basis point to 2.14%. Aside from being held down by interest rate differentials with Europe, Japan and co, the US bond market is not seeing much in the way of US inflation ahead.

Commodities

West Texas crude gained another US34c to US$43.12/bbl. Two sessions of consolidation suggests a bottom in this latest sell-off, at least for now.

Copper, lead and nickel all rose around 1% in London.

Iron ore fell -US50c to US$55.50/t.

The US dollar index dropped -0.3% to 97.30 allowing gold to rise US$6.60 to US$1256.60/oz and the Aussie to rise 0.3% to US$0.7566.

The SPI Overnight closed up 3 points on Saturday morning.

The Week Ahead

A further assessment of how the US economy is really travelling will be provided by this week’s data. Tonight sees durable goods orders and the Chicago Fed national activity index and on Tuesday it's Case-Shiller house prices, monthly consumer confidence and the Richmond Fed activity index.

Wednesday it’s pending home sales and trade and on Thursday the “final” revision of March quarter GDP will be released. Economists expect unchanged 1.2% growth. Friday brings personal income & spending, fortnightly consumer sentiment and the Chicago PMI.

Beijing will release official Chinese manufacturing and services PMIs for June on Friday.

It’s a quiet week in the lead-up to EOFY in Australia with private sector credit on Friday the only release of note.

In the local market, Metcash releases its profit result today. Thursday sees both the quarterly stock options expiry and a slew of stocks going ex-dividend, largely in the property/REIT sector but including Transurban ((TCL)) and Sydney Airport ((SYD)), which all up represents a lot of yield.

Rudi will appear on Sky Business on Tuesday morning, via Skype, to discuss broker calls around 11.15am. He'll re-appear in the studio twice on Thursday. First from noon till 2pm, then for an interview on Switzer TV between 7-8pm. On Friday he'll repeat the Skype cross, probably around 11.15am.
 

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