The Overnight Report: Time Out

This story features FORTESCUE LIMITED, and other companies. For more info SHARE ANALYSIS: FMG

By Greg Peel

The Dow closed down -28 points or -0.1% while the S&P was flat at 2473 and the Nasdaq gained 0.1%.

Rotation

The APRA-inspired bank rally kicked on from the bell yesterday as the slow movers piled in. Once again investors drew funds from the big miners, which have outperformed financials of late, and had an excuse to sell Fortescue ((FMG)) in particular. That stock fell -3.5% on the risk of having to pay native title compensation.

As the session wore on the early movers began taking profits in the banks and the rotation trade reversed to some extent, but the ASX200 remained fairly steady throughout the session after its initial pop. The banks closed up 1.3% and materials fell only slightly.

Energy was the winner on the day (1.4%) thanks largely to a solid production report and guidance upgrade from Santos ((STO)). That stock rose 8.3% on balance sheet relief.

On the other side of the ledger it was a day for “confession session” profit warnings and subsequent management harakiri as both Fletcher Building ((FBU)) and Myer ((MYR)) downgraded forecasts. Myer is one of the most shorted stocks in the market, but still managed to fall -10%. Ask not for whom the bell tolls.

Hanging over the stock market in general at present, and making offshore investors wary of getting in, is the strong Aussie dollar. Aussie strength was again fuelled yesterday by the June jobs report.

Early this year Australia’s steady unemployment rate looked like smoke and mirrors given all growth was in part-time jobs at the expense of full-time, making it easy to explain negligible wage growth. But over the last few months, that equation has reversed.

A net 14,000 jobs were added in June which, for the first time in God knows how long, was in line with expectation. But that number was split between 62,000 full-time jobs being added and -48,000 part-time jobs being lost. It was an “unequivocally robust” report, to quote CBA’s economists, who note that over the last four months, 178,500 full-time jobs have been added at the expense of 24,500 part-time.

The unemployment rate rose to 5.6% from 5.5% in May but only on a rise in participation. Hours worked rose, thanks to the full/part time switch. The only downer is the entrenched 8.8% underemployment rate, which will continue to affect a drag on wage growth.

The Aussie shot up on the release yesterday and hit US$0.7980 for a blink before the sellers jumped in. Everyone who was caught short at 78 is ready to go it again at 80. The Aussie is little changed over 24 hours at US$0.7957.

Breather

Amazon was at it again last night, without opening its mouth. America’s original, analog “Amazon”, Seers, announced it would sell its Kenmore brand on the America’s digital “Seers”, being Amazon’s, platform.

So all hell broke loose as usual. Seers shares soared and shares of competitor chains such as Home Depot (Dow) and Lowe’s tanked. The latter is still smarting from its disastrous incursion into Australian hardware.

US analysts are beginning to shake their heads in disbelief at the constant “Amazoning” of perfectly good companies that are not about to bite the dust just because Amazon’s shadow has moved over. Last night they were advising to buy Home Depot and Lowe’s on the dip.

Beyond the fun and games in retail, the oil price came off a bit and in general Wall Street decided to take a breather after hitting new highs all over the place again this week. The Nasdaq nevertheless managed another new record, if only just.

Microsoft hit a new all-time high before the closing bell last night before delivering a “beat” on its earnings result after the close. Forget office software, Microsoft now lives on its cloud services.

Also ensuring a quiet session last night was nothing new on the central bank front, despite much anticipation. The Bank of Japan left its policy in place as expected, although it yet again extended the time it expected inflation to return to 2%, while Mario Draghi was sufficiently vague about no change to ECB policy as to give nothing away.

No doubt he was under strict orders from the board.

That didn’t stop the euro from rallying further nonetheless, given Draghi was still upbeat about the European economy, as well he might be. The US dollar index is down another -0.6% at 94.27.

Commodities

The weaker greenback did not provide much support for commodity prices last night, beyond a US$3.00 gain for gold to US$1244.00/oz.

Iron ore’s little run hit a speed bump. It fell -US$2.20 to US$67.30/t.

Aluminium, lead and zinc were all slightly weaker in London while copper and nickel stood still.

West Texas crude is down -US30c at US$46.79/bbl.

Today

The SPI Overnight closed down -11 points or -0.2%.

The next 24 hours are somewhat rare in that there is absolutely nothing on the FNArena calendar (of things worth noting) for the period, locally or offshore.

We could be in for a very “Friday” Friday.

Rudi will connect with Sky Business through Skype later this morning and talk broker calls on the channel from around 11.15am.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms