The Overnight Report: Another Pause For Thought

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By Greg Peel

The Dow closed up 5 points while the S&P lost a point to 2464 and the Nasdaq fell -0.1%.

Fade Out

There were two notable elements of yesterday’s trade on the local market. Firstly, it looked for all the world that traders would stick to the current script and push the ASX200 back up towards 5800 once more, because that is the way of things whether there’s good reason or not, but instead the initial rally faded in the afternoon and the gain was halved.

The second is that the leading sectors on the day were all defensives. Utilities rose 0.9%, telcos 1.7% and consumer staples 0.8%. A solid day for Telstra ((TLS)) reflected stats showing that company is dominating NBN sign-ups.

Typically as we surge towards the top of the range the defensives are sold, or at least left behind. Why the change of heart? The only two sectors to lose yesterday were energy (-0.9%) and materials (-0.2%). The banks were in the middle with a 0.5% gain.

It was also notable that of the group of stocks posting earnings reports on the day, only one made it into the top ten gainers of the day while four were among the top ten losers.

Before each reporting season there is a “confession session”, in which companies who realise their result will miss expectations warn ahead of time so as not to be flogged on the day of reporting. Often when the report comes out, it’s not quite as bad as had feared. That’s the trick.

What we rarely see is anyone “confessing” to a result that will beat market expectations. All the fun can happen on reporting day. But that’s what we saw from Domino’s Pizza – a guidance upgrade. And if you upgrade, you had better well at least meet if not beat that guidance or…or you may find your stock down -19% in disgust.

Domino’s actual result was only a slight miss, but it is a serial crime to miss recently upgraded guidance. It reflects very poorly on management. And then Domino’s posted FY18 guidance that was weaker than expected as well. Goodnight Irene.

Other disappointers yesterday were Flexigroup ((FXL)), which fell -5%, Challenger ((CGF)), down -4%, and Genworth Mortgage Insurance ((GMA)), down -3%. The one winner was dull old diversified property trust GPT Group ((GPT)), which rose 3.5%.

The range has once again held but yesterday’s afternoon selling, below the top of the range, provides little confidence in the ultimate break-out being to the upside. Nor does a shift into defensives, although recent history shows this can reverse just as quickly on any other day.

At least we now have Kim Jong-un “delaying” the thermo-nuclear obliteration of Guam. Maybe he has a cold and didn’t feel up to it.

The two faces of retail

US retail sales posted their best gain in seven months in rising 0.6% in July, ahead of 0.5% expectation. The weaker numbers for June and May were also revised upward. In response, the US dollar is 0.4% stronger and the US ten-year bond yield, which also responded to the North Korean “delay”, is up 5 basis points at 2.25%.

In response, Dick’s Sporting Goods fell -23%, Coach fell -15%, Advanced Auto Parts fell -20%, JC Penney fell -2% to mark the company’s worst five-day stretch in 45 years, and Home Depot (Dow) fell -2.7%.

To be fair, the first three posted earnings on the day. But what all these losers have in common is that they are bricks & mortar establishments. Amazon had only a flat day, it must be noted, but it’s hardly had a flat year.

The message is clear nonetheless. If you can’t make money when overall retail sales are healthy then what are you doing in retail?

Watching the retail sector provided the only interest for traders in an otherwise dull and lifeless session on Wall Street last night. Having posted strong gains on Monday night, the major indices ground to a halt. The Dow is sitting right at the 22k level.

And still the market waits for something – anything – to happen in Washington other than bellicose rants, implicit neo-Nazi support, and renovations at the White House.

Commodities

The “delay” was enough to send gold down another US$10.50 to US$1271.10/oz. The US dollar index is up 0.4% at 93.85.

Recent US dollar strength is quietly dragging the Aussie back down. It’s 0.4% lower at US$0.7821.

A mixed night in London saw aluminium and zinc up 1.5%, lead up 2%, copper down -0.5% and nickel down -1%.

Iron ore fell -US$2.00 to US$72.30/t.

West Texas crude is up US18c at US$47.68/bbl.

Today

The SPI Overnight closed down -5 points.

Commonwealth Bank ((CBA)) goes ex today, so the index will open with a handicap. Suncorp ((SUN)) also goes ex.

The local June quarter wage price index is due out today.

The minutes of the last Fed meeting are out tonight.

Today will be the biggest day so far in the local reporting season, but let’s not mention next week. Among the many today are CSL ((CSL)), Fairfax Media ((FXJ)), Origin Energy ((ORG)), Stockland ((SGP)), Westfield ((WFD)) and Woodside ((WPL)).
 

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