The Overnight Report: Beginning Of The End?

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By Greg Peel

The Dow closed up 25 points or 0.1% while the S&P gained 0.1% to 2468 and the Nasdaq gained 0.2%.

Earnings Matter

The ASX200 shot up from the open yesterday in a familiar opening rotation spike, and just as typically it was back where it started at 11am. Then the session began in earnest, and earnings results provided the bulk of incentive.

Of the top ten ASX200 winners on the day, six reported on the day. The top ten losers included five reporters.

The big mover was the infamous retirement village operator Aveo Group ((AOG)), which rose 11% having posted an earnings beat and a promise to clean up its act. Rising 5-6% were ARB Corp ((ARB)), Origin Energy ((ORG)) and InvoCare ((IVC)), while Mineral Resources ((MIN)) and Woodside Petroleum ((WPL)) also made the board.

On the downside, Pact Group ((PGH)) stood out with a -6% loss, while lesser falls were experienced by Computershare ((CPU)), Seek ((SEK)), Seven West Media ((SWM)) and Vicinity Centres ((VCX)).

In a market in which companies which beat forecasts are struggling not to suffer profit-taking, and companies that miss are taken to the cleaners, it was a net positive day.

Sector-wise, energy stood out with a 2.7% gain helped by Woodside and Origin. Bounces from the previous day’s result misses for Domino’s Pizza ((DMP)) and JB Hi-Fi ((JBH)) saw consumer discretionary up 1.1%. The banks, which did not feature among the reporters, actually had a stand-out day in rising 0.5%, given Commonwealth Bank ((CBA)) went ex.

Add that back to the ASX200, and a 27 gain on the session becomes 40 points.

CSL ((CSL)) disappointed and led healthcare down -0.5% and Computershare knocked info tech down -1.2% while utilities, as I had flagged yesterday, reversed by -0.5% for whatever reason.

Outside of earnings results, yesterday’s news featured the June quarter wage price index, which rose 0.5% to be up 1.9% year on year, as expected. Adjust for inflation and real wages growth is zero. Public service wages are growing faster than private sector wages, which is a bit depressing.

CBA’s economists nevertheless believe we’ve now seen the bottom in wages growth. The minimum wage was increased from July 1, and the past three strong months of jobs growth must eventually inspire a lift in wages. We have the July jobs numbers today.

We have another big session of earnings reports to look forward to today with perhaps the highlight being Telstra ((TLS)), which was up 2% yesterday despite dividend cut speculation.

With Wall Street again relatively quiet overnight, a 12 point gain for the futures is backed by a big surge in metal prices. Outside of results, materials will be a major contributor on the local market today.

United We Stand

Donald Trump’s failure to initially condemn racist violence in Charlottesville prompted the first departure from the president’s business CEO council. Waiting two more days to make a seemingly half-hearted condemnation saw more CEOs walk out. Trump’s subsequent apparent recanting of that condemnation, again suggesting both sides are to blame, last night had all remaining CEOs agreeing to disband.

Trump then claimed it was he who had disbanded the business council, and the manufacturing council, to save any further embarrassment. It is not clear whose embarrassment he was referring to.

CEO councils do not run the government nor formulate policy. But they were there as the smartest minds in the room to be consulted on policy matters such as tax reform, trade and healthcare. They are there no more. What does this mean for the policy agenda going forward? Already Wall Street has waited eight months. Now tax reform, for example, seems to be fading into the distance.

The Dow was up around 90 points at lunchtime. Following the disbandment announcement it was back to square. Having fallen back on easing North Korea tensions, gold has again jumped over ten dollars. The US dollar index has fallen -0.4%.

Trump was all anyone could talk about last night in what traders agree was otherwise just another sleepy summer session. Hardly drawing any attention were the minutes of the last Fed meeting.

The two highlights of the minutes included the FOMC’s decision to put off an announcement regarding balance sheet unwinding until the next meeting. The market had already assumed September. The other was a discussion of just how stubbornly weak inflation was proving to be. While the FOMC is still working on the basis of one more rate hike this year, it is not a given.

Nor does the market believe it’s a given, with the chance of a December hike still priced at under 50/50.

The US ten-year yield fell -4 basis points to 2.23%. We can attribute the greenback’s fall to either Trump or the minutes or both.

Ultimately the Dow struggled back to close just above 22k once more. But direction from here is becoming increasingly uncertain.

Commodities

Base metal prices have their ups and downs but the general trend of late has been a drift higher. Last night that drift took prices to levels that triggered speculative momentum buying. The commodity funds piled in, climbing over one another.

Zinc rose 5.5% to a ten-year high. Copper rose 2.5% to a three-year high. Lead rose 5.5%, nickel rose 3.5% and aluminium rose 2%.

Iron ore did not participate. It fell -US60c to US$71.70/t.

Nor was oil in the basket. West Texas crude is down -US88c to US$46.80/bbl.

Gold is up US$11.70 at US$1282.80/oz.

The US dollar index is down -0.4% at 93.50.

Alas, a weaker greenback is not helpful for us downunder, and while strong commodity prices are, a 1.4% leap in the Aussie to US$0.7927 rather takes the gloss off.

Today

The SPI Overnight closed up 12 points or 0.2%. The 5800 level looms once more.

Lots more earnings reports today.

The July jobs numbers are due.

The US will see industrial production tonight.

Rudi might make a short appearance on Sky Business around noon today, via Skype.
 

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