The Overnight Report: Lofty Heights

This story features BANK OF QUEENSLAND LIMITED. For more info SHARE ANALYSIS: BOQ

By Greg Peel

The Dow closed down -31 points or -0.2% while the S&P fell -0.2% to 2550 and the Nasdaq lost -0.2%.

Here we go again

When the local market wants to go down, it goes down, and we start talking about whether the ASX200 is set to fall through the bottom of the range. When the market wants to go up, it goes up, and we start talking about whether, this time, it might finally break out through the top of the range.

All last week the market went down, despite the futures calling it up every day, until last Friday. All the market has done this week is go up, despite the futures pointing down, and once again we’re knocking on the door of 5800.

Yet over the past two weeks, not a lot has changed. There’s been some movement, up and down, in commodity prices. There have been some individual stock stories. The Aussie has come off and then risen back again. There is no change to monetary policy. Most of the selling/buying over the period has been market-wide, and mostly on low volume. The low volumes have continued beyond the school holidays.

If the ASX200 fails to breach 5800 yet again, we can only conclude, yet again, that traders are driving this market and not investors.

Materials was the only sector not to finish in the red yesterday (-0.7%), thanks to the ever weakening iron ore price. Telcos are still struggling (+0.2%) and consumer discretionary (+0.4%) is a caveat emptor trade, but otherwise yesterday’s buying was again fairly uniform across sectors with most rising in the vicinity of 1%. The banks (+0.5%) lagged somewhat despite an earnings beat from Bank of Queensland ((BOQ)) but made up for it with market cap clout. Utilities outperformed with a 1.7% gain.

On the subject of banks, rumours of the death of the property investor appear exaggerated, at least for now. Despite APRA’s crackdown on investor loans and interest-only loans, the value of loans to investors rose 4.3% in August to be up 6.3% year on year. It was the biggest gain since November last year.

The value of loans to owner-occupiers rose only 0.9%, but is up 8.3% year on year. With state government stamp duty concessions now kicking in, the number of loans to first home buyers rose 14%. Australia’s thirty-somethings are starting to leave home.

The numbers go some way to alleviating fears of a looming property crash, albeit other data, such as this week’s house price numbers, indicate a clear cooling. The lending data likely added to the buoyant mood yesterday.

The futures are showing down -2 points this morning, as they were yesterday, which would suggest in the current environment we will see 5800 today. But it’s a Friday, meaning anything is possible.

Oh yeah, and it's Friday the Thirteenth.

Sluggish Start

The much anticipated earnings results from JP Morgan (Dow) and Citigroup hit the wires last night. Both posted earnings beats. The US results season is off to a strong start. Or is it? JPM shares fell -1% and Citi shares fell -3%.

Commentary points to weaker trading results within the numbers, with credit cards and mortgages providing the actual beat. But what could we have expected? Wall Street might be constantly hitting new highs but at a grinding pace and with negligible volatility. Bond yields have not gone anywhere much either. It was not a quarter bursting with opportunity for investment banks to clean up.

There is also the matter of a very strong share price run for both, and all US banks, leading into last night’s results. “Sell the fact” also likely came into play. Australian investors might be interested to know Domino’s Pizza US also reported last night and beat forecasts, and its shares fell -4%.

And interested to know that a women’s apparel chain you’ve probably never heard of, J.Jill, issued a profit warning and its shares are down -51%. J Jill has a large bricks & mortar presence and has been slow to adapt to online.

Analysts still believe this season will be yet another good one for S&P500 earnings, net of the impact of the hurricanes. The question is as to whether positive results can drive Wall Street any higher than it already is.

Meanwhile, the focus remains on just who might be the next Fed chair and it seems it won’t be Janet Yellen. From among the front-runners, Wall Street could cop either another dove or a raging hawk. Markets would be more at peace with a dove.

Commodities  

Iron ore fell again yesterday, but this time only by -US40c to US$57.40/t.

In London, zinc rose 1%, copper 1.5% and nickel 2.5% while aluminium fell -2.5%.

The pound had a pop last night on news the EU has offered the UK a conditional two-year membership extension. Can’t See Prime Minister Johnson going for that one. The US dollar index nevertheless managed to rise 0.2% to 93.10.

Gold is steady at US$1292.70/oz.

West Texas crude is down -US65c at US$50.66/bbl.

The Aussie is up 0.3% at US$0.7818 on the back of the housing finance numbers.

Today

The SPI Overnight closed down -2 points.

China will release its September trade data today.

The RBA will issue a Financial Stability Report.

The US will see CPI and retail sales numbers tonight, but major distortions are expected due to the hurricanes.

Keep a wary eye out for Jason.

Rudi will connect with Sky Business through Skype this morning, at around 11.15am, to discuss broker calls.

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The Australian share market over the past thirty days…

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