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The Overnight Report: Direction Unclear

Daily Market Reports | Nov 21 2017

This story features NETWEALTH GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: NWL

By Greg Peel

The Dow closed up 72 points or 0.3% while the S&P gained 0.1% to 2582 and the Nasdaq rose 0.1%.

Solid Platform

The computers slapped the ASX200 down -35 points from the opening bell yesterday. Why is unclear. If it was because Wall Street was down on tax concerns, we’d already played that hand on Friday. That’s why the futures showed only down -4 yesterday morning.

Selling was short-lived nonetheless, as humans stepped in to quickly push the index back up to be only a handful of points in the red, which is where it remained for the rest of the session.

The attention-puller of the day was the listing of wealth management platform business NetWealth ((NWL)), which hit the boards at a 43% premium over the IPO price. Platforms are the new black in the investment game, with Hub24 ((HUB)) having doubled since February and both it and NetWealth trading on dotcom boom multiples. This at a time the banks are looking to offload their longstanding traditional wealth management businesses.

And in response, AMP ((AMP)) is looking to unload its banking business.

Previously high-flying Baby Bunting ((BBN)) had investors spitting the dummy yesterday (-5.7%) after warning of increasing competition in retail, as we head into Christmas.

The banks came under pressure yesterday (-0.4%) as a Royal Commission looks ever more possible if Labor exploits the government’s missing members and potential Coalition member floor-crossers in the abbreviated final session of parliament.

Utilities (-2.0%) were suddenly taken to the cleaners without any individual news as an incentive, while telcos (+0.4%) and healthcare (+0.4%) held the fort.

The fact the index fell closer to 5900 and immediately saw buyers pile in yesterday again suggests we have a solid support level in place, barring anything from left field.

Yesterday ended as Friday had done – a bit of fannying about early as mindless computers played their games before the market settled into a mode of not really knowing what to do. One can feel the late-in-the-year ennui setting in, with summer holidays on the mind. The Christmas party season has already begun.

Now we just need Santa.

Ups and Downs

It’s been up, down and up again on Wall Street these past few sessions suggesting Wall Street, too, is struggling for a catalyst as earnings season comes to a close. Tax reform would be the obvious catalyst but probably not before year end.

There was concern around the world yesterday that the German stock market would not react well to news Angel Merkel had failed to form a coalition government, suggesting a return to the polls in the new year is possible. But the DAX actually rose 0.5%. The euro, nevertheless, took a tumble.

Given a recovering European market has been drawing funds out of the US this year, as US investors start to get the jitters over overvaluation, any tumble in Germany would likely benefit US stocks. But it wasn’t to be.

On the subject of overvaluation, growing in popularity on Wall Street is talk of what might just tip the market over. If the S&P500 does not manage to post a -3% pullback in 2017 it would be the first time since 1995.

High PEs are one bone of contention, as is historically low volatility and historically low yields that are set to rise. But perhaps drawing most attention is talk that “cracks are beginning to appear” in the high-yield corporate debt market. High-yield debt, which implies the debt of companies that are more risky than others, has been a popular investment in a low interest rate world and hence is now a crowded space. Companies have had little trouble in raising funds.

Many have issued debt simply to buy back shares, given low interest rates provide for a significant earnings per share boost. Ten years on and we’re back to talking about too much debt.

The other news of the day was President Trump’s designation of North Korea as a State Sponsor of Terrorism. North Korea was originally given such a designation by the US back in 1988 but it was later withdrawn in the hope of negotiating an end to the NK nuclear program. Clearly that hasn’t happened.

It’s nothing major, just another incremental tightening of the sanction screws on the US’ part. And Wall Street appears to shrug off Kim and his antics anyway, and nothing has happened now for weeks.

Which might actually be a cause for concern.

Commodities

The US dollar index is up 0.4% at 94.06 as the euro fell against the greenback. This meant Friday night’s gold rally has proven brief, with gold having fallen back -US$16.60 to US$1276.90/oz.

Base metals posted mixed moves in London, with only lead moving by more than 1%.

Uncertainty reigns in the oil market at present. Talk is that the Saudi King might now stand aside for his upstart Crown Prince, which is seen as a positive for the oil price. The Prince is keen to keep oil prices elevated so to support the planned partial listing of Aramco. This means extending production cuts through 2018.

Not so keen on that idea are Russian oil corporates. Russia has supported Saudi Arabia on production quotas to date, but the natives are getting restless over constrained production. West Texas crude is down -US54c at US$56.09/bbl. OPEC meets at the end of this month.

The Aussie is down -0.1% at US$0.7550.

Today

The SPI Overnight closed up 22 points or 0.4%. Suddenly we’re optimistic again.

The minutes of the November RBA meeting are due today.

Janet Yellen will speak tonight, but last night she announced she would not be continuing on as a Fed governor after January when she makes way for the new Fed chairman. She could have stayed until 2024. Trump now has another Fed position that needs filling.

On the local stock front, CYBG ((CYB)), Graincorp ((GNC)) and Technology One ((TNE)) report earnings today.

A2 Milk ((A2M)), Cabcharge ((CAB)), Monadelphous ((MND)) and Xenith IP ((XIP)) are among those holding AGMs.

Rudi will connect with Sky Business via Skype at around 11.15am to discuss broker views and upgrades/downgrades.

****

The Australian share market over the past thirty days…

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CHARTS

A2M AMP BBN GNC HUB MND NWL TNE

For more info SHARE ANALYSIS: A2M - A2 MILK COMPANY LIMITED

For more info SHARE ANALYSIS: AMP - AMP LIMITED

For more info SHARE ANALYSIS: BBN - BABY BUNTING GROUP LIMITED

For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED

For more info SHARE ANALYSIS: HUB - HUB24 LIMITED

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: NWL - NETWEALTH GROUP LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED