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The Monday Report

Daily Market Reports | Feb 19 2018

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

World Overnight
SPI Overnight (Mar) 5860.00 + 3.00 0.05%
S&P ASX 200 5904.00 – 5.00 – 0.08%
S&P500 2732.22 + 1.02 0.04%
Nasdaq Comp 7239.47 – 16.96 – 0.23%
DJIA 25219.38 + 19.01 0.08%
S&P500 VIX 19.46 + 0.33 1.73%
US 10-year yield 2.88 – 0.01 – 0.48%
USD Index 89.14 + 0.56 0.63%
FTSE100 7294.70 + 59.89 0.83%
DAX30 12451.96 + 105.79 0.86%

By Greg Peel

Friday Feeling

Friday saw the ASX200 open up 30-odd points before quickly dipping again, and thereafter drifting lower all session to a slightly weak close. The week’s action took us neatly from solid support at 5800 to settle at the mid-range stepping stone of 5900.

With the US set for a three-day break and a hundred points in the can after a period of disturbing volatility, it’s little surprise traders decided to square up on Friday and have a couple of days rest.

There was also the small matter of the Joyce Affair, which on Friday was threatening to split the Coalition.

Sector moves were mixed, with the week’s leading group of materials, energy and the banks easing off and consumer discretionary proving the worst performer with a -0.8% drop. This was countered by strength in healthcare and industrials, while utilities won the day with a 1.0% gain.

Results season was very much behind some of the sector moves. The micro is fighting to make its mark against the macro.

Healthscope ((HSO)) tumbled after its result on Thursday but bounced back 6.5% to win the session on Friday after brokers backed at least some better performance in the second half. Brokers were more keen on Breville ((BRG)), which kicked on another 3.9% on Friday after jumping post-result on Thursday.

Medibank Private ((MPL)) and Primary Health Care ((PRY)) both reported on Friday, enjoying 3.6% and 3.4% gains respectively to underscore healthcare’s positive session.

Star Entertainment went the other way on Friday following its report, falling -6.3% to top the losers’ board. IPH ltd ((IPH)) continues to be sold despite being sold off sharply post result, and was down another -6.1%. Ditto South32 ((S32)), which fell another -5.1%, as brokers questioned whether the company’s entire strategy needs to be revised.

Whitehaven Coal ((WHC)) also reported on Friday, and fell -4.5%.

Earlier last week I noted FNArena’s reporting season beat/miss ratio was running at a relatively healthy 1.4. By Friday that was back to 1.1. The lowest ratio recorded in the five years of the Monitor is 1.0, recorded last August, and the highest is 1.7, in February 2016.

However, so far only around a quarter of all the stocks covered by FNArena brokers (and reporting this cycle) have reported to date. There’s another week and a half to go, and this week is by far the biggest in the calendar.

By this time next week we’ll have a better gauge.

Long Weekend

If Australia was looking forward to a weekend break following some heightened volatility, the US was keenly looking forward to three days off after a period of complete mayhem. That mayhem did not abate on Friday night.

The Dow was up 230 points at its high, and down -50 at its low. It was up over a hundred points with ten minutes to go, and closed up 19.

Late selling no doubt represented squaring up ahead of the weekend. The big dip from high to low was triggered by the news of the indictments with regard the Russia probe.

The S&P500 closed square, with the Nasdaq a little weak. The Dow was aided by a 15% jump for US Steel, following an announcement the Trump Administration is looking at imposing significant tariffs on imported steel, and not quite as large tariffs on aluminium, in order to counter dumping by government-subsidised producers (i.e. China).

Having been down over -10% at its correction low, the S&P gained 4.3% last week to be 4.9% below its all-time high posted in January.

Commentators agree Friday’s closing level on Wall Street represents a point of balance. There remain those who were thinking of selling in January but didn’t, and those who were looking to buy on the dip but were too slow. It remains unknown what level of necessary selling remains with regard volatility products, margin calls and so forth.

Add it up and Wall Street could go up or down from here. Funny that. But all agree that the fundamentals do not suggest any reason why Wall Street should tank once more, it’s just a matter of what is a realistic valuation.

No doubt we will find out over the next couple of weeks. The US ten-year yield closed the week at 2.88%, a slight increase on the 2.85% that triggered the initial sell-off.

And on the subject of inflation scares, Friday saw the release of the US January producer price index.

At the headline, the PPI rose 0.4% having been flat in December, to take annual growth to 2.7% from 2.6%. Economists had forecast 2.5%.

Core wholesale inflation rose 0.4% having risen 0.1% in December, to take the annual rate to 2.5% from 2.3%. That’s the strongest annual rate since August 2016.

A rise in the PPI does not necessarily suggest a translation to the CPI, as it’s up to retailers as to whether or not they risk passing on higher wholesale prices to the consumer. But the PPI is another little piece of the “inflation appearing” story in the US.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1348.20 – 6.50 – 0.48%
Silver (oz) 16.66 – 0.20 – 1.19%
Copper (lb) 3.23 + 0.02 0.69%
Aluminium (lb) 0.99 + 0.02 2.27%
Lead (lb) 1.19 – 0.00 – 0.12%
Nickel (lb) 6.27 – 0.10 – 1.53%
Zinc (lb) 1.62 + 0.00 0.04%
West Texas Crude (Mar) 61.63 + 0.05 0.08%
Brent Crude (Apr) 64.90 + 0.35 0.54%
Iron Ore (t) 77.85 0.00 0.00%

It was another big move up for the US dollar index on Friday night, although moves of 0.5% or more in either direction have become standard since the volatility began.

While this had its impact on the Aussie – down -0.5% to US$0.7900 – there was not much response in commodity prices.

The only exception is aluminium, which jumped 2.3% in London on the US tariff news.

Note that with China still off, the iron ore price will likely remain unchanged until Thursday.

The SPI Overnight closed up 3 points on Saturday morning.

The Week Ahead

China remains closed until Thursday.

Wall Street is closed tonight.

US data releases this week include existing home sales and a flash estimate of February manufacturing PMI on Wednesday, and leading indicators on Thursday. The minutes of the last Fed meeting, due on Wednesday, will make interesting reading in light of the inflation scare.

Japan and the eurozone also release flash PMIs.

The highlight for Australia’s economic week will be Wednesday, when the first of the December quarter GDP component numbers are released, being construction work done and the wage price index.

Otherwise, it’ all about reporting season, with results coming so thick and fast this week it will be difficult to keep up.

Today’s highlights include Brambles ((BXB)), Domain Group ((DHG)), nib Holdings ((NHF)), oOh!media ((OML)) and Seek ((SEK)).

For the rest of the week’s reports, please refer to the FNArena calendar.

Rudi will appear on Sky Business on Tuesday, around 11.15am, via Skype to discuss reporting season, stocks and broker calls, and he'll likely do it again at around the same time on Friday.

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

(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)

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CHARTS

BRG BXB DHG IPH MPL NHF OML S32 SEK WHC

For more info SHARE ANALYSIS: BRG - BREVILLE GROUP LIMITED

For more info SHARE ANALYSIS: BXB - BRAMBLES LIMITED

For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED

For more info SHARE ANALYSIS: IPH - IPH LIMITED

For more info SHARE ANALYSIS: MPL - MEDIBANK PRIVATE LIMITED

For more info SHARE ANALYSIS: NHF - NIB HOLDINGS LIMITED

For more info SHARE ANALYSIS: OML - OOH!MEDIA LIMITED

For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED

For more info SHARE ANALYSIS: SEK - SEEK LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED