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The Monday Report

Daily Market Reports | Apr 23 2018

This story features EVOLUTION MINING LIMITED, and other companies. For more info SHARE ANALYSIS: EVN

World Overnight
SPI Overnight (Jun) 5833.00 – 15.00 – 0.26%
S&P ASX 200 5868.80 – 12.20 – 0.21%
S&P500 2670.14 – 22.99 – 0.85%
Nasdaq Comp 7146.13 – 91.93 – 1.27%
DJIA 24462.94 – 201.95 – 0.82%
S&P500 VIX 16.88 + 0.92 5.76%
US 10-year yield 2.95 + 0.04 1.27%
USD Index 90.32 + 0.43 0.48%
FTSE100 7368.17 + 39.25 0.54%
DAX30 12540.50 – 26.92 – 0.21%

By Greg Peel

Nothing To See Here

As those not already on holiday in Australia set off ahead of the Anzac Day-punctuated week, volumes on the ASX200 fell to negligible levels on Friday. The market opened with a heightened level of disinterest and spiked mid-session briefly for some reason before disinterest levels surged once more in the afternoon.

Materials (-0.5%) saw some more unsurprising profit-taking following a strong week. Evolution Mining’s ((EVN)) major shareholder La Mancha quixotically announced a sell-down of its stake to 15% from 20% via a bookbuild at a -4.5% discount, sending Evolution shares down over -5%.

Mobile market aspirant TPG Telecom ((TPM)) announced new plan prices were going down, down, igniting a likely mobile pricing war of which analysts had forewarned. All of TPG, Telstra ((TLS)) and Vocus Group ((VOC)) lost ground on the day, making telcos the worst sector performer with a -1.0% drop.

The market does not see it as a positive for AGL Energy ((AGL)) if a NEG is agreed to at COAG, with the PM away at CHOGM, so it dragged utilities down -0.7%.

The banks were a little weaker again (-0.2%) as the AMP ((AMP)) CEO fell on his sword.

And that about sums up the day’s excitement.

Sour Apple

Two broking houses downgraded their ratings on Apple on Friday night after a ring-around of suppliers to the company led to downward revisions to iPhone X sales expectations. The downgrades served to exacerbate weakness in Apple shares that began earlier in the week when one Apple supplier cut its guidance for the same reason.

That cut led to weakness across the board of smartphone parts suppliers, including chip-makers. Apple’s -4% fall on Friday night impacted on all three major indices.

Meanwhile, the US ten-year bond yield continued to rise, up another 4 basis points to 2.95%. The rising ten-year yield is a double-edged sword, given higher rates are negative for most sectors other than financials but a major point of concern on Wall Street of late has been the flattening yield curve.

The spread between the twos and tens had dropped to as low as 40 basis points earlier in the week but gains in the ten-year have taken that back out to 50 basis points. That may be heartening, but 50 is still very tight and now even the Fedheads are weighing in on the argument, hinting that the next rate rise may have to be rethought were the curve to invert.

Last year commentators were writing off the flattening yield curve as a result of low European and Japanese rates weighing on US long bonds, given QE still reigns for those central banks as the Fed unwinds, but when the Trump Administration announced its huge budget deficit this year, economic concerns became domestically focused.

Stock markets typically take rate rises in their stride if the move is back to neutral, as it implies a strengthening economy. But the Fed’s rate rise plans are now worrying Wall Street given the flattening curve.

The bond market is thus impacting on the stock market even as earnings results continue to beat expectations. On Friday night it was the turn of General Electric (Dow). 

The WTI price dipped on Friday night but energy stocks fell more heavily. Not content to stir up trouble with Syria, Russia, North Korea and Iran, Trump has now decided to have a go at OPEC for keeping oil prices “artificially high”.

Trump is the latest in a long line of presidents who have complained about OPEC price-setting, none of whom managed to make any difference. The irony, nevertheless, is that Trump is yet to address the “terrible” deal Obama did with the Iranians, and we can only assume a not “terrible” new deal would mean a return to sanctions, which would include oil exports, which would push the oil price artificially higher still.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1335.20 – 10.10 – 0.75%
Silver (oz) 17.08 – 0.14 – 0.81%
Copper (lb) 3.15 + 0.01 0.38%
Aluminium (lb) 1.11 – 0.01 – 0.64%
Lead (lb) 1.07 + 0.02 1.46%
Nickel (lb) 6.63 – 0.18 – 2.68%
Zinc (lb) 1.45 + 0.00 0.25%
West Texas Crude (Jun) 68.10 – 0.23 – 0.34%
Brent Crude (Jun) 73.69 + 0.09 0.12%
Iron Ore (t) 66.85 – 1.45 – 2.12%

The Chinese have now realised that the de-listing of Nornickel products on the LME, as explained in last Thursday’s Overnight Report, did not represent the addition of the major Russian nickel producer onto the US sanctions list. Sanctions against Rusal have seen the aluminium rise spike 23%.

Hence nickel fell back on Friday night and aluminium has run far enough for the meantime.

Iron ore also slipped.

Rising US bond yields continued to push up the dollar index, up another 0.5%, which impacted on the gold price.

It also impacted on the Aussie which, now commodity prices have stalled once more, is down -0.8% at US$0.7671.

The SPI Overnight closed down -15 points or -0.3% on Saturday morning.

The Week Ahead

The focus is now heavily on US interest rates, alongside the ongoing earnings result season. There are a lot of US data out this week, but the highlight will be the first estimate of March quarter GDP due on Friday. Forecasts are for 2.2% growth, down from 2.9% in December.

Tonight sees a flash estimate of April manufacturing PMI, existing home sales and the Chicago Fed national index. Tomorrow it’s new home sales, house prices, monthly consumer confidence and the Richmond Fed index.

Thursday brings durable goods orders and trade, and Friday it’s fortnightly consumer sentiment, the Chicago PMI and the GDP.

The eurozone and Japan also flash PMIs today/night. The UK will also release its GDP result on Friday.

The ECB holds a policy meeting on Thursday and the Bank of Japan on Friday.

Australia’s March quarter CPI numbers are due tomorrow and the PPI numbers on Friday. Wednesday is the Anzac Day holiday.

On the local stock front, Mirvac ((MGR)) provides a quarterly update today and Asaleo Care ((AHY)) holds its AGM. Iluka Resources ((ILU)) and OZ Minerals hold AGMs tomorrow, Aristocrat Leisure ((ALL)) hosts an investor day and Beach Energy ((BPT)) and Fortescue Metals ((FMG)) provide quarterly production reports.

Newcrest Mining ((NCM)) and OceanaGold ((OGC)) deliver production reports on Thursday, Growthpoint Properties ((GOZ)) and GPT Group ((GPT)) provide quarterly updates, and Wesfarmers ((WES)) releases quarterly sales numbers.

ResMed ((RMD)) delivers its quarterly earnings result on Friday and Sandfire Resources ((SFR)) its production report.

Rudi is scheduled to appear on Sky Business on Tuesday morning, 11.15am via Skype, then again on Thursday, from midday till 2pm, and again via Skype on Friday, probably around 11am.

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CHARTS

AGL ALL AMP BPT EVN FMG GOZ GPT ILU MGR NCM RMD SFR TLS WES

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED

For more info SHARE ANALYSIS: AMP - AMP LIMITED

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: GOZ - GROWTHPOINT PROPERTIES AUSTRALIA

For more info SHARE ANALYSIS: GPT - GPT GROUP

For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED

For more info SHARE ANALYSIS: MGR - MIRVAC GROUP

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: SFR - SANDFIRE RESOURCES LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED

For more info SHARE ANALYSIS: WES - WESFARMERS LIMITED