Daily Market Reports | Jun 21 2018
This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS
| World Overnight | |||
| SPI Overnight (Jun) | 6194.00 | + 10.00 | 0.16% |
| S&P ASX 200 | 6172.60 | + 70.50 | 1.16% |
| S&P500 | 0.00 | 0.00 | 0.00% |
| Nasdaq Comp | 7781.51 | + 55.93 | 0.72% |
| DJIA | 24657.80 | – 42.41 | – 0.17% |
| S&P500 VIX | 12.79 | – 0.56 | – 4.19% |
| US 10-year yield | 2.93 | + 0.04 | 1.21% |
| USD Index | 95.12 | + 0.12 | 0.13% |
| FTSE100 | 7627.40 | + 23.55 | 0.31% |
| DAX30 | 12695.16 | + 17.19 | 0.14% |
By Greg Peel
New High
It was another astonishing performance for the local market yesterday which, finally, took the ASX200 to a new post-GFC high. It will still take another 9% to get to a new all-time high nonetheless, despite Wall Street having doubled in the same time frame.
Of course that comparison does not include dividends, and here Australia is king. Dividends appeared to be firmly in focus yesterday along with the kicker received from the technical breakout, and from a market apparently now in FOMO mode.
We could speculate as to what might have been if the telco sector had finished in the green as well yesterday, as was the case for all other sectors. But we’d also have to assume there is a correlation between the -4.2% plunge in telcos and the 2.3% leap in financials. Those who had been hanging on to their Telstra ((TLS)) shares in blind hope all this time finally gave up yesterday, and where can one go to replace that dividend yield?
Telstra announced a restructure and a radical change in pricing but did not address dividend guidance, leading the market to conclude that news would not be good. The extent of volume traded in Telstra yesterday suggests widespread capitulation.
In contrast, there’s been a lot of discussion this past week or so as to when it might be safe to go back into the banks. There remains risk to credit growth in a cooling housing market, and there remains the risk of tighter restrictions and possibly more fines thanks to the RC, but those yields are hard to ignore. And given the banks have all been having asset fire sales, those dividends are securely covered.
Financials thus led the buying spree. But it was market-wide buying, ex-telcos, with a preference for companies with offshore earnings. Even materials closed up 0.6%, despite falls in base metal and iron ore prices.
The Aussie continues to fall, down another -0.1% this morning, helping to fuel the rally. We are now in rarefied air on a technical basis. It is assumed that today the government’s corporate tax cuts will pass through the Senate – hardly an occasion of Trumpian significance, but positive all the same.
What could go wrong from here?
That’s a question nervously been asked on Wall Street.
Déjà vu?
The Dow posted its seventh straight loss last night but the S&P500 managed to sneak into positive territory as the Nasdaq rolled through yet another new high. New all-time highs were also booked by the US small cap, mid-cap and micro-cap indices.
Trade remains an issue on Wall Street and with the EU last night returning fire with its own list of tariffs, the big US industrials continue to falter, hence weakness in the Dow. Note that last night it was announced that after 111 years of continuous membership, General Electric will be omitted from the Dow, to be replaced by global pharmacy giant Walgreens Boots. Walgreens rose over 5% to mark its best day in years.
Meanwhile, the FANGs just keep on rising into blue sky. There is also a lot of strength in the US media space at present as consolidation leads to an M&A scramble. Following approval of the AT&T/Time Warner merger, the battle for 21st Century Fox assets between Comcast and Disney has heated up.
The weekly US crude inventory lottery produced a greater than expected shortfall, hence WTI crude rose almost 2% ahead of the OPEC meeting. The energy sector benefited.
The reality on Wall Street in 2018 is that any little stumble, most recently surrounding trade concerns, is a buying opportunity. The market always bounces back, and pushes higher. But as Big Tech leads the way, the inevitable comparisons are being made with the late nineties.
Can we say, “This time it’s different”?
Observers are worried about a market multiple approaching 19x. Back in 2000, the market multiple was a bit of a furphy given dotcom start-ups that were trading on PEs of effectively infinity, given they were hailed as the new world companies and were yet to make a cent. Most no longer exist, with a couple of notable exceptions such as Amazon. Microsoft’s still there too, but Microsoft was already raking in Windows profits at the time.
There is also concern that Trump’s tax cuts are in effect a one-quarter wonder, given they have now been priced in. Others suggest the cuts are a gift that will keep on giving for a while yet. Expectations for US GDP growth in the June quarter remain near or above 4%, and Wall Street is beginning to believe this is not so crazy after all.
Maybe one justifiable fear is what happens if the US economy surges forward and leaves the rest of the global economy floundering in the wake?
Trade war issues are yet to be resolved, but Wall Street did see a little kick last night when Trump announced his capitulation on the issue of separating refugee children from their parents.
If this is a sign of more sensible pragmatism, maybe the same may transpire with regard trade.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1267.60 | – 6.80 | – 0.53% |
| Silver (oz) | 16.25 | – 0.02 | – 0.12% |
| Copper (lb) | 3.08 | – 0.03 | – 0.97% |
| Aluminium (lb) | 0.97 | – 0.00 | – 0.24% |
| Lead (lb) | 1.08 | – 0.01 | – 0.69% |
| Nickel (lb) | 6.74 | + 0.12 | 1.81% |
| Zinc (lb) | 1.38 | – 0.01 | – 0.84% |
| West Texas Crude (Jul) | 66.22 | + 1.16 | 1.78% |
| Brent Crude (Aug) | 74.21 | – 0.81 | – 1.08% |
| Iron Ore (t) | 64.25 | 0.00 | 0.00% |
It was domestic inventory numbers that drove West Texas crude higher last night, leaving concerns over the OPEC meeting to be reflected in the Brent price, reducing some of the yawning price gap.
Nickel finally found some buying last night in another mostly weak session for base metals, hindered by another increase in the US dollar. Uncertainties over copper miner pay disputes are providing for ongoing weakness in that metal.
Iron ore had a breather.
The dollar is weighing on gold, which is drifting down towards critical technical levels.
The Aussie is -0.1% lower at US$0.7370.
Today
The SPI closed up only up 10 points today, not the usual thirty-something.
New Zealand releases its March quarter GDP today.
The Bank of England holds a policy meeting tonight, but after last week’s run of meetings, no one much is interested.
Today is the quarterly ASX expiry of SPI futures, SPI options and ASX index options. Such days have the potential to produce a deal of volatility but it may be safe to assume that given we’re in clear air, most of positions are below the market.
Fletcher Building ((FBU)) hosts an investor day today.
Rudi will appear on Sky News Business from noon till 2pm today.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| BAP | BAPCOR LIMITED | Downgrade to Neutral from Buy | UBS |
| CCL | COCA-COLA AMATIL | Downgrade to Lighten from Hold | Ord Minnett |
| GUD | G.U.D. HOLDINGS | Upgrade to Neutral from Sell | UBS |
| IAG | INSURANCE AUSTRALIA | Downgrade to Hold from Buy | Deutsche Bank |
| MGR | MIRVAC | Downgrade to Neutral from Outperform | Credit Suisse |
| MQG | MACQUARIE GROUP | Upgrade to Overweight from Equal-weight | Morgan Stanley |
| SUL | SUPER RETAIL | Downgrade to Neutral from Buy | UBS |
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CHARTS
For more info SHARE ANALYSIS: FBU - FLETCHER BUILDING LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED