The Monday Report

This story features NINE ENTERTAINMENT CO. HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: NEC

World Overnight
SPI Overnight (Dec)	5803.00	– 51.00	– 0.87%
S&P ASX 200	5895.70	+ 11.90	0.20%
S&P500	2767.13	+ 38.76	1.42%
Nasdaq Comp	7496.89	+ 167.83	2.29%
DJIA	25339.99	+ 287.16	1.15%
S&P500 VIX	21.31	– 3.67	– 14.69%
US 10-year yield	3.14	+ 0.01	0.26%
USD Index	95.22	+ 0.21	0.22%
FTSE100	6995.91	– 11.02	– 0.16%
DAX30	11523.81	– 15.54	– 0.13%

By Greg Peel

Buyers Emerge

After a week in which the ASX200 lost around -4.7% and over -300 index points, buyers decided from the open on Friday that enough was enough. We recall that the local market had already seen two weak sessions early in the week as Wall Street hung bravely on, before Wall Street’s capitulation sent our index down big-time on Thursday.

While the bulk of the selling experienced during the week had been market-wide, certain sectors were more beaten down than others, being those that had previously outperformed. They were the sectors most sought by buyers on Friday. Not all sectors enjoyed a bounce.

IT led gains with a 2.4% recovery, having been the hardest hit sector all week. Materials chimed in with 1.7% as the big miners recovered and gold miners went on with it following Thursday’s gold price surge. Healthcare (+1.0%) was another to enjoy a turnaround from heavy selling.

Energy had been an outperformer during the rout given oil price strength but on Thursday night oil prices caved in and on Friday the energy sector fell -1.5%. This also impacted on utilities (-1.1%), while nobody seemed to feel it was worth rushing back into telcos (-1.7%). The banks closed flat, which for them is a good day.

The consumer discretionary sector managed to bounce 0.4% despite some big moves down for stocks within.

Ahead of the release of the scheme booklet for its merger with Nine Entertainment ((NEC)), Fairfax Media ((FXJ)) provided a trading update noting revenues are down -5% in FY19 to date on the same period last year and cost cutting measures are ongoing. Fairfax shares fell -13.6%.

Given the bulk of Fairfax revenues are sourced from its remaining majority shareholding in Domain Group ((DHG)), the implication of the update is Domain is not travelling so well. Its shares fell -13.4%. It is suggested the Domain shareholding is the primary reason for Nine wishing to merge with Fairfax, so its shares fell -12.4%.

These three stocks were all on the podium of the ASX200 top five losers’ board on Friday. Just missing out on a medal was Nine rival Seven West Media ((SWM)), down -9.6% in sympathy.

On the winners’ board, Lynas Corp ((LYC)) gained 9.2% after fears the Malaysian government would move to shut down the rare earth miner’s processing plant eased. The minister at the centre of the fear – a longstanding critic of the plant on environmental grounds – has stood down from the planned review.

The next three spots on the winners’ board were taken up by gold miners, while Afterpay Touch ((APT)), after being slammed all week, came in fifth with a 7.2% rebound.

Chinese trade data released on the day sent mixed signals. Exports were up 14.2% year on year in September when economists forecast 8.9%, and China’s trade surplus with the US rose to be actually greater than China’s net surplus, meaning deficits were booked with other trading partners.

While it might seem like a relief, the fact is the numbers are so far continuing to reflect a rush to get in before the tariffs truly impact. Imports rose 14.5% year on year when 15.0% was forecast.

There may have been some expectation on Friday that Wall Street was shaping for a rebound on Friday night, and that’s what transpired. But was it enough? Without any clear overriding factor, the SPI futures closed down -51 points on Saturday morning.

Day Three

Wall Street played to script on Friday night. After a two-day rout, the buyers piled in to send the Dow up over 400 points from the opening bell. They were immediately slapped down again, such that the Dow was down -50 mid-session. At that point, the afternoon would prove critical.

Were traders to decide it was too risky to hold stocks over the weekend, and Wall Street went out on a Friday low, a major correction would have been in the offing. But no, the buyers regrouped, and Wall Street closed on a positive note. As was the case in Australia, the worst performers in the rout posted the greatest rebounds. Consumer discretionary, communication services and technology all led the sector gains, which together cover all of FANG and friends.

This was also evident in the Nasdaq rallying back 2.3% to the S&P’s 1.4%.

A lot had depended, on Friday morning, on the earnings report releases from all of JPMorgan (Dow), Citigroup and Wells Fargo. Those released were deemed positive, if not mind-blowing, but while Citi and Wells Fargo enjoyed 1% gains, JPM fell -1%.

Indeed, the financial sector was the worst performer in the S&P on the day, closing in the red along with utilities and REITs. Earnings may have been solid but the US ten-year yield is back at 3.14% from a previous intraday high of 3.24% and the yield curve has returned to flattening rather than steepening, as had been the case earlier in the week.

The S&P closed down -4.2% for the week, breaking a six-day losing streak. Despite Wall Street’s correction in February, the S&P had not seen a six-day losing streak since 2016.

The question is, of course, where to now? The text book shows that stock market rarely V-bounce out of a major down-move. There are exceptions (1987 being one) but typically there is a period of consolidation – maybe a couple of sessions – before a final leg down puts a bottom in place.

The balance of possibilities will no doubt come down to earnings results, which this week begin to pour in. More big banks and a lot of Dow names report this week. Earnings expectations are elevated, suggesting greater downside risk to responses than upside. The pullback seen last week may also provide the opportunity for companies to “talk down” their guidance, as it is always better to lower expectations then beat them.

So, that’s where we are. If the SPI futures are a barometer, it ain’t over yet.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1217.50	– 7.00	– 0.57%
Silver (oz)	14.58	– 0.02	– 0.14%
Copper (lb)	2.86	+ 0.02	0.68%
Aluminium (lb)	0.92	+ 0.01	0.59%
Lead (lb)	0.92	+ 0.05	5.72%
Nickel (lb)	5.71	+ 0.03	0.45%
Zinc (lb)	1.20	+ 0.00	0.34%
West Texas Crude (Nov)	71.34	+ 0.47	0.66%
Brent Crude (Dec)	80.43	+ 0.20	0.25%
Iron Ore (t) futures	70.49	+ 0.25	0.36%

Not sure what happened in lead, but base metals all had quietly positive sessions, as did iron ore and the oil.

Gold fell back somewhat after Thursday night’s surge.

The Aussie is down -0.2% at US$0.7109.

The SPI Overnight closed down -51 points or -0.9%.

The Week Ahead

US earnings will be the focus of this week.

At week’s end, China will report its September quarter GDP, along with the usual monthly data dump and following inflation numbers on Tuesday. The September trade numbers suggest the GDP result can only be considered cum-tariff.

The US will see retail sales numbers tonight, industrial production and housing sentiment tomorrow, and housing starts on Wednesday. Wednesday also brings the Fed minutes, while existing home sales are due on Friday.

Locally the RBA minutes are out tomorrow and the September jobs numbers on Thursday.

As the week progresses, the local AGM season begins to ramp up alongside the quarterly update season, which includes resource sector production reports.

Rio Tinto ((RIO)), Evolution Mining ((EVN)) and Syrah Resources ((SYR)) provide production reports today and Wesfarmers ((WES)) reports quarterly sales.

Rudi will appear on Your Money (the former Sky Business) today, 1-2pm, to take calls and respond to emails.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMC	AMCOR	Upgrade to Buy from Neutral	Citi
		Upgrade to Outperform from Neutral	Credit Suisse
JHC	JAPARA HEALTHCARE	Upgrade to Hold from Lighten	Ord Minnett
NVT	NAVITAS	Downgrade to Neutral from Outperform	Macquarie
RCR	RCR TOMLINSON	Upgrade to Hold from Lighten	Ord Minnett
WPL	WOODSIDE PETROLEUM	Downgrade to Underperform from Neutral	Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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.)

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