The Overnight Report: Earnings To The Rescue

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World Overnight
SPI Overnight (Dec)	5886.00	+ 32.00	0.55%
S&P ASX 200	5869.90	+ 32.80	0.56%
S&P500	2809.92	+ 59.13	2.15%
Nasdaq Comp	7645.49	+ 214.75	2.89%
DJIA	25798.42	+ 547.87	2.17%
S&P500 VIX	17.62	– 3.68	– 17.28%
US 10-year yield	3.16	– 0.01	– 0.22%
USD Index	95.07	+ 0.01	0.01%
FTSE100	7059.40	+ 30.18	0.43%
DAX30	11776.55	+ 162.39	1.40%

By Greg Peel

Relief

Having held its ground on Monday despite a dip on Wall Street – noting the ASX200 has fallen further in the October washout than the S&P500 – the local market was poised for a relief rally yesterday. But of course the computers had to make a big show of it.

Possibly seeking to inspire momentum, early buying saw the index up almost 50 points in the first 45 minutes despite the futures having provided no indication pre-market. It was a great opportunity for those who were caught in the headlights last week to sell.

Thus by lunchtime the index gave back -30 of those points before a more orderly rally took us through the afternoon.

The big banks and miners provided the bulk of the gains. With bank yields pushing ever higher on falling prices the temptation is strong despite all the sector is facing at present. A solid quarterly production report from Rio Tinto ((RIO)) turned that stock around, and dragged its stablemate with it.

Materials closed up 1.4% and financials 0.6%.

Aristocrat Leisure ((ALL)) is the heavy hitter in consumer discretionary and with the dust having settled, investors looked to the 13% compound growth rate in mobile gaming the company revealed at the Global Gaming Expo last week. Aristocrat rose 4.0% and the sector gained a standout 1.8%.

While there may have been buyers out yesterday looking for bargains they weren’t looking in the obvious places. The IT sector missed out, as did healthcare (CSL). This is in stark contrast, as we shall see, to last night’s rebound on Wall Street.

CSL ((CSL)) holds its AGM today so that may have been a reason to hold off, while, it’s possible investors are still shell-shocked and may need time to reconsider the volatile high-flyers.

Energy was also flat, in line with the oil price, as the US-Saudi game of “who shot the journo?” plays out.

It was a less than convincing session in terms of a market having bottomed, but given it occurred ahead of a rebound on Wall Street and not after one, positive nonetheless. We’ll see what happens today.

So far, so good

As of last night’s close, 41 S&P500 stocks had reported earnings and 88% had beaten forecasts to average around 25% earnings growth. This is the result Wall Street was expecting to see, and wants to see, and is hoping to see by the end of the month. It’s still early days, but at least the initial signs are good.

Last week three big banks reported strong results but in the context of the sell-off, failed to fire. It was a similar case with Bank of America on Monday night but last night, with Wall Street poised for a possible rebound after loud calls of “oversold!”, earnings beats from Goldman Sachs (Dow) and Morgan Stanley received the reaction one might otherwise expect.

Still, the financials sector remained the laggard in a session which saw every S&P sector closing in the green. Despite much talk of a switch from “growth” to “value” being a likely theme for the rest of the year, it was the same old names that drove indices higher last night – FANG and friends.

Healthcare had a strong session too but topping the list was technology, with communications services in third and consumer discretionary in fourth.

Speaking of discretionary, Netflix reported after the bell this morning and having been slammed last quarter on a subscriber growth miss, flipped that over in this quarter and hence is up 13% in the aftermarket.

That will make things interesting for tonight’s session. What was notable about last night’s session was that volume was much lower than was seen on the big sell-off days last week. This implies gains of 2% for the Dow and S&P and 3% for the Nasdaq was more about sellers having done their dash than buyers coming screaming back in looking for bargains.

There were other earnings highlights last night. Dow stocks Johnson & Johnson and United Healthcare enjoyed 2.0% and 4.7% rallies while Adobe, having reported after the bell on Monday night, leapt 9.5%.

But there were also some very solid US economic data releases for Wall Street to consider, adding to the more positive mood.

Industrial production rose 0.3% in September when 0.1% was forecast.

One data series that has crept into the spotlight of late is the Job Openings & Labor Turnover survey, or JOLTS report as it’s known. Job openings rose to 7.14m in August to a record level for a series that dates back to 2000.

What’s interesting is that the number of Americans registered as unemployed in August was 6.23m. So either a million of those open positions are for septic tank cleaners and rattlesnake catchers or the US unemployment rate is set to fall even further below 4%.

Two of Trump’s tweets stood out last night (well three really, but we’ll leave the other one alone): one hailing the JOLTS report and the other reiterating that he doesn’t think the Fed should be raising rates. What’s wrong with this picture?

Not all earnings reports have been great to date. IBM (Dow) also posted after the bell and its shares are down -4.6%. Reports will flow in thick and fast from here and barring any exogenous macro shocks from elsewhere, should determine whether Wall Street has now locked in a bottom.

It should be noted that last night’s rebound was to an extent supported by the fact both the US dollar and US ten-year yield did nothing untoward.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1224.30	– 2.20	– 0.18%
Silver (oz)	14.63	– 0.03	– 0.20%
Copper (lb)	2.82	– 0.04	– 1.41%
Aluminium (lb)	0.91	– 0.01	– 0.70%
Lead (lb)	0.93	– 0.01	– 1.51%
Nickel (lb)	5.66	– 0.10	– 1.73%
Zinc (lb)	1.19	– 0.01	– 1.11%
West Texas Crude (Nov)	71.83	+ 0.11	0.15%
Brent Crude (Dec)	81.34	+ 0.60	0.74%
Iron Ore (t) futures	70.58	+ 0.02	0.03%

A lower Chinese producer price index number reported yesterday has been blamed for base metal prices being uniformly weaker in London last night.

Otherwise, nothing to see.

The Aussie is up 0.1% at US$0.7139.

Today

The SPI Overnight closed up 32 points or 0.6%.

The minutes of the September Fed meeting are out tonight. Stand by for another Trump tweet.

Locally, BHP ((BHP)) and OZ Minerals ((OZL)) release production reports while CSL, Origin Energy ((ORG)) and Tabcorp ((TAH)) hold their AGMs.

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
EPW	ERM POWER	Upgrade to Accumulate from Hold	Ord Minnett
FXJ	FAIRFAX MEDIA	Upgrade to Outperform from Neutral	Credit Suisse
		Upgrade to Buy from Neutral	UBS
IRE	IRESS MARKET TECHN	Upgrade to Add from Hold	Morgans
JHX	JAMES HARDIE	Upgrade to Overweight from Equal-weight	Morgan Stanley
MHJ	MICHAEL HILL	Downgrade to Reduce from Hold	Morgans
NSR	NATIONAL STORAGE	Upgrade to Accumulate from Lighten	Ord Minnett
RCR	RCR TOMLINSON	Upgrade to Hold from Lighten	Ord Minnett
WES	WESFARMERS	Upgrade to Neutral from Sell	Citi
WPL	WOODSIDE PETROLEUM	Downgrade to Underperform from Neutral	Macquarie
WTC	WISETECH GLOBAL	Upgrade to Neutral from Underperform	Macquarie

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

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