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The Monday Report

Daily Market Reports | Nov 19 2018

This story features ALTIUM, and other companies. For more info SHARE ANALYSIS: ALU

World Overnight
SPI Overnight (Dec) 5739.00 + 17.00 0.30%
S&P ASX 200 5730.60 – 5.40 – 0.09%
S&P500 2736.27 + 6.07 0.22%
Nasdaq Comp 7247.87 – 11.16 – 0.15%
DJIA 25413.22 + 123.95 0.49%
S&P500 VIX 18.14 – 1.84 – 9.21%
US 10-year yield 3.07 – 0.04 – 1.41%
USD Index 96.47 – 0.52 – 0.54%
FTSE100 7013.88 – 24.13 – 0.34%
DAX30 11341.00 – 12.67 – 0.11%

By Greg Peel

No Traction

Our 11.30am seller was back at it again on Friday. At around that time the ASX200 was up 20 points but by lunchtime was down -10. The market fought back again in the afternoon but late selling had the index once again close as good as flat.

We continue to meander, just as Wall Street posts wild swings, but while Wall Street put together a couple of net gains late last week, the local market could not match it. The index finished down -3.2% for the week. The S&P500 closed down -1.6%.

We fall with Wall Street without question, but we struggle to follow a rebound.

Despite the flat close, only two sectors managed to close in the green on Friday. Materials (+0.7%) made a comeback after a week of arguably unjustifiable weakness, if commodity prices are the benchmark. This move provided the balance for all other sectors.

IT (+1.4%) was the other sector to close higher but doesn’t have the same market cap clout. For once, however, it was not simply about following the Nasdaq.

ASIC decided on Friday pay-day lending should not be included in the new credit licencing regime, thus Afterpay Touch ((APT)) jumped 10.3%. Altium’s ((ALU)) AGM update was worth 8.5%.

The bulk of the weakness was provided by the consumer sectors. Discretionary fell -0.8% after Myer ((MYR)) went into a trading halt following the apparent leak of September quarter sales numbers, which showed overall sales down -5.5%. Kathmandu ((KMD)) went ex but this accounted for only half of the stock’s -6.1% fall.

The fall in discretionary came despite G8 Education’s ((GEM)) ongoing comeback, up another 5.6%.

Staples continued the trend from Thursday in falling -0.8%. Wesfarmers continued to slide. The fall came despite an 11.9% winner-on-the-day performance from fruit & veg grower Costa Group ((CGC)) after it acquired a farm in Victoria. Rarely do we see an acquirer be the big mover in share price.

Sector moves elsewhere were less significant to negligible, but in this we note energy (flat) seems unconvinced about the hesitant recovery in oil prices, while financials (-0.1%) were not overly hurt as CYBG ((CYB)) followed the UK banks down on Brexit fears in falling -8.2%, to be biggest loser of the day.

At the macro level, the market seems unable to find a reason to buy, with too much going on in the world at the moment. Wall Street’s violent swings on that basis are reason enough to stay cautious. The futures closed up 17 points on Saturday morning after Wall Street staged yet another comeback on positive trade news, but we’ll see.

On the subject of trade, APEC failed to conclude with a joint communique in PNG despite the annual gathering being typically just a love-fest. It was never going to be the forum at which a US-China deal was going to suddenly be reached. Trump didn’t even bother to front.

Vague Trade

Star of the chipmakers in earlier 2017 and one of the stocks considered part of the extended FANG family, Nvidia, has soared over the past two years on the basis of the accelerating penetration of chips into everyday life, from the Internet of Things to autonomous vehicles, VR, AI and even crypto-mining. On Friday night the company reported earnings and fell -18%.

The crypto-mining craze is now over, apparently, just like yo-yos in the playground. Not that Bitcoin is dead, by any means, it’s just that the initial pandemonium has abated. And it also appears that by now, everyone who wants a smart phone has one. Chipmakers had already been under pressure in the October-November sell-off, so Friday night saw the market take no prisoners with Nvidia.

But the sector overall has now stabilised, with Intel (Dow) proving the week’s best performer on the Nasdaq.

More resignations in London meant the Brexit fear theme continued on Friday night. US industrial production rose 0.1% in October when 0.2% was forecast. Questions over Facebook’s management style had that stock down over -3%. Put it all together and Wall Street slid through the morning, to the point the Dow was down -140 points.

Then when interviewed in the Oval Office, Trump suggested that it may not be necessary to implement tariffs on the final all-in tranche of US$267bn of Chinese imports, implying negotiations were going well and Beijing is keen to make a deal, given they are the ones being hurt.

The Dow closed up 123 points.

Yet again Wall Street has responded to the rhetoric of a man known for spouting anything from the unlikely to the ludicrous. The White House later denied Trump’s comments meant any fresh progress on trade – indeed to date there remains no progress whatsoever – and it will all come down to the G20 meeting.

Wall Street took it anyway.

The US ten-year bond yield nevertheless fell -4 basis points to 3.07%. Safety trade? Brexit uncertainty? Or the fact more and more questions are being raised as to whether the Fed might be forced to ease off the accelerator in 2019?

The US dollar index fell -0.5%.

The S&P500 closed down -1.6% for the week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1221.10 + 7.50 0.62%
Silver (oz) 14.39 + 0.10 0.70%
Copper (lb) 2.79 – 0.02 – 0.75%
Aluminium (lb) 0.87 + 0.00 0.53%
Lead (lb) 0.89 + 0.02 2.72%
Nickel (lb) 5.13 + 0.04 0.71%
Zinc (lb) 1.21 + 0.01 1.22%
West Texas Crude (Jan) 56.68 + 0.44 0.78%
Brent Crude (Jan) 66.76 + 0.18 0.27%
Iron Ore (t) futures 74.99 0.00 0.00%

The drop in the greenback was positive for gold but mixed for metals, with copper and iron ore both easing back.

The oils posted a third session of tentative recovery.

The Aussie is up 0.3% at US$0.7305 on the greenback’s fall.

The SPI Overnight closed up 17 points or 0.3%.

The Week Ahead

It’s Thanksgiving week in the US, meaning all US markets are closed on Thursday, Friday sees only a half-session on the NYSE, and Wednesday afternoon sees Wall Street rapidly empty. It’s thus a week of disruption, with thinner volumes, which could mean either quiet sessions or heightened volatility.

Very much in focus will be retail sales, with “Black Friday” these days basically running all week, though the weekend and onto “Cyber Monday”.

Otherwise, US data releases this week include housing sentiment tonight, housing starts tomorrow, existing home sales, durable goods and consumer sentiment on Wednesday, and a flash estimate of November manufacturing PMI on Friday.

Clearly it will be a week in which Theresa May’s tenure is questioned.

In Australia, the only economic event of note will be tomorrow’s release of the RBA minutes.

The stock market will be busy again nonetheless, as the AGM season rolls on. It’s another long list this week, with Fairfax Media ((FXJ)) the highlight today.

Earnings results are due tomorrow from ALS ltd ((ALQ)), OzForex ((OFX)) and TechnologyOne ((TNE)), while CYBG will provide a quarterly.

Fisher & Paykel Healthcare ((FPH)) provides a quarterly on Wednesday.

Elders ((ELD)) goes ex today.

Rudi will appear on Your Money today, 1-2pm.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL AGL ENERGY Upgrade to Buy from Neutral Citi
AOG AVEO Downgrade to Underperform from Neutral Macquarie
Downgrade to Hold from Add Morgans
AST AUSNET SERVICES Upgrade to Equal-weight from Underweight Morgan Stanley
Downgrade to Neutral from Outperform Macquarie
FTT FACTOR THERAPEUTICS Downgrade to Reduce from Add Morgans
LLC LEND LEASE CORP Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Accumulate from Hold Ord Minnett
NST NORTHERN STAR Upgrade to Outperform from Neutral Macquarie
ORG ORIGIN ENERGY Upgrade to Buy from Neutral Citi
SCP SHOPPING CENTRES AUS Downgrade to Underperform from Neutral Credit Suisse
SWM SEVEN WEST MEDIA Upgrade to Neutral from Sell UBS
WOR WORLEYPARSONS Upgrade to Buy from Hold Deutsche Bank

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.)

(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

ALQ ALU CGC ELD FPH GEM KMD MYR OFX TNE

For more info SHARE ANALYSIS: ALQ - ALS LIMITED

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For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: ELD - ELDERS LIMITED

For more info SHARE ANALYSIS: GEM - G8 EDUCATION LIMITED

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For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: OFX - OFX GROUP LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED