The Monday Report (On Tuesday)

Daily Market Reports | Jan 29 2019

By Greg Peel

Friday

The local futures had suggested up 20 points on Friday morning without much of a lead from Wall Street but the ASX200 closed up 40 points, steadily rising in the morning before plateauing after lunch, as one might expect ahead of a long weekend.

Resources were the primary drivers from the outset, enjoying the benefits of steady commodity prices and a weaker Aussie, with energy closing up 1.2% and materials up 0.9%. There was also positive news out of China, if one considers ongoing PBoC stimulus as positive rather than dangerous. But the extra 20 points on top of the futures came largely from micro news over the morning.

Across The Ditch, the RBNZ announced an extension to the consultation period ahead of a proposed almost doubling of bank capital requirements set for later in the year. Consultation was expected to be complete by March 29 but that date is now May 3. All four Australian majors have fingers in the Kiwi pie, not just the obvious one.

Financials rose 0.4%. It might have been better had not AMP ((AMP)) fallen -7.9% after a further profit warning, including announced write-offs and restructuring charges and a reduction in the dividend. The foundering wealth manager did nonetheless confirm it would pay out the majority of its Life sale proceeds to shareholders.

The only sector to close in the red on Friday was healthcare (-0.5%), led down by a -12% plunge for market darling ResMed ((RMD)). The company beat on quarterly earnings but missed on revenues, and given its popularity was seen to be overvalued by analysts going into the result release. Not anymore. Now we can all get some sleep.

There had been much hope for investment platform “disruptors” as the old guard crashed and burned in the Royal Commission but it’s been a bumpy road, and not without regulatory issues. Netwealth ((NWL)) revealed a fall in funds under administration in the December quarter and was punished -9.5%.

Seems harsh. FUA flows were actually up 14% in the quarter and show me a fund manager who didn’t lose their shirt in the December stampede.

On the positive side of the ledger, mineral sands producer Iluka Resources ((ILU)) rose 9.1% following the release of its quarterly production report.

Super Retail ((SUL)) is also coming back from the brink (+5.2%) as bargain hunters continue to move into the auto-related space following a surprisingly positive update from car dealer AP Eagers ((APE)) earlier in the week. Consumer discretionary rose 1.0%. Anything auto had previously been sold down due to Australia’s Major Housing Crisis.

And then the market wrapped up for the long weekend.

Friday Night

Note that the prices in the table above reflect last night’s trade. On Friday night, the Dow closed up 184 points or 0.7% at 24737, the S&P rose 22 points or 0.8% to 2664, and the Nasdaq gained 91 points or 1.2% to 7164.

After spending most of the week in the doldrums, with the government shut down and Fed and trade meetings pending this week, Wall Street suddenly shot up from the open on Friday night. The Dow was up 300 mid-morning.

Commentators continue to point to solid earnings results but realistically it is not so much the results themselves driving optimism but positive tones emanating from accompanying conference calls with CEOs that have for the most part been upbeat about prospects in 2019. This has come at a time recession talk had become prominent as 2018 wound down with a very weak December quarter for markets.

Initial enthusiasm faded somewhat but the Dow hung on for a 180 point gain by the close. News from Washington mid-session had no impact.

The president has reached a deal with the Democrats to reopen the government for three weeks. The deal came after proposals from each side of the aisle were defeated in the Senate, as they had expected to be, begging the question why did they bother? Trump’s minders have no doubt warned the president each further day of the shutdown is likely a lost vote, so best do something.

It is not an end to the shutdown, just a ceasefire of sorts. It means workers will be paid, including lost back-pay. The fact that it is not a resolution meant Wall Street saw little reason to react, but then Wall Street has managed to rally strongly from the December low throughout the period of the shutdown, so it is not seen as a major issue.

Opinions have it that the shutdown would only start to bite on Wall Street, via lost spending, were it to go on and on. Economists to date are suggesting just a small impact on March quarter GDP, which is typically the weakest of the four quarters anyway, a lot of which has to do with snow.

Late 2018 had also brought much speculation as to whether the December Fed rate hike would represent the end of the central bank’s normalisation cycle for now, and whether 2019 would see rates on hold in the face of a global slowdown. But we recall that the Fed has been “double tightening”, by not only raising its cash rate but also reducing its balance sheet.


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