The Overnight Report: Positive Bent

Daily Market Reports | Feb 05 2019

World Overnight
SPI Overnight (Mar) 5876.00 + 39.00 0.67%
S&P ASX 200 5891.20 + 28.40 0.48%
S&P500 2724.87 + 18.34 0.68%
Nasdaq Comp 7347.54 + 83.67 1.15%
DJIA 25239.37 + 175.48 0.70%
S&P500 VIX 15.73 – 0.41 – 2.54%
US 10-year yield 2.72 + 0.03 1.23%
USD Index 95.84 + 0.26 0.27%
FTSE100 7034.13 + 13.91 0.20%
DAX30 11176.58 – 4.08 – 0.04%

By Greg Peel

On Your Marks

While the mass media has focused solely on the suggestion within the Hayne report of criminal charges to be laid, from an investor point of view it appears there are no bombshells that would send bank share prices crashing once more. At least not the Big Four.

Insurers, wealth managers and mortgage brokers seemed to cop the brunt, and the big banks have spent the best part of a year divesting of these businesses and redressing their evil ways. How to avoid risky-questionable loans? Don’t lend.

While Wall Street may have closed up 0.7% last night, the fact the local futures are up 39 points this morning hints that the rally in the banks that begun yesterday will kick on today. Yesterday saw the financial sector rise 1.0%, suggesting those hedge funds madly shorting the sector last week were trying to take profits ahead of the report release.

Not all financials were winners. AMP ((AMP)) fell -1.3% to a record low. IOOF ((IFL)) fell -4.5% after yet again reporting fund outflows.

The banks provided the bulk of the ASX200’s 0.5% gain yesterday with a bit of help from energy, up 1.3% on a 3% overnight rise in the oil price, and telcos, up 1.2% thanks to Telstra’s ((TLS)) 1.6% rise on reports of potential write-downs of the carrying value of the NBN.

The oil price also benefitted AGL Energy so utilities were up 1.6%, while it was finally time to take some profits in materials (-0.2%) now China is closed for the week.

The materials sector was also impacted by a -7.9% plunge for Boral ((BLD)) after the company issued a second profit warning.

Not all profit warnings are negative nonetheless. Ship builder Austal ((ASB)) decided not to wait to its earnings result release to “warn” of a profit upgrade. That stock jumped 7.5%.

It is timely that Boral chose yesterday to issue its warning. Building approval data for December came out yesterday showing an -8.4% plunge when economists had forecast a 3.2% rebound following November’s -9.8% crash. Apartment approvals were down another -18.6% having fallen -18.8% in November. Overall approvals are down -23% year on year.

ANZ’s January job ads report provided no respite either. Ads fell -1.7% when a 0.8% rise was expected.

The next federal government may be getting a hospital pass.

Consolidation

Having recovered about half of what was lost in the plunge from the 2018 peak, Wall Street appears to be now in a consolidation phase. The Fed has done the right thing, providing comfort for investors, so now it’s over to ongoing US-China trade talks and the looming March 1 deadline.

In the meantime, the US earnings season is about half way through. The overall trend continues to be positive – 71% of S&P500 stocks reporting to date have beaten earnings estimates and 61% revenue estimates. Six of the eleven S&P sectors have averaged double-digit earnings increases.

Wall Street wobbled a bit from the open last night but gradually ground its way higher on earnings results in an otherwise dull session. Apple, Microsoft and Boeing led the Dow higher.

Google (Alphabet) has reported after hours and its shares are down -2.8% in the aftermarket as I write.

WTI crude fell back a percent last night so profits were taken in energy.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1312.90 – 4.20 – 0.32%
Silver (oz) 15.84 – 0.03 – 0.19%
Copper (lb) 2.74 – 0.05 – 1.81%
Aluminium (lb) 0.86 + 0.01 0.74%
Lead (lb) 0.95 – 0.01 – 0.61%
Nickel (lb) 5.82 + 0.23 4.15%
Zinc (lb) 1.27 + 0.04 3.01%
West Texas Crude (Feb) 54.78 – 0.57 – 1.03%
Brent Crude (Apr) 62.72 – 0.10 – 0.16%
Iron Ore (t) futures 86.65 – 0.35 – 0.40%

Copper’s -1.8% fall on the LME last night was attributed to the weak Chinese PMI readings out late last week. That makes sense. But what happened in nickel and zinc?

LME trading is usually subdued when the elephant is out of the room but with China closed metals markets do become decidedly less liquid. The jump in zinc last night was attributed to data last week showing a fall in Chinese production while nickel’s surge was attributed simply to a short squeeze.

It appears some profits were taken in iron ore.

West Texas crude traded to its highest level in 2019 intraday but was soon met by profit-taking after a solid run, attributed to the weak Chinese PMIs.

The US dollar finally rallied last night, allowing the Aussie to fall back -0.3% to US$0.7224.

Today

The SPI Overnight closed up 39 points or 0.7%. You can bank on it.

Service sector PMIs are due across the globe today/night.

Locally we’ll also see the all-important Christmas retail sales numbers along with the trade balance.

The RBA meets today.

Earnings results are due today from Janus Henderson ((JHG)), James Hardie ((JHX)), Navitas ((NVT)), Perseus Mining ((PRU)) and Shopping Centres Australasia ((SCP)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC ADELAIDE BRIGHTON Downgrade to Sell from Hold Deutsche Bank
AHY ASALEO CARE Upgrade to Outperform from Neutral Credit Suisse
AIZ AIR NEW ZEALAND Upgrade to Neutral from Underperform Credit Suisse
Downgrade to Underperform from Outperform Macquarie
CGF CHALLENGER Upgrade to Equal-weight from Underweight Morgan Stanley
DLX DULUXGROUP Upgrade to Outperform from Neutral Macquarie
ECX ECLIPX GROUP Downgrade to Equal-weight from Overweight Morgan Stanley
FMG FORTESCUE Downgrade to Sell from Buy UBS
GUD G.U.D. HOLDINGS Upgrade to Accumulate from Hold Ord Minnett
Upgrade to Buy from Neutral UBS
IAG INSURANCE AUSTRALIA Upgrade to Accumulate from Hold Ord Minnett
IGO INDEPENDENCE GROUP Downgrade to Underperform from Neutral Macquarie
MMS MCMILLAN SHAKESPEARE Upgrade to Overweight from Equal-weight Morgan Stanley
NAB NATIONAL AUSTRALIA BANK Upgrade to Equal-weight from Underweight Morgan Stanley
NCM NEWCREST MINING Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Hold from Accumulate Ord Minnett
NWL NETWEALTH GROUP Upgrade to Buy from Hold Ord Minnett
RIO RIO TINTO Downgrade to Hold from Accumulate Ord Minnett
SFR SANDFIRE Downgrade to Hold from Buy Deutsche Bank
SGF SG FLEET Downgrade to Underweight from Equal-weight Morgan Stanley
SIQ SMARTGROUP Downgrade to Equal-weight from Overweight Morgan Stanley
Downgrade to Hold from Add Morgans
SYD SYDNEY AIRPORT Downgrade to Underperform from Neutral Credit Suisse
WBC WESTPAC BANKING Downgrade to Underweight from Equal-weight Morgan Stanley

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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