The Overnight Report: On Pause

This story features FORTESCUE LIMITED, and other companies. For more info SHARE ANALYSIS: FMG

By Greg Peel

Sideways

Yesterday’s was another session in which the ASX200 moved modestly, this time slightly down, and another session in which 6100 seems a bridge too far. Since February 7, the index has tracked dead sideways between the 6000 and 6100 levels.

Over that period, there’s been a lot of optimism but no new news on the global trade front. Up until yesterday, there had been very little news on the domestic macro front. The last two weeks have been all about local earnings results. Once again, in yesterday’s round, we saw plenty of wild swings in share prices.

Arguably the star of the day was Fortescue Metals ((FMG)). In any past result season a 5% jump for one of Australia’s bigger companies would be a standout, but not in today’s market. Despite having rallied hard on the back of the Brazilian tragedy and subsequent iron ore price spike, Fortescue kicked on with it yesterday on a stellar result and a special dividend.

The iron ore boats continued to float and the materials sector won the day with a 0.8% gain.

On the other side of the coin were consumer staples, which one does not often see down by as much as -2.5% in a day. How hard is it to sell groceries? Well, Coles ((COL)) is struggling, which in a two horse race can only mean the other horse is winning, but apparently not. Woolworths ((WOW)) fell -5.2% on its result.

Consumer discretionary fell -1.0% but aside from a mix of earnings results – Domino’s Pizza ((DMP)) fell -3% for example – this move was actually a reflection of the macro as much as the micro.

Australia’s wage price index rose by 0.5% in the December quarter, shy of 0.6% forecasts, to leave annual wage growth unchanged at 2.3%. Unemployment may be low by historical standards but wage growth is absent. This is not a good omen for consumer spending, nor for consumer loan demand, for example mortgages. The banks fell -0.5% yesterday.

It was the wage data that killed off an attempt by the ASX200 to break through the 6100 barrier yesterday.

In other individual results, Corporate Travel Management ((CTD)) silenced the critics with a 14.7% pop. Emeco Holdings ((EHL)) bounced 13.6% yesterday having fallen -24% on its result on Tuesday. Clearly, the analysts' briefing turned around confidence. Also, peer Seven Group ((SVW)), not to be confused with the similarly named TV channel, jumped 12.2%. Both Emeco and Seven Group are in the business of hiring out big Tonka toys to miners.

The news from China-dependent retailers has not been flash so far this season but a2 Milk ((A2M)) bucked the trend yesterday, and jumped 10.5%.

And just when you thought we weren’t going to see a twenty-percenter for the day, Lovisa ((LOV)) sparkled with a 20.1% jump, but is not in the index.

We might note that Bingo Industries ((BIN)) added another 13% in its comeback trail, with brokers calling the -49% on result crash overdone, but gee it’s a long way back.

The same can be said for Pact Group ((PGH)), which has been falling by double-digit percentages for days since its profit warning yet still managed another -17% loss yesterday on a suspended dividend.

McMillan Shakespeare ((MMS)) knows what that feels like so would have shuddered on a -12.8% fall yesterday, while the tech dream took a hit with WiseTech Global ((WTC)) losing -10.1% and Afterpay Touch ((APT)) -7.8%.

The IT sector (-1.5%) thus had a bad day, the coin came up tails for telcos (-1.2%) and utilities dropped -1.5% because AGL Energy ((AGL)) went ex-dividend .

It was a big day yesterday on the result calendar. Today is the biggest day.

Minutes Away

Wall Street was doing a whole lotta nothing last night right up to the release of the minutes of the January Fed meeting. The release sparked a sudden plunge, and then an immediate recovery. Some idiot computer must have misread the text.

Wall Street then closed pretty much where it had been all day.

The Fed minutes revealed the FOMC was split down the middle in January between those wanting to hold off on rate hikes unless inflation suddenly reared and those wanting to press on with hikes given a strong US economy. We now know the former camp won the argument, based on (a) a weakening global economy and (b) financial market conditions.

The latter has caused all sorts of consternation among market watchers. In short, the Fed decided to pause because Wall Street was tanking in December. A central bank is supposed to manage the economy, to which markets then respond, not respond to markets in deciding policy. The Fed is not meant to save Wall Street (we won’t mention the PPT).

Yet, all FOMC members agreed “quantitative tightening”, being the run-off of the Fed balance sheet, should be halted before year-end.

This is good news for Wall Street, albeit confirmation rather than revelation, and Jay Powell has fought back at suggestions the Fed was spooked by Wall Street, just as he insists a pause in rate hikes has nothing to do with the president breathing down his neck saying “Have you checked the children?”

Meanwhile, news on the US-China front is that there isn’t any. However, while there has been no concrete news either with regard trade with partners other than China, talk of new tariffs on the EU (specifically autos) and on Japan and South Korea is bubbling.

Stay tuned.

Commodities

US-China trade optimism continues to underpin commodity prices and last night copper reached a seven-month high, on news copper stocks are at a ten-year low ahead of the standard seasonal pick-up in Chinese demand.

Iron ore is lower but seems happy to bounce around in the eighties for now.

It was expiration day on the Nymex, driving WTI higher.

Little movement in currencies, the Aussie is flat at US$0.7168 despite the weak wage number.

Today

The SPI Overnight closed up 6 points.

Jobs numbers for January are out locally today. Globally everyone will flash their PMIs.

The delayed US December durable goods numbers are expected tonight.

Alumina ltd ((AWC)), Coca-Cola Amatil ((CCL)), Iluka Resources ((ILU)), Nine Entertainment ((NEC)), Origin Energy ((ORG)), Qantas ((QAN)), Santos ((STO)) and Wesfarmers ((WES)). These are a mere handful from the long list of companies reporting today.

Aristocrat Leisure ((ALL)) will hold its AGM.

JB Hi-Fi ((JBH)) goes ex.

The Australian share market over the past thirty days…

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

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