The Monday Report

This story features ORIGIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: ORG

By Greg Peel

Back to Business

Apologies for a lack of Overnight Report on Friday morning. Please send your complaints to the NBN.

Friday’s trade on the local market carried on the theme of the week – steadily positive – although this time without any earnings results to evaluate. The result season came to a close on Thursday and the score, on FNArena’s Monitor, was a beat/meet/miss ratio of roughly a third/a third/a third.

I say roughly, as beats came in at 32.8% and misses 33.8%, or 99 to 102. By this metric it was the worst season since the Monitor began in August 2013, pipping August 2017’s 27% beats matching 27% misses. I’ll pull the numbers apart further in an article later this week.

In the meantime we might note that the ASX200 rallied 4.5% over the course of February.

It seems a lot of faith is still being placed in a US-China trade resolution. China’s official manufacturing PMI, released on Thursday, showed contraction at 49.2, below 49.5 forecasts. The Caixin independent measure released on Friday looked a little better at 49.9, up from 48.3 in January, but still in slight contraction.

I didn’t seem to matter much to the local market. Iron ore price remains elevated, so we’re all happy.

Most sectors finished in the green on Friday, including the banks (+0.5%) and healthcare (+0.7%). Energy (-1.4%) was hit by both Caltex Australia ((CTX)) and Origin Energy ((ORG)) going ex-dividend. Boral ((BLD)) and BlueScope Steel ((BSL)) also went ex, although a -0.4% fall for materials is more representative of that sector having a bit of a breather.

At the individual stock level, ongoing evaluation of earnings results was evident. Bellamy’s ((BAL)) surged 8.3% after having a flattish month, Afterpay Touch ((APT)) rose 6.1% and despite persistent volatility was up 21% for the month, and ARB Corp ((ARB)) added 5.4% to be up 10% for the month.

By contrast, Automotive Holdings ((AHG)) fell -8.3%, but was up 35% for the month. Not a bad performance in a supposedly dire car market. Caltex made it onto the top five losers board after going ex.

With the results all in attention now turns to those ex-divs, which will dominate the calendar from here on and provide a starting handicap for the index each morning. This week is indeed the busiest in terms of number of stocks, but ex-divs continue consistently through the month.

More Optimism

US-China trade negotiations may conclude in as early as two weeks’ time. This was the news on Friday night that had the Dow up over 200 points from the open.

News has it that US official are preparing for a summit between Presidents Trump and Xi at which a 150-page agreement could be signed. Yes, “could”. However Trump emphasised last week that he is willing to walk away from any deal if it didn’t meet his requirements.

With regard walking away, Trump has form.

While the trade news dragged Wall Street out of what had been a week of mild consolidation, economic news wasn’t quite so flash.

The US February manufacturing PMI came in at 54.2, below forecasts of 55.5. The number still implies expansion, but at the slowest pace since Trump was elected in November 2016.

Meanwhile, consumer spending dropped -0.5% in December to mark the first monthly decline since September 2016. This despite a 1% rise in incomes.

These are more delayed numbers, held over due to the shutdown. While the big drop in speeding appears to corroborate the very weak December retail sales result, also delayed, that everyone was shocked by, it is still in stark contrast to private sector figures. Economists have begun to believe the shutdown did more than just delay the numbers, it has distorted them, or somehow else stuffed them up.

It was also feared that if the weak retail sales number was indeed accurate, it would impact on the December quarter GDP result, but that came in at 2.6% when 2.2% was forecast.

So Wall Street awaits the January numbers, which are also delayed, because we’ve only just caught up to December.

The data releases took the gloss off the trade news, such that the Dow slipped back to close up 110. The S&P500 nevertheless closed above 2800 for the first time since November. This is the technical level the index had been banging up against all week, only to meet profit-taking. At 2803 it’s only just above, but resistance may now become support.

Commodities

The weak Chinese PMI numbers, followed by the miss on the US PMI, were blamed for WTI falling -2.5% on Friday night. Brent seemed to ignore the data but Thursday was expiry day so this might explain the discrepancy.

Despite the weak data, the US dollar index rebounded 0.3% after a soggy week. This proved all too much for the gold bulls, who finally bottled.

After a period of profit-taking, iron ore appears to be back in an upswing.

The Aussie is up 0.2% at US$0.7114.

The SPI Overnight closed up 18 points on Saturday morning.

The Week Ahead

It’s GDP week in Australia. The forecast is for 0.2% growth in the December quarter to 2.4% annual, down from 0.3% and 2.8% in September.

That result is out on Wednesday, and beforehand we’ll see constituent numbers for company profits and inventories today and the current account tomorrow, which includes the terms of trade.

Monthly data releases this week include building approvals today, the services PMI tomorrow and the construction PMI on Thursday along with retail sales and the trade balance.

The RBA meets tomorrow and the governor speaks on Wednesday.

The ECB meets on Thursday.

I’m not going to bother listing US releases as the calendar is basically out the window. We’ll review when they drop. We should nevertheless see the ADP private sector jobs report on Wednesday and non-farm payrolls on Friday.

On the local market there’s a very long list of ex-divs this week, as noted. Today’s list includes Amcor ((AMC)), Blackmores ((BKL)), Cleanaway Waste ((CWY)), Healthscope ((HSO)), InvoCare ((IVC)), Qantas ((QAN)) and REA Group ((REA)).

Rudi will appear on Your Money today, noon-2pm, and again with Peter Switzer, 7.30-8pm. He'll also appear on Wednesday, 2pm, to discuss the February reporting season.

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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