The Overnight Report: Orderly Retreat

Daily Market Reports | May 03 2019

World Overnight
SPI Overnight (Jun) 6330.00 + 9.00 0.14%
S&P ASX 200 6338.40 – 37.50 – 0.59%
S&P500 2917.52 – 6.21 – 0.21%
Nasdaq Comp 8036.77 – 12.87 – 0.16%
DJIA 26307.79 – 122.35 – 0.46%
S&P500 VIX 14.42 – 0.38 – 2.57%
US 10-year yield 2.55 + 0.04 1.63%
USD Index 97.84 + 0.19 0.19%
FTSE100 7351.31 – 33.95 – 0.46%
DAX30 12345.42 + 1.34 0.01%

By Greg Peel

And Back Again

What a difference a day makes. The local banks were all heroes on Wednesday following ANZ Bank’s ((ANZ)) not-as-bad-as-feared result and yesterday they were all being sold off again following National Bank’s ((NAB)) result.

What changed?

NAB’s earnings numbers were no surprise, a dividend cut had long been expected and NAB was only catching up to peers in announcing a further provision for remediation. Perhaps a sudden jump in loans in arrears was a warning bell, but at the end of the day, NAB shares only fell -0.3%.

ANZ fell -2.4%, wiping out Wednesday’s gains, Westpac ((WBC)) fell -2.6% and Commonwealth Bank ((CBA)) fell -0.8%. After two sessions it’s as if nothing ever happened. Maybe we can put day one down to short covering.

It didn’t get any better for the financials sector as a whole either. Seems money is flowing out of the major fund managers at a rapid pace, with AMP ((AMP)) falling -2.6%, IOOF ((IFL)) -5.2% and Pendal Group ((PDL)) a chart-topping -13%, all on weak quarterly funds flows. The sector as a whole fell -1.1%.

Materials (-0.7%) fell on weaker base metal prices across the board and despite a takeover bid announcement for lithium miner Kidman Resources ((KDR)) from Wesfarmers ((WES)). Kidman shot up 45% but is not in the ASX200. However, all battery-related boats were floated with Pilbara Minerals ((PLS)) rising 9.1%, Orocobre ((ORE)) 5.5% and Syrah Resources ((SYR)) 4.2% against the tide.

Note that all battery-related mining stocks are among the most shorted on the ASX.

Energy (-0.8%) had another bad session yesterday and it may get worse today, with oil prices down -3% overnight. Healthcare (0.5%) was the only shining light, putting in yet another slow-and-steady rally. Healthcare, staples and utilities all closed in the green, suggesting a defensive bias.

We note that at the time of writing, the Aussie has slipped under 70 – just. This provides support for the big healthcare names.

Interestingly, the futures are up 9 points this morning yet Wall Street is down again and oil prices have taken quite a tumble. Bearing in mind we’ve now gone -30, +50, -40 in three sessions, what might Friday bring?

Transient Reverberations

The retreat from new all-time highs that began on Wall Street late in Wednesday night’s session following Jerome Powell’s press conference continued last night, although it’s hardly a case of panic.

If we consider that the US energy sector was the biggest drag, and that was all about a -3% fall in oil prices, then the pullback is more orderly than aggressive. Oil prices fell on the usual weekly US crude inventory lottery. It came up with a big build.

An earnings-related -6% fall from Dow component Dow Inc (no relation), which is the old Dow Chemical, which spun off from DowDupont after a merger, also helped add to weakness in the industrial average.

The Fed Chair used the words “transient” or “transitory” to describe low US inflation nine times in his press conference on Wednesday night, as counted by CNBC, rather driving home the assumption a Fed rate hike is not on the cards. Indeed, talk has now swung back as to when the Fed might hike again.

US productivity grew by 3.6% in the March quarter, up from 1.3% in the December quarter. Following a long run of weak numbers, the March result was the strongest in more than four years.

Productivity growth (measured as GDP per man-hour) is somewhat of a Holy Grail for an economy, as it suggests economic growth without inflation. And as we know, current low US inflation is merely transitory.

In other economic news, US factory orders rose 1.9% in March after falling -0.3% in February, when a 1.5% increase was forecast.

So amidst a flip-flopping of US data from strong to weak in recent times, last night saw a double-positive.

If a trade resolution is nigh, and news can’t be too far off, then the whole picture may change rather quickly. A Fed rate hike may well be back on the cards. But how will Wall Street respond? With the earnings season now entering its long-tail wind-down, the scores are as good as in and the season has largely done its dash as a catalyst. New highs were hit, and a pullback has possibly begun, at least until the next catalyst.

And don’t think that after two negative sessions to start the month, “Sell in May” is not once again the catch-cry.

US jobs numbers tonight, to add more fuel to the Fed fire.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1270.40 – 5.90 – 0.46%
Silver (oz) 14.60 – 0.05 – 0.34%
Copper (lb) 2.83 – 0.05 – 1.75%
Aluminium (lb) 0.81 + 0.01 1.35%
Lead (lb) 0.85 + 0.01 0.76%
Nickel (lb) 5.51 + 0.01 0.18%
Zinc (lb) 1.29 – 0.02 – 1.37%
West Texas Crude 61.56 – 2.05 – 3.22%
Brent Crude 70.37 – 1.78 – 2.47%
Iron Ore (t) futures 94.60 + 0.05 0.05%

Falls in copper and zinc prices last night appear to have been driven by inventory builds.

The iron ore price has stalled these past couple of sessions but China is back on board today.

Gold continues to slip as the greenback continues to track higher.

The Aussie is rummaging through the wardrobe to find flares and a paisley shirt, down -0.2% at US$0.6998.

Today

The SPI Overnight closed up 9 points.

US jobs tonight.

Japan remains closed.

Australia sees building approval numbers today, and most major centres release services PMIs.

Macquarie Group ((MQG)) releases its full-year earnings report today while ResMed ((RMD)) posts its quarterly.

Janus Henderson ((JHG)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ ANZ BANKING GROUP Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Hold from Add Morgans
Downgrade to Hold from Accumulate Ord Minnett
BHP BHP Downgrade to Neutral from Buy Citi
BPT BEACH ENERGY Downgrade to Sell from Neutral Citi
DHG DOMAIN HOLDINGS Upgrade to Neutral from Underperform Macquarie
Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Reduce from Hold Morgans
Downgrade to Hold from Accumulate Ord Minnett
FCT FIRSTWAVE CLOUD TECHNOLOGY Downgrade to Speculative Buy from Add Morgans
IGO INDEPENDENCE GROUP Upgrade to Outperform from Neutral Macquarie
Upgrade to Buy from Neutral UBS
MGR MIRVAC Downgrade to Lighten from Hold Ord Minnett
MGX MOUNT GIBSON IRON Downgrade to Sell from Neutral Citi
NUF NUFARM Downgrade to Hold from Add Morgans
OGC OCEANAGOLD Upgrade to Neutral from Underperform Credit Suisse
ORI ORICA Downgrade to Neutral from Buy UBS
PLS PILBARA MINERALS Upgrade to Hold from Lighten Ord Minnett
RBL REDBUBBLE Downgrade to Reduce from Add Morgans
REA REA GROUP Downgrade to Lighten from Hold Ord Minnett
RRL REGIS RESOURCES Upgrade to Hold from Sell Deutsche Bank
Upgrade to Neutral from Sell UBS
SCG SCENTRE GROUP Downgrade to Neutral from Buy UBS
SUL SUPER RETAIL Downgrade to Neutral from Buy UBS
SXL SOUTHERN CROSS MEDIA Downgrade to Neutral from Buy UBS
SXY SENEX ENERGY Downgrade to Neutral from Buy Citi
VHT VOLPARA HEALTH TECHNOLOGIES Downgrade to Lighten from Buy Ord Minnett

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

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