The Monday Report

This story features CHALLENGER LIMITED, and other companies. For more info SHARE ANALYSIS: CGF

By Greg Peel

Well Resourced

It was a quiet session on Friday on the local market, netting out to a small gain for the ASX200 on a balance of strength in the resource sectors and weakness in the banks.

Another jump in the iron ore price, strength in the gold price and a bounce-back in oil prices due to the tanker attacks ensured the materials sector led the session with a 2.0% gain, backed up by energy with 1.7%.

Financials fell -0.8% to be the worst performing sector after the major banks began cutting deposit rates to maintain their margins, having cut mortgage rates.

At the individual stock level, miners dominated the top five ASX200 leaders and financials dominated the losers.

Challenger ((CGF)) fell another -6.5% as the fallout from a weak trading update continued. Regulators played their part, with AMP ((AMP)) falling -5.8% after APRA provided new directions on super licences and Afterpay Touch ((APT)) slid a further -4.3% on AUSTRAC scrutiny and despite the stock being promoted to the ASX100. IOOF ((IFL)) dropped -4.2% as analysts continued to question the meagreness of the fund manager’s RC-related remediation provisions.

Late in the morning Beijing provided a monthly data dump.

China’s industrial production fell to a 17-year low growth rate in May of 5.0% year on year, down from April’s 5.4% and missing forecasts of 5.5%. Retail sales rose to 8.6% from April’s 16-year low 7.2%, ahead of expectation, but the “beat” has been attributed to inflation rather than volumes.

Fixed asset investment grew by 5.6% year to date, down from 6.1% in April and missing forecasts of 6.1%.

The data, particularly the last number, only underscore an assumption Beijing will step up the stimulus. Any Chinese data now can be considered in such a context.

S&P/ASX also announced changes to its index components, effective this Friday. For the benchmark ASX200, ship builder Austal ((ASB)), Clinuvel Pharmaceuticals ((CUV)) and network services provider Service Stream ((SSM)) have been welcomed in, while Navitas ((NVT)), which is about to be acquired, Seven West Media ((SWM)) and graphite miner Syrah Resources ((SYR)) were shown the door.

Fed Watch

Volumes were notably low on the NYSE on Friday night and will probably remain that way at least until the Fed meeting this week, and perhaps until the June 28 G20 meeting. Investors are on the sidelines.

With regard the Fed, US retail sales rose 0.5% in May – short of the 0.7% predicted by economists but still a very solid number under current circumstances. The April gain was revised up to 0.3% from 0.2%.

Industrial production grew by 0.4% when 0.2% was forecast.

These are not numbers that help to strengthen the belief the Fed is set to cut, but there was no particularly adverse reaction in stocks. We await Wednesday night.

Shoppers may be spending but consumer confidence is on the wane according to the fortnightly poll taken by the University of Michigan. That index fell into pessimism at 97.9 from 100.0 last month. Maybe tariff fears are becoming evident.

To that end, 600 retailers, including the likes of Walmart and Target, delivered a joint letter to Donald Trump on Friday night to please drop the tariffs on China. Trump continues to tell his followers that China is paying the tariffs when everyone else is pointing out, including the 600 retailers, that the US consumer is paying the tariffs.

The stock grabbing most of the attention on the day was chip-maker Broadcom, which lowered its guidance due to the impact of tariffs and the Huawei ban. Analysts point out that while some companies have to date provided tariff-related guidance downgrades, the bulk of impacted companies are yet to pipe up and may not do so until next month’s earnings season.

Much to look forward to.

Wall Street is now in a holding pattern ahead of the aforementioned Fed and G20 meetings, and for good measure we can also throw in OPEC’s production meeting at the end of the month.

Commodities

The Chinese data didn’t do much to inspire metal prices. Clearly the same stimulus hopes aren’t evident at the LME.

Ongoing Middle East tensions are supporting oil prices.

If the Fed is set to become more dovish, the US dollar is not indicating such. The dollar index jumped 0.6% on Friday night with said tensions blamed. The Aussie countered with a 0.6% fall to US$0.6870.

The SPI Overnight closed up 8 points on Saturday morning.

The Week Ahead

The Fed statement is due on Wednesday night.

The minutes of the June RBA meeting are out tomorrow. More cuts ahead? The RBA governor also speaks on Thursday.

The Banks of Japan and England both hold policy meetings on Thursday.

New Zealand’s March quarter GDP result is out on Thursday.

US data this week include housing sentiment tonight, housing starts tomorrow and existing home sales on Friday. Friday sees the US flash an estimate of June manufacturing PMI, as will Japan, the eurozone and Australia.

The main Australian data point this week is March quarter house prices, but they are pre-everything that’s happened since.

Thursday brings the quarterly expiry of SPI futures and index options which can lead to inexplicable volatility on the day. The above-mentioned changes to the ASX indices become effective on Friday.

Coles ((COL)) and Link Administration ((LNK)) host investor days tomorrow and Goodman Group ((GMG)) on Thursday.

The Australian share market over the past thirty days…

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