The Monday Report – 19 August 2019

This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH

By Greg Peel

Shell Shocked

A week of extreme volatility ended on Friday with an index barely moving all session. However, movements among individual sectors and stocks suggested it was not simply a quiet day, just one in which macro bombshells receded, allowing a greater focus on the micro.

Up until Friday the ramp-up in the local reporting season had been largely overwhelmed by global developments. But Friday provided the opportunity for investors to respond to earnings results in isolation. Winners were well supported and losers suffered only minor falls, with one exception.

Among the winners’ list on the day were Cochlear ((COH)), Domain Group ((DHG)), Healius ((HLS)) and Star Entertainment ((SGR)), all of which saw gains of 2-6%. The star was Baby Bunting ((BBN)), up 11%.

On the losers side, Newcrest Mining ((NCM)) and Michael Hill ((MHJ)) each fell around -1% on their results while Jumbo Interactive ((JIN)) provided the big fail, falling -15%.

Train wreck of the day was oOh!media ((OML)), which fell -27% after a trading update noted a big drop-off in advertising demand.

Topping the ASX200 leaders’ board was Credit Corp ((CCP)), up 13% after announcing an acquisition, while Super Retail ((SUL)) enjoyed a couple of broker upgrades to Buy post its Thursday result and jumped another 7.9%.

Breville Group ((BRG)) copped a broker downgrade on valuation and fell -10%.

Telstra ((TLS)) announced a plan to sell its phone exchange properties into a REIT, which led to a -2.6% fall for the stock, making telcos the worst sector performer on the day (-2.7%). Materials (-0.7%) and energy (-0.9%) posted the other major falls, on lower commodity prices.

It was left to the banks to provide the balance (+0.7%).

This week is the busiest in the local reporting season calendar but we remain on high alert from macro developments that could spring from almost anywhere, positively or negatively. Wall Street rallied on Friday night on hints the German and Chinese governments are ready to do what our government won’t.

The futures are up 41 points this morning.

Stimulate or Die

China’s state planner said on Friday it would introduce a plan to support disposable income from now and though 2020 to boost consumer spending. A German newspaper reported the government there will engage in deficit spending if necessary to ward off a recession.

President Trump said he expected the trade talks set for early September will still go ahead and he has scheduled a phone conversation with President Xi.

These bytes were sufficient to boost sentiment on Wall Street after a rough weak. The German ten-year yield was the first to turn, allowing the US yield to tick up a point to 1.54%.

Stock indices rallied, led by the banks. Any relief on yields is a positive for this beaten down sector.

Notably, the VIX volatility index fell a full -12% to 18, which puts it back under the fear trigger above 20. Wall Street relaxed somewhat. In the wash-up, the S&P500 closed down only around -1% for the week.

Yet there was some consternation when the fortnightly consumer sentiment index from the University of Michigan showed a fall to 92.1 mid-August from 98.4 at end-July. The number is at odds with surprisingly strong retail sales data of late and a general observation the US consumer is alive and well and driving the economy.

With central banks rather dominating proceedings right now, trade notwithstanding, Wall Street’s attention this week will be on the minutes of the July Fed meeting due on Wednesday night and the Jackson Hole central banker’s symposium which begins on the Thursday night, specifically any commentary that may be forthcoming.

But until the outlook becomes clearer, volatility remains the risk.

Commodities

Nothing to see here.

The Aussie is steady at US$0.6779.

The SPI Overnight closed up 41 points or 0.7% on Saturday morning.

The Week Ahead

Earnings results, and lots of them. Today’s reporters include Altium ((ALU)), BlueScope Steel ((BSL)), Lendlease ((LLC)) and nib Holdings ((NHF)), among others.

In a quiet week for economic data releases, the minutes of the RBA meeting tomorrow and the Fed meeting on Wednesday night will be closely scrutinised. Then comes Jackson Hole.

Thursday sees flash estimates of August manufacturing PMIs from across the globe.

Be wary that as result reports hit their peak, ex-dividends start to come in thick and fast as well. Computershare ((CPU)) and HT&E ((HT1)) go ex today.

The Australian share market over the past thirty days…

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