The Monday Report – 17 February 2020

This story features BABY BUNTING GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BBN

By Greg Peel

Assessing Results

Friday's session on the ASX began with tensions easing on the virus front compared to the day before. The prior step-jump of 15,000 cases on Thursday due to a change in methodology spooked markets, but Friday’s new case count of 4,800 underscored the one-off impact of that methodology change. The death toll was also reduced by -100 to 1380 due to double-counting.

Against that backdrop it was a quiet day in terms of earnings results. Baby Bunting ((BBN)) was one stand-out, falling -5.3% despite an 8% jump in sales. Otherwise, analysts and investors continued to weigh up results from earlier sessions.

The banks were again the standout sector, rising another 1.3%. Investors have scrambled to get back into the beaten-down sector since Commonwealth Bank ((CBA)) reported better than expected earnings last week and National Bank ((NAB)) followed suit with its trading update.

NAB received one upgrade from FNArena database brokers and ANZ Bank ((ANZ)), yet to update, received two, while CBA and Westpac ((WBC)), also yet to update, each received a downgrade. CBA now has six of seven brokers rating Sell on overvaluation. Déjà vu.

Utilities were the next best performer (+1.2%) as AGL Energy ((AGL)) continued higher post result. AGL received two upgrades from FNArena brokers, albeit only to Hold.

On the flipside, energy was the worst performer on the day in falling -1.2%, largely thanks to Woodside Petroleum ((WPL)) falling -2.7%. The company’s result suggested investors will need to be patient in expecting returns from extensive project investments, which are suffering delays.

All other sector moves were comparatively small, such that the 27 point gain for the ASX200 – now only 14 points shy of the all-time closing high – was again all about the banks.

Among individual stocks, profits were taken in the two merging telcos after their jumps the day before, and in Breville Group ((BRG)) after it shot the lights out on Thursday.

In contrast, Pinnacle Investments ((PNI)) kicked on another 4.7% after having reported the week before.

A quiet Friday in results season terms was simply the calm before the storm that is this week’s deluge. The bulk of companies reports this week. With Wall Street steady on Friday night, and then off on a long weekend, that all-time high for the ASX200 will have to be result-driven.

The futures were down -17 points on Friday night.

Damn the Torpedoes

I had assumed on Friday that amidst corona-confusion and untrustworthy numbers, Wall Street would decide on Friday night it would be best to square up ahead of the long weekend. Who knows what might transpire? And by mid-session this appeared to be the case.

Aiding early weakness was a disappointing US retail sales result for January. While sales met expectations in rising 0.3%, the break-down showed so-called “core” sales as flat. Given it has been the US consumer that alone has led the US economy to steady trend growth in recent quarters, any signs of stalling spark concern.

It has to be noted petrol prices were lower on lower virus-impacted oil prices, and a warmer than usual winter has dragged on sales of cold weather apparel. And it should be also noted that the University of Michigan’s fortnightly measure of consumer sentiment showed a rise to 100.9 from 99.8 last month, which is close to a 15-year high.

But just when it looked like markets were in for a soggy close, an afternoon turnaround resulted in both the S&P500 and Nasdaq yet again closing at new all-time highs.

The US result season continues to provide support. Friday night saw big result-related pops for Nvidia (7%) and Expedia (11%), while cannabis company Canopy Growth jumped 13% in the US and 15% in its native Canada, where it has the ticker code WEED.

Virgin Galactica has imaginations running wild, rising 21% thanks to a successful test flight to make 45% for the week alone.

Wall Street is closed tonight for Washington’s birthday and there have been no new surprises regarding the virus since Friday night to date. Traders will likely be keen to get back into it on Tuesday night.

Commodities

The impact of Chinese stimulus appears to have once more given way to virus concerns and the resulting impact on the global economy, if base metal prices are the measure.

On the same theme gold continues to rise again, with the US ten-year yield falling back below 1.60% on Friday night.

Oil traders continue to anticipate OPEC-Plus production cuts.

The Aussie is a tad higher at US$0.6725.

The SPI Overnight closed down -17 points or -0.2% on Saturday morning.

The Week Ahead

Japan reports December quarter GDP today.

Locally, the minutes of the February RBA meeting are out today but Philip Lowe has been making his views abundantly clear in the interim. We’ll see how he feels after Wednesday’s December quarter wage price index result and Thursday’s January jobs numbers.

The minutes of the last Fed meeting are out on Wednesday along with US PPI, and a flash estimate of US manufacturing PMI for February is due on Friday night.

But this week will be all about earnings results.

Today’s highlights include Altium ((ALU)), Bendigo & Adelaide Bank ((BEN)), Brambles ((BXB)), QBE Insurance ((QBE)) and Sims Metal Management ((SGM)), to name but a few.

For a full list of earnings results due today please refer to the FNArena Corporate Results Monitor (https://www.fnarena.com/index.php/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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