The Overnight Report: Merger Monday

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

By Greg Peel

Lacking Escape Velocity

The ASX200 breached 7000 in early April, having briefly done so in January. Past the mid-May mark, yesterday the index closed at 7023. The S&P500 has been similarly flat over the same period. Seems we still struggle to follow our own path.

A choppy start yesterday had the index spiking up 50 points late morning, before rapidly losing altitude. A rush of late selling ensured a tepid close.

The late morning flip-over of the ASX200 may be somewhat attributed to China’s April data dump.

Industrial production rose 9.8% (year on year) having jumped 14.1% in March. Retail sales rose 17.7% having jumped 34.2% in March. Fixed asset investment rose 19.9% (year to date) having risen 25.6%. All fell short of forecasts.

While the ASX200 has struggled to escape the 7000-7100 range, there have been a lot of ups and downs among sectors over that time. Yesterday was a clear example, with several large moves among sectors netting each other out.

Technology rose 1.2% on the Nasdaq bounce, albeit without much help from Afterpay ((APT)), while energy rose 1.0% on higher oil prices and government handouts to the refiners. Materials (+0.8%) recovered slightly from Friday’s iron ore price plunge (which has reversed to an extent yesterday) but was mostly driven by gold miners (gold up strongly again last night) and other metals/minerals.

Consumer discretionary (+0.9%) was driven by a solid gain for Aristocrat Leisure ((ALL)) following an update, as well as strength in the casinos as Crown Resorts ((CWN)) rejects Blackstone’s offer, leaving Star Entertainment’s ((SGR)) merger offer still on the table.

I still can’t see that getting through the ACCC.

Industrials (+0.5%) enjoyed a dip in bond yields.

On the flipside, utilities fell -1.9%, with AGL Energy ((AGL)) again being sold, but a -1.0% drop for telcos and -0.3% for staples suggest defensives were simply out of fashion yesterday. The banks lost -0.4%, net of Commonwealth Bank ((CBA)) hitting another new high.

Dragging on financials was Macquarie Group ((MQG)), for which a -4.9% drop was greater than the ex-dividend adjustment. An expose of sorts appearing in yesterday’s Sydney Morning Harvey Norman Catalogue had recently floated tech company Nuix ((NXL)) down -9.5%. Macquarie underwrote the float and remains a major shareholder (30%).

Carsales ((CAR)) was the worst individual performer, falling -11.8% on a capital raise. Elders fell -3.4% on its result, which was likely a sell-the-fact given agri stocks have been hot of late.

To the upside, it was mostly gold miners in the top five, with Viva Energy ((VEA)) gaining 7.0% on the government’s largesse and Ampol ((ALD)) 6.1%.

Having rebounded strongly on Friday night, Wall Street pulled back a bit last night, but our futures are up 11 points this morning.

The iron ore price has rebounded 3.7%, gold has jumped another twenty bucks, and base metals and oil prices are firm.

See Above

The slowing Chinese economy also weighed on Wall Street last night but otherwise it was a case of Friday night’s rebounds rally perhaps being a little stretched. Wall Street, too, is stuck in a range.

All three major indices fell on the open, with the Dow down -200 points early in the session, before a steady graft back to the close.

Sector switching and swapping has also been a feature as the S&P has flatlined since early April. Value & cyclicals are still winning over growth but there’s been a lot to-ing and fro-ing in between, for little net result.

The big news last night was the announced merger of AT&T’s (Dow) Warner Media with Discovery in a US$43bn deal, to create one of the largest media companies in the world.

Between them the two businesses own most of the channels available here on Foxtel, and having been dominant in cable the merger appears a missed-the-boat effort to embrace streaming before it’s too late. The plan is to challenge numbers one and two in the streaming game, Netflix and Disney (Dow), and given the extent of content between them will put pressure on the plethora of US streaming lesser-lights.

Wall Street’s opinion? AT&T down -2.7% and Discovery down -5.1%.

The other feature of last night was a string of Fed officials playing down last week’s reported US inflation spike and hanging on furiously to their “transitory” mantra. The Fed wants to see a lot more data before it changes its mind.

Gold investors don’t appear to be waiting around.

Otherwise, the northern summer is approaching. We haven’t seen any meaningful “Sell in May” but rather a sideways market that is failing to find another reason to break out to the upside, which might become problematic when volumes and focus drop off in the summer months.

The next earnings season is not until July.

Commodities

That’s a pretty impressive table above if rocks and gas are your thing, particularly given a steady Aussie (US$0.7770).

Seems weaker Chinese data don’t much matter.

I mentioned yesterday that Beijing’s problem with the iron ore price will not be solved while Chinese steel production runs riot, in spite of the government’s emission reduction plans. Data yesterday showed Chinese crude steel output in April rose to 97.9m tons, to hit monthly and daily run-rate records.

Today

The SPI Overnight closed up 11 points.

The minutes of the May RBA meeting are out today.

Japan and the eurozone post March quarter GDP results.

James Hardie ((JHX)) reports quarterly earnings.

Nickel Mines ((NIC)) holds its AGM.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms