By Greg Peel
The Dow closed up 77 points or 0.4% while the S&P rose 0.5% to 2151 and the Nasdaq gained 1.0%.
Nobody picked the open on the Australian stock market yesterday, except maybe whoever was placing big sell orders. Wall Street and the SPI futures were little changed on Friday night and it looked for all the world like we were in for a quiet session. But at 11am the index was down 53 points.
Sure, there were some standout movers, specifically Healthscope ((HSO)), which dropped another 6% despite stock analysts suggesting Friday’s 19% plunge was probably an overreaction. They also suggest there is no reason Ramsay Health Care ((RHC)) should suffer the same fate but it was down another 4.5% yesterday.
We saw this recently with Estia Health ((EHE)) and aged care peers. These healthcare stocks have been very popular over the past year as safe havens for investment on undeniable underlying themes. Hospitals fit the same bill. This sector had become fully priced despite known regulatory risk.
So now that guidance has disappointed and regulatory risk looms large, investors have taken a sell first and ask questions later approach.
And then there’s Coca-Cola Amatil ((CCL)). The company held an investor day outlining plans to shift further away from increasingly less popular fizzy drinks. Stock analysts for the most part thought it was a positive update. Investors otherwise decided things don’t go better with Coke. CCL led the market down with a 6.5% fall yesterday.
Since July, the stock had rallied 25%. So once again investors ran in panic that their safe haven may let them down if the fizzy drink is truly dead.
The Healthscopes and Cokes notwithstanding, yesterday morning saw a big market-wide sell-off on the open before a slow grind back to a more respectable, albeit weak, close. The banks led the fightback as investors look to lock in dividends ahead of the cut-off following result releases beginning this week.
This market is sure jumpy, and AGM season has only just begun. What further horrors await?
Wall Street is up overnight, which is nice, but the futures are only suggesting up 3 points for the ASX200 today – not much of a bounce given yesterday’s action. This is likely because Wall Street strength was really US-centric and not macro-reflective.
There was only one topic of conversation on Wall Street last night and that was M&A. Elsewhere, nothing was happening.
For some reason Monday is always the preferred day for merger announcements and last night was no exception. The biggie is AT&T’s (Dow) intention to merge with Time Warner – a deal that will need to jump a few regulatory hurdles.
There were also mergers announced in stock trading and aerospace, among others, while Genworth Financial, major shareholder of Genworth Mortgage Insurance Australia ((GMA)), announced it had sold itself to the Chinese.
Wall Street likes mergers, as they are typically positive for stock valuations. Many a commentator has noted that the long period of corporate stock buybacks seen over the past several years of ultra-low financing costs is coming to an end, to be replaced by actual investment through M&A.
This is a positive, at least to begin with. Typically mega-mergers tend to signal the peak of a bull market.
The Dow was up over a hundred points early on last night but drifted back to a less exciting close. With the oil price and US dollar steady, and nothing overly consequential within data releases, it was a session focused solely upon the alpha of US M&A and earnings reports and not the beta of macro developments.
On the subject of earnings, a flying start has given way to some more mixed results, with revenues amongst some of the biggest reporting companies still tending to disappoint. However, on the earnings line, beats to date are running at 78% compared to the long term average of 64%.
It’s still early. This week is the busiest on the calendar.
Iraq has been fighting wars since the 1980s. Iran has only just returned from global export sanctions. Nigeria and Libya have their own problems, and let’s not even start on Venezuela. These are all reasons the Saudis seem to feel are fair enough in granting exemptions from any OPEC production freeze.
But with that many exemptions, is a freeze even possible? Well, apparently Russia is on board. If Saudi Arabia and Russia can agree on a freeze, that’s a big chunk of global production. The oil market is unsure, which is why the WTI price has recovered to US$50 and stopped dead.
West Texas crude is down US24c at US$50.63/bbl.
The US dollar index is steady at 98.69 but LME traders were last night focused on improving US and eurozone manufacturing PMIs, if last night’s flash estimates prove accurate, and a general pick-up in Chinese demand.
Aluminium and copper were flat last night but lead and nickel rose 1.5% and zinc 2.5%.
Iron ore rose US30c to US$58.70/t.
Gold is as good as steady at US$1264.00/oz and the Aussie is steady at US$0.7608, awaiting tomorrow’s local CPI numbers.
The SPI Overnight closed up 3 points.
US data tonight include the Richmond Fed index, house prices and consumer confidence. And it is a huge session for major earnings releases.
It’s a big day for AGMs locally, with the likes of Bendigo & Adelaide Bank ((BEN)), Tabcorp ((TAH)) and WorleyParsons ((WOR)) among that number. Fortescue Metals ((FMG)) is one company hosting an investor day while Mirvac Group ((MGR)) will provide a quarterly update.
Rudi will link up with Sky Business today, around 11.15am through Skype, to discuss broker calls for about 10 minutes.
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