The Monday Report

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By Greg Peel

Two More Days

Another day, another drop for the ASX200 on Friday as Trump continues to rise in the polls and fear begins to seriously grip the market. Heading into the last two sessions ahead of the US election, there is no change on that front. Come Wednesday, we presumably will be looking at either a sharp rebound or a major collapse.

Traders report Friday was not about selling as much as it was about no one willing to buy. Falls were again relatively widespread, although again it appears yields on offer in the telco and utilities sectors have now become rather tempting. Those two sectors held up.

The banks were the worst performer with a 1.6% drop, but a lot of that was National Bank ((NAB)) going ex. Energy was the next worst performer, falling 0.9% as hopes of an OPEC agreement once again fade.

Individually, news of government investigation into price collusion in the US drug industry had Mayne Pharma ((MYX)) plunging 16%, while a profit warning from Flight Centre ((FLT)) was worth 8%. Orica bucked the trend on the day, rising 8% on a better than expected earnings report, while gold stocks continue to find support on the Trump hedge play.

The consumer sectors were unsure what to do with Friday’s local retail sales data. Sales rose a better than expected 0.6% in September from August but fell 0.1% in the September quarter from the June quarter. The month on month jump included a spike in food prices that will likely be temporary but otherwise, the bulk of sales represent household items needed to set up all those new apartments.

Eventually the boom in housing will recede. It is this fact that leads many economists to continue to forecast rate cuts from the RBA in the not too distant future, despite Friday’s Statement on Monetary Policy suggesting the central bank is very much on hold.

Record Breaking

The US added 161,000 new jobs in October. The number is a little lower than forecast but not enough to alter assumptions of a December rate hike. Unemployment fell back to 4.9% from 5.0%. Hourly wages rose 0.4% to be up 2.8% year on year, the fastest growth rate since June 2009.

That’s the rate rise confirmation right there.

With jobs proving a non-event, Wall Street was able to concentrate on the matter at hand on Friday night, being Trump. Oil also continued to drift lower, but so did stocks in general. The Dow closed down 42 points or 0.2%, the S&P fell 0.4% to 2088 and the Nasdaq lost 0.9%.

The ninth consecutive fall for the S&P500 represents the longest continuous losing streak since December 1980.

As is the case locally, Wall Street saw earlier selling as nervous investors squared up positions in case the unthinkable were really to occur, and late in the game nobody wants to buy. All we can do now is wait – wait for Wednesday night Australian time, and wait longer still if the result is not immediately clear, and maybe wait even longer if the result is challenged.

A rebound could only be triggered, one presumes, if Clinton is confirmed as victor.

Late Breaking News: The FBI has found no new evidence among emails to warrant charges being brought against Hillary Clinton.

Commodities

West Texas crude slid another US46c to US$44.19/bbl on Friday night.

Base metals were mixed on smallish moves, except for zinc which fell 1.5% and is proving the most volatile of the metals right now.

Iron ore rose US20c to US$64.70/t.

The US dollar index dropped 0.2% to 96.96 and gold is relatively steady at US$1304.20/oz. The Aussie is also relatively steady at US$0.7677.

The SPI Overnight closed down 29 points or 0.6%. Nothing occurred over the weekend to swing the balance. Looks like we might test the Brexit low of 5100 before the week is out. Unless the FBI news makes a difference today.

The Week Ahead

US election results will roll in over the course of Wednesday in Australia.

It’s otherwise a quiet week for US data releases. The US earnings season is now also winding down. Friday is Veterans Day in the US, which is one of those half-holidays that sees banks and the bond market shut but stock and commodity markets open. Falling on a Friday this year, you can be guaranteed it will be a long weekend for most.

Wall Street might need a holiday by then.

China will release October trade numbers tomorrow and inflation numbers on Wednesday.

The RBNZ will hold a policy meeting on Thursday.

Australian data releases this week include ANZ job ads and the construction PMI today, the monthly NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday. Thursday brings housing finance numbers.

On the local stock front, Westpac ((WBC)) will post its earnings result today, as will DuluxGroup ((DLX)) and Incitec Pivot ((IPL)) tomorrow. Commonwealth Bank ((CBA)) will provide a quarterly update tomorrow and News Corp ((NWS)) quarterly earnings.

It’s another busy week for AGMs. Macquarie Group ((MQG)) goes ex tomorrow.

Note that from tomorrow morning, the NYSE will close at 8am Sydney time.

Rudi will appear twice on Sky Business this week, both via Skype, to discuss broker calls. First on Tuesday, 11.15am, then again on Friday, 11.05am.
 

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