The Overnight Report: Third Time’s A Charm

This story features COCHLEAR LIMITED. For more info SHARE ANALYSIS: COH

By Greg Peel

US markets were closed last night.

Technically Positive

Yesterday’s Australian data included the August construction PMI, which jumped to 53.8 from 47.1 in July, mostly thanks to the apartment boom overcoming the ongoing decline in resource sector development.

We also saw the ANZ job ads series for August, which saw a 1.0% increase following a 0.5% drop in July. Ads are growing at an annual rate of 0.4%, but they were growing at 1.0% earlier in the year. The early pace was fuelled, ANZ suggests, by strong growth in service industry employment leading an accelerating pace of mining/energy job losses. The latter will catch up to the former, such that ANZ expects the pace of ad growth to continue slowing from here.

But local economic data are not the focus of the market’s attention right now.

The ASX200 was down 57 points from the opening bell yesterday, presumably reflecting a sizeable drop on Wall Street which, supposedly, was all about a 5.1% US unemployment rate providing a green light to the Fed to raise its funds rate next week.

The plunge took us down through 5000 to 4973 before the index steadied, consolidated, and then rose back to the 5000 mark by 11.30am. Thereafter, the buyers battled it out with the sellers for the rest of the session before the buyers ultimately prevailed. We still finished down 10 points, but at 5030, we importantly finished comfortably above 5000.

Last month’s intraday low point in the correction from 6000 was 4928, before a bounce to above 5300, and the second wave took us to 4995 last Friday before a bounce to 5040. Yesterday we saw 4973 before 5030, to mark a third failed attempt at breaching 5000 and closing below that level. Three failed attempts at a break-down is technically a rather positive sign.

Below 5000 it appears investors are confident in buying big, reliable names that have been caught in the downdraught of recent China and Fed-related selling through no real fault of their own. If we take out the performances of the energy (-1.3%) and materials (-0.7%) sectors yesterday the ASX200 would have finished in the green, and let’s face it, it is difficult to accuse some of the bigger names in those sectors of being reliable anymore. Or for that matter, quite that big.

Investors looking for value in safer names are clearly not concerned that today we will see China’s August trade numbers, and over the week inflation, retail sales, industrial production and fixed asset numbers. Indeed, the only surprise that could arise from the releases is if they are not too bad. Nor are the bargain hunters apparently concerned about Fed policy. In the wider scheme of things, the Fed is going to raise either next week or soon, and everybody knows that.

Chinese Checkers

Perhaps the buyers took some heart in the announcement over the weekend from the head of the PBoC that “the correction in the [Chinese] stock market is almost done”. Shucks, and there I was thinking stock markets are unpredictable. Perhaps the call was due to the government’s latest stock market-manipulating move, which sees tax exemptions for those holding onto their shares for more than one year.

But yesterday we also had Beijing admitting China’s 2014 GDP growth rate was only 7.3% and not 7.4% as first estimated. It’s interesting that Beijing can issue a quarterly GDP number only two weeks after quarter-close but it takes nine months to make a revision.

A drop to 7.3% from 7.4% is not exactly substantial, and has managed to shock no one. The more prescient issue is that the revision only serves to underscore a belief Beijing’s 7.0% target for 2015 might be looking a bit Disneyland at this point, but then just about every foreign economist set a forecast in the sixes at the beginning of the year. Beijing has assured us, of course, that China is still on track for 7.0%. It was also on track to meet the government’s 7.5% goal last year.

Commodities

When Wall Street is closed, every other market goes quiet. The European stock markets, for example, were up a bit last night having tanked on Friday night.

Nickel was the only metal to post a move of more than 1% on the LME last night, indeed falling closer to 2%, while the scorecard on the sub-1% moves was copper, lead up, aluminium, tin, zinc down.

Iron ore jumped US$1.00 to US$56.00/t.

Selling pressure hit Brent crude, which fell US$1.79 or 3.6% to US$47.79/bbl, and subsequently dragged down West Texas in electronic trade by US$1.27 or 2.8% to US$44.44/bbl. Traders suggested very thin volumes exacerbated the moves.

With the US dollar index little changed at 96.15, gold fell US$3.90 to US$1118.90/oz.

The Aussie had a brief look at 68 yesterday before trading up 0.2% over 24 hours to US$0.6924.

Today

The SPI Overnight closed down 3 points.

Locally, NAB will release its monthly business survey today.

China will release August trade data.

Japan and the eurozone will both revise their June quarter GDP estimates.

There’s another decent-sized group of local stocks going ex-div today, including Cochlear ((COH)).
 

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