The Overnight Report: Neither Here Nor There

This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH

By Greg Peel

The Dow closed up 14 points or 0.1% while the S&P was flat at 2033 and the Nasdaq rose 0.4%.

Fizzer

Absolute edge of the chair, heart in the mouth, hide behind the sofa stuff. No, I’m not referring to China’s GDP result yesterday. While I waited for that announcement I was watching my recording of the Scotland game, having managed to avoid hearing the result. I was transported back to Lansdowne Road, 1991. Back then we went on to win the cup.

The Chinese GDP result, on the other hand, was so benign one might almost be tempted to believe it was scripted. The government is targeting 7.0%, economists had forecast 6.8% in the September quarter, and the result came in at 6.9%. What does one do with that number?

No one knows, it seems. Yesterday the ASX200 rose 20-odd points from the open, as the futures had suggested, before meandering aimlessly through to lunchtime and Beijing’s announcement. When the result was known, the index similarly meandered aimlessly through to the close.

Sector results were mixed, and the only notable moves were a 1.1% fall for materials, for which a lower iron ore price had already provided impetus, and a 2.4% fall for telcos. Suddenly Telstra is looking very unloved.

The 6.9% number is probably the Goldilocks result. It’s not bad enough to send markets into a tailspin but not good enough to prevent Beijing from implementing further stimulus measures. Meanwhile, the accompanying data for the month of September was also mixed.

Chinese retail sales grew 10.9% year on year in September, up from 10.8% in August, beating forecasts of 10.8%. Industrial production grew 5.7%, down from 6.1%, and missing 6.0% forecasts. Fixed asset investment grew 10.3% year to date, down from 10.9%, missing forecasts of 10.8%.

Beijing is attempting to transition the Chinese economy away from reliance on heavy industry production and towards domestic consumption. While the above production and investment numbers are disappointing, the better sales result suggests things are at least moving in the right direction. But of course the likes of BHP are not going to be ecstatic to learn the Chinese are buying more iPhones.

With the results providing no great incentive to buy or sell, we’ll now just have to wait to see what Beijing’s response will be. The numbers similarly sent European and US markets into a torpor last night. And this morning the local index futures have closed unchanged.

Commodities

To find any notable response to the Chinese data we have to go to the commodities markets. Here the response was negative, although not dramatically so. If we suggest that the GDP result was better than expected, then the monthly industrial production and fixed asset investment numbers were likely the cause of commodity market angst.

On the LME, all base metal prices fell roughly one to one and a half percent.

Iron ore fell US10c to US$52.50/t.

West Texas crude fell US$1.16 to US$46.06/bbl and Brent fell US1.69 to US$48.75/bbl. While these are reasonable falls, they only take prices back to the lower end of the ranges they have been trading in for some months now. Indeed, it’s amazing how much our local energy index has been flying around of late when WTI has not broken 45-50 since July.

The US dollar index is up 0.3% at 94.95, which also would not have helped commodities. Gold is down US$6.30 to US$1170.00/oz.

The Aussie initially shot up on what was a forecast-beating Chinese GDP, but fell thereafter and is 0.5% lower at US$0.7246 over 24 hours.

Stagnant

Commodity prices falls had their impact on Wall Street last night, but the major indices balanced out for an overall flat result.

On the earnings front, Morgan Stanley posted the biggest miss of all the major banks and its shares dropped 5%.

On the data front, the US housing sentiment index rose to 64 from 61 in August to mark its highest level in ten years. While Wall Street is encouraged by the news, it is also somewhat perplexed. Housing starts are still growing steadily but at much slower pace now than they were two years ago. Why the jubilation?

While there are plenty of data releases yet to follow this week, the data-watching game has rather now lost its excitement given expectations of a Fed rate rise have waned. It would probably require a huge surge in October jobs to spark up interest once more.

That leaves US earnings results to watch, and there are plenty more of those to come in the next couple of weeks.

Today

As noted, the SPI Overnight is unchanged.

The minutes of the October RBA meeting will be released today. We’ve nevertheless had two significant developments since that meeting was held. Firstly, a second consecutive US jobs shocker took a 2015 Fed rate rise off the table for most. Secondly, Westpac has increased its mortgage rates and the other banks are expected soon to follow. Both developments shift the dial more towards the possibility of an RBA rate cut.

On the subject of banks, this morning the Turnbull government will issue its official response to last year’s Financial Systems Inquiry. News services are a-buzz this morning, breathlessly reporting that Turnbull is “going after the big banks” and warning viewers they may have to pay more for their mortgages.

The reality is, of course, that the banks have already largely adjusted for what the FSI recommended, through capital raisings, risk weight adjustments and mortgage repricing. Tightened APRA regulations have also pre-empted likely new rules. So unless the government decides to legislate to a degree far more onerous than David Murray has recommended, there should be no real surprises.

Cochlear ((COH)) will hold an AGM today. Newcrest Mining ((NCM)) and Oil Search ((OSH)) will post quarterly production reports.
 

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