The Monday Report

This story features DOMAIN HOLDINGS AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: DHG

By Greg Peel

More Earnings

Wall Street was a little weaker on Thursday night following the shock retail sales number, leading the ASX200 to open a little lower on Friday morning. Thereafter it was once again all about earnings results.

It was a quieter session, being one of the less busy days of the season to date, but that didn’t stop Domain Group ((DHG)) starring with a 21% pop.

Domain’s result wasn’t even all that exciting, but clearly the market was set for the worse given Australia’s Housing Market Crisis and the fact rival REA Group ((REA)) had provided cautions guidance a week earlier. Domain was also over 5% shorted heading into the result.

Nine Entertainment ((NEC)) jumped 7% given its back-door stake in Domain via the Fairfax merger. There was a rumour swirling around that Nine Entertainment had decided to increase its shareholding in Domain Group.

On the flipside, Baby Bunting ((BBN)) has seen all rivals fall like flies over the past year so the market was likely expecting a strong performance, only to be disappointed. Those shares fell -6%.

The signals from auto-related stocks seem to have been swinging one way and the other in the past month, initially on expectations the Housing Market Crisis would slow down car sales, before things then didn’t seem quite as bad, and then they did. Automotive Holdings ((AHG)) has been in the thick of it and on Friday fell -8.2%.

It should be noted that the company took an impairment on its perennially troubled refrigerated logistics business that it can’t get anyone interested in buying.

Whitehaven Coal ((WHC)) has been enjoying strong coal prices and subsequent cash flows so more was clearly expected in earnings. It fell -6.7%.

In other news, Aveo Group ((AOG)) leapt 10% on takeover rumours, even as the RC into aged care progresses.

So there were the usual ups and downs on the day as well as ups and downs in sectors outside the influence of earnings. Energy rose 0.8% on the oil price. Healthcare fell -0.8& and telcos rose 1.6% because one day the market buys CSL and Telstra and the next day they’re sold. Both reported in the prior week.

The banks (+0.2%) found a little bit of buying.

We now head into the penultimate but by far the busiest week in the result season. Last week was not much influenced by macro factors as Wall Street mostly idled ahead of news on trade, at least up until Friday night, hence local earnings were the primary focus.

Wall Street surged on Friday night on trade optimism, and our futures are up 53 this morning. So we head into the busiest week ready for both micro and macro factors to play their part.

More Trade Speculation

The Dow outperformed on Friday night on trade news Wall Street perceived as positive, led by those big industrials most impacted by tariffs. The S&P500 is now clearly above its 200-day moving average and on Friday night the Nasdaq “came out of a bear market”, meaning it had been down -20% and now it’s not.

The Dow closed up 3.1% for the week, the S&P 2.5% and the Nasdaq 2.4%. Perhaps what is most notable as 2019 plays out is that the FANGs are pretty well MIA in this rally.

The trade talks wrapped up in China on Friday night. News is progress has been made but there’s still a long way to go on a couple of points. This is the same news we’ve been hearing for months, but apparently still cause for optimism. The couple of key points will be intellectual property theft and the required handing over of IP to the Chinese if operating in China.

Had there been no progress, then that would be it for now and the March 1 deadline would see tariffs currently at 10% rise to 25%. But talks are now set to resume this week in Washington, indicating that yes, progress must have been made. The meeting between the two presidents which recently Trump said is unlikely to happen may yet happen. The March 1 deadline which Trump previously said would not be changed may now be extended.

Let’s just say the situation is fluid. But fluid is better than stagnant, so Wall Street is excited, and ready to price in a breakthrough before it happens.

On the domestic front, Trump’s move to enact emergency powers to fund his Wall has inevitably prompted its first law suit. Even Trump expects the battle to go all the way to the Supreme Court, which means that if a Wall is to be funded, it will be months at the minimum before the money is released.

US industrial production fell -0.6% in January when a flat result was forecast. Echoes of the weak retail sales number the day before. That retail sales number was December, held up because of the shutdown, which is no doubt why the January number, scheduled for Friday night and every month an accompaniment to the industrial production number, didn’t materialise.

The University of Michigan’s fortnightly consumer sentiment index has rebounded to 95.5 from January’s 91.2 which was the lowest reading in a couple of years. The way the numbers are falling suggests the December swoon on Wall Street really did have quite the short term impact on hearts and minds.

In other, quite interesting news, toymaker Mattel had reported earnings earlier in the month that pleased Wall Street and resulted in a share price rally on the day, given previous expectations the company was faltering. On Friday night Mattel issued guidance of flat sales for the year. The shares promptly fell -19%. I don’t think Barbie quite has this disclosure thing worked out.

Commodities

With the local reporting season genuinely accelerating, Rudi will not make his usual appearances on Your Money today or next week.

Trade talk progress was behind some solid moves in base metal prices on Friday night, although iron ore missed out.

Gold jumped for the same reason, which seems counterintuitive from a “safe haven” point of view, but from a physical point of view, China is the world’s biggest buyer of the metal.

The same story plays out for the oils.

The US dollar index fell back -0.1%, which also helps.

The Aussie is up 0.4% at US$0.7129.

The SPI Overnight closed up an ambitious 53 points or 0.9% on Saturday morning. Yes, trade talk progress is good news for us too.

The Week Ahead

Lots of earnings reports this week. Hundreds of them in fact.

Today sees Ansell ((ANN)), Brambles ((BXB)) Independence Group ((IGO)) and nib Holdings ((NHF)), among plenty of others.

Economically, the minutes of the RBA meeting are due tomorrow, the December quarter wage price index is out on Wednesday, on Thursday all and sundry flash their February PMI estimates and on Friday the RBA governor makes a scheduled testimony to parliament.

The US earnings season continues its long tail, with the focus now shifting towards the retail sector.

As far as US data goes, we will see housing market sentiment tomorrow, the Fed minutes on Wednesday and flash PMIs on Thursday as they’re all private sector releases. Otherwise, housing starts and existing home sales are due but I can’t be sure and December durable goods orders, missed last month, supposedly lands on Thursday.

Wall Street is closed tonight for a long weekend.

The Australian share market over the past thirty days…

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