The Monday Report – 28 October 2019

This story features RESMED INC, and other companies. For more info SHARE ANALYSIS: RMD

World Overnight
SPI Overnight (Dec)	6739.00	+ 24.00	0.36%
S&P ASX 200	6739.20	+ 45.60	0.68%
S&P500	3022.55	+ 12.26	0.41%
Nasdaq Comp	8243.12	+ 57.32	0.70%
DJIA	26958.06	+ 152.53	0.57%
S&P500 VIX	12.65	– 1.06	– 7.73%
US 10-year yield	1.80	+ 0.04	1.98%
USD Index	97.83	+ 0.14	0.14%
FTSE100	7324.47	– 3.78	– 0.05%
DAX30	12894.51	+ 22.41	0.17%

By Greg Peel

Step-Jump

The futures had called a 42 point gain for the ASX200 on Friday morning which seemed ambitious following only a modest gain on Wall Street, but in the end they were pretty much bang on, with a bit of help from ResMed.

But it was all over in the first fifteen minutes. The index step-jumped from the bell and that’s where it stayed all session on modest volume as everyone went to lunch.

ResMed ((RMD)) posted a solid beat with its quarterly earnings result and leapt 11.0% to top the ASX200 leaders’ board. For the record, a similar move in New York on Friday night saw the stock top the S&P500 as well.

Now we can all get some sleep.

ResMed led the healthcare sector to a standout 1.8% gain while all other sectors closed in the green by 0.5-1%, bar one.

Industrials fell ever so slightly on a -13.6% thumping of Cleanaway Waste ((CWY)) after the company guided to a flat first half at its AGM. Exuberance for the stock earlier in the year on the country’s wake-up call with regard recycling has more recently given way to the realities of a weak economy,  soft prices for recycled material and landfill levies.

Utilities, REITs and staples were among the bigger gainers as was consumer discretionary. Are we predicting another RBA rate cut next week?

The banks gained 0.5% which was at the low end among the sectors but still a big influence in points terms. Three of the Big Four report in the next couple of weeks, and that means dividends.

Coming in second for the day was Resolute Mining ((RSG)), up 9.6% after announcing issues with its Mali gold mine processing will shortly be sorted.

Otherwise it was largely a market-buying session as the index continues its bumpy run back towards the July all-time high, which is now only a bit over 100 points away. The futures closed up another 24 points on Saturday morning, so there’s a start.

Trade Talk

The White House likes to think of it as a phase one “deal” but Wall Street is now calling it a “détente”. News from the US trade delegates on Friday was that “progress” has been made.

I’m sure I’ve heard that before.

Wall Street is hanging its hopes on the planned December 15 final tranche of tariffs, mostly on consumer goods, not going ahead. However, the initial “phase one” plan did not even mention this tranche, rather it traded off no increase in the September tranche tariff level in exchange for more Chinese purchases of agri-products. The Chinese are also said to be keen to see the December tariffs scrapped. Might this prove a stumbling block?

The timing is critical. Trump and Xi are expected to sign the phase one deal at the APEC summit in Chile on December 12, three days earlier. Thanksgiving falls on November 28, which provides your Black Friday and Cyber Monday thereafter – the biggest US shopping days of the year.

We’ll have to wait and see, but whenever there is any glimmer of hope on trade, Wall Street rallies. Indeed, Friday night saw the S&P500 briefly exceed the all-time closing high of 3025 before settling back to 3022 at the close.

Volume, however, was very light, and was very light all week. A lack of volume means a lack of conviction, and this has traders a little nervous.

Earnings were again key to Friday night’s session. The S&P and Nasdaq initially opened lower as Amazon fell -8% following its revenue and guidance miss reported after the close on Thursday night. But with all the talk of Amazon being notoriously conservative with its December quarter guidance, the stock closed down only -1%.

Chip heavyweight Intel (Dow) rallied 3.5% in Thursday’s aftermarket on its release, but closed up 8% in Friday night’s session. It appears fears of the trade war’s impact have been somewhat exaggerated.

Blessed be the chip-makers.

After the biggest week on the earnings season calendar, 38% of S&P stock have reported for 78% earnings beats.

Attention now turns to the Fed meeting this week. With the market ascribing a 95% chance of a rate cut, there will be a big hole open up from these lofty levels if the Fed fails to deliver.

In other news, Emmanuel Macron has apparently blocked the EU’s plan to extend the Brexit deadline by three months – a decision that requires unanimous member support. But the European Commission said it would work on it.

That’s all we need – more confusion.

But hey – hats off to the Poms. Saturday night saw an absolute cracker.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1504.00	+ 1.80	0.12%
Silver (oz)	18.00	+ 0.23	1.29%
Copper (lb)	2.65	+ 0.01	0.23%
Aluminium (lb)	0.77	– 0.00	– 0.05%
Lead (lb)	1.01	– 0.00	– 0.24%
Nickel (lb)	7.58	– 0.02	– 0.27%
Zinc (lb)	1.15	+ 0.01	0.53%
West Texas Crude	56.66	+ 0.48	0.85%
Brent Crude	62.02	+ 0.46	0.75%
Iron Ore (t) futures	87.65	+ 0.60	0.69%

Nothing much to see here, other than to note silver has really been on the move of late relative to gold.

The Aussie is steady at US$0.6821.

The SPI Overnight closed up 24 points or 0.4% on Saturday morning.

The Week Ahead

On the subject of the RBA, Australia’s September quarter CPI numbers are out on Wednesday. Philip Lowe will speak tomorrow. The market is expecting 0.5% growth for the quarter and 1.7% annual, up from 1.6% in June.

Numbers for building approvals and private sector credit follow on the Thursday and the PPI, house prices and the manufacturing PMI on Friday.

October manufacturing PMIs will be released across the globe on Friday, being the first of the month.

The Fed will deliver its rate decision on Wednesday night. Tomorrow night brings numbers for US consumer confidence, pending home sales and the Richmond Fed index while Wednesday sees the private sector jobs number and, right on time, the September quarter GDP result. The market expects 1.6%, down from 2.0% in June.

The Fed’s decision precedes both the September PCE inflation data on the Thursday and non-farm payrolls on the Friday.

The Bank of Japan holds a policy meeting on Thursday and the eurozone releases its GDP result (0.1% expected).

On the local market, it’s another big week for AGMs and quarterly updates, along with the last of the quarterly production reports – again too many to highlight.

We will nevertheless highlight that ANZ Bank ((ANZ)) reports earnings on Thursday and Macquarie Group ((MQG)) on Friday along with CSR ((CSR)) and Orica ((ORI)).

Domino’s Pizza holds its AGM today and Beach Energy ((BPT)) delivers its production report.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
API	AUS PHARMACEUTICAL IND	Downgrade to Neutral from Buy	Citi
CIM	CIMIC GROUP	Upgrade to Neutral from Underperform	Credit Suisse
CTX	CALTEX AUSTRALIA	Outperform	Macquarie
IGO	INDEPENDENCE GROUP	Upgrade to Neutral from Sell	Citi
		Upgrade to Hold from Lighten	Ord Minnett
ING	INGHAMS GROUP	Upgrade to Neutral from Sell	UBS
NCM	NEWCREST MINING	Upgrade to Neutral from Underperform	Credit Suisse
ORE	OROCOBRE	Downgrade to Hold from Buy	Ord Minnett
SGR	STAR ENTERTAINMENT	Upgrade to Add from Hold	Morgans
		Downgrade to Underperform from Neutral	Credit Suisse
WBC	WESTPAC BANKING	Downgrade to Neutral from Buy	Citi

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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