The Monday Report – 25 November 2019

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Recovery

It began with the Westpac ((WBC)) news on Wednesday which sent that stock into a spiral and sparked selling across the banks. That market cap weight impact triggered index selling that continued into Thursday morning before buyers finally emerged. The scene was thus set for a Friday recovery, with a little help from some mildly positive trade news.

Not for Westpac though, which fell another -1.6% on Friday after the bank declared no one would lose their jobs other than the code-writer, who’d been taken out and shot, but executive bonuses would be frozen. Executive pay would not be frozen, so the announcement was met with disdain.

The rest of the sector saw some buying to cancel out Westpac’s fall and lead financials to a flat close. Otherwise, every sector closed in the green.

Energy (+1.3%) led the way on a stronger oil price and commodity prices also supported materials (+1.1%). IT posted the best percentage performance (+1.5%) as the risk traders returned.

All the yield-payers were back in favour, as was healthcare after some solid profit-taking.

The ASX200 closed down -1.1% for the week and -1.4% from Tuesday’s rate cut expectation-driven high. Wall Street trod water over the same period.

Mayne Pharma ((MYX)) was the worst index performer on the day, falling -11.0% after its AGM revealed ongoing tough conditions in generic drugs. 7-Eleven announced it was pulling the pin on its $800mpa supply deal with Metcash ((MTS)), so Metcash fell -6.9%.

Avita Medical ((AVH)) won the day, rallying 7.7% after being tipped at the Sohn Hearts & Minds Conference held on Friday.

Wall Street closed modestly higher on Friday night on mixed trade news and some data relief but closed lower for the first week in six (S&P). Our futures were up a tentative 12 points on Saturday.

Xi Whizz

President Xi, who we don’t seem to hear from much, said on Friday “We want to work for a phase one agreement on the basis of mutual respect and equality,” which apparently is positive, as it suggests China does want a deal.

The other president responded “We have a very good chance to make a deal,” as he always does.

This was enough to have Wall Street back in buying mode but the mood soured a little when the US Federal Communications Commission designated Chinese telcos Huawei and ZTE as national security risks, meaning their US-based carriers could not tap into a federal fund to purchase equipment.

But the rally regained pace and investors also reflected on Markit’s flash estimates for November US manufacturing and services PMIs, which rose to 52.2 from 51.3 and 51.6 from 50.6 respectively, as well as the fortnightly Michigan Uni consumer sentiment index, which rose to 96.8 from 96.7 as Black Friday approaches.

It was a modestly positive end to an otherwise modestly negative week which saw the Dow snap a four-week winning streak, the S&P500 six weeks and the Nasdaq seven.

The question is being asked is this the beginning of a pullback or is it just a market settling back a bit as it awaits something concrete on the trade front? The answer is most likely the latter, given the risk of there actually being a breakthrough on the trade front. Yet all the while the December 15 tariff deadline looms.

Consensus has it that Trump will probably at least delay that tranche in order to speed things up on phase one and head into the election year with at least some sort of a “win”. But of course it could all go the other way.

Wall Street will cram plenty of action into the first three days of the week before the Thanksgiving holiday and half-day Friday, which allows traders time to visit the sales. There’ll be a lot of attention paid to foot and cyber traffic indications, as always.

It is interesting that months after last Black Friday, Home Depot confirmed that particular day was its best ever in terms of sales. So watch out for Bunnings getting in on the act.

Commodities

News that the global nickel deficit has widened had that metal back in the black on Friday night.

Iron ore is quietly gaining momentum.

The oils pulled back a bit after two solid days of gains.

The Aussie is a tad higher at US$0.6793 despite a 0.3% gain for the greenback.

The SPI Overnight closed up 12 points or 0.2%.

The Week Ahead

The US will cram numbers for consumer confidence, house prices, new and pending home sales, durable goods, PCE inflation, the Fed Beige Book, the Richmond Fed index and another revision of September quarter GDP all in before Thursday’s holiday.

The NYSE will close at 1pm on Friday.

In Australia, the RBA governor speaks tomorrow ahead of data for September quarter construction work done on Wednesday and private sector capex on Thursday, which are important components of next week’s GDP result.

Collins Foods ((CKF)) and Fisher & Paykal Healthcare ((FPH)) report earnings on Wednesday followed by Select Harvests ((SHV)) on Friday.

Perpetual ((PPT)) host an investor day on Wednesday while another solid week of AGMs plays out. Aventis Group ((AVN)) and Healius ((HLS)) are in the frame today.

The Australian share market over the past thirty days…

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