The Overnight Report: Cut The Cord

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By Greg Peel

The Dow closed down 120 points or 0.7% while the S&P lost 0.8% as the Nasdaq plunged 1.7%.

Banked

For all the sensationalist, end-of-world-is-nigh headlines and nauseating polly-spin from either side of the argument, yesterday’s local jobs numbers were actually quite positive.

Sure, the unemployment rate jumped to 6.3% in July from a revised 6.1% (previously 6.0%) in June but this number is always (a) a bit spurious and (b) often misleading given the limitations of what it actually measures. We went down this path earlier in the year when there was a surprise jump up to 6.4% before the rate just as quickly fell back again.

The bottom line is 38,500 jobs were added in July, including 12,400 full-time, when economists had forecast a net 10,000. The jump in the unemployment rate was all about a sharp jump in the participation rate to 65.1%, the highest level in over two years. This implies more people who had given up on finding a job have re-entered the system to have another go, suggesting increased confidence in finding employment.

Either way there likely wasn’t a huge amount of attention paid to the jobs numbers yesterday on Bridge Street, given they’re unlikely to shift RBA policy and  there were other things going on, most notably the announced capital raising from ANZ Bank ((ANZ)).

Realistically there’s little excuse for surprise from the market given bank analysts have been debating the bank capital raising issue all year, since the Murray Review was tabled, and while suggesting maybe DRPs and hybrid issues might be enough, straight equity raisings were never out of the question in response to tighter capital requirements as far as analysts were concerned.

National Bank ((NAB)) went early, under the cover of its UK business exit, and at the time analysts suggested Commonwealth Bank ((CBA)) will quite possibly follow suit at its FY15 report release. The only surprise, therefore, is that ANZ made a pre-emptive move.

The banks led the ASX200 down yesterday with a 1.7% fall. The other source of weakness on the day was a badly-received result from Downer EDI ((DOW)), who these past months has been seen as one of the more attractive investment options among the beaten down engineers & contractors. Downer’s 11% plunge, right at the beginning of earnings season, appears a little ominous. Industrials suffered a decent fall yesterday, did energy yet again.

The only sector to close in the green yesterday was materials, albeit slightly, on a rise in the iron ore price and ahead of Rio Tinto’s ((RIO)) profit result. That result was relatively well received in London overnight, if we consider BHP Billiton ((BHP)) is down 3% and Rio is up a tad, and the two are usually joined at the hip.

Realistically what we saw yesterday is yet another move back towards the middle-ground safety of the 5600 mark, following yet another failed attempt to breach 5700. From this pivot point, specific earnings results will become influential, outside forces notwithstanding.

Media Madness

I noted yesterday that a weak profit report from media giant Walt Disney set in train a sudden sharp sell-off of all “old” media companies on Wall Street. The issue is one of so-called “cord cutting”, which sees consumers abandoning their expensive and content-restrictive cable TV subscriptions in favour of cheaper and less limited internet content streaming. Well that sell-off continued last night on Wall Street once more, with gusto.

Disney, owner of ESPN, was slapped again as were Viacom, 21^st Century Fox, Time Warner and Comcast. The winner of the day was once again Netflix. Over to you Bob… “for the times, they are a-changing”.

On the other hand, weak sales guidance from electric car pioneer Tesla saw that stock slapped last night, which triggered a sympathetic sell-off in manufacturers of new-age vehicle systems such as on-board cameras and warning systems. In general Wall Street experienced one of those sessions in which the “momentum” plays, often centred around technology, were bailed out of. Thus the Nasdaq fell 1.7% and created a market-wide downdraught.

The Dow was down as many as 178 points at lunchtime but at that point the S&P500 hit its 200-day moving average and recovered somewhat.

For all its to-ing and fro-ing over 2015, Wall Street has still gone absolutely nowhere, and monetary policy uncertainty has been signalled out as the greatest contributing factor. That’s why many commentators are simply pleading with the Fed to get the first rate rise over and done with, whether the data be good or bad.

Commodities

It was a relatively quiet night on the commodity front last night, helped by a US dollar index relatively steady at 97.82.

Base metal prices on the LME were mixed on smallish moves, other than zinc which fell 1.3%.

Iron ore fell US10c to US$56.30/t.

West Texas has now traded under 45, which is a psychological level, but only on a US32c fall to US$44.80/bbl. Brent actually rose US11c to US$49.72/bbl.

Gold dipped US$4.90 to US$1089.50/oz.

The Aussie is steady at US$0.7347.

Today

The SPI Overnight closed down 36 points or 0.7%. Are we heading back down to the bottom of the range?

ANZ has completed the $2.5bn institutional component of its $3bn raising so it will be interesting to see how far ANZ shares fall today, having come out of their trading halt, given the 5% discount. We recall that the earlier NAB raising was soaked up with barely a blink.

Rio Tinto will be in focus following its profit report and today sees a full-year result from Virgin Australia ((VAH)).

The RBA’s quarterly Statement on Monetary Policy will be released today, featuring updates on the central bank’s forecasts for GDP, unemployment and various other metrics.

Jobs numbers in the US tonight.

Over the weekend, China will release inflation and trade data.
 

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