The Overnight Report: Retail Wreck

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By Greg Peel

The Dow closed up 9 points while the S&P was flat at 2064 and the Nasdaq fell 0.5%.

By Greg Peel

Mixed Bag

I thought thirty points down in the SPI ahead of yesterday’s open on the local market looked a bit pessimistic but we got there early on, only to stumble back by the close. The 13 point drop in the index for the session represents no more than Westpac going ex.

That’s also why the financials sector was down 0.9% yesterday but elsewhere we closed with very mixed results, suggesting the market is trying to sort out its allocations as we flirt with the highest index levels of 2016 to date.

Myer ((MYR)) posted a less worse than expected result and shot up 7%, dragging consumer discretionary up 0.9%. Myer is nevertheless the second most shorted stock on the market – 14% according to ASIC’s most recent data – and thus short-covering was a primary driver.

Energy jumped 3% on the rise in oil, as this sector just refuses to settle down. A tick up in iron ore saw materials up 0.7%. Thereafter, funny things were going on in the defensives with telcos up 0.8% and utilities down 1.7%.

The ASX200 is sitting between 5300 and 5400, right in the middle of what has been a technical target range for the past couple of months. Following on from central bank domination in April the macro story has gone a bit quiet, leaving the current swathe of micro-story corporate earnings results, quarterly trading updates and AGMs to provide impetus in individual sectors, but not in clear index direction.

We have Chinese monthly data out over the weekend and the eurozone GDP result tonight, which may or may not spark some movement. We have Japan’s GDP next week. But it is likely we will need to wait to June for some more macro action, when the Fed meets and the Poms hold their referendum.

The King is Dead

Having not released any ground-breaking new iThings for a while, Apple has been on the slide. Last night manufacturers who make components for iThings reported weaker than usual demand in the second quarter, and Apple shares fell further. The result is that the most recent company to be included in the Dow, on the basis of it being the biggest company in America, is as of last night no longer the biggest company in America.

Long live the artist formerly known as Google. Alphabet is now the biggest company in America – a title that for so long belonged to Exxon but not, for obvious reasons, in recent times. Alphabet is not in the Dow.

Nor are any of America’s big department store and apparel chains in the Dow, which is probably just as well. Following on from Macy’s 14% plunge on Wednesday night, Kohls fell 9% last night on an earnings miss and after the bell, Nordstrom is down 17% for the same reason. JC Penney reports tonight.

While consumer discretionary alone is not enough to send Wall Street hurtling southward, ongoing concern over just why these chain store results are so bad is weighing on investor sentiment, and on hopes for the US economy. Is it structural? Because that’s okay. That’s just a changing of the guard. Is it because of a warm winter? Because that’s just seasonal. Or is it because the US consumer is simply not spending? Because that’s a worry.

It’s probably a conflagration of all three, but with the US savings rate running at 5%, the latter remains an issue in the June quarter. Americans are buying cars, and spending on home renovation, but they’re just not buying clothes and accessories – what women would call “staples” and men would call expensive and unjustifiable indulgences (as they queue up at Home Depot). Gucci belts, it would seem, have been tightened.

Also weighing on Wall Street last night was the weekly new jobless claims number. I usually don’t follow this weekly number too closely given its volatility but last night’s sudden jump to a 14-month high of 294,000 new claims, coming off the back of the weak April non-farm payrolls result, has Wall Street wondering whether the solid run for the US labour market these past few years has now reached a peak.

Of course the balance is yet another reason not to expect the Fed to raise in June. So having been up over 80 points early and down over 80 points mid-session, the Dow closed flat, as did the S&P. The Nasdaq’s drop was all about Apple.

Commodities

You can’t keep a good oil price down at the moment which is rather disconcerting. The higher it rises…

West Texas is up US40c at US$46.39/bbl and Brent is up US62c at US$47.92/bbl.

Base metal traders in London did not like the US jobless claims number at all, nor the fact that the US dollar index rose 0.4% to 94.15 when such a result would suggest the opposite. Aluminium fell 1%, copper and zinc fell 1.5%, nickel fell 2% and lead and tin fell 3%.

After a one-session bounce, iron ore is down US$1.00 at US$54.40/t.

Gold is down US$13.50 at US$1263.20/oz.

The Aussie is down 0.8% at US$0.7322.

Today

The SPI Overnight closed down 11 points or 0.2%.

The US retail sales result for April is out tonight, just to add further fuel to the consumer fire. The eurozone will release its March quarter GDP result tonight and tomorrow, Beijing will release April retail sales, industrial production and fixed asset investment numbers.

Before that, Oil Search ((OSH)) and Santos ((STO)) will both hold AGMs today.

Rudi will Skype-link with Sky Business at around 11.05am to discuss broker calls and then re-appear as guest on Your Money, Your Call Fixed Interest, 7-8pm.
 

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