The Overnight Report: Minutes Of Dispute

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

By Greg Peel

The Dow closed up 21 points or 0.1% while the S&P gained 0.2% to 2182 and the Nasdaq was flat.

Knee Jerk

Another day, another flat close for the ASX200 belying all that was going on underneath amongst individual stocks. The index did open around 20 points lower but a lot of that was Commonwealth Bank ((CBA)) going ex.

The financials sector was quite the mixed bag yesterday as it contains insurers as well as banks. Take out CBA’s dividend and the banks did well yesterday, but QBE Insurance ((QBE)) disappointed with its result and fell 8%. The sector was down 0.3% on the day.

The hardest hit sector was healthcare, thanks to a miss from market darling and sector heavyweight CSL ((CSL)). It fell 5%. But in contrast, the regulated health care names Sonic ((SHL)) and Primary ((PRY)) both reported well and rose 6% and 2% respectively. The sector fell 1.9%.

The resource sectors were strong again yesterday on higher commodity prices while the consumer sectors also had a solid session and utilities finally found some buyers.

The fact that the index as a whole has barely moved this week, given a lack of macro influence, allows us to witness the machinations of a reporting season in this era of high speed trading. Quant analysts will tell you the response to the result on the day is not as important, ultimately, as where a stock ends up a month later.

Once investors have had a proper chance to dig through the details of a report, and stock analysts have offered their assessments, the concept of headline profit as the immediate gauge can prove misleading. Fully valued Domino’s Pizza ((DMP)) dropped 4% when it reported on Tuesday but rallied 8% yesterday. The market initially saw a miss but analysts liked the numbers.

By contrast, stocks such as Newcrest Mining ((NCM)), G8 Education ((GEM)) and InvoCare ((IVC)) posted weak results which saw falls on the day and further falls since, while Ansell ((ANN)) shot up 18% on the day and has managed to hold onto that gain.

High frequency computers don’t have time to do the analysis when a result release hits the wires. They just respond to headline numbers and trigger words. Those who actually do the analysis, or at least take on board stockbroker analysis, have the chance to decide whether the initial response was justified or not.

Earnings results aside, there actually were some macro data to consider yesterday. It didn’t much impact the stock market but the fact the Aussie is 0.6% lower this morning at US$0.7652 is the result of June quarter wage index showing a mere 0.5% gain. This is in line with expectation but at 2.1% annual, wage growth remains at its slowest pace since numbers began being recorded in 1998.

Forex traders saw the release and immediately said “RBA rate cut”.

You Say Tomato

The Dow was down over 80 points from the open last night but ahead of the release of the July Fed meeting, had rallied back to square. On that release the market initially dropped sharply (computers) before bouncing straight back to a mildly positive close.

The FOMC is split. Some members just want to get on and lift rates while others remain cautious and would rather keep watching for more clues in the data. One gets the feeling they could do this forever. The Big Kahunas in the committee, such as Yellen, are on the dovish side so on the release of the minutes, the Fed funds futures priced in even less of a chance of a September hike and trimmed December’s chance as well.

Wall Street just scratched its head. Is this new era of Fed transparency, such that the world is witness to the internal squabbles, beneficial for markets? Or would we all be better off if the only time we ever heard from the Fed is via the official statement released after each meeting? Oh no, that might spark volatility. But all the Fed is managing to spark at the moment is confusion, frustration and criticism.

Speaking of confusion, the key driver of the US economy is domestic consumption which is why so much attention is paid to retail sales figures and retailer earnings results. Over the past week we’ve seen surprisingly good results from US department stores such as JC Penney, then a weak retail sales numbers after three months of very good numbers, and last night weak results from discount chain Target and hardware chain Lowe’s.

Wall Street is finding it difficult to get a handle on the US consumer.

It’s not hard to get a handle on oil, however. WTI is up another percent and Brent is very close to regaining the US$50/bbl mark. What will happen when Saudi Arabia walks away from next month’s OPEC meeting declaring no agreement?

Commodities

West Texas crude is up US53c at US$46.94/bbl. Brent is up US80c at US$49.85/bbl and the gap again begins to widen.

The US dollar index is flat at 94.73 and base metals played their own games last night. Copper and zinc rose 0.5%, aluminium and lead rose 1.5%, and nickel fell 3%.

Iron ore fell US70c to US$61.10/t.

Gold is relatively steady at US$1348.40/oz.

Today

The SPI Overnight closed up 3 points. Looks like we’re in for yet another day in which full attention will be paid to earnings.

We do, however, have the July jobs numbers out today but as each month passes, the market pays less heed given the volatility and often sheer incredibility of the results. Well, the numbers are delivered by the ABS.

It’s the biggest day yet for the earnings season in terms of volume of reports. Highlights today include AMP ((AMP)), ASX ((ASX)), Brambles ((BXB)), Origin Energy ((ORG)), Whitehaven Coal ((WHC)) and Western Areas ((WSA)).
 

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