The Overnight Report: Oiled Up

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By Greg Peel

The Dow closed up 23 points or 0.1% while the S&P gained 0.2% to 2187 and the Nasdaq rose 0.2%.

Amped Down

To date the local earnings season has featured plenty of ups and downs among individual reporting stocks that have largely netted out to leave the ASX200 in sideways mode. Yesterday we saw more downs than ups, or more specifically, more influential downs than ups, to provide a 0.5% index drop.

AMP ((AMP)) posted a miss that largely came down to weakness in its wealth protection business – a business also conducted by the banks. We thus saw AMP shares down 5% and a flow-through to general financials sector softness in falling 0.9% and proving a major drag on the index.

Heathcare heavyweight CSL ((CSL)) saw ongoing selling following its miss on Wednesday, falling another 3%, While Primary Health Care ((PRY)), having jumped up following its release on Wednesday, jumped straight back down again by 5% yesterday to help take that sector down 1.9%.

This harks back to what I was saying yesterday – first responses to result announcements are not always definitive indicators. And on that point I note Domino’s Pizza ((DMP)) was back amongst the losers yesterday in falling 4%. Down, up, down — the market really cannot come to a conclusion on that company.

Consumer discretionary fell 0.5% yesterday but it was a very mixed bag for a very diverse sector. Treasury Wine Estates ((TWE)) won the day with an 11% gain for example, and auto parts dealer BapCor ((BAP)), formerly Burson, jumped 6%.

It was left to the resource sectors and consumer staples to provide some offset yesterday, given the telcos and utilities saw a return to weakness.

Speaking of weakness, the monthly Australian jobs lottery surprised as usual yesterday, not because the ABS website managed to stay up for the release but because 26,200 jobs were added in July when 10,000 were forecast. The unemployment rate ticked down to 5.7%.

Oh no, there goes the rate cut, said forex traders, and the Aussie duly shot up over 77c. However, the breakdown revealed 45,400 full time jobs were actually lost during the month, offset by the addition of 71,600 part time jobs. “Underemployment” is the new buzz word. There are plenty of people who would dearly like to work more hours, and the preponderance of part time-only work is why Australia’s wage growth is currently so anaemic.

So as you were, no reason to see the RBA changing its mind on the strength of this particular jobs report. The Aussie subsequently dropped back below 77 before running into US dollar weakness overnight, and is currently up 0.4% over 24 hours at US$0.7685.

It was likely the misleading jobs report that sparked selling in the yield sectors yesterday.

Another Shrimp?

The nightmare of any overnight reporter is that nothing actually happens, leaving nothing to report. Wall Street is offering up just that scenario at present. The US indices bungled a long last night in thin trade once again, reminding us that August in the US is January in Australia and everyone’s having a barbie after a dip rather than trading stocks.

We did see WalMart (Dow), the world’s largest retailer, post a surprisingly good result and oil prices continued to run higher. Brent rose 2% to surge through the US$50/bbl mark while WTI closed some of the gap with a 3% gain to over 48.

And Fedspeak raised its increasingly ugly head again. Following on from no less than three Fedheads suggesting this week a rate hike is either likely or at least needed, St Louis Fed president James Bullard, he of “new regime” fame, last night reiterated his prediction that there won’t be a rate hike until 2018.

What is an investor to think?

Commodities

The US dollar index fell 0.6% to 94.18 last night, probably because the market believes the Bullard camp holds more sway over the FOMC than anyone pushing for a hike. This provided some support for commodity prices.

West Texas crude rose US$1.40 to US$48.34/bbl and Brent rose US$1.07 to US$50.92/bbl.

Aluminium bucked the trend on the LME by falling slightly while the other metals jumped 1-1.5%.

Iron ore fell US30c to US$60.80/t.

Gold continues to graft higher, rising US$3.70 to US$1352.10/oz.

Today

Following yesterday’s local market weakness, the SPI Overnight closed up 15 points or 0.3%.

The index futures are a difficult game to play at the moment nonetheless, given index movements this month have been almost entirely driven by individual company earnings and not by any macro influence. So each day is a bit of a lottery on who might beat and who might miss.

Woodside Petroleum ((WPL)) and Santos ((STO)) are in the frame today, as are Insurance Australia Group ((IAG)), Lend Lease ((LLC)), Medibank Private ((MPL)), and a couple of popular smaller names in the form of Automotive Holdings Group ((AHG)) and Bellamy’s Australia ((BAL)). The latter is quite heavily shorted.

Rudi will appear twice on Sky Business today. First via Skype-link to discuss broker calls, at around 11.05am, and later on Mark Todd's Fixed Interest version of Your Money, Your Call with co-guest Roger Montgomery, 7-8pm.
 

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