The Overnight Report: Eying The Highs

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By Greg Peel

The Dow closed up 17 points or 0.1% while the S&P gained 0.2% to 2186 and the Nasdaq rose 0.3%.

Surprise Surge

Now where did that come from? There we were, happily cruising along sideways in the local market as share price responses to the beats and misses of earnings reports largely cancelled each other out. Then suddenly the index is up almost 60 points.

We faded to the close for only a 38 point gain but still we bucked the trend of the month of very low market volatility masking plenty of movement in individual stocks. I’d like to say the gain was all about a day when all the earnings reports lined up together to spark share price jumps but that was not the case.

On the upside, we did see some positive moves from the reporters on the day such as Charter Hall Group ((CHC)), Virtus Health ((VRT)) and Vocus Communications ((VOC)) but at the top of the leader board were stocks having already reported over recent sessions, including IPH, Bellamy’s, Whitehaven Coal and BlueScope Steel.

On the downside, the biggest loser on the day was Monadelphous ((MND)) with an 18% plunge, which dragged down energy services peer WorleyParsons ((WOR)) by 6% ahead of its own result today. Also high on the loser board were previous reporters Bapcor, Cover-More and aged care names Japara and Estia.

So it was still very much a cancel-out day as far as earnings were involved. Yet if we look at the sector moves, they line up fairly evenly to the upside other than energy, which suffered from the lower oil price. The banks rose 0.9%, despite nothing new. Healthcare rose 1.0% thanks to some buying in heavyweight CSL. A 0.9% gain for the telcos included buying in Telstra. All the big caps, it seems, copped a bid.

Someone was executing a Buy Australia trade. At least that’s my assessment.

The index futures are pointing to another decent opening today, but overnight we did actually have some positive macro influences to play off. And one London broker’s upgrade to Glencore and peer BHP Billiton ((BHP)) should also provide a boost.

Otherwise, today is the biggest day of this result season in terms of number of companies reporting.

Shrugged Off

There were grave fears for a struggling European economy when the UK surprisingly voted to jump ship. Last night a flash estimate of eurozone composite (manufacturing and services) PMI for August suggested a level of 53.3, up from 53.2 in July, being the month in which the Brexit vote was held.

While a 0.1 gain is hardly shooting the lights out, the point is economists had forecast a drop in the gauge on the assumption Brexit would have impacted on business and consumer confidence. The PMI helped boost European stock markets, sending Germany up 0.9% and France up 0.7%, while the UK market rose 0.6% in sympathy.

The Dow subsequently opened up almost a hundred points from the bell, before quietly fading as the day progressed. A similar flash PMI estimate for the US was not quite as flash, but that didn’t matter as Wall Street cheered on new home sales.

Sales of new homes in the US jumped 12.4% in July to be 31% higher than a year ago, marking their highest level in eight years. Eight years ago the US housing bubble was about to burst.

Thriving new home sales is great news for an economy as domestically-focused as the US. Aside from the implications for builders, new homes mean a flow-on into sales of furniture and appliances and everything else one fills a house with. Indeed, the Australian market has been witnessing exactly that for the past few years.

Of course, strong US economic data also brings the elephant back into the room. We might consider Wall Street’s all-day drift off from the opening peak to reflect Fed rate rise speculation. The Nasdaq moved into new blue sky territory before closing under, and the S&P500 went very close before slipping away. The Dow remains around a hundred points shy of its recent all-time high.

There is unlikely to be too much speculation regarding Fed policy for the rest of the week given Janet Yellen will speak in Jackson Hole on Friday and then presumably more will be known. Otherwise, why is she there?

Mind you, it would be classic Yellen to turn up and say absolutely nothing of substance.

Commodities

West Texas crude was up around a percent during last night’s session in the new October delivery contract which does rather support my suggestion yesterday that Monday night’s drop was simply an expiry thing. WTI has since faded nonetheless to be up US16c at US$47.57/bbl.

The positive eurozone news did little to fire up London metal markets. Zinc jumped 1% but copper fell 1% and the others moved little in either direction.

Iron ore rose US50c to US$61.60/t.

The US dollar index is flat at 94.55 and gold is just a tad lower at US$1336.90/oz.

The Aussie is 0.3% lower at US$0.7612.

Today

Tonight Wall Street will see whether existing home sales can match new home sales but before that we’ll see Australian June quarter construction work done.

And then there are all those reporters.

They include Blackmores ((BKL)), Boral ((BLD)), MG Unit Trust ((MGC)) (aka Murray Goulburn, that’ll be interesting), Qantas ((QAN)), Qube ((QUB)), Spotless ((SPO)), Wesfarmers ((WES)) Westfield ((WFD)) and the aforementioned WorleyParsons, among many, many more.

Also note Telstra ((TLS)) goes ex today.
 

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