The Overnight Report: Off The Highs

This story features BLACKMORES LIMITED, and other companies. For more info SHARE ANALYSIS: BKL

By Greg Peel

The Dow closed down 65 points or 0.4% while the S&P fell 0.5% to 2175 and the Nasdaq lost 0.8%.

As You Were

After Tuesday’s brief interruption to normal service, in which it appears a sizeable index buy order hit the market, it was back to the familiar theme on the local bourse yesterday as a small change in the index at the close masked a lot of individual stock movement underneath.

We are now past halfway in the results season in terms of number of companies reporting. On FNArena’s assessment, beats are running at a fairly steady 36% to misses of 25% but broker downgrades are outpacing upgrades by 2.4 to one – a number that has quietly increased as the season has progressed.

The vast bulk of those downgrades are due to over-valuation calls, and to a great extent brokers have almost been apologetic in downgrading what they think are terrific companies that have simply been bought up too far by the market.

This theme has extended into stock movements on the day that have accompanied beats or misses. High flyers who miss even by a slim margin have been slaughtered, while former unloved try-hards who show signs of improvement have been leapt upon. Yesterday was no different.

Snake oil peddler Blackmores ((BKL)) down 20% on weak FY17 guidance. Another Chinese favourite – a2 Milk Company ((A2M)) – down 6%. Yet another Chinese favourite, Australian Agricultural Company ((AAC)), down 5%. FBT dodger McMillan Shakespeare ((MMS)), having seen a solid rebound since Joe Hockey left the country, down 10%.

On the other side of the ledger: software company iSentia ((ISD)) having had a weak year to date, up 17%. It’s been a tough year also for Ardent Leisure ((AAD)), up 14% and for Sirtex Medical ((SRX)), up 12%, and a very bad year for Spotless Group ((SPO)), up 7%.

Yesterday also saw ongoing selling in Tuesday’s disappointers, with Aconex, Greencross and APN Outdoor all suffering further.

There was also disappointment from Wesfarmers ((WES)), despite reporting in line with forecasts. Its shares fell 2% because it has been a popular investment of late and Coles is losing its lustre.

To have a rule you must have an exception, and that came from another software company, Altium ((ALU)). It’s had a solid run all year and yesterday popped 13%.

On a sector basis, if we ignore the 3% fall in telcos due to Telstra’s dividend and 0.3% for utilities due to AGL Energy’s dividend we see consumer staples having suffered the most, down 1.4% thanks to Wesfarmers, industrials closing flat on the above-noted mix of results, and every other sector rising on the day.

Including the banks, which kicked on with another 0.6% gain.

Yesterday’s local data release was June quarter construction work done, which plays into GDP. Overall construction fell 3.7% to be 10.6% lower over twelve months. But it’s not all bad.

The big drag was engineering, down 9% and 25% for the year, largely reflecting the number of big LNG projects reaching completion. As we move ahead from such completions, year on year declines will bottom out. Housing construction is still leading building, up 1.2% and 6% for the year, and governments are doing the right thing in pushing ahead with infrastructure, sending public sector spending up 5.3% for 15% annual.

Unhealthy

Wall Street came off near all-time highs last night but a hundred point Dow fall was pared back late in the afternoon. Aside from another drop in the oil price, the US healthcare sector has been the focus of weakness this week.

On the one hand we’ve seen outrage as drug-maker Mylan announced it would double the price of its ubiquitous Epipen, which so many across the globe carry around as a potential lifesaver. The Epipen represents only one of Mylan’s significant price hikes, and investors have bailed out of the stock fearing government intervention.

On the other, we’ve seen Pfizer (Dow) making two big acquisition announcements in one week and subsequently making investors nervous.

A little bit of a rally in the US dollar overnight, up 0.2% on its index to 94.78, sent commodity prices into a bit of a tailspin as markets look ahead to tomorrow night’s speech by Janet Yellen at Jackson Hole. The fear is Yellen will use the symposium as the forum to confirm a rate hike. I say fear, because no one really believes she’s going to say anything new. But better to be safe…

Otherwise it was still a case of more of the same as the US reaches the “dog days of summer”, as commentators seem to enjoy saying. Volumes remain thin and volatility low.

Bring on Janet.

Commodities

West Texas crude is down US77c at US$46.80/bbl on last night’s weekly US inventory data, which overwhelmed a suggestion Iran may be prepared to talk production freeze after all. I’ll believe that when I see it.

Base metal prices tumbled in London led by nickel, down 3%, with copper and aluminium each falling 1.5%.

Iron ore fell US10c to US$61.50/t.

Gold was shaken out of its slumber and fell US$13.10 to US$1323.80/oz.

The Aussie is steady at US$0.7614.

Today

Tonight sees the release of German IFO investor sentiment index for August which should be interesting in the wake of the surprise eurozone PMI result this week.

Wall Street will see durable goods.

Otherwise, yesterday was the biggest day on the local reporting calendar by number of companies and today sees fewer by only a whisker.

Woolworths ((WOW)) is among the bigger names today and is carrying a big short position, along with very heavily shorted Flight Centre ((FLT)). We’ll also see Amcor ((AMC)), Nine Entertainment ((NEC)), Perpetual ((PPT)), Ramsay Health Care ((RHC)) and  South32 ((S32)), along with many, many more.

Rudi should appear on Switzer TV tonight, Sky Business, 7-8pm.
 

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