The Overnight Report: Still Fisching

This story features ESTIA HEALTH LIMITED, and other companies. For more info SHARE ANALYSIS: EHE

By Greg Peel

The Dow closed down 48 points or 0.3% while the S&P lost 0.2% to 2176 and the Nasdaq fell 0.2%.

Surf’s Down

SurfStich ((SRF)) floated not quite two years ago at a dollar, hit two dollars at the beginning of this year, and proceeded to step-jump down on a series of profit warnings before losing half its value yesterday in one fell swoop, to now be trading at ten cents. Echoes of another well-known surf wear company.

It doesn’t pay to miss guidance in this market.

The bigger story yesterday on the local market was a case of another one bites the dust. Gateway Lifestyle ((GTY)) became another member of the fledgling residential aged care sub-sector to disappoint with its result, sending its shares down 13%. Having already dropped 17% the day before for the same reason, peer Estia Health ((EHE)) copped another 15% beating, while Japara Healthcare ((JHC)) and Regis Healthcare ((REG)) rounded out the sub-sector whitewash with 3.5% falls.

It was a great story – ageing population, lack of affordable housing, longer time spent in retirement – and initially analysts were very keen on these names. That is until share prices started to run ahead of value. It’s still a great story, but not at any price.

It was left to healthcare stalwart Ramsay Health Care ((RHC)) to right the sector ship, rising 8% on a strong result despite having already rallied 34% from its February low. Hospitals are safer than retirement villages it would seem.

It’s been a difficult year for financier FlexiGroup ((FXL)) but a good result saw its shares up 8%. The winner on the day was nevertheless naval boat builder Austal ((ASB)), which had a torrid year and having popped 13% on its result on Tuesday, kicked another 14% yesterday.

Beyond yesterday’s round of alpha moves was the underlying beta story of an ASX200 trying to get back to 5500 on a strong lead from Wall Street. It did, for a heartbeat on the open, before drifting back again all day. Sector moves were mixed and showed little coherence.

Today is effectively the last day of the result season. From here on it’s mostly penny dreadfuls reporting before we hit a few out-of-cycle larger name reporters next month. Then it will be back to focusing on the macro, which simply means central bank watching.

United We Stand

There’s a photo doing the rounds that has Wall Street’s attention. It shows the three top-end Fedheads – chair Janet Yellen, vice chair Stanley Fischer and New York Fed president William Dudley — sharing a drink and a joke before a backdrop of Wyoming pasture at Jackson Hole. A typical happy snap from one of those annoying photographers ever present at conference drinkies?

No, say commentators. It represents a staged attempt to convey unity. And therefore it is an implicit indication that what Stanley Fischer said on Friday about the possibility of two rates hikes, and his suggestion that Janet Yellen’s speech backed up this possibility, is real. Fischer spoke again last night, effectively reiterating his comments by suggesting it is impossible to say the next Fed rate hike would be “one and done”.

Markets are beginning to pay attention. The US dollar index jumped another 0.5% to 96.05 last night and, finally, gold responded, falling US$12.70 to US$1310.50/oz. Only the bond market remains unconvinced, with the ten-year yield unmoved at 1.57%.

For stock markets it’s really a case of “25 basis points, so what?” Wall Street has had all year to prepare for this minor tightening that’s never come. But maybe 50 basis points might be a different story. The biggest movers up over 2016 have been the US yield stocks, particularly utilities and telcos.

And tomorrow is September – historically the worst month of the year for stocks. The next FOMC decision will be released on September 22 and being a quarterly meeting, will also feature a press conference from Janet Yellen. These relatively new press conferences are seen as the perfect opportunity to make a policy change and then explain it. If Friday night’s US jobs report is a biggie, things could get interesting.

But it wasn’t really the Fed that spooked Wall Street into some mild selling last night, again on negligible volume. The biggest influence was the US$14.5bn tax battle between Apple, Ireland and EU. Apple shares fell and dragged down other Big Tech names as tax fears flooded Silicon Valley.

Then there was that US dollar jump, which sent commodity prices south and thus prompted falls in the energy and material sectors.

Commodities

West Texas crude is down US69c at US$46.26/bbl.

Base metal traders had their first real chance to respond to Jackson Hole last night given the LME was closed on Monday night, but price falls were relatively mild.

Iron ore rose US20c to US$59.00/t.

It was left to gold to post the bigger fall.

The Aussie is pleasingly down 0.8% to US$0.7510 on greenback strength.

Today

Those US resource sector falls will likely flow over into the local market today, with the Big Two miners being sold heavily overnight. However, the SPI Overnight closed up 6 points.

Private sector credit data for July are due locally today while the ADP private sector jobs report in the US will provide a precursor for Friday’s non-farm payrolls.

The results season wraps up today with last hurrah reports from Adelaide Brighton ((ABC)), Harvey Norman ((HVN)) and Independence Group ((IGO)) among a handful of others.

Rudi's weekly appearance on Sky Business has been pulled forward by 24 hours. Watch him on the channel today, 12.30-2.30pm.
 

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