The Overnight Report: Appletised

This story features MYER HOLDINGS LIMITED. For more info SHARE ANALYSIS: MYR

By Greg Peel

The Dow closed down 31 points or 0.2% while the S&P was flat at 2125 as the Nasdaq rose 0.4%.

Finally

Yesterday the local market finally decided enough is enough, at least for the time being. Despite the Dow falling 250 the ASX200 eked out a small gain, supported by the fact the local market has been leading global fear of a Fed rate rise, not following it.

The index has fallen over 7% from its most recent high when Wall Street has managed about 3%. The irony is, the US Fed funds futures market is still only pricing in around a 20% chance of a rate hike next week. If we don’t get one, do we go rushing back up again?

Or has reality finally bitten for the likes of the infrastructure stocks, REITs and telcos which have done nothing wrong other than to have proven too popular among desperate yield seekers? If there is no Fed rate hike next week, the odds of a December hike firm considerably. Is there any point in buying these names back up in the meantime?

Well yes there is – reliable yield – but perhaps the market has now learned what the top end of valuation for yields stocks should be. Yesterday we saw the banks bounce back and Telstra come back strongly, but we still saw selling in utilities. Falls in iron ore and oil prices ensured the resource sectors were the balancing factor on the day.

The other side of the coin is, of course, the support local yield stocks enjoy from local investors thanks to domestic monetary policy. Will the RBA cut again? Economists seem to believe so but the central bank itself is certainly not providing any hints. Were the Fed to raise next week the need for the RBA to cut again is diminished, given the Aussie should fall and thus ease that particular “complication”.

The August rate cut is still being cited as reason for Australian consumers remaining reasonably confident. Yesterday’s Westpac survey showed confidence has inched up again this month by 0.3% following last month’s RBA-inspired 2% jump. At 101.4, the index suggests optimists are just outnumbering pessimists at this time. But we are 8% more confident than a year ago.

Today we see the local jobs lottery, which while rarely much of a stock market mover does play into the currency and RBA policy.

Big Tech

Wall Street also largely stalled last night following three sessions of volatility, which had followed 43 sessions of a total lack of volatility. With the WTI price again falling close to 3%, it was again down to Apple and friends to balance the indices.

Apple had been sold down extensively in the lead-up to the launch of the new iPhone7 on the basis that all along Apple had said the 7 won’t be a lot different to the 6, but wait for the tenth anniversary model iPhone8 next year, that’ll be a cracker! So why would anyone buy the 7?

Because there are just too many Apple zealots out there. Much to everyone’s amazement, the iPhone7 has broken sales records. Having rallied 2.5% on Tuesday night, last night America’s biggest company gained another 3.5%. And along for the ride came all of Apple’s mates, the Big Tech names like Microsoft, Facebook, Amazon and Netflix.

A lot has been said about the TINA trade – there is no alternative. But while TINA largely refers to yield, which is why Wall Street has seen the same stretched valuations for utilities, telcos et al, there is also the matter of where does one go to try to find any growth? “New world” companies are one place, like your Teslas and cloud companies and so forth, but these come with commensurate risk. Dusty old Big Tech has an established track record.

Maybe next year will be more interesting, when, it is expected, some of the bigger “disruptors” will go public, such as Uber and Airbnb.

We recall that a week ago, oil prices bounced back hard on the surprise of substantial drawdowns of crude apparent in US weekly inventory numbers. Oil has fallen back this week following the IEA’s downgrade to global demand forecasts, and last night the latest US weekly data were released.

While the numbers showed nothing particularly exciting for crude, the oil market was flummoxed by a big build in products, ie gasoline etc. So an already nervous oil market went into selling mode again. But what also surprised last night was a sudden and sharp bounce in base metal prices.

Commodities

Global stock market weakness these past few sessions has been driven by Fed rate hike fears, which have driven up the US dollar and thus kept a lid on commodity prices. Last night Wall Street stalled at lower levels and the US dollar index slipped back 0.2% to 95.34.

This appeared to provide LME traders with the confidence to buy the metal they would otherwise have bought the night before on the reasonably positive Chinese monthly data dump. Copper, which has gone a whole lotta nowhere for some time, jumped 2.6%.

Aluminium rose 1.5%, zinc rose 1.8%, and lead shot up 3.8%. Alas nickel, which has been sold down heavily in recent sessions, couldn’t catch a bid.

On the other hand, iron ore fell another US70c to US$55.50/t.

West Texas crude is down US$1.29 or 2.9% at US$43.68/bbl.

On the dollar’s dip, gold is up US$4.20 at US$1322.60/oz.

The Aussie is relatively flat at US$0.7569.

Today

The SPI Overnight closed down 19 points or 0.4%, suggesting we take back yesterday’s hard-earned gains.

We have a very big day/night ahead of us for global economic data.

New Zealand will release its June quarter GDP this morning and Australia’s jobs numbers will be out late morning.

Chinese markets will be closed for the next two days.

The Bank of England will hold a policy meeting tonight.

And hang on to your Fed-watching, data-dependent hats, tonight in the US sees numbers for retail sales, industrial production, business inventories, the PPI, and both the Empire State and Philly Fed activity indices.

Among another handful of stocks going ex-div on the local market today, Myer ((MYR)) will release its earnings result.

Rudi will appear on Sky Business today, 12.30-2.30pm.
 

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