The Overnight Report: Netflicked

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By Greg Peel

The Dow closed down 51 points or 0.3% while the S&P lost 0.3% to 2126 and the Nasdaq fell 0.3%.

Heavy is the Head

The ASX200 was actually in the positive late morning yesterday before it took a sharp turn and then just kept on falling. Maybe a big sell order set things off but in a low volume session, clearly there’s not a lot of faith in the upside at present. It seems the market has grown weary, and wary, and technical forecasts have not been supportive of late either.

The big news was the detention of Crown Resorts ((CWN)) staff in China under laws regarding the promotion of gambling, but this was known on the open. Crown shares fell 14% and dragged down fellow gaming stocks and others with a Crown connection, such as Barangaroo developer Lend Lease ((LLC)). Consumer discretionary was the big sector loser on the day with a 2.5% fall.

Investors also went back to shifting out of yield stocks such as telcos, utilities and the banks, but after a strong run the resource sectors were also weaker and in the wash-up, it was really just a sell-the-market session.

There’s a lot hanging over the market between now and Christmas which is quite simply out of investors’ control. At the macro level we have China’s GDP tomorrow, a Fed meeting on November 2, the US election on November 8, the OPEC meeting in late November and the critical Fed meeting in mid-December. For the next few weeks we have US earnings season to provide general direction from Wall Street.

A lot of those events offer largely binary outcomes, which is not the way investors like to play it. At the micro level locally we are heading into AGM season, in which companies typically set or adjust FY17 guidance. This period is second only to earnings season in the potential for sharp alpha moves. And there’s still the matter of bank capital requirements to be resolved at some point.

Stand aside and wait? Perhaps that’s the current thinking.

Sagging

US industrial production rose 0.1% in September having fallen 0.5% in August. The Empire State index showed manufacturing in the New York Fed district contracted at a steeper pace, falling to minus 6.8 from minus 2.0 last month (zero neutral).

Bank of America joined its peers in reporting a beat on earnings but as was the case on Friday, when all of JP Morgan, Wells Fargo and Citigroup reported, the banks couldn’t catch a bid. The feeling is they had already had a good run on Fed rate hike speculation.

Fed vice chair Stanley Fischer added more confusion to the Fed policy debate by suggesting current low interest rates do not threaten US financial stability, noting a number of factors from weak productivity to an ageing population are holding rates back. Rate hike? No rate hike? Who knows?

Monthly production data showed Saudi Arabia and its OPEC peers are still pumping out oil at record rates. This is possibly a last hurrah ahead of actually capping production or it simply makes a mockery of the market – talk up the potential for an agreement, watch the oil price rise, and then produce and sell as much of the stuff as physically possible before the price tanks once more on no agreement.

Put it altogether and it was a soggy day on Wall Street. Plenty to be worried about, nothing to get excited about. But trading was generally lacklustre and the indices tracked sideways all afternoon.

Things changed after the closing bell. In a clash of Old Tech and New Tech, IBM (Dow) shares are down 3% in the aftermarket after Big Blue posted its earnings report, while shares in Netflix are up 19%. Having disappointed at the prior earnings season by missing on domestic subscriber growth guidance, the video streamer this time around astounded with international subscriber growth.

Netflix may only represent a niche in the market and it remains early days in the earnings season, but results like these, from companies of the future rather than the past, provide some confidence going forward.

Commodities

After running up hard on OPEC production cut talk, oil has been drifting quietly lower these past few sessions. WTI is now trading just under the psychological level of US$50/bbl, down US40c at US$49.90/bbl.

The US dollar index has pulled back 0.2% to 97.87 but this has not provided much of a boost for base metals. Aluminium is down 1% and nickel 2% amongst otherwise smallish moves.

But iron ore jumped US$1.00 to US$57.80/lb.

Gold is up a tad at US$1254.60/oz.

The Aussie is up 0.2% at US$0.7625.

Today

After yesterday’s low volume sell-off, the SPI Overnight closed up 3 points.

The minutes of the September RBA meeting are out today but Philip Lowe will also be speaking, which will be more pertinent.

Tonight sees US data on CPI and housing sentiment.

Amidst today’s local corporate action we’ll see quarterly production reports from Oil Search ((OSH)) and Newcrest Mining ((NCM)) while high-flying Cochlear ((COH)) will hold its AGM.
 

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