The Monday Report

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This story features SCENTRE GROUP.
For more info SHARE ANALYSIS: SCG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Profit-taking

I suggested in Friday’s Report the combination of end of quarter and a Friday could provide for some distortion in trading that may prove misguiding. It appears that was the case as having chopped around the flatline for most of the session, the ASX200 faded in the afternoon before taking a steep dive at the death.

The banks have been the outperformers over the past couple of weeks thanks to mortgage repricing, and aside from the profits to be locked in for the quarter in this sector APRA made a move on Friday that provided reason to trim positions anyway. While unsure exactly what APRA’s next move would be, there was no surprise given constant talk from the RBA and politicians recently about housing bubble fears.

Banks must now restrict the number of interest-only loans to 30% of new mortgages, down from 40% prior, and APRA has tightened restrictions on interest-only loans with LVRs above 80%. Until the regulators can feel more comfortable with the level of mortgage debt and trajectory of house prices, it is assumed APRA will continue to tighten the screws.

So it’s a win on mortgage repricing and a loss on potential new mortgage volumes for the banks as the new quarter begins.

Outside of the banks (-0.6%), the selling was reasonably consistent among the sectors on Friday, with materials (-0.4%) helped lower by a fall in the gold price and energy (-0.9%) failing to benefit from the WTI price regaining the US$50/bbl mark. It was not just straight selling however, as it appears profits found their way into the currently unloved sectors of telcos (+0.8%) and utilities (+0.4%).

It wasn’t going to matter much on Friday but there was good news out of China, which has faded into the background since The Donald sucked all the oxygen out of the room. Beijing’s official manufacturing PMI for March rose to a five-year high 51.8 from 51.6 in February and the services PMI rose to a three-year high 55.1 from 54.2.

President Xi is due to meet President Trump this week. Should be a cracker.

Now on to April, which is historically the best month of the year – the last hurrah before investors sell up in May and take off for the (northern) summer.

But not every year. The ASX200 gained 3.5% in the March quarter.

Ditto

The S&P500 gained 5.5% over the quarter. Friday’s trade on Wall Street very much resembled the earlier Australian session, for the same reason.

The Dow closed down -65 points or -0.3% while the S&P lost -0.2% to 2362 and the Nasdaq was flat.

Aside from end of quarter profit-taking there were some contradictory US data releases to mull over.

US incomes rose by 0.4% in February as expected but spending rose by only 0.1% when 0.2% was expected. This seems to be at odds with the recent record-breaking consumer confidence number from the Conference Board but that survey was conducted last month, so a pick-up is expected.

But then Michigan Uni’s fortnightly consumer sentiment measure showed a drop to 96.9 from a prior 97.6. Depends who you talk to, one presumes. And apparently there was a delay in tax returns being paid this year which likely impacted on the February spending numbers.

More importantly, the personal consumption & expenditure (PCE) measure of inflation rose to 2.1% annual from 1.9%. The PCE is the Fed’s preferred measure of inflation and 2% is the FOMC’s target. However core inflation remained unchanged from January at 1.8%. There’s still room for the Fed to “run the economy hot”.

Ever had that unsettling feeling you’ve forgotten something? Donald Trump signed two new executive orders relating to trade on Friday – initial steps along the path of addressing trade deficits with China in particular, and others, and tightening anti-dumping rules. But with the cameras rolling and following the usual rhetoric, he left the Oval Office having forgotten to actually sign the things.

Seems he was flustered by questions regarding Michael Flynn and Russia. The orders were later signed in another room.

Commodities

Iron ore fell -US$2.40 to US$79.20/t on Friday. While sharp moves in both directions have been commonplace of late, the first dip below 80 since the run-up through 90 will have investors worried. Most analysts are forecasting a return to the 60s before too long.

Base metals also had a soft night in London, which may also reflect end of quarter but perhaps additionally the fact China has a public holiday tomorrow. The end of the strike in Chile helped copper down -1%, but all metals were lower and zinc dropped -3%.

West Texas crude kicked on again, rising US39c to US$50.76/bbl.

Gold clawed back some ground, rising US$4.10 to US$1247.70 despite the US dollar index remaining flat at 100.53.

The Aussie is -0.2% lower at US$0.7632.

The SPI Overnight closed up 7 points on Saturday morning.

The Week Ahead

For Australia, it’s a busy week on the economic front.

Today alone brings retail sales, building approvals, house prices, job ads and the manufacturing PMI. Tomorrow it's trade numbers, Wednesday the services PMI and Friday the construction PMI. The RBA will meet tomorrow but will not need to contemplate a rate rise, if ever it was on the agenda, given the banks have already made that move.

China is closed tomorrow.

It’s jobs week in the US, with non-farm payrolls due as usual on Friday.

Ahead of that, data releases include construction spending tonight, factory orders, trade and vehicle sales tomorrow, private sector jobs on Wednesday and chain store sales on Thursday. As is the case around the globe, the manufacturing PMI is due tonight and services on Wednesday.

The minutes of the Fed meeting that gave us the last rate hike are out on Wednesday.

On the local stock front, the ex-div season is all but over now but there’s a small burst on Thursday. Touchcorp ((TCH)) will hold its AGM today as will Scentre Group ((SCG)) on Wednesday and Westfield ((WFD)) on Friday. Navitas ((NVT)) will hold an investor day tomorrow.

Note that as summer time ended in relevant states over the weekend, as of tomorrow the NYSE will close at 6am Sydney time.

Rudi will appear on Sky Business on Tuesday, around 11.15am via Skype. He'll appear again on Thursday, twice. First from noon till 2pm, then later that day for an interview on Switzer TV. On Friday he'll repeat the Skype link, probably around 11.15am.
 

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