The Overnight Report: Can’t Go Down

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            [3] => ((SPO))
            [4] => ((DOW))
            [5] => ((TLS))
            [6] => ((NVT))
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This story features SUNCORP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: SUN
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -13 points while the S&P lost -0.1% to 2358 and the Nasdaq fell -0.3%.

Buy the Dip 1

Retail sales fell -0.1% in February in Australia when economists forecast 0.3% growth. Annual growth is running at 2.7%, which is the slowest pace since 2013 and well below the ten-year average of 4.3%. Weak sales growth is reflective of very weak wages growth, itself a reflection of rising underemployment (part-time jobs increasing over full-time).

With all this talk of a housing bubble, particularly in apartments, economists had forecast a -1% fall in building approvals in February. Instead they rose 8.3%, split 5.7% growth for houses and 11.0% for apartments. Is there no end in sight?

Approvals are indeed -4.9% lower than a year ago and -8.8% below the 2016 peak. But when dwelling prices are rising at 12.9% year on year, following a 1.4% gain in March, it’s not hard to see why developers are still in the race. Sydney prices are up 19% and Melbourne up 16%. Is there no end in sight?

If you’re going to buy a house you’ll need a job, particularly now lending rules are becoming ever tighter. Following a disturbing fall of -0.8% in February, job ads rose 0.3% in March, ANZ revealed yesterday, lifting the annual growth rate to 7.0% from 6.9%. ANZ does not indicate how many of those jobs are part-time.

The ASX200 was all over the shop yesterday, absorbing economic data, corporate news, droughts and flooding rain. The index opened down -23 points on the open, immediately rallied to be up 9 points half an hour later, fell back once more to be down exactly -23 points again at 2pm, and closed up 7.

When Debbie was a tropical cyclone causing storm damage the insurance companies assured their disaster provisions and reinsurance cover was sufficient to negate the impact. Now Debbie has chucked it in and became an ex-tropical cyclone, potentially doing even more damage through subsequent widespread flooding. Insurance stocks were being sold yesterday but analysts suggest Suncorp ((SUN)) and QBE ((QBE)) are still sufficiently covered while Insurance Australia Group ((IAG)) may feel some impact.

From the “Surely you’re not serious” desk comes news Spotless ((SPO)) is planning to reject the 59% premium bid from Downer EDI ((DOW)). I think there’s something there about mouths and gift horses. Downer shareholders should be pleased, if the backlash from analysts is anything to go by, yet Downer shares were down yesterday.

Weaker commodity prices, iron ore in particular, were likely behind yesterday’s initial drop, alongside a weak lead from Wall Street, but with gold recovering the materials sector finished down only -0.2% and energy was flat. The banks remained popular, offsetting insurance for a 0.2% gain in financials. Consumer discretionary had every right to be weak but only fell -0.1%. Telstra ((TLS)) remains back in favour, at least for now. Telcos led the market with a 0.7% gain.

A mixed bag, a choppy session, and no real direction to be determined.

Buy the Dip 2

The Dow traded down -145 points by midday in New York overnight but commentators struggled to nail a particular reason. The new quarter has unfolded with yet no solid word on tax reform, so that may have been influential. The terrorist attack in St Petersburg could have been reason to sell, but such tragedies no longer have a noticeable impact on markets, in a sad indictment of today’s world.

US vehicle sales came in well below expectations in March, following on from Friday’s weak read on consumer spending. The US manufacturing PMI fell to 57.2 from 57.7, although anything above 55 is still a case of rapid expansion. It may be that investors are now wondering whether the US economy is indeed as strong as previously assumed, and as assumed by the Fed for monetary policy purposes, and to that end whether the current expectation of around 10% S&P500 earnings growth for the March quarter is looking optimistic.

Whatever the issue, the Dow rallied all the way back and closed only slightly weaker. Whenever the S&P falls below its 50-day moving average, the buyers step in. There is still much faith being shown in tax reform, and a lot of money that cannot afford to miss out.

It’s a different story in the bond market nonetheless, where the US ten-year yield fell -5 basis points to 2.35% last night. That’s -25 points down from Trump high. While US yields are beholden to European yields, and Spain is planning to invade Gibraltar (well, the EU thinks the UK should give it back), in US yields we see a more measured representation of the US economic outlook.

The US jobs numbers due on Friday will be important and as such it may be a quiet, meandering week. Then it’s another week to wait for earnings season to kick off in earnest.

Commodities

I had erroneously believed (don’t shoot the messenger) that Caixin’s measure of China’s manufacturing PMI was due yesterday but in fact it came out on Saturday, for some reason, to show a fall to 51.2 from 51.7, in contrast to the tick up in Beijing’s official reading to a five-year high. This would help explain why all base metals were a half to two percent lower overnight in London.

Iron ore fell -US50c to US$78.70/t.

West Texas crude fell -US51c to US$50.25/bbl.

The US dollar index is flat at 100.50 but gold is up US$5.30 at US$1253.00/oz.

The Aussie is -0.3% lower at US$0.7607.

Today

The SPI Overnight closed down -10 points or -0.2%.

The RBA will meet today and leave rates unchanged, but the board’s latest thoughts on the housing market will be interesting to learn.

Australia’s February trade numbers are due today.

China is closed today.

Navitas ((NVT)) will host an investor day.

Rudi will connect with Sky Business through Skype around 11.15am to discuss broker calls.
 

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