The Overnight Report: Much To Consider

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This story features ANZ GROUP HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: ANZ
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 36 points or 0.2% while the S&P rose 0.1% to 2391 and the Nasdaq gained 0.1%.

Determined

The Big Banks have been a major driver of the ASX200’s latest push towards 6000, since the miners have come off the boil, so nothing short of an upside surprise from ANZ Bank ((ANZ)) yesterday was going to silence the “overvaluation” calls. But ANZ fell short on earnings.

That was all the trigger the market needed to send the index down -37 points by around 2pm.

But on Monday we saw an attempt to sell down the banks ahead of their result season, only to see buyers come in and push them back to even higher levels. Yesterday could have been carnage, even though ANZ’s “miss” was only mild, but again we saw buying come in in the afternoon.

The financials sector still finished down -0.8% on the day, but it had been worse. It seems some of those funds were redirected into energy despite a sagging oil price, given that sector rose 1.0%. Elsewhere another winner on the day was consumer staples, up 0.5%, as Woolworths ((WOW)) continues to make its comeback against rival Coles ((WES)) in sales numbers.

Other sector moves were otherwise mixed and modest.

Interestingly, the late afternoon bounce saw the index close smack on 5950. The speed of the turnaround from around 2pm suggested perhaps a big buy order had been placed, spurring on some bargain hunting. It’s difficult to provide reasons the Australian market should be surging forward right now, beyond riding on Wall Street’s coat tails, but there just doesn’t seem to be a lot of downside either.

The RBA is certainly not a factor at present. Philip Lowe likely phoned in yesterday’s policy statement, or said “Just use last month’s”. Wage growth is low but housing is strong – that’s about it in a nutshell. We’ll need to see the housing market come right off the boil before the RBA is game enough to make any change.

Caixin’s independent take on China’s manufacturing PMI came in at 50.3 for April, quite a drop from 51.2 in March and missing forecasts of 51.0. That’s a seven-month low.

The Chinese economy had appeared to make a surprisingly strong start to the year. While still positive, that strength is waning. Yet again we have to consider the significant data distortion caused by the run-up to, duration of, and wake of the Lunar New Year break.

The local banks have a breather today ahead of National Bank’s ((NAB)) result tomorrow.

Looking For Impetus

In contrast to China, the eurozone’s April manufacturing PMI came in at 56.7 and the UK’s at 57.3. Europe is making a comeback and in the UK, manufacturers are so far winning from Brexit given the much lower pound.

These data made for positive sessions on European stock markets but that momentum could not be carried into Wall Street, where there’s just too much ahead to consider.

Apple’s earnings result was highly anticipated all day but came out after the bell. A miss on iPhone sales expectations have seen Apple shares fall -2% in the aftermarket – just a blip for a stock constantly pushing through all-time highs but probably enough to put a dent in the Dow tonight, ceteris paribus.

Aside from waiting for Apple, Wall Street is also looking ahead to tonight’s Fed meeting, not that anything untoward is expected, and to Friday’s jobs numbers. There’s also the French election run-off on the weekend but that looks pretty much in the bag.

Although recent history suggests one should never be complacent.

Overriding everything is that magic number of 15%. Wall Street has built in a premium to account for the benefits a drop in the corporate tax rate from 35% to 15% would provide, but there are two major issues. Firstly, it is unlikely any legislation will be passed before 2018. Secondly, 15% is considered by cooler heads to be pie in the sky. The CEO of health insurer Aetna, speaking on CNBC this morning, believes 27% is more realistic, especially if Trump can’t get a border tax happening.

The Nasdaq still managed to post another record close last night ahead of Apple’s result, but attention has turned to the Russell small cap index, as it appears to have tipped over. Many believe the Russell is a leading indicator.

Yet there is no denying, Apple aside, that a run-rate for March quarter earnings growth for the S&P500, which is now pushing towards 13%, is not something that can be denied, and is indeed the “real” valuation benchmark.

Commodities

The positive PMIs across The Pond made for a positive session on the LME following the May Day break. All base metals bar lead rose around about 1%.

Iron ore fell -US20c to US$67.80/t with China back on board.

The oil price took another tumble, with West Texas crude falling -US66c or -1.4% to US$48.08/bbl and showing signs of wanting to drift back to the bottom of the range at US$45/bbl.

The US dollar index is -0.2% lower at 98.95 and while gold did trade below US$1250/oz in Asia yesterday, it is this morning little changed at US$1256.90/oz.

The Aussie is up 0.1% at US$0.7532.

Today

The SPI Overnight closed down -4 points.

Japan will be closed now through to the weekend while tonight, the first estimate of eurozone GDP is due.

In the US, the ADP private sector jobs report will be closely watched, although Wall Street will be wise to the fact last month saw very disparate results between the ADP and non-farm payrolls.

Locally, QBE Insurance ((QBE)) will hold its AGM today.
 

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