The Monday Report

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            [0] => ((TLS))
            [1] => ((WBC))
            [2] => ((IPL))
            [3] => ((CSR))
            [4] => ((GNC))
            [5] => ((BTT))
            [6] => ((XRO))
            [7] => ((CBA))
            [8] => ((REA))
            [9] => ((AMP))
            [10] => ((GMA))
            [11] => ((GPT))
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            [0] => TLS
            [1] => WBC
            [2] => IPL
            [3] => CSR
            [4] => GNC
            [5] => BTT
            [6] => XRO
            [7] => CBA
            [8] => REA
            [9] => AMP
            [10] => GMA
            [11] => GPT
        )

)

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

By Greg Peel

Capitulation

The interesting thing about Friday’s -40 point fall in the ASX200 – down -50 at the low – was it was achieved despite Telstra ((TLS)) swimming against the tide with a 4% gain. With telcos the only sector to finish in the green, to the tune of 3.5%, it could have been particularly ugly had it not been for the ACCC.

The ACCC decided that Telstra did not have to share its regional network with competitors such as Vodafone, for fear the company would no longer see investment in rural telco infrastructure as viable.

The other interesting move was that of the energy sector, which all week had been a strong performer despite oil looking very much like it was going to trade back to US$45/bbl, which it now has. Energy the worst performer on Friday, falling -2.3%. What changed?

Materials was not far behind, falling -2.2% as investors continued to exit that sector on lower bulk and metals prices, and the ongoing retracement of gold. The US dollar has not been the driver of gold’s retreat, as it hasn’t much moved of late, but rather the Fed calling the weak March quarter in the US “transitory” and thus maintaining its rate hike plans, plus an unwinding of some of the geopolitical risk that drove gold up in the first place.

North Korea is still there, of course, but as we now know, Macron has won the French election and despite doing so from what had been an apparently unassailable lead in the polls, recent experience suggests it is never safe to compte your poulets. The EU is still with us, for now.

The consumer sectors were also hard hit on Friday, with staples down -1.0% and discretionary down -0.9%. The RBA expects high household debt to drag on consumer spending, as reiterated in Friday's Statement on Monetary Policy.

Other sector moves were also to the downside, but not quite as dramatically. The banks outperformed, relatively, in only falling -0.2%.

But the most interesting thing about Friday actually transpired on Saturday morning, when the SPI futures closed up 55 points or 1.0%, prior to the French election result. If this proves prescient, what on earth was going on last week?

Back to the High

The US added 211,000 jobs in April compared to expectation of 190,000. The unemployment rate fell to 4.4% from 4.5%, to mark its lowest level since May 2007. Wages grew at a rate of 0.3% which is an improvement on prior months, but revision of earlier numbers meant the annual rate of wage growth fell to 2.5% from 2.6%.

Wall Street’s reaction was fairly muted, given the market is already pricing in another Fed rate hike in June. Yet the S&P500 did manage to establish a new all-time high for the first time since March 1.

The Dow closed up 55 points or 0.3% while the S&P rose 0.4% to 2399 and the Nasdaq added 0.4%.

The Nasdaq also hit a new ATH, but the Dow didn’t quite get there. It was held back on news Warren Buffet last month sold out of 30% of his substantial holding in IBM, based on disappointment in the company not reaching the goals expected when Buffet bought in six years ago. He blamed the competition, specifically Amazon.

Amazon is not just a threat at ground level – it also dominates The Cloud.

Aside from the jobs numbers, traders cited expectation of a Macron victory as another driver on Friday night. And then there was oil.

Selling in WTI had pricked up pace during the week and on Friday the price dropped below US$45/bbl. But given that has been the bottom of the range for some time, it was a trigger for profit-taking. Subsequently, the price came screaming back to be up a net 2% on the session.

Wall Street has now seen off a lot of the big name earnings reports, the Fed meeting, the jobs number, and the French election. Tonight will indicate whether the election result will bring in further risk-on buying despite it being hardly a shock. With the S&P in clear sky, the technical signals are strong.

Commodities

West Texas crude is up US$1.02 at US$46.51/bbl.

Gold managed to remain steady at US$1227.90 with the US dollar index down -0.2% at 98.58.

Copper rebounded 0.5% on the LME, while nickel rose 1.5% and zinc 1%.

But it could still be another tough day for the miners again today. Iron ore fell -US3.90 or -6% to US$59.50/t.

The Aussie is steady at US$0.7416.

The SPI Overnight closed up 55 points or 1.0%.

The Week Ahead

It might thus see some sort of a rebound on the local market today, iron ore notwithstanding, but then tomorrow night is Budget night and that brings with all sorts of uncertainties for various stocks and sectors.

It’s also a busy week economically. Today sees ANZ job ads, NAB’s business confidence survey and building approvals. Tomorrow it’s retail sales, and on Wednesday Westpac’s consumer confidence survey.

China will release its April trade numbers today and inflation data on Wednesday.

The RBNZ and Bank of England both hold policy meetings on Thursday.

It’s quiet in the US until the end of the week, when inflation, retail sales and consumer sentiment numbers are due.

It’s a busy week on the local stock front.

Earnings reports are due from Westpac ((WBC)) today, Incitec Pivot ((IPL)) tomorrow, CSR ((CSR)) on Wednesday, and Graincorp ((GNC)), BT Investment Management ((BTT)) and Xero ((XRO)) on Thursday.

Commonwealth Bank ((CBA)) will wrap up reporting season with a quarterly update tomorrow, while REA Group ((REA)) will also update on Wednesday. Wednesday also sees AGMs for AMP ((AMP)), Genworth Mortgage Australia ((GMA)) and GPT Group ((GPT)).

Rudi will appear on Sky Business on Tuesday, via Skype, at around 11.15am, on Thursday at noon and again via Skype on Friday, 11.15am.
 

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