The Overnight Report: Keep Buying Those Dips

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This story features GRAINCORP LIMITED, and other companies.
For more info SHARE ANALYSIS: GNC
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -23 points or -0.1% while the S&P lost -0.2% to 2394 and the Nasdaq fell -0.2%.

Up Then Down

The banks all shot up from the open on the local market yesterday, sending the index barrelling through 5900 without hesitation to be up almost 50 points by 11am. While it may be fair to assume the banks were due a little respite after their budget sell-down, and of course there’s always those yields, it seemed like a rather over-enthusiastic turnaround.

Was there an assumption the Big Five CEOs, arriving in Canberra with boxing gloves on, were going to change the government’s mind about the bank tax? If that were the case it was misplaced, given the government is unmoved. Either way the sellers swiftly restored order by sending bank share prices all the way back down again. The sector closed up 0.1%.

Trade-offs among sectors elsewhere ensured a flat close for the ASX200.

Healthcare continued to benefit from both what the government did and didn’t do on Tuesday night, rising 0.7%. Consumer staples also rose 0.7%. We all knew Graincorp ((GNC)) had enjoyed a bumper wheat crop this season, but still the company managed to surprise with its earnings report and jumped 8%.

The train crash of the day was Vita Group ((VTG)), which fell -30% thanks to changes to its contract with Telstra ((TLS)), which itself fell -1.4% and took the telcos sector down -1.3%.

The other train crash was sandalwood producer Quintis ((QIN)), which this week revealed that the board only recently found out about the company’s pharma division losing its one and only customer last year. The loss of that contract is not game-changing, but the fact the board wasn’t even told was enough for Quintis’ long time supporter, Canaccord Genuity, to suspend coverage of the stock.

Quintis shares fell -23%, despite the stock being among the top ten most shorted on the ASX.

Higher up the short list is Myer ((MYR)), which fell -3% yesterday after announcing weaker sales due to the closure of three stores.

Ask not for whom the bell tolls…

Down Then Up

…it tolls for department stores. America’s best known department store, Macy’s, fell -17% last night after reporting weak earnings. All other listed US department stores fell around -7% in sympathy. That included Nordstrom, which proceeded to fall another -3% on its own after-the-bell earnings result.

Macy’s has suffered weaker sales for fourteen quarters in a row. The company assures the world it is not dead, rather it is closing stores and investing in online. Unfortunately for the likes of Macy’s there’s already a well-established online department store dominating that field. It’s called Amazon. Even stalwart Wal-Mart is being praised by the market for its successful online business.

Speaking of Wal-Mart, there’s a new kid on the block planning to take on the US retailer at its own low price game. Some German upstart by the name of Aldi.

The Wall Street train crash of the day was Snap Inc, owner of Snapchat, which posted its maiden earnings report as a listed company, and fell -20%. The result took some gloss of tech’s recent strength, and for once the Nasdaq did not trade up to a new all-time high.

Mind you, we all laughed at Facebook when it had a similar maiden result experience back in 2012. The stock fell under its US$20 IPO price. It’s now trading at US$150.

The US producer price index jumped 0.5% in April, ahead of 0.3% forecasts. Core PPI, excluding food and energy, jumped 0.7%. Headline PPI is now running at 2.5% annual, the fastest rate since February 2012.

While rising wholesale prices do not necessarily translate into rising retail prices, the concern is maybe the Fed may end up having to speed up its tightening. Put all of the above together and the Dow was down over -140 points mid-session.

But it came back. On Wednesday night the Dow was down over -90 points and came back. The dip-buyers appear ever present. The tax reform package had better be a good one.

Commodities

Oil continued its recovery last night after Wednesday night’s surprise US inventory numbers. West Texas crude is up another US48c at US$47.82/bbl.

The recovering oil price is flowing through to the LME, traders suggested last night, where copper rose 1% and nickel 2%.

Iron ore rose US60c to US$60.50/t.

Given the PPI result it was surprising to see gold rising US$6.00 to US$1224.80/oz, but then gold has had an almost uninterrupted fall from over US$1280/oz and thus is likely due for some respite. The US dollar index is unchanged at 99.66.

The Aussie is 0.2% higher at US$0.7374.

Today

The SPI Overnight closed down -9 points.

A better picture on the state of US consumer pricing will emerge tonight with numbers for the CPI, retail sales and consumer sentiment.
 

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