The Overnight Report: Just Like That, New High

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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

The Dow closed up 85 points or 0.4% while the S&P gained 0.5% to 2402 and the Nasdaq gained 0.5%.

Bargain Yields

Investors decided yesterday the banks had fallen far enough and with yields pushing back towards 6% fully franked, there couldn't be too much further to fall. Some broking houses retain an Underweight on the sector on lack of upside, but few disagree downside is also limited by yield attraction.

To the same end perhaps, Telstra ((TLS)) was also back in favour yesterday. The telco’s own attractive yield appears safe, at least in the medium term.

Thus we saw financials (+0.4%) and telcos (+0.7%) providing the strength yesterday to offset healthcare (-0.3%) and consumer staples (-0.8%), the latter under pressure from talk Aldi plans to step up the price war.

The materials sector was also a little weaker (-0.2%) but not so BHP Billiton, who is looking for a divorce. Just a paper one mind you, dropping the Billiton from its name. One might be forgiven for asking what the hell difference it would make to the share price but the assumption is those private activist shareholders have actually gotten under the board’s skin. Abandoning the dual listing may be next.

Private equity was also back in the frame as TPG (not the telco) lifted its bid for Fairfax to $1.20 for all of it, not just the good bits. It remains to be seen what FIRB thinks of American private equity cowboys owning Australia’s oldest media outlet.

Housing finance data for March released yesterday showed loans to investors rose 0.8%, which might seem a surprise given the big crackdown going on, but the annual rate of growth fell to 14.2% from 26.9% just two months earlier and the latest round of APRA restrictions didn’t come in until the end of March.

Loans to owner occupiers fell -0.5% in March following a -0.8% fall in February.

Chinese industrial production rose 6.5% year on year in April, down from 7.6% in March and missing forecasts of 7.1%. Retail sales rose 10.7%, down from 10.9% in March but beating 10.6% forecasts. Fixed asset investment grew 8.9% year to date, missing 9.1% forecasts.

Add this data to a dip in China’s April PMIs and there’s no denying the economy appears to be slowing from its 6.9% pace of first quarter growth. But it’s hardly panic stations. Beijing is cracking down on short-term lending on the one hand, but also throwing billions into infrastructure with its Silk Road plans for global domination.

The ASX200 was down -30 points from the open yesterday but immediately rallied back on bank buying to be in the green late morning. The Chinese data prompted an ease-off to a flat close.

Oil’s Well

The oil market has been waiting patiently to see whether OPEC decides next month to extend its six month production cuts for another six months to the end of the year. Last night the powerhouses of OPEC and Non-OPEC ex-US, Saudi Arabia and Russia, agreed to extend for nine months to March.

This prompted a 2% jump in the WTI price which does seem a little underdone under the circumstances, but the question remains as to whether all the other producing nations involved will agree. Oil thus still remains below US$50/bbl.

The move was enough to turn Wall Street around from its recent gradual malaise. Indeed it’s hard to believe that by pushing through the 2400 mark, the S&P500 actually hit another new all-time high.

The Nasdaq does so with monotonous regularity and did so again last night as tech remains the most popular sector. Amazon turned 20 last night as a listed company. From its IPO in 1997 to now it’s up 50,000%.

Quick, someone find Mr Peabody.

The tech stars of this particular session were a bunch that usually don’t get much attention, being cyber security and cyber insurance companies. They enjoyed a wake-up call scramble. Makes you wanna cry.

I suggested yesterday that the market has become a bit bored with, if not completely dismissive of, North Korean missile tests. There was little evidence of heightened anxiety or a rush to safe havens on Wall Street following the latest display on the weekend. The US ten-year yield is flat at 2.34% and gold rose only a couple of dollars.

Donald Trump would not have been pleased to learn that manufacturing in his home state has gone backwards in the past month, as evidenced by the first fall in the Empire State index into the negative since the election.

But with the S&P now at 2400 and the Dow a shy under 21,000, Wall Street continues to tread post-election water.

Commodities

West Texas crude is up US94c at US$48.81/bbl.

Most base metals were stronger overnight in London, but none by more than 1%.

Iron ore rose US80c to US$60.30/t.

Gold is up US$2.70 at US$1230.40/oz.

The US dollar index is down -0.3% at 98.90 and the Aussie is up 0.4% at US$0.7415.

Today

The SPI Overnight closed up 17 points or 0.3%.

The minutes of the May RBA meeting are out today but given that meeting was pre-budget, they’re a bit out of date.

A busy day on the local stock front sees earnings reports from Orica ((ORI)), CYBG Plc ((CYB)) and AusNet ((AST)) while Coca-Cola Amatil ((CCL)) will hold its AGM.

Note that today sees both National Bank ((NAB)) and Macquarie Group ((MQG)) going ex.
 

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