Daily Market Reports | Jun 13 2017
This story features STOCKLAND, and other companies.
For more info SHARE ANALYSIS: SGP
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
By Greg Peel
Friday
Friday’s trade in the local market was a carbon copy of Thursday’s trade from an index point of view. The ASX200 dropped -37 points on the opening rotation before immediately recovering to regain that loss and more. The only difference is that it appears traders mostly disappeared at lunchtime to beat the long weekend traffic, judging by a sideways afternoon that again leaves the index sitting just under the 5680 mark.
In so doing they likely missed confirmation of the Tories having failed to reach a standalone majority, although the trend was heading that way from the start of counting. While the result suggests a level of uncertainty, particularly with regard Brexit, it was clear Labour could not win and that would have provided for greater uncertainty.
The FTSE rallied on Friday night, so clearly UK investors are not overly concerned.
Back in the local market, energy was the biggest sector loser on the day with a -1.7% fall, which, given no move in the oil price overnight, appears to be a catch-up from the previous night’s -5% drop in WTI. The flipside was a 0.9% gain for materials, with base metal prices showing some resurgence following better than expected Chinese trade data.
Industrials made a 0.7% comeback having been weak on Thursday but for once, the banks decided to sit it out.
It was a week that saw the ASX200 fall almost -2%. Support appears to be holding at 5680, and so far the events that could have sparked volatility – Comey, ECB, UK – have not.
Friday Night
One might be able to guess what happened on Friday night on Wall Street simply by noting that the Dow closed up 89 points or 0.4%, the S&P closed down -0.1% at 2431, and the Nasdaq dropped -1.8%.
Yes, Big Tech got wrecked. Not that no one had been warned. It could have been worse – with an hour to go the Dow was slightly negative and the Nasdaq was down almost -2.5%.
For weeks now commentators have been pointing to the risk of the most recent run to new highs on Wall Street being highly concentrated in FANG & Co, and while some of these names are worthy of inflated PEs based on a new world, rather than old world, model, there is still only so far the rubber band can stretch. So it was that the likes of Facebook, Amazon, Netflix and Google (Alphabet), along with Apple, Microsoft, Tesla, Nvidia and others (the latter being 2016’s best S&P500 performer), dropped -5% or more.
There were a couple of triggers. Firstly, Goldman Sachs officially declared the sector overvalued (no doubt having first gone short). While hardly a Robinson Crusoe call, when Goldman speaks, Wall Street listens. The other was news the much anticipated Apple iPhone8, due for release shortly, will not have the fastest chip in the market.
I’d also wager the fact Amazon and Alphabet had both reached the US$1000 per share mark was a sufficient, if no more than psychological, reason to call time.
But hey, these stocks have all rallied around 35% or more year to date. What’s a -5% fall in the scheme of things? It’s not a “Tech Wreck” as such, but a simple rotation out of the stocks that have made all the money this year and back into the stocks that had previously rallied late last year on the Trump victory, but had since pulled back on lack of Trump fiscal progress.
Because fiscal reforms are indeed beginning to gain some momentum. After the close of trade on Thursday night, the House passed Trump’s bill winding back the banking regulations contained in the Dodd-Frank act – an act that had been passed in haste and fear at the height of the GFC. Word is that this week will see progress on the healthcare reform bill, which if resolved will then put tax reform at the top of the agenda. Meanwhile, news on infrastructure policy is also anticipated.
Wall Street had been worried that the whole Russia thing would stall the agenda, pushing that which investors have been waiting for for months further out into the future, or worse, kill off the agenda altogether. But while media seems hell bent on beating up the story as the most earth-shattering event since Watergate, Wall Street sees a he said-he said stalemate between Trump and Comey that has no possible resolution.
So let’s get on with it.
The Dow hit a new all-time high.
Gold continued its tumble, falling another US$11.20 to US$1266.40/oz with the US dollar index rising 0.2% to 97.28.
Base metals had a positive session, with copper rising 1% and nickel and zinc 2%.
Iron ore saw the opposite, falling -US90c to US$53.80/t.
West Texas crude rose US21c to US$45.92/bbl.
The Aussie dipped -0.1% to US$0.7523.
The SPI Overnight closed up 21 points or 0.4% on Saturday morning.
Monday Night
The Big Tech sell-off continued into last night’s session on Wall Street. Throwing fuel on the fire was a report from another broker suggesting all the upside from the much anticipated iPhone8 was already priced in to Apples shares.
Apple is a component of all three major indices, and was thus influential in the Dow ultimately closing down 36 points or -0.2%, the S&P falling -0.1% to 2429 and the Nasdaq dropping another -0.5%. Once again, FANG & Co stocks led the indices lower.
But no one seems to mind. Aside from profits in tech stocks being rotated in other sectors that have lagged behind of late, including small caps, investors have welcomed the de-rating back to more realistic levels. It provides a buying opportunity for those who had missed out, or who simply want to start rebuilding positions in what remains the growth sector of the future. The pullback, even if it has further to run, by no means signals the death of online shopping, social media and cloud computing.
US banks have found some renewed buying over the past two sessions, having pulled all the way back from their initial Trump rally peak. Wall Street is assuming Wednesday night will see the Fed hike rates, and that is good for banks.
Not so popular is the persistently easy stance of other major central banks.
The ECB met last week and despite clear signs of a European economic recovery, retained negative rates and its QE program. The Bank of England meets this week and if there were any chance of a rate hike, that’s likely gone out the window with the uncertainty created by a hung parliament, a tenuous coalition, a potential change in prime minister and Brexit negotiations underway.
The Bank of Japan also meets this week and no change is expected in its negative rate, given the Japanese economy simply cannot seem to generate inflation no matter what is thrown at it. That leaves the Fed looking like a shag on a rock, alone in the world as it moves towards policy normalisation.
The US dollar has come off its Trump highs, but has now stabilised and threatens to rally again on a widening interest rate gap. US bond rates remain low because of low rates in Europe and elsewhere. A strong dollar is not good for US multinationals, and low bond rates make equity investors nervous.
The US dollar index has actually slipped another -0.1% to 97.15. The pound is weaker on the election result but mostly against the euro. Gold has finally stabilised, for now, at US$1265.50/oz.
Having had a positive session on Friday night, base metals suffered a weak session last night. Falls of -1-2% across the board pretty much puts everything back where it was.
Having had a negative session on Friday, iron ore has rallied US60c to US$54.40/t to provide a net -USS30c loss since the ASX was last open.
West Texas crude rose slightly overnight to US$46.00/bbl.
The Aussie has recovered 0.3% to US$0.7542.
The SPI Overnight closed down -15 points or -0.3% this morning. On a net basis, the SPI is up 6 points from Friday.
The Week Ahead
The Fed will release its policy statement and Janet Yellen will hold a press conference on Wednesday night. The BoE meets on Thursday night and the BoJ on Friday.
The US will see PPI numbers tonight, CPI and retail sales tomorrow and industrial production, housing sentiment and the Empire State and Philadelphia Fed indices on Thursday. On Friday it’s housing starts and consumer sentiment, as well as a quadruple witching quarterly derivatives expiry.
China will release May industrial production, retail sales and fixed asset investment numbers tomorrow.
New Zealand’s March quarter GDP result is due on Thursday.
Locally we’ll see the NAB business confidence survey today and the Westpac consumer confidence survey tomorrow. Thursday brings the May jobs numbers, and our own “witching” of sorts with the quarterly expiry of futures and index options.
In an increasingly quiet corporate calendar, Stockland ((SGP)) will host an investor day on Thursday and Goodman Group ((GMG)) on Friday.
Rudi will appear on Sky Business today, via Skype, around 11.15am to discuss broker calls. He'll re-appear on Sky Business twice on Thursday; at noon and again between 7-8pm for the Switzer Report. On Friday. he'll redo the Skype connection around 11.15am.
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