The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((ORG))
            [1] => ((SYR))
            [2] => ((NVT))
            [3] => ((CYB))
            [4] => ((RIO))
            [5] => ((RMD))
            [6] => ((SUN))
            [7] => ((TAH))
            [8] => ((CWM))
        )

    [1] => Array
        (
            [0] => ORG
            [1] => SYR
            [2] => NVT
            [3] => CYB
            [4] => RIO
            [5] => RMD
            [6] => SUN
            [7] => TAH
            [8] => CWM
        )

)

This story features ORIGIN ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: ORG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Currency Excuse

Commentators suggested on Friday the sudden big drop in the ASX200 back to 5700 was all about persistent Aussie dollar strength and its inevitable impact on offshore earners. Certainly there is a case to be made that the resource sectors (materials down -1.4%, energy -0.8%), big healthcare names (-2.1%) and various industrial names (-1.9%) such as building materials, pallets and so forth will see their earnings trimmed.

It may be a case of the upcoming earnings reporting season featuring mark-downs on guidance through adjustment to a higher forecast currency.

But the strong Aussie has little impact on the banks (-1.7%), consumer staples (-0.9%) or utilities (-1.7%), and indeed some sectors benefit from currency strength (eg tourism), so why was everything sold down on Friday? I suggest it’s because on Thursday the index hit an intraday high of 5800.

There the bell was rung, and the short-term traders, who all bought under 5700 after the last drop, started selling again. Momentum then took over, and the trade became self-fulfilling. We stopped short of falling all the way to the 5680 low end of the range, but the futures were up 24 points on Saturday morning, possibly suggesting we‘ve passed Go, collected $200 and now we’ll go round again.

From this week on to the end of the month it is likely we’ll begin to see individual moves in stocks, rather than market-wide trades, impacting on the index as results season ramps up. As to whether a sufficient theme will emerge to break us out of this Ground Hog Day range is anyone’s guess at this point.

And it’s unclear whether macro and geopolitical forces will have an impact either. Since Friday we’ve seen another North Korean missile test, a terror plot thwarted in Australia, Trump’s attempts to repeal Obamacare shot down once more and yet another Trump appointee shown the door after only a few months in office.

Earnings Focus

Certainly Wall Street appears not to care. Friday’s trade was all about the micro and little to do with the macro.

The Dow closed up 33 points or 0.2% while the S&P lost -0.1% to 2472 and the Nasdaq fell -0.1%.

The US June quarter GDP came in at 2.6% growth, which was at or slightly below different market surveys. The March quarter result was revised down to 1.4% from 1.6%. The US stock market did not respond, but currency markets did, sending the US dollar index down a further -0.7% to 93.26.

Of course everything said above works in reverse for US exporters, but then we could say the primary reason for now persistent US dollar weakness is the failure of the Trump administration to make any progress on much heralded stimulatory policies, while Europe continues to recover. The US data flow has been mixed at best, and the Fed may well see out 2017 on the sidelines.

The earnings stories of the day began with Amazon, which closed down -2.5%. Amazon’s earnings fell -77% from a year ago, reflecting the company’s relentless investment push into every corner of the consumer world. Amazon ensured the Nasdaq finished in the red, but at -0.1% it was nothing spectacular for an index that’s had a spectacular year.

Another big loser on the day was “coffee” chain Starbucks, which fell -9% on its weak result.

Among the Dow names, Big Oil rivals Exxon and Chevron traded mixed results, with Exxon posting a rare earnings miss and falling -1.5%, while Chevron shot the lights out on production and costs and jumped 1.9%. After earlier weakness, the Dow once again managed to claw its way to a new all-time high by the close.

With the US earnings season now about half way through, S&P500 earnings are running at an average 10.8% growth rate year on year. It’s a similar result to the March quarter and around about what was expected, although there was talk early of perhaps a growth rate in the teens.

We’ll see how the other half goes.

Commodities

The ASX200 is not the only financial instrument seemingly stuck in a range. It was only  couple of weeks ago there was much concern WTI oil may drop back down through US$45, and now it's once again knocking on the door of US$50. On Friday night it rose US61c to US$49.76/bbl.

Saudi export cuts and the potential collapse of Venezuela into chaos, thus impacting on that OPEC member’s production capacity, have been cited as reasons why oil jumped 8% over the course of the week to mark its best week year to date.

Gold was again the beneficiary of the weak greenback, rising US$10.50 to US$1269.10/oz.

Aluminium fell -1.5% and zinc -1% in London while the other base metals posted modest gains.

Iron ore fell -US60c to US$69.00/t.

And then there’s that Aussie, up 0.2% at US$0.7982. On balance, a 0.2% gain against the -0.7% drop in the dollar index suggests the Aussie is finding some resistance at 80, but look out if that is breached once more.

The SPI Overnight closed up 24 points or 0.4%.

The Week Ahead

Can the RBA “talk down” the Aussie? It would take more than an offhand branding of the currency as a “complication” in tomorrow’s policy statement to turn the tide, and the Aussie has moved sharply since the last RBA meeting.

The RBA will also issue its quarterly Statement on Monetary Policy on Friday.

It’s a busy week economically in Australia, featuring new home sales and private sector credit today, the manufacturing PMI tomorrow, building approvals on Wednesday and the trade balance and services PMI on Thursday. On Friday it’s retail sales.

China will release its manufacturing and services PMIs today while everyone else will report its manufacturing PMI tomorrow and services on Wednesday, including Caixin’s independent Chinese numbers.

The US will see pending homes sales and the Chicago PMI tonight, construction spending, personal income & spending and vehicle sales tomorrow, and private sector jobs on Wednesday. Thursday it’s factory orders and Friday trade and non-farm payrolls.

On the local stock front, today, being the last of the month, will see the last of the resource sector quarterly production reports. Origin Energy ((ORG)) and Syrah Resources ((SYR)) round things off.

The focus turns to earnings results. Navitas ((NVT)) and CYBG ((CYB)) are among those reporting tomorrow, Rio Tinto ((RIO)) and ResMed ((RMD)) on Wednesday, Suncorp ((SUN)) on Thursday and Tabcorp ((TAH)) and Crown Resorts ((CWM)) on Friday.

Now is a good time to point out that while FNArena attempts to publish all reporting dates on our calendar for all companies covered by FNArena database brokers, it’s on a best endeavours basis. Some companies do not publish dates, very often brokers clash on dates they declare for different companies, and some companies have been known to pick a date and then not stick to it.

So please consider the calendar as a guide but not gospel. Later this week FNArena will begin publishing its regular Reporting Season Monitor, which will run every day as the season progresses.

Rudi is on the Gold Coast attending a conference. He will appear on Sky Business this week on Thursday at noon and again on Friday via Skype to discuss broker calls, probably around 11.15am.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

For further global economic release dates and local company events please refer to the FNArena Calendar.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms