The Overnight Report: Milestone Ahead

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This story features RESMED INC, and other companies.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 72 points or 0.3% while the S&P rose 0.2% to 2476 and the Nasdaq gained 0.2%.

No Hike Here

It was subtle…

“The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

…but effective. At least if you’re looking for yield in the Australian stock market.

The only real change in yesterday’s RBA statement compared to recent months is this elaboration of why a strong currency presents a “complication”. That word is gone, replaced by this explanation. It states the obvious – a too strong Aussie will stymie growth – but it does suggest no rate hike anytime soon, unless the damn thing comes down.

And that pretty much depends on Trump.

The energy sector jumped 2.0% to celebrate WTI reclaiming US$50/bbl but the star performer in the local market yesterday was utilities (+2.3%), and that you don’t see very often. Other strong sectors were telcos (+0.9%), consumer staples (+1.1%) and banks (+0.9%), along with industrials (+0.9%) wherein lies the likes of Transurban and Sydney Airport.

Clearly, yield was king. The RBA has hinted that a strong Aussie would prevent a rate hike.

Materials (+0.8%) was supported by strong commodity prices while other sectors mostly sat it out yesterday. Info Tech (-0.2%) was the only loser, thanks to iSentia’s ((ISD)) profit warning and -20% share price plunge.

Also scoring an “F” was Navitas ((NVT)), an early cab off the rank in reporting season. It fell -10%.

Australia’s manufacturing industry is surging along apparently, what’s left of it. Australia’s PMI rose to 56.0 last month from 55.0. Caixin’s take on China’s manufacturing PMI came in at 51.1, not dissimilar to Beijing’s official 51.4, except that Caxin’s rose from 50.4 and Beijing’s fell from 51.6. Take your pick.

ResMed ((RMD)) has posted what looks like an okay result overnight but the biggie today for reporting season will be Rio Tinto ((RIO)). Reporting so early now makes Rio a bit of a bellwether for the all-important resources sector.

Apple reported a beat this morning in the US and its shares are up 6% in the aftermarket. All things being equal the Dow would likely hit 22,000 tonight. But there’s been little correlation between Wall Street and Bridge Street of late. It’s a matter of continuous record highs on the one hand and running very fast to go nowhere on the other.

It will be the local earnings season that will hopefully break the spell.

Eying 22k

The US manufacturing PMI fell to 56.3 from 57.8 but these are still very strong numbers. The eurozone is seeing similar numbers, falling to 56.6 from 57.4. Strength all round.

Earnings nevertheless continue to drive Wall Street. It’s been a while since the ducks have lined up in the same direction, given the dominance of the rotation trade, but last night we saw all of the Dow, S&P and Nasdaq finish in the green. The Dow posted another record.

Apple may just take the Dow to 22,000 tonight, having hit 21,000 in March. Apple is a Dow component as well as being dominant in the Nasdaq. But the reality is 85% of the near thousand points from 21,000 for the price average is attributable to only four stocks – Boeing, McDonalds, United Health and Caterpillar. The other 26 stocks have contributed 15%.

Best to consider the S&P500 as the realistic indicator, but it’s still hovering below record highs as well. And it might be noted that Apple – the biggest company by market cap – was up 29% for the year before this morning’s result.

The US dollar was overdue a rebound and is up 0.3% at 92.80, despite both the slip in PMI and some pretty dour consumption numbers.

Personal spending rose 0.1% in June when 0.3% was expected. Incomes were flat. The Fed’s preferred core PCE measure of inflation remained unchanged at 1.5% annual. The chance of another 2017 Fed rate hike has further diminished. The US ten-year yield fell -4 basis points last night to 2.25%. Once again it is drifting back towards its Trump-era lows.

Commodities

A Bloomberg oil industry survey released last night suggested OPEC production cuts will not achieve the goal of wiping out the global surplus this year. Throw in the fact the US dollar bounced, that July was the best month for the oil price in over a year, and 50 is considered the line in the sand, it was a good time to take profits.

West Texas crude is down -US$1.41at US$48.79/bbl.

Base metal prices were mixed in London but again no one metal’s move exceeded 1%.

Iron ore fell -US20c to US$72.90/t.

The dollar bounce had no impact on gold, which is steady at US$1268.20/oz.

The forex cowboys initially decided the RBA was not assertive enough yesterday in its attempts to talk down the Aussie, and no doubt there were a few shorts taken out at 80. The Aussie first shot up to 80.5 but then began a retreat, which was further aided overnight by the stronger greenback.

The Aussie is down -0.5% over 24 hours at US$0.7966.

Today

The SPI Overnight closed down -3 points. If the local energy sector was up 2% yesterday on oil’s move above 50, it could just as well be down by as much today.

The US private sector jobs report for July is out tonight.

Locally we’ll see building approvals.

Rio heads the list of today’s corporate reporters.
 

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