The Overnight Report: Consolidation

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            [5] => ((MTR))
            [6] => ((TAH))
            [7] => ((CWN))
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            [7] => CWN
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This story features SUNCORP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: SUN
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 9 points while the S&P lost -0.2% to 2472 and the Nasdaq fell -0.4%.

Seasonal Factors

Yesterday in the local market we saw a return to opening bell shenanigans as the ASX200 plunged -38 points in the opening rotation but after one hour was back almost where it began. Computers do some funny things.

Thereafter the index wobbled around doing not a lot through to a modestly weaker close. Very much in focus yesterday were individual stock stories related to the now underway result season. We saw actual results, profit warnings ahead of results, and broker up/downgrades as valuations are reconsidered ahead of result releases.

Suncorp ((SUN)) was the big reporter on the day and disappointed, despite an increased dividend. It fell -6% and helped the financials sector down -0.4%. The AFR report on Commonwealth Bank ((CBA)) suggesting money laundering breaches that could add up to a trillion dollars in fines was met with a shrug.

Australian Pharmaceutical Industries ((API)) and almond grower Select Harvests ((SHV)) each issued pre-result profit warnings and each fell -13%.

A target upgrade for insurance broking service Steadfast Group ((SDF)) on a robust earnings outlook was worth +8.5%, while two ratings downgrades due to the impact of the strong Aussie cost hotel & resort owner Mantra Group ((MTR)) -7%.

The resource sectors were weaker on the session thanks to dips in commodity prices overnight but also yesterday’s trade data. The June trade surplus fell short of expectations as exports fell -1% and imports rose 2%. Exports of iron ore fell -7% and coal -6%. The import number was driven by a 13% jump in capital goods imports.

CBA economists suggest this jump may well be a positive sign, implying ex-mining sector spending is picking up.

Today is shaping up as being nothing major as well for the local market on the wider scale. Wall Street was modestly weaker (Dow notwithstanding), the oil price is down again, metals prices are mixed and the Aussie remains stuck at US79.5c.

The futures closed down one point this morning, which about sums things up.

Eight will get you seven

It was only nine points but last night’s gain for the Dow represented an eighth consecutive up-day for a seventh record high. The Dow is very much in focus given it has hit another magic number, but meanwhile the S&P500 continues to quietly slip away along with the Nasdaq and Russell small cap index.

All talk on Wall Street is of the Dow’s run being driven by fewer stocks than you can count on one hand, and, let’s face it, the folly of taking an antiquated price average too seriously. Yet having passed the halfway mark in the US earnings season, S&P500 earnings growth is still tracking at 11%. The March quarter provided 15%, and so it’s not hard to see why the S&P is up 11% for the year despite Trump having yet to get a policy through. Earnings are real.

As far as the Dow is concerned, it is the mega-cap multinationals leading the charge. Their proportion of offshore earnings (think Boeing, Apple, McDonalds for example) is being boosted by the ever-weakening US dollar. The opposite of what the Australian market is currently having to deal with.

The WTI oil price fell -1.3% last night with on a range of issues. A large oil-based hedge fund is closing its doors having lost on a bet on stronger oil prices. The fund is clearly long, so its closure will mean futures contracts being liquidated. There is now doubt over whether any oil-related sanctions will be imposed on Venezuela, as had previously been assumed. And OPEC meets next week to discuss production quota compliance, so perhaps a few traders have moved to the sidelines.

The bulk of the weakness in the S&P500 last night is attributable to the energy sector.

Whether or not the Dow has any relevance, it is typical for Wall Street to consolidate and track sideways for a bit when a new milestone has been reached.

Commodities

West Texas crude is down -US66c at US$48.93/bbl.

Copper and nickel were down -0.5% in London.

Iron ore rose US10c to US$72.20/t.

The US dollar index is down -0.1% at 92.80 and gold remains little moved at US$1267.90/oz.

The Aussie is down -0.2% at US$0.7950 ahead of the today’s RBA Statement on Monetary Policy.

Today

The SPI Overnight closed down one point.

The previous RBA SoMP, a quarter ago, based its forecasting for GDP and inflation on an Aussie dollar assumption of US74c. Economists will thus be looking out today for some fresh forecasts.

Australia will also see June retail sales data today ahead of tonight’s release of the July US jobs numbers.

Tabcorp ((TAH)) will be in the frame for earnings today, plus Crown Resorts ((CWN)) might update today too.

Rudi will connect with Sky Business via Skype at around 11.15am, probably, to discuss broker calls.
 

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