The Monday Report

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

By Greg Peel

Fightback

The ASX200 opened -68 points lower on Friday morning into what appeared to be a vacuum of bids, given it only took ten minutes for the index to turn around and begin to fight back. Early selling was triggered by Wall Street’s fall on speculation Donald Trump’s chief economic advisor and architect of tax reform, Gary Cohn, would be next to walk out.

The selling is indicative of the regard in which Cohn, the man most likely to become the next Fed chair, is held by Wall Street. In Australia, it appeared the initial plunge provided an opportunity to buy.

In the end it was a mixed bag for sector moves on the day, with no market-wide trend, and there were no particularly big names reporting earnings. Among the reporters there were no notable train crashes or stand-outs, for once.

Primary Health Care ((PRY)) reported and found itself on the top ten winners’ board with a 2.8% gain, while large-cap sector companion Cochlear ((COH)) kicked on with a further 2.9% following its positive result on Thursday. Healthcare won the session with a 0.9% rally.

Large-cap selling was evident elsewhere as the financials fell -1.1%, with QBE the worst performer on the day with a further -3.6% drop, and materials fell -1.0%, while the diverse industrials sector was the biggest loser on -1.2%.

Topping the leaders’ board was Tatts Group ((TTS)) and not far behind was potential merger partner Tabcorp ((TAH)), with those stocks rallying 4.2% and 3.4% respectively.

It might have been a quieter day on the earnings front but don’t think for a minute there’ll be any other quiet days this week. Today the avalanche begins.

And another one’s gone

The White House’s revolving door has recently seen communications director Sean Spicer resign to be replaced by Trump-appointed Anthony Scaramucci, and chief of staff Reince Priebus fired by Trump and replaced with General John Kelly. Kelly then proceeded to fire Scaramucci after one bizarre week and on Friday night he fired chief strategist Steve Bannon – the man behind Trump’s election campaign.

While Bannon is supposedly the guy who orchestrated the Trump policy agenda – that in which Wall Street still places great faith – he was also seen as a trouble-maker inside the White House and the possible source of all the leaks. The lack of Wall Street respect for Bannon was evident on Friday night when the US indices turned around from initial falls.

The Dow was down over a hundred points early on, kicking on from Thursday’s selling, but the Bannon news was enough to spark a rally back towards the flat-line. However later in the day, the editor of Bannon’s alt-right Breitbart newspaper suggested Bannon’s sacking meant “war”.

Wall Street’s interpretation is that a disgraced Bannon will now unleash upon the aforementioned Gary Cohn and on Treasury Secretary Paul Mnuchin – another supposed adult in the room respected by the market. And so the indices turned around again and weakened to the close.

The Dow closed down -76 points or -0.4% while the S&P fell -0.2% to 2425 and the Nasdaq lost -0.1%.

But yes, there was some “real” market stuff going on on Friday night as well. Most notable was yet another retail shocker, with a big earnings miss from Foot Locker sending its shares down -28%. The sneaker seller is the latest in a long line of bricks & mortar retailers to be thumped on weak performances this season.

Major supplier to Foot Locker is Nike, so its shares fell -4.4% and provided the biggest drag on the Dow.

Outside of this result, and the White House soap opera, it was another sleepy summer session on Wall Street, with an options expiry likely adding an extra bit of volatility at the close.  Speaking of volatility, the VIX actually slipped back -8% on Friday to 14.3 despite more Washington disruption.

With US earnings season winding down, Wall Street may well now meander aimlessly until there is something new to focus on. Fiscal reforms seem a world away, so attention will likely turn to the Fed and next month’s meeting. Ahead of that we have the Jackson Hole central bankers’ symposium beginning on Thursday night.

There are no guarantees the Hole will be the forum for anything startling.

Commodities

An unconfirmed report hit the wires on Friday night that one of Exxon’s biggest oil refineries in Texas had been shut down. Throw in a confirmed drop in the US rig count for the week of -5 to 763, and West Texas crude jumped back US$1.80 to US$48.73/bbl, while still closing lower for the week.

Mixed trading on the LME had lead down -2.5% and aluminium -0.5%, while copper was flat and nickel and zinc rose 2%.

Iron ore fell -US60c to US$75.10/t.

The US dollar index fell -0.3% to 93.42 but gold slipped back after its latest burst, by -US$3.30 to US$1284.20/oz.

The Aussie has rebounded, up 0.5% to US$0.7926.

The SPI Overnight closed down -4 points on Saturday morning.

The Week Ahead

The bulk of the ASX300 reports earnings this week. There are far too many stocks to highlight. Please refer to the FNArena calendar (link below).

As is typically the case, there are no major local economic releases in the biggest week of reporting season.

The US will see the Chicago Fed national index tonight, FHFA house prices and the Richmond Fed index tomorrow, new home sales on Wednesday, and existing home sales on Thursday with a flash estimate of August manufacturing PMI. Friday it’s durable goods.

The Jackson Hole symposium runs over Thursday and Friday.

The eurozone will flash its PMI on Wednesday and Japan on Thursday.

Rudi will appear on Sky Business on Tuesday, via Skype, to discuss broker calls around 11.15am. He'll do it again a little after midday on Thursday, and again on Friday, probably around 11.15am.
 

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