The Overnight Report: Flood Focus

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            [3] => ((JHC))
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            [5] => ((QAN))
            [6] => ((CTX))
            [7] => ((DOW))
            [8] => ((BKL))
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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -5 points while the S&P gained one point to 2444 and the Nasdaq rose 0.3%.

Banks Bashed

APRA announced yesterday it would undertake an inquiry into Commonwealth Bank’s ((CBA)) culture, accountability and governance in the wake of the recent money laundering scandal, not to mention the litany of earlier issues with the bank’s operations. The bank said it “welcomes” the inquiry.

I bet.

CBA shares fell -1.3% yesterday, which is not exactly major, but does turn around sentiment in the sector that had been quietly improving of late. The other banks fell in sympathy and the financials sector lost -0.9% in the session to provide for a good chunk of the fall in the ASX200.

But it was not just the banks that drove the index lower yesterday. Energy was the only sector to finish in the green and there were some big falls for the likes of telcos (-1.1%), industrials (-1.3%) and consumer staples (-0.9%). Word is a big futures selling order hit the market early in the session, forcing the scrambling sale of large caps in the physical market. The main move was all in the first hour.

So for once, it was not a session driven solely by individual earnings results. We did see the usual list of winners and losers among companies reporting yesterday or Friday but most were smaller cap stocks.

Standout winner on the day was plumbing manufacturer and supplier Reliance Worldwide ((RWC)), which jumped 9% on its result, followed by beef producer Australian Agricultural Company ((AAC)) with a 4% gain.

The bigger movers were on the downside, led by residential aged care provider Japara Healthcare ((JHC)), which fell -13% on its result, followed by peer Regis Healthcare ((REG)), which fell another -7% having reported poorly on Friday. Qantas ((QAN)) continued to slide following Friday’s result, on news of a shuffle of top management positions.

Why that is necessary when the airline just posted its second biggest profit ever is the point of contention.

But mostly we saw market-wide weakness in the index yesterday and it’s not the first time someone has used the futures to launch an attack towards the bottom of the well-entrenched range. The index is once again sitting just above 5700. If recent history is any guide we’ll be back near 5800 within a week.

Or maybe this time we won’t.

Yet still no drop to drink

A gallon of water will cost you US$99 in Houston today, with the bottled stuff scare and the real stuff in abundance. While Harvey was not as strong a storm as 2005’s Katrina, the rain depression it has turned into has meant Houston Airport received 16 inches of rain in 24 hours when the previous record was 8 inches.

While the hurricane itself had been accurately predicted, the amount of rainfall has come as a complete surprise. And it’s not over yet.

The result is over 20% of US refinery production has been shut down, whether due to direct flooding or to the fact workers have been evacuated from their own homes, representing around 3m barrels of oil per day input. It is unclear for how long these refineries will remain closed, and given Harvey may yet track towards Louisiana, more refineries are in its path.

The result is a plunge in supply of gasoline and other products, and a plunge in demand for crude to feed the refineries. Thus gasoline prices have spiked and oil prices have dropped. WTI is down -US$1.04 to US$46.82/bbl overnight.

Harvey has also forced the shutdown of Gulf rigs and some operations in the Eagle Ford shale region, but the loss of crude production is outweighed by the loss of demand.

Given this is a US-centric issue, Brent crude has only fallen -US34c to US$52.05/bbl, widening the spread to WTI, while Asian crude prices (eg Tapis, Australia’s benchmark price) have risen, as the US turns to Asia to cover shortfalls in av-gas and other products.

On the US stock market, energy companies saw a mixed session depending on whether they operate upstream, downstream or both. The storm is having an unsurprising impact on insurance companies, sending Travelers (Dow), for example, down -2.5%. And as is so often the case in Australia, arguments as to what is storm damage and what is flood damage will mean some insured homes and businesses won’t get a cent.

On the flipside, the eventual need to repair and rebuild helped Home Depot (Dow) shares, for one, higher.

In the wash-up it was a net square session featuring nothing much else to talk about, stock market-wise.

Commodity-wise was a different story. The US dollar index continued its slide post Jackson Hole last night, aided, no doubt, by assumptions of Harvey’s ultimate cost to the government. It’s down -0.3% at 92.21, sparking a technical breakout for gold. It’s up US$18.70 at US$1309.50/oz.

The gold price is yet to move higher, if it is going to, on this morning’s new North Korea has fired another missile.

Commodities

Crude prices as noted above, as is gold.

UK markets were closed last night so no base metal trading on the LME.

Iron ore had a wild ride in the Asian futures market yesterday, surging higher and then collapsing back again. The net result is a spot price down -US20c at US$76.30/t.

The Aussie is up 0.3% at US$0.7951, matching the greenback’s slide.

Today

The SPI Overnight closed up one point.

Another round of local earnings reports today, mostly smaller names, although Caltex ((CTX)), Downer EDI ((DOW)) and Blackmores ((BKL)) are in the frame.

Rudi will connect with Sky Business via Skype at around 11.15am to discuss reporting season and broker calls.
 

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