The Overnight Report: Buy The Splash

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            [3] => ((BLD))
            [4] => ((RHC))
            [5] => ((IGO))
            [6] => ((MTS))
            [7] => ((TLS))
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This story features AUSTRALIAN AGRICULTURAL COMPANY LIMITED, and other companies.
For more info SHARE ANALYSIS: AAC
The company is included in ALL-ORDS

By Greg Peel

The Dow closed up 56 points or 0.3% while the S&P gained 0.1% to 2446 and the Nasdaq rose 0.3%.

Bullet Dodged?

The range has broken. The local market tumbled yesterday in tune with the Dow overnight futures in response to North Korea firing a missile over Japan. At midday the ASX200 hit 5645 – well below the 5680 bottom of the range the index has been trapped in for fifteen weeks. Afternoon relief saw a graft back to a close of 5669.

In isolation, chartists would tell you next stop 5500, which is major support. However…

Wall Street did not fall overnight. The Dow futures traded as low as -150 points down before beginning to turn before the NYSE open. The physical Dow opened down -130 points but from there on did nothing but rally.

To that end, what the Australian market was anticipating yesterday has not come to pass. The SPI futures are up 29 points this morning. That would take us back almost to 5700, and back into the range. We may have seen a sortie into the underworld, but unless anything more sinister transpires in the meantime, we may not have effectively seen a break-down.

The fading result season took a back seat yesterday as again large caps were sold. The banks once again led the charge in falling -1.2%, both as market heavy-weights and with their own problems to deal with. Telcos fell -1.1%, healthcare -0.9% and consumer staples -0.5%, wherein lie some of the bigger names.

Consumer discretionary also suffered heavily in falling -1.2%, while utilities played safe haven with a 0.6% gain, and buying of the miners of another safe haven, being gold, kept the materials sector to a small loss.

We may see some of the bigger moves reverse today, other than the gold sector.

The top ten winners’ board was yesterday dominated by gold stocks, but among them we did see some result season movers. Electronic product design SaaS company Altium ((ALU)) reported on Monday and beat forecasts, but investors waited for positive analyst reports to send the stock up 11.6% yesterday. Blackmores ((BKL)) reported yesterday and rose 7.5%.

In yesterday’s Report I noted Australian Agricultural Company ((AAC)) was the second best performer on the day with a 4% gain. Yesterday it was the second worst performer in falling -5.5%. Bit of a misinterpretation there.

Otherwise, no company reporting yesterday made it onto the top ten losers’ board.

Two more days of result season to go.

All Options

“All options are on the table,” said Donald Trump last night in response to the North Korean missile test, as has every recent president before him in responding to the regime’s various indiscretions over the decades. Clearly his minders got a hold of him quickly this time and prevented any more provocative “fire & fury” rants, settling instead for the standard line.

It was this comment that has been attributed with turning Wall Street around. A couple of weeks ago Wall Street got the jitters when Kim Jong-un threatened Guam, but as nothing eventuated, the dip-buyers strode in. Last night Trump did not order the nuking of Pyongyang, but rather played the diplomatic card. Dip-buyers seized the opportunity once more.

It allowed Wall Street a chance to revert attention back to the crisis at home rather than abroad, being Harvey’s relentless path of destruction. The rain just keeps falling and the damage bill estimation keep rising.

Wall Street is attempting to gauge the impact on different companies, such as those retailers who are prominent in Texas and have major distribution centres shut down, along with insurance companies and the energy sector. What is understood is that the clean-up is going to cost the government a lot of money. Citi has estimated the hurricane will strip a tenth of a percentage point off September quarter GDP.

Which puts the Fed on notice. Gasoline prices are spiking as more refineries shut down, and a spike in headline inflation will follow. But the Fed will see this as “transitory”. However, the question is now being asked: Can the Fed impose a rate rise on the people of Texas and Louisiana, and on the broader economy, in the wake of the disaster?

Last night the US ten-year yield fell under 2.10% as the stock market opened lower, but rose back in concert with stocks to a close of 2.14%, down -2 basis points on the session. The year to date low is 2.13%.

Amidst all the drama, the Conference Board’s monthly index of consumer confidence hit its second highest level since 2000. That is not a data point to be ignored. The Fed will now find itself in a difficult position.

Presumably we’ll now see another hiatus in geopolitical tensions, and Wall Street will settle back to its own steady range for the time being. With the US result season all but over, attention will turn to jobs numbers on Friday. The Fed meeting is not until September 20.

Commodities

The US dollar index stabilised last night, rising 0.1% to 92.33. Gold is thus steady at US$1308.60/oz.

The LME was closed on Monday night so last night was the first chance to respond to the big US dollar drop of the night before. Aluminium and zinc rose 1%, copper 1.5%, and nickel and lead 2%.

Iron ore fell -US20c to US$76.10/t.

West Texas crude fell -US50c to US$46.32/bbl and Brent fell only slightly, further widening the spread.

The Aussie is steady at US$0.7949.

Today

The SPI Overnight closed up 29 points or 0.5%.

Locally today we see July building approvals and June quarter construction work done.

The US will see private sector jobs tonight, and another revision of June quarter GDP.

It’s another relatively busy day in result season, but again smaller names dominate the list. The exceptions are Boral ((BLD)), Ramsay Health Care ((RHC)) and Independence Group ((IGO)).

Metcash ((MTS)) holds its AGM.

Today is an historic one. Telstra ((TLS)) will go ex of its final lumpy dividend before the announced dividend cut next year. As I have been reminding, the ex-divs are starting to mount up.

Rudi has had to cancel tonight's Your Money, Your Call.
 

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