The Monday Report: CORRECTION

Array
(
    [0] => Array
        (
            [0] => ((FMG))
            [1] => ((HVN))
            [2] => ((MYR))
            [3] => ((CSL))
            [4] => ((AMP))
            [5] => ((CLW))
            [6] => ((NHF))
            [7] => ((SOL))
            [8] => ((ISD))
            [9] => ((SKT))
            [10] => ((VRT))
            [11] => ((ASB))
            [12] => ((QIN))
            [13] => ((RCG))
            [14] => ((CSR))
        )

    [1] => Array
        (
            [0] => FMG
            [1] => HVN
            [2] => MYR
            [3] => CSL
            [4] => AMP
            [5] => CLW
            [6] => NHF
            [7] => SOL
            [8] => ISD
            [9] => SKT
            [10] => VRT
            [11] => ASB
            [12] => QIN
            [13] => RCG
            [14] => CSR
        )

)

This story features FORTESCUE LIMITED, and other companies.
For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

Apologies for the error this morning. One needs to rely on one's sources.

By Greg Peel

And Exhale

Friday’s session on the local market was always going to have a very “Friday” feel about it. Aside from simply being a day before the weekend it was the first of the new month, after a bit of buying to close out the prior month, it was a Friday before a US long weekend, reducing the incentive to trade, and it was the first session after the end of the August reporting season.

Stock analysts now get to have a rest, and many will take a holiday.

There was still a positive lead from Wall Street and indeed the rather modest 10 point gain achieved by the ASX200 belies the fact the index had to battle against a handful of significant ex-divs, with Adelaide Brighton, Challenger, Lend Lease, Fortescue and Tatts all losing their dividends, among others.

Fortescue Metals ((FMG)) actually closed 3.3% higher on the session despite its dividend being worth a -1% drop. On the other end of the scale, a further -4.2% drop for Harvey Norman ((HVN)) post the announced cutting of its dividend puts the company in a similar class to that of Myer ((MYR)) – being last century retailers. Credit Suisse has now called the stock “un-investable”. Harvey Norman was 10% shorted last week, and Myer 16%.

The good news of the day was Caixin’s independent China manufacturing PMI, which rose to 51.6 in August from 51.1 in July when it was forecast to fall to 51.0.

That news helped the index bounce from an early drop, indeed right off the 5700 level, before grafting higher to the close. Healthcare (+1.1%) led the sectors as CSL ((CSL)) had a strong session on Aussie dollar weakness. That stock is little more than a currency proxy at present.

Consumer discretionary (-0.8%) provided the biggest drag. See above.

S&P announced the quarterly changes to its ASX indices on Friday. There was a chance AMP ((AMP)) might lose its spot in the ASX20 but there was no change, while in the ASX200 we have Charter Hall Long WALE REIT ((CLW)), nib Holdings ((NHF)) and Washington H Soul Pattinson ((SOL)) welcomed in and iSentia ((ISD)), Sky Network Television ((SKT)) and Virtus Health ((VRT)) shown the door.

Note: Not Austal ((ASB)), Quintis ((QIN)) and RCG Corp ((RCG)) as originally published.

Wall Street posted another modest gain on Friday night but the SPI futures closed with an enthusiastic 24 point gain on Saturday morning. In isolation this seems optimistic, but it was also before North Korea conducted its nuclear test.

Wall Street did not like it when the missile flew over Japan but recovered fairly quickly. The question is as to how the US market will respond to the knowledge the rogue regime not only has missiles that can reach the US but also has a warhead that is more powerful than the one dropped on Hiroshima.

The problem is we won’t know until Tuesday night, given the Labor Day long weekend.

Bad news is good news, again

Economists had expected 170,000 new jobs to be added in the US in August but the number came in at only 156,000, despite the private sector number surprising to the upside two days earlier. Expectations were for wages growth to fall to 0.2% after a glimmer of hope at 0.3% in July, but that result was only 0.1%.

Wall Street was already assuming no rate rise at the Fed meeting this month and a fading likelihood of a hike in December, despite the Fed so far sticking to its forecast of three hikes in 2017. Now December looks even less likely.

Throw in the fiscal hit the government will take and the drag on GDP growth due to Harvey, and it seems unless inflation suddenly picks up between now and the end of the year, the Fed is on Hold.

The Dow closed up 39 points or 0.2% while the S&P gained 0.2% to 2476 and the Nasdaq rose 0.1% to another new record high.

Considering consistently solid earnings growth in the year to date and the prospects of tax reform, Wall Street is once again in a sweet spot if there is no handicap from monetary policy. Geopolitics notwithstanding.

There was some otherwise “good” news amidst the “bad” news of the weak non-farm payrolls result, and that is the addition of 36,000 jobs in US manufacturing, to total 155,000 jobs since that sector hit a low in November last year. The strong sector jobs number was backed up by a jump in the US manufacturing PMI to 58.8 in August from 56.3 in July. That’s a rapid pace of growth.

The problem is no one’s getting paid any more for their efforts. Robots are cheaper and don’t form unions.

Yet.

Wall Street baked in the economic data from the opening bell ahead of a mass exodus for the long weekend. Tumbleweeds rolled in after lunch.

Commodities

The US dollar index ticked up 0.2% to 92.85 despite the weak jobs number but gold rose US$3.60 to US$1324.40/oz with the Fed likely on hold.

Nickel’s 2% gain was the standout on the LME.

Iron ore was unchanged at US$75.80/t.

West Texas crude rose US27c to US$47.35/bbl.

The Aussie is 0.2% higher at US$0.7968.

As noted, the SPI Overnight closed up 24 points or 0.4% on Saturday morning, cum nuclear test.

The Week Ahead

The focus of the Australian market will swing swiftly from earnings to economics this week with an RBA meeting tomorrow and the release of the June quarter GDP result on Wednesday. But the RBA will probably phone it in. Prior to Wednesday we’ll see company profits and inventory numbers today and the current account and terms of trade tomorrow.

At this stage the expectation is for 0.6% growth to give us 2.9% annual, although last week’s strong capex numbers suggest some upside risk and we still have for numbers to consider before Wednesday day, particularly trade.

Monthly data this week include ANZ job ads today, the services PMI tomorrow, retail sales and the trade balance on Thursday and housing finance on Friday.

US markets are closed tonight before Tuesday brings factory orders and the services PMI, and Wednesday sees trade and the Fed Beige Book.

On the local stock front, CSR ((CSR)) hosts an investor day tomorrow.

But more notably, beware a flood of ex-divs.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am to discuss broker calls.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

For further global economic release dates and local company events please refer to the FNArena Calendar.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms