Daily Market Reports | Oct 03 2017
This story features TELSTRA GROUP LIMITED.
For more info SHARE ANALYSIS: TLS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
By Greg Peel
The Dow closed up 152 points or 0.7% while the S&P rose 0.4% to 2529 and the Nasdaq gained 0.3%.
Holiday Spree
I did warn yesterday that trading would be thin on the local bourse given half the country was enjoying a public holiday and others were still nursing black and gold hangovers, and so it was yesterday’s ASX trading volume reached only about half of the recent daily average. But that did not deter the buyers.
September ended with investors in a sullen mood and the ASX200 looking technically vulnerable as it failed, many times, to drag itself away from the bottom of the trading range. The buyers were simply not interested. But suddenly, as we rolled into the new quarter, clocks went forward and curtains began to fade, the buyers crawled out from under their rocks.
September is historically the worst month of the year and the December quarter is historically the most positive. We do, nevertheless, need to get through the infamous month of October.
No doubt buoying sentiment yesterday was data released over the weekend from China, and Beijing’s move to cut its bank reserve ratio requirement. China’s manufacturing PMI reached its highest level since April 2012 last month and the services PMI reached its highest level since May 2014. A ray of light shone on markets.
Beijing also announced it would cut the RRR by as much as 50 basis points, freeing up bank capital to be lent specifically to small business and the agriculture sector. Chinese banks must be lenders to these sectors to qualify, but all the big banks and around 90% of smaller banks do.
There was no mention of China’s worrying level of debt.
Given the iron ore price fell quite heavily on Friday and other commodity prices were not much changed, the 1.5% jump for the local materials sector yesterday was no doubt China-driven. But the banks posted a 1.1% gain to cement strength for the index.
Elsewhere, telcos posted the only sector loss in falling -0.7%, with Telstra ((TLS)) seemingly now no longer a go-to large cap and mandatory buy in any market buying exercise. All other sectors posted gains of varying degree, and even utilities (+0.6) chimed in, suggesting telco weakness was not a yield play.
Those buyers taking the risk in thin trade yesterday appear to have been rewarded, with Wall Street posting similarly solid gains overnight. The futures are showing a continuation of the rally with all states back on board today, up 19 points.
At 5729, the index now appears to be safely back inside the range and no longer looking ill.
Starting with a bang
It’s a sick twist, but share prices of the major US gun manufacturers jumped over 3% last night as shares in hotel chains fell. But that’s America. Wall Street was shocked by the news from Las Vegas but it would not affect broad market sentiment.
In focus were the stronger data from China, but more importantly the strong data domestically. The US manufacturing PMI rose to a breakneck pace of expansion at 60.8 in September, up from 58.5 in August. Economists had forecast a fall. That’s the highest reading since 2004.
Construction spending rose 0.5% to be 2.5% stronger over a year.
Money that had been waiting on the sidelines appeared to flow in to US markets last night, again in anticipation of the historically strong fourth quarter. All of the Dow, S&P, Nasdaq and Russell again made new record highs.
The big indices had to fight against a drag from the energy sector, following a -2% fall in the oil price. The latest data showed OPEC production increasing as Iraq continues to come back on line and Libya revs up its production. Both enjoy levels of exemption from the OPEC/non-OPEC production cut quotas.
The Big Tech names were also mostly soft again, hence the Dow well outperformed the Nasdaq. If there is new money coming in for the fourth quarter then it seems the already overpriced, in many an opinion, FANG stocks and friends are not the stocks to accumulate. Investors are favouring “value” over “growth”, which typically means buying the laggards.
What can derail Wall Street’s onward-ever-upward trajectory? Some suggest that the equity rally from 2009 was all about easy money – QE – and now as the Fed looks to go the other way surely the stock market must reverse as well. But despite the Fed insisting that its balance sheet unwinding process will be a gradual one, such tightening is still balanced out by easy policy in the eurozone, Japan and UK which has yet shown no signs of being rolled back.
And we still haven’t seen the “real” response to what the new US tax regime might be.
Shortly the September quarter result season will begin on Wall Street and forecasts see another very solid quarter of earnings growth, matching the June quarter. At the end of the day, the proof of the pudding is in the earnings.
Commodities
The iron ore price is unchanged at US$61.50/t. It could very well remain unchanged for the rest of the week with China on holiday.
Lead and zinc were the only two base metals to appear excited about the China data in London last night. They rose 2% and 3%.
The US dollar index has jumped 0.6% to 93.62 on the strong US data, sending gold down -US$7.60 to US$1271.80/oz.
West Texas crude is down -US$1.05 to US$50.54/bbl.
The jump in the greenback has had little impact on the Aussie. It’s flat at US$0.7826.
Today
The SPI Overnight closed up 19 points or 0.3%.
Today’s local data releases include ANZ’s job ads series and building approvals. The RBA meets today but no one expects anything new.
China, as noted, is closed, and closed all week.
Rudi might connect with Sky Business today, via Skype, to discuss broker calls. If this happens, it'll be around 11.15am.
****
The Australian share market over the past thirty days…
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)
All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.
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
CHARTS
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED
