The Monday Report

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

By Greg Peel

Late Mail

Let’s just say from the outset Friday was always going to effectively be a half day on the Australian stock market given the number of reminiscence lunches all over town remembering that fateful day in 1987. Orders would have been placed early and trading rooms will have thinned in the afternoon.

It is perhaps no surprise, therefore, that the ASX200 peaked at 1pm.

The session had begun to the downside, following the futures’ lead, and none too surprising given the solid run-up and two failed attempts to breach 5900. But early in the day news came through from Washington that Congress had passed the 2018 US budget bill – a significant hurdle on the road to tax reform – and the Dow futures began to rally.

The index once again hit 5900 at midday, steeled itself, and then pushed on to 5924. And that’s when offices emptied. The market proceeded to drift off in the afternoon but still closed just above the psychological level.

The big mover on the day was once again utilities (+1.7%), driven by AGL Energy ((AGL)), as more analysts noted the company was the biggest winner from the government’s new NEG scheme. Healthcare was the biggest loser on the day (-0.4%) as Healthscope ((HSO)) continued to slide away. The consumer sectors were well supported (+0.5% discretionary and +0.4% staples) and other sector moves were smaller.

It will now be interesting to see what transpires this morning as traders return with clear heads. The futures nevertheless closed up only 5 points on Saturday morning against a 0.5% gain for Wall Street in response to the budget news. Maybe there were just not enough players left standing.

Scraping In

The US Senate passed the budget bill on a margin of 51-49. It was close, but Trump can for once claim a win. The understated president was typically eloquent in his resultant tweet, suggesting the tax cuts would be “MASSIVE”.

Wall Street has also been anxiously waiting news on Trump’s choice for new Fed chair from next year. The market believes the race is down to two – incumbent governor Jerome Powell and economist Jon Taylor – but Trump has indicated it’s down to three, with Yellen still a possibility to go around again.

Wall Street’s response to the budget news was to send all three major indices steadily northward through the session to close on the 24^th triple-index record for 2017. The Dow closed up 165 points or 0.7%, the S&P gained 0.5% to 2575 and the Nasdaq added 0.4%.

The Dow once again managed to outperform thanks to some individual component moves. General Electric rose 1.1% on its earnings result while Boeing gained 2.2% after announcing an order for 38 planes from a Chinese airline. Proctor & Gamble fell -3.7% thanks to a revenue miss.

We might also give a nod to Wall Street-listed Australian cloud software company Atlassian, which jumped 25% in the aftermarket following a beat on earnings and guidance.

Since Trump was elected on a promise of lower taxes, the S&P500 has rallied 23%. Now that tax reform is getting closer, Wall Street is rallying further. Arguments remain as to whether price/earnings ratios are expensive, or not too bad when one discounts historically low interest rates. The good news is the E in PE is continuing to support P, to date, for another quarter.

The bad news is historically low rates won’t be with us for much longer, but at least Yellen has pledged to take it slow. As for whether the new Chair, if that is to be the case, will pledge the same remains to be seen.

Commodities

The recent rebound gold had been experiencing came to an end on Friday night, with a 0.6% gain in the US dollar to 93.67 on the budget news sending the precious metal down -US$9.60 to US$1280.00/oz.

The Aussie matched the greenback’s gain in falling -0.6% to US$0.7818.

For once it was a quiet night on the LME, with base metal price moves mixed and largely negligible.

Iron ore jumped more than 2% to US$60.80/tonne.

West Texas crude was little changed at US$51.47/bbl.

The SPI Overnight closed up 5 points.

The Week Ahead

Australia’s September quarter inflation data are out this week, with the CPI due on Wednesday and the PPI on Friday. Economists are forecasting a quarterly CPI gain of 0.8%, up from 0.2% in June, to take annual headline inflation to 2.0% from 1.9%. And before anyone says “RBA target zone”, we’re talking headline not core.

US data this week include the Chicago Fed national activity index tonight, a flash estimate of October manufacturing PMI tomorrow along with the Richmond Fed index, and durable goods, new homes sales and FHFA house prices on Wednesday.

Thursday it’s pending home sales and the trade balance, and Friday the first estimate of US September quarter GDP. Economists are expecting a drop to 2.5% annual growth from 3.1% in June, reflecting the impact of the hurricanes.

The UK releases its September quarter GDP on Wednesday.

The ECB holds a policy meeting on Thursday.

New Zealand is closed today.

Japan and the eurozone also flash PMIs on Tuesday.

On the local stock front, the market will look forward to quarterly production reports from Fortescue Metals ((FMG)) tomorrow, Independence Group ((IGO)) on Wednesday and Newcrest Mining ((NCM)) on Thursday.

Goodman Group ((GMG)) and Mirvac ((MGR)) publish quarterly reports tomorrow.

ANZ Bank ((ANZ)) posts its earnings result on Thursday and Macquarie Group ((MQG)) on Friday.

There are a host of AGMs over the week, which are best highlighted on a daily basis. Today’s meetings include those of Corporate Travel Management ((CTD)) and Super Retail ((SUL)).

Rudi will appear on Sky Business on Tuesday, via Skype, around 11.15am to discuss broker calls. On Wednesday he'll host Your Money, Your Call, 8-9pm. On Thursday he'll appear from 1-2pm and on Friday he'll repeat the Skype connection, probably around 11.15am.

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