The Overnight Report: Signs Of Fatigue

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            [3] => ((VOC))
            [4] => ((SRX))
            [5] => ((SXL))
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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

By Greg Peel

The Dow closed down -54 points or -0.2% while the S&P lost -0.4% to 2564 and the Nasdaq fell -0.6%.

Not Yet

The ASX200 opened up 18 points from the bell yesterday and it was assumed the market was set to push towards 6000 after having broken up last week. Wall Street had a strong session on the Friday night, with all three major indices again posting records.

But it wasn’t to be. We might argue on the one hand that the driver of Wall Street’s rally – the passage of the budget bill in the US Senate – was already known downunder early in Friday’s session, and a positive response had thus already been booked. Or we might argue that in order to reach 6000, the market needs something more concrete.

Otherwise we may yet need to see a pullback to the 5800 level, which was prior resistance and now becomes support, and some consolidation before another attempt can be made. Yesterday the index closed under 5900. Wall Street was down last night. The futures are down this morning.

Notable in yesterday’s session was a lack of volume. The index had broken out of its range on solid volume and rallied further as more players got on the bandwagon but yesterday was a different story. The index spent all afternoon drifting off on what was largely a lack of new buyers.

There were no sector trends evident. Telcos rose 0.9%, but could just as easily give that back on any day. Utilities fell -0.7% but had been enjoying a solid run on the coat tails of AGL. These were the biggest movers among sectors.

Otherwise it was a case of telcos, consumer discretionary, energy, healthcare and IT up and utilities, consumer staples, financials, industrials and materials down. Nothing to hang one’s hat on there.

What we will likely see this week, notwithstanding anything untoward on Wall Street, is a more stock-specific focus rather than the market-wide move that took us to break-out highs. The AGM season has begun to build and will only build further from here. Resource stocks have been issuing quarterly reports and these days a lot of non-resource stocks provide what are ostensibly quarterly earnings reports and guidance updates as well.

We probably need to see out the scary month of October and move into what are traditionally the strong months of November and December. The elves are hard at work.

Losing Steam

The US earnings season to date has been pretty solid in terms of earnings beats and positive guidance. Wall Street booked a perfect week last week of five consecutive record highs. But it was a grinding pace more than a euphoric pace.

On Friday night General Electric (Dow) reported and saw a slight share price increase as a result. Last night one broker downgraded GE and the stock dropped -7%. GE is no longer the market bellwether it once was, in its glory days, but last night perhaps it was showing bellwether traits.

The big debate on Wall Street at present is: Has tax reform already been priced in? Is another strong earnings season enough to support ever more records or are earnings beats unlikely to engender the same excitement at current lofty market multiples? In other words, is Wall Street finally due a pullback?

Of course, as soon as the latter question is asked the response is always: We’ve been saying that for two years. Or more. One day Wall Street will pull back. But picking when is the hard part.

This week is the biggest on the US earnings calendar, with some 30% of S&P500 stocks reporting including 13 Dow stocks among them. It is also possible this will be the week Trump announces his choice for Fed chair. If that turns out to be someone from the hawkish side of the equation, Wall Street may well have a hiccup.

Then there’s tax reform, but we might all grow old on heightened anticipation on that front.

Wall Street opened to the upside last night but just as had been the case in Australia yesterday, spent the rest of the session drifting back again. Notably, the bulk of the -54 drop for the Dow was booked in the last half hour. Such a weak close is not a positive sign.

Commodities

In relative terms, it was not a big night for commodities.

All base metals were positive in London to varying degrees, with only lead and zinc posting moves of better than 1%.

Iron ore fell -US50c to US$60.30/t.

West Texas crude was up a tad on the new December delivery front month at US$51.84/bbl.

The US dollar index rose 0.2% to 93.86 but gold managed to tick up slightly to US$1281.70/oz.

The Aussie is down -0.2% at US$0.7806.

Today

The SPI Overnight closed down -5 points.

The flashers are out and about today and tonight, with October manufacturing PMI estimates due from Japan, the eurozone and US.

Fortescue Metals ((FMG)) releases its production report today and quarterly updates are due from Goodman Group ((GMG)) and Mirvac ((MGR)).

A handful of AGMs today includes those of Vocus ((VOC)), Sirtex Medical ((SRX)) and Southern Cross Media ((SXL)).

Rudi will connect with Sky Business via Skype at around 11.15am to discuss broker moves.

****

The Australian share market over the past thirty days…

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