The Overnight Report: The Only Way Is Up

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            [6] => ((AMC))
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This story features WOOLWORTHS GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WOW
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 28 points or 0.1% while the S&P rose 0.1% to 2575 and the Nasdaq gained 0.4%.

Profit-Taking

The local market ignored weakness on Wall Street overnight in rising 15 points from the open, despite the futures being undecided. Boosting sentiment was a surprisingly strong rebound in Woolworth’s ((WOW)) sales in the September quarter. Woolies actually managed to sneak into the top five ASX200 winners board on the day with a 2.3% gain.

But the mood turned as the Bendigo & Adelaide Bank ((BEN)) AGM got underway. The bank cited softer demand in its core mortgage book and the market responded by making its share price -4.8% softer, and taking Bendelaide to the top of the ASX200 top five losers. The big banks were sold down, to a lesser extent, in sympathy.

We thus saw consumer staples up 0.9% at the close and the banks down -0.6%.

Around midday Beijing’s official PMIs for October were released. China’s manufacturing PMI fell to 51.6 in October, down from 52.4 in September and missing forecasts of 52.0. China’s services PMI fell to 54.3 from 55.4.

These were slightly disappointing results, but given data is not seasonally adjusted in China we must take into account the fact the country was shut down for a whole week during the month. The disruption is not quite as stark as that of the New Year week, but will still have had an impact.

Falls in metal prices had already suggested weakness for the local materials sector yesterday and the PMIs didn’t help, sending materials down -0.6%. Elsewhere, sector moves were mixed, as has been the case all week while the index has consolidated around 5900.

I suggested yesterday we might see some profit-taking as books were squared on a month in which the index rose 4%, and sure enough a late flush of selling ensured a close of down -10 points, once again hovering above the pivot level.

Further cementing that suggestion is the fact the futures are up 24 points this morning for the first day of the new month, seemingly overblown against a small gain on Wall Street. We might note, however, that the nickel price has jumped 5% overnight.

Nickel miner Western Areas ((WSA)) fell -3.8% yesterday to be the second worst ASX200 performer, with the nickel price down on Monday night. Western Areas is the sixth most shorted stock on the ASX, with peer Independence Group ((IGO)) in at number two. Last night both Reuters and Bloomberg carried stories suggesting there is not enough cobalt and nickel in the world to meet demand driven by forecast electric vehicle growth.

Moreover, around half of global nickel production is of too low a quality to be used in batteries, the reports suggested. Keep an eye on those two stocks today.

On the other hand, keep an eye on Canberra. Is the government about to collapse? And specifically, has the chance of a bank Royal Commission grown even stronger?

FAAMG

I don’t know, make up your own acronym.

Wall Street closed last night on its seventh consecutive monthly gain. The S&P rose 2.2% for the month, marking the best result since February. But no less than 50% of that gain came down to no more than five of the 500 stocks – Facebook, Amazon, Apple, Microsoft and Google (Alphabet).

That’s why Wall Street has been making new highs all year while Bridge Street is yet to return to its April peak, let alone the pre-GFC high some nine hundred points away.

The Nasdaq, heavily laden with tech stocks, posted its 62^nd record close in posting yet another one last night. That equals the record set 37 years ago. And Apple and Facebook are yet to report earnings.

Earnings reports elsewhere were the main force behind a turnaround session for Wall Street last night, following Monday night’s tax scare. Details of the tax plan are expected by Thursday but in the meantime, economic data also played their part last night.

The Conference Board’s monthly consumer confidence index came in at 125.9 for October, up from 120.6 in September. That’s the strongest number since December 2000. Economists point to the strong US labour market as the primary driver.

The Chicago PMI rose to 66.2, which is the best reading since March 2011 and a cracking pace of expansion.

The most common phrase you’ll hear from commentators at present is “the path of least resistance is up”. On strong earnings results, and strong economic data, investors have little choice but to get on or miss out. Never mind that there is a Fed decision due tonight, a decision on the Fed chair due at any moment, a jobs number on Friday, and in between potential disappointment when the tax plan is revealed.

No one expects any surprises from the Fed, in what may effectively be Janet Yellen’s last contribution to the FOMC. The Fed chair choice is still up in the air. The jobs number is expected to exceed 300,000 on a rebound from September’s hurricane-hit weakness. Tax, well nobody knows.

Very late in the session sketchy news came in about a (probable) terrorist attack in Lower Manhattan, just around the corner from the NYSE, World Trade Centre memorial and Goldman Sachs headquarters. A truck driven down a bicycle lane has left six people dead. Wall Street has become largely inured to such incidents, but this one is really close to home.

For the record, the Bank of Japan left its easy policy program unchanged yesterday while the eurozone posted 0.6% GDP growth for the September quarter, down from 0.7% in June, but still good for a 2.5% annual rate.

Commodities

Copper eased -0.5% on the LME last night while zinc jumped 2%. But the standout was nickel, rising almost 5.5%.

Iron ore rose US40c to US$58.40/t.

Gold has slipped -US$5.60 to US$1270.20 with the US dollar index up 0.1% at 94.56.

West Texas crude is up another US32c at US$54.45/bbl.

The Aussie is -0.5% lower at US$0.7654, probably reflecting the weaker Chinese numbers, but I wonder if there’s not some political concern in there.

Today

The SPI Overnight closed up 24 points or 0.4%.

Manufacturing PMIs are due across the globe today/night although the eurozone is running a day behind this month. Caixin will provide its take on China’s manufacturing sector.

House price data are due locally.

The US private sector jobs numbers are due tonight along with the Fed statement.

On the local stock front, CSR ((CSR)) will report earnings while Myer ((MYR)) will host a strategy briefing. Presumably the strategy won’t be the same as the one that’s not working.

Today’s AGM holders include Amcor ((AMC)), nib Holdings ((NHF)) and Seven West Media ((SWM)) among many others.

****

The Australian share market over the past thirty days…

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