The Overnight Report: There Is No Alternative

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

By Greg Peel

The Dow closed up 160 points or 0.7% while the S&P gained 0.7% to 2599 and the Nasdaq rose 1.1%.

All In

A feature of the break-out for the ASX200 through staunch resistance at 5800 and onward to 6050 was several sessions of market-wide buying, in which all sectors finished in the green. A period of consolidation since has seen sectors moving in different directions on any given day as investors rotate and reposition their portfolios, reacting to fresh inputs.

Yesterday saw a return to market-wide buying, with all sectors finishing in the green for the first time since the break-out rally. It was a stumbling start nonetheless, with the market jumping early as the futures had suggested before falling back to almost square by midday. A new lease of live ensured a sharp afternoon rebound.

The turnaround came as RBA governor Philip Lowe suggested that while the next move in interest rates is more likely to be up than down, it won’t be coming anytime soon. Investment might be picking up but businesses have become obsessed with cost-cutting in a structurally changed world dominated by technology and competition. Inflation and wage growth are thus too low to justify a rate hike.

Until unemployment falls to 5.0% (currently 5.4%), the labour market will remain in a state of excess capacity.

Given utilities was the sector winner on the day, rising 0.8% after having fallen -2.0% on Monday, clearly there was relief the governor did not signal an upcoming rate hike. Consumer discretionary (+0.5%) was also a fan, while stronger commodity prices supported materials (+0.5%).

It was an interesting day at the individual stock level. Seems companies are good at talking themselves up at their AGMs but not so good at delivering come result time.

On the leaders’ board, Monadelphous ((MND)), up 6.8%, and a2Milk ((A2M)), up 5.5%, held AGMs while the heavily shorted Aconex ((ACX)), up 5.0%, hosted an investor day and Infigen Energy ((IFN)), up 7.0%, holds its AGM today.

On the losers’ board, Graincorp ((GNC)), down -4.9%, and Fisher & Paykel Healthcare ((FPH)), down -3.8%, posted earnings results as did ALS ltd ((ALQ)), down -7.4%, on Monday.

Domain ((DHG)), down -3.4%, has now seen three of the FNArena database brokers initiate coverage since its spin-off last week, all with Sell (or equivalent) ratings. Nothing sinister, just a too-exuberant market on day one.

Wall Street was off to the races again last night and the local futures are showing up 16 points this morning. Today is quite a biggie on the AGM calendar.

Four Horsemen

Just when Wall Street looked like it might be suffering a bout of the wobbles, it turns around and posts new all-time highs for all of the Dow, S&P, Nasdaq and Russell small cap. The market didn’t quite close on its highs, but nothing much is stopping it right now.

Not even an ever flattening US yield curve, which is one of the main topics of conversation on Wall Street right now. The US ten-year yield has been treading water all year, despite expectations of a Fed rate rise and an unwinding of the Fed balance sheet, while the two-year yield has hit a nine-year high. The yield curve is creeping ever closer to flat.

Traditionally, an inverted yield curve (long yields below short yields) portends a recession. But that is a domestic consideration. US short-end yields are rising to reflect a US economy strong enough to prompt cash rate normalisation, while long-end yields are reflecting the differential between those major economies still being supported by QE, namely Europe and Japan.

If the Germans and Japanese are investing in US long bonds because they can’t get the yield at home, and US short-end yields are rising on a stronger US economy, does that mean the US is headed for recession?

Late season earnings results were a primary driver of Wall Street strength last night, albeit few names Australians would recognise, along with economic data. Solid numbers were reported for the Chicago Fed national activity index and existing home sales.

Traders are anticipating last week’s US crude inventory numbers will show a big decrease, so WTI is up 1%. Mind you, they’re never right, but energy was a leading sector last night anyway. Materials also chimed in, with the copper price having a run.

As commentators fiercely debate whether there is anything that might tip Wall Street over, TINA keeps popping her head up. Where else are you going to put your money?

The suggestion is sharp up-moves as was the case last night are reflecting a deal of short-covering by those traders anticipating a long-awaited correction. As Thanksgiving approaches with one more session to go, there’s a lot of squaring up going on.

Commodities

Strike action in Peru helped copper up 1.5% on the LME last night. Nickel was also up 1.5% with lead and zinc up 0.5%.

Gold is up slightly at US$1280.00/oz with the US dollar index down -0.1% at 93.97.

West Texas crude is up US51c at US$56.95/bbl on the new January delivery front month contract.

The Aussie is up 0.4% at US$0.7580, apparently because Dr Lowe said the next move in rates will be up.

Today

The SPI Overnight closed up 16 points or 0.3%.

Today sees numbers for local September quarter construction work done.

The minutes of the last Fed meeting are due tonight along with US durable goods data.

A big day for AGMs sees Evolution Mining ((EVN)), IOOF Holdings ((IFL)), Mantra Group ((MTR)), NextDC ((NXT)), Qube Holdings ((QUB)), REA Group ((REA)), Sonic Healthcare ((SHL)), Virtus Health ((VRT)) and Webjet ((WEB)) handing out the tea and bikkies, and that’s just some of them.

Coca-Cola Amatil ((CCL)) will hold an investor day and no doubt hand out fizzy drink. They have to get rid of it somehow.

Programmed Maintenance ((PRG)) will post its earnings result.

Rudi will meet up with a selected group of lucky investors tonight, in Paddington, to talk intimately about shares, economies, big trends and what has changed.

****

The Australian share market over the past thirty days…

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