The Monday Report

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Globalisation

As late as last year, Black Friday meant nothing to anyone outside of the US or observers thereof. On Saturday morning news of the London tube terrorist incident that wasn’t occurred during “Black Friday” sales. Why would the UK acknowledge the day that comes after the day that a group of English got the hell out of the place?

And then, oh no, I saw an ad for “Black Friday” discounts at an Australian retailer. And this morning’s business news includes a tally of Australia’s “Black Friday” sales. Can someone please explain to me what on earth Thanksgiving has to do with Australia? Halloween, didn’t exist as an “event” here when I were a lad, even though we watched the Bradys go trick-or-treating. Now it’s right up there with Christmas.

Well it’s obvious of course. It’s another money-making opportunity retailers can latch onto globally. Except unlike Christmas, the whole point of Black Friday is discounting. Clearly bricks & mortar retailers are utterly desperate in their failing attempts to survive.

The local market opened -37 points lower from the bell on Friday before the humans stepped in and the index spent the rest of the day grafting back. The ASX200 is beginning to look a lot like the S&P500 – every time it heads lower the buyers step in to right the ship. The net result of the downs and ups is the ASX200 closed up 16 points for the week.

The banks were the biggest drag on the index on Friday in falling -0.4% as fears of a Royal Commission intensify. The Nationals have since blamed the Turnbull Coalition for the poor performance of the LNP in Queensland’s state election over the weekend, thus heightening the threat of Nationals crossing the floor were Labor to push the agenda in a rather empty looking parliament.

Healthcare (+0.5%) held the fort, while the Resource sectors posted mild gains.

Materials and energy should again be drivers today following further strength in base metal and oil prices on Friday night and a 3% jump for iron ore. The index is now only 18 points shy of the 6000 mark, albeit the futures closed down -1 point on Saturday morning despite Wall Street strength.

It may yet be that the banks hold the market back.

The Real Deal

The irony of the UK and Australia opportunistically exploiting an American ritual is that the concept of Black Friday has been quietly waning in the US, with stores offering Black Friday discounts all week and some now opening on Thanksgiving. Cyber Monday has, over the same period, risen in impact in line with the structural shift to online shopping.

Tonight’s Cyber Monday is forecast to be the biggest in history, on the combination of the aforementioned structural shift and a relatively buoyant US consumer this season. If there is an irony here, it was highlighted this time last year when it was noticed some of Amazon’s products were being offered on Cyber Monday at prices greater than were available elsewhere. Now that’s how to exploit an anachronistic concept.

Nevertheless, in the half-day session on Friday night, Wall Street traders did indeed focus on Black Friday sales. And they saw that they were good. The big US department stores enjoyed rallies in what’s left of their share prices, while Amazon’s 2.6% gain drove all indices higher.

The Dow closed up 31 points or 0.1% while the S&P gained 0.2% to 2602 – closing above 2600 for the first time – and the Nasdaq rose 0.3%.

Pre-sales data are indicating US retail sales in November to date are running 18% above last year. Forecasts have US Christmas spending coming in 4% above last year. But consider this op-ed commentary from columnist Mark Hulbert:

“This week’s best investment advice: Ignore the initial reports on how well or poorly retailers are faring.

“That’s because those initial reports at best are worthless as a guide to how retailers, and the stock market as a whole, will do from now until the end of the year. And they may even be worse than worthless, as the stock market in December often moves in the opposite direction to how it does right after Thanksgiving.”

You have been warned.

Most of Wall Street will tonight be returning from a four-day break with US indices again at record highs and the countdown to year end beginning in earnest. In focus this week will be the first speech from Fed chair in waiting Jerome Powell, as he fronts the Senate committee charged with approving his appointment.

The following night, outgoing chair Janet Yellen faces a joint Congressional committee. Wall Street will be looking to make comparisons and find points of difference, but do not expect any surprises. Powell’s chairmanship is expected to be a continuation of Yellen’s, which was a continuation of Bernanke’s.

And Thursday night brings the critical year-end OPEC meeting. Ruptured pipelines aside, WTI’s push back towards the US$60/bbl mark has been underscored by the expectation the OPEC/non-OPEC production cut timetable will again be extended. But there are some rumblings beneath the surface.

(Speaking of rumblings beneath the surface, keep an eye on Australian airline and travel agent stocks today as Agung coughs and splutters.)

Commodities

Zinc sat still, but the other base metals saw prices rises of 0.5-2% in London on Friday night.

Iron ore rose US$2.20 to US$67.80/t.

West Texas crude rose US58c to US$58.96/bbl.

The US dollar index was -0.3% weaker at 92.79 as ongoing solid European data releases helped the euro higher.

Gold fell slightly to US$1290.60/oz.

The Aussie is down -0.1% at US$0.7620.

The SPI Overnight closed down -1 point on Saturday morning.

The Week Ahead

Powell testifies on Tuesday night and Yellen on Wednesday night, and OPEC meets on Thursday night.

US economic data during the week include new homes sales tonight, consumer confidence, trade, house prices and the Richmond Fed index on Tuesday, pending home sales on Wednesday, and personal income & spending and the Chicago PMI on Thursday. Friday sees vehicle sales, construction spending and the November manufacturing PMI.

The Fed Beige Book is out on Wednesday along with another revision to US September quarter GDP. The market expects a rise to 3.2% from 3.0%.

China will release its manufacturing and services PMIs on Thursday and the rest of the world releases manufacturing PMIs on Friday.

In Australia, Thursday brings monthly building approvals and private sector credit along with September quarter capital expenditure and spending intentions – one of the key RBA measures of economic performance and projection.

Friday it’s the manufacturing PMI and S&P/ASX will announce the pending quarterly changes to index components.

Elsewhere in the local market, the AGM flow continues through to the end of the month, before only a few stragglers are left to meet.

BHP ((BHP)) hosts a three-day investor day beginning today. Origin Energy ((ORG)) hosts a day-only investor day tomorrow and Blue Sky Investments ((BLA)) on Thursday.

Collins Foods ((CKF)) reports earnings on Wednesday and Aristocrat Leisure ((ALL)) on Thursday.

Rudi will appear on Sky Business on Tuesday at 11.15am, via Skype, to discuss broker views and again on Friday, probably around the same time. In between he'll appear for an interview on the Switzer Report, Wednesday, between 7-8pm.

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