The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((MYX))
            [1] => ((NXT))
            [2] => ((TGR))
            [3] => ((NAN))
            [4] => ((SXL))
            [5] => ((PTM))
            [6] => ((ARB))
            [7] => ((WOW))
            [8] => ((AAD))
            [9] => ((BSL))
            [10] => ((GEM))
            [11] => ((JHC))
            [12] => ((QBE))
        )

    [1] => Array
        (
            [0] => MYX
            [1] => NXT
            [2] => TGR
            [3] => NAN
            [4] => SXL
            [5] => PTM
            [6] => ARB
            [7] => WOW
            [8] => AAD
            [9] => BSL
            [10] => GEM
            [11] => JHC
            [12] => QBE
        )

)

This story features MAYNE PHARMA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MYX
The company is included in ALL-ORDS

By Greg Peel

Beyond 6000

Friday’s was another session on the local market in which earnings reports dominated, and a win for the beats over the misses ensured a near 50 point rally to close smack on 6000.

Wall Street had begun last week looking shaky, suggesting a possible retest of the low, and up to Thursday night each session featured buying in the morning giving way to selling in the afternoon. But as each session passed, the late selling became less aggressive.

Friday night saw nothing but buying.

As long as Wall Street didn’t tank once more, Australian investors were able to concentrate on results season in the micro context without undue macro fear. Last week we saw the successive reconquering of ASX200 big figures, culminating on the return to 6000 on Friday. The futures closed up another 27 points on Saturday morning with Wall Street closing on its high, so this week we can once again talk about looking toward a new high for the local market.

As at Friday, FNArena’s Reporting Season Monitor showed 37% beats against 26% misses for just over 200 stocks reporting to date. That’s a ratio of 1.4 against an average of 1.3 over the past nine seasons. The ratio of analyst ratings upgrades to downgrades is running at 1.7 against an average of -0.8. If that ratio remains positive, it will be only the second time in nine seasons upgrades have exceeded downgrades.

We will still see around another 100 result assessments by the end of this week before we can draw conclusions.

Winners on Friday included generic drug manufacturer Mayne Pharma ((MYX)), which rallied 10.7% on its result, data centre operator NextDC ((NXT)), up 10.4%, and salmon farmer Tassal Group ((TGR)), up 8.5%. Having been slapped mid-week on its disappointing result, logistics software company WiseTech Global bounced back 7.9% on Friday after (some) analysts cited an overreaction.

In the losers circle were infection control biotech Nanasonics ((NAN)), down -12.1%, and Southern Cross Media ((SXL)), down -9.7%. Kicking on from Thursday’s result-related losses was Platinum Asset Management ((PTM)), down -11.8%. Auto parts/4WD specialist ARB Corp ((ARB)), lost -3.2%, but that was after a big surge following its profit result the prior day.

Every sector finished in the green on Friday bar one. There had been a lot of expectation built in ahead of the Woolworths ((WOW)) result given the enemy’s result had been weak, suggesting another changing of the guard, but Woolies dropped -2.6% and consumer staples fell -0.4%.

What Inflation?

Wall Street commentators all agree that the direction of US equities is currently being determined, day to day, by the direction of the US ten-year bond yield. Aside from the US Treasury issuing a record volume of bonds to cover tax cut losses – increased supply – meeting a Fed tapering its balance sheet by not replacing maturing bonds – decreased demand – the correction triggered two weeks ago was all about inflation.

Indeed, one little number in the January jobs report.

On Friday night the Fed issued its semi-annual monetary policy report, which is a precursor to new Fed chairman Jerome Powell making his debut testimony before Congress this week. The report noted broad improvement in the US economy and anticipated a pick-up in inflation towards the end of the year.

But not to an extent that would warrant a more aggressive policy stance. There was no change to a forecast of inflation remaining at or below 2% throughout 2018.

On Friday night the US ten-year yield fell -5 basis points to 2.87%, having reached as high as 2.95% intra-day last week. The jobs report two weeks ago sparked a jump on the day to 2.85%. So throughout this whole bout of volatility, a whole two basis points have been added.

On Friday the equity sellers disappeared. Their absence in the afternoon revved up the buyers, causing the major indices to accelerate gains towards the close. The Dow is again comfortably back over 25,000, but still around 1300 points short of its all-time high. The S&P500 has another 4.5% to recover and the Nasdaq only 2.3%.

Commodities

The US dollar index was up slightly on Friday night, but outside of aluminium, not a lot happened in base metals.

Iron ore enjoyed a jump, and oil kicked on following the week’s US inventory report releases.

The Aussie is little changed at US$0.7836.

The Week Ahead

Jerome Powell’s testimony to the House Finance Committee on Tuesday night will be the highlight of the week. The Fed chair will testify before the Senate Banking Committee on Thursday night but by then anything important will be known.

US data releases this week include the Chicago Fed national activity index and new home sales tonight, durable goods, house prices and the Richmond Fed index tomorrow, and the Chicago PMI, pending home sales, and another revision of the December quarter GDP result, for which an unchanged 2.6% is forecast.

Thursday it’s vehicle sales, construction spending and personal income & spending, which includes the Fed’s preferred PCE measure of inflation. Friday it’s consumer sentiment.

Thursday is the first of the month, meaning global manufacturing PMI day, except in China, where Beijing will release both the manufacturing PMI and services PMI on Wednesday.

In Australia we’ll see private sector credit on Wednesday and on Thursday, the all-important December quarter private sector capex report.

There are three more days of the earnings result season to go, and still plenty of companies left to report.

Today’s highlights include Ardent Leisure ((AAD)), BlueScope Steel ((BSL)), G8 Education ((GEM)), Japara Healthcare ((JHC)) and QBE Insurance ((QBE)).

Note that the trickle of ex-dividends seen last week turns into more of a flood this week, and in the weeks to follow. Please consult the FNArena Calendar for dates and amounts.

Rudi will appear on Sky News Business four times this week. Tonight he'll appear on Money Talks, with Peter Switzer, tomorrow (Tuesday) he'll connect via Skype to talk about reporting season, stocks and market moves at around 11.15am.

On Thursday he'll appear in the studio, noon-2pm, and on Friday he'll repeat the Skype connection, probably around 11am.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms