The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((TLS))
            [1] => ((WES))
            [2] => ((MTS))
            [3] => ((PMV))
            [4] => ((MYR))
            [5] => ((S32))
            [6] => ((TPM))
            [7] => ((MYR))
            [8] => ((NUF))
            [9] => ((BKW))
            [10] => ((SIG))
            [11] => ((SOL))
            [12] => ((COH))
        )

    [1] => Array
        (
            [0] => TLS
            [1] => WES
            [2] => MTS
            [3] => PMV
            [4] => MYR
            [5] => S32
            [6] => TPM
            [7] => MYR
            [8] => NUF
            [9] => BKW
            [10] => SIG
            [11] => SOL
            [12] => COH
        )

)

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

By Greg Peel

Spinning Off

Telcos finally found some buyers in the local market on Friday after Telstra ((TLS)) shares were sold off all week on Labor’s dividend imputation cash-back scare. That sector rose 1.4%. The banks, too, were dividend-related victims all week but on Friday they were down yet again (-0.4%), to be the only sector to close in the red.

The Royal Commission is not helping.

Materials (+0.8%) had a positive session after an up and down week, reflecting ups and downs in commodity prices, while most other sectors finished the day up around 0.5% following the positive lead from Wall Street.

The stand-out exception was consumer staples, which jumped 2.6% on the news Wesfarmers ((WES)) is set to spin-off its Coles supermarket business. This provided a boost to a market that had been sagging mid-session.

The market clearly liked the idea, as Wesfarmers shares jumped 6.3% to top the leaders’ board on the day. The conglomerate has also poached the head of Metcash’s ((MTS)) supermarkets to run Coles, leading the Coles competitor to be the worst performer on the day with a -5.1% fall.

The question was nevertheless asked: Why now? It appears the answer is that while Coles has been a valuable cash machine for Wesfarmers over the years of its revival, it is now a low-growth staple in a difficult market and Wesfarmers could do better elsewhere investing in higher growth.

Premier Investments ((PMV)) posted its earnings result on Friday and enjoyed a 6.1% share price jump in response. Success was mostly down to the Smiggles brand and not much to do with the company’s stake in Myer ((MYR)).

Premier’s result helped consumer discretionary to a 0.8% gain on the day.

The other big mover on the session was commodities conglomerate South32 ((S32)), which had fallen around -20% from its peak in January, mostly because of a weak earnings report in February that featured higher costs. Credit Suisse decided the stock had fallen far enough and upgraded to Neutral from Underperform on Friday, sparking a 5.6% bounce.

Ultimately the ASX200 closed right on the 5950 mid-range, neutral level of 2018.

Tough Week

It was a brighter end to the week for Wall Street after a tough period of introspection and doubt with regard to Trump’s trade tariffs, whatever they may prove to be. Friday night saw a quarterly “quadruple witching” expiry of equity derivatives but the volatility that can often arise from these events appeared absent.

In focus were economic data.

US industrial production rose 1.1% in February when 0.5% was expected. While the manufacturing segment rose a healthy 1.2%, it was a 4.3% jump in “mining” that stole the show. US oil and gas extraction is up 12% year on year to a record level.

The University of Michigan’s fortnightly survey of US consumer sentiment showed an increase in the index to 102 from 99.7 when economists had forecast 99.5. While 102 is only just over the neutral line between pessimism and optimism, it’s the highest reading since 2004, and that had Wall Street talking.

But all Wall Street really wanted to talk about on Friday night was the events of ten years ago. Friday was the anniversary of the bailing out of US investment bank Bear Stearns, which was about to go under in the wake of what then was known as the global Credit Crisis.

On the Friday night Bear Stearns share price had closed over US$30. On the Monday, JP Morgan agreed to acquire the company for US$2 per share, after the bank basically became insolvent over the weekend. JPM actually wanted to pay US$1, but was happy in the knowledge Bears Stearns’ Manhattan HQ was worth at least the billion dollars US$2 per share represented.

Not only did JPMorgan buy Bear but Bank of America bought Merrill Lynch for similar reasons and other, smaller institutions were distributed amongst the survivors, at the behest of the Fed chairman and Treasury Secretary. It was a moment of great relief for global markets, because it brought to an end the Credit Crisis, or so it was thought.

Six months later Lehman Bros went down without anyone prepared to bail it out. The Fed and Treasury realised Lehman was only the tip of the iceberg. So began the Global Financial Crisis.

The good news, on reflection, is that in 2007 US investment banks were leveraged up to forty to one. Today they are leveraged at around ten to one and subject to regular “stress tests”.

So it could never happen again.

Could it?

Commodities

Iron ore is back under US$70/t, which will likely lead to the materials sector dragging on the local market today. The zinc price at least stopped falling.

The oil price popped, despite ongoing concerns over increasing US production and another jump in the weekly rig count. The rebound was attributed to an upgrade in International Energy Agency’s global demand forecast and that strong US consumer sentiment number, which portends a good summer driving season ahead in terms of domestic demand.

It appears oil traders had set themselves short.

And have forex traders been caught long the Aussie? The US dollar was steady on Friday night but the Aussie plunged another -1% to US$0.7714.

The SPI Overnight closed up a very healthy 27 points on Saturday morning.

The Week Ahead

The Fed meets this week, and newbie Jerome Powell will release his first policy statement and attend his first press conference on Wednesday night. Wall Street has baked in a rate rise, and Friday’s economic data did nothing to alter that assumption.

It’s a week otherwise devoid of major US data, outside of a flash estimate of March manufacturing PMI on Thursday.

The RBNZ holds a policy meeting on Thursday, followed by the Bank of England on Thursday night.

Japan is closed on Wednesday.

In Australia, the minutes of the March RBA meeting are due tomorrow along with December quarter house prices, while otherwise the one big data release of the week is February jobs numbers on Thursday.

Premier Investments’ result on Friday leads us into a run of out-of-cycle earnings reporters this week. Tomorrow it’s TPG Telecom ((TPM)), on Wednesday Myer ((MYR)) and Nufarm ((NUF)), and on Thursday Brickworks ((BKW)), Sigma Healthcare ((SIG)) and WH Soul Pattinson ((SOL)).

The ex-dividends continue to flow this week, although most of the big names have been ticked off the list by now. Cochlear ((COH)) is nevertheless today’s standout.

Rudi will appear on Sky News Business this week on Tuesday morning, via Skype, to discuss broker calls at around 11.15am, then again on Thursday in the studio, noon-2pm, and again via Skype on Friday, likely 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