The Monday Report

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

By Greg Peel

All In

The ASX200 shot up 43 points from the open on Friday, in line with the futures suggestion of 41 points, likely buoyed by Amazon’s Street-beating result on Wall Street’s aftermarket. To recap, Wall Street plunged Tuesday night but the ASX was closed on Wednesday. Wall Street saw some recovery on Wednesday night but it was Facebook’s aftermarket earnings beat that stole the show.

The futures market rightly predicted the ASX200 would not sell down hard on Thursday given a likely tech-led rebound on Wall Street, and were right. Then along came Amazon, doubling down on Facebook’s success, and  the futures closed up 41 points on the assumption Wall Street could kick on.

Not everyone was of the same opinion nonetheless – by midday the index had given back half those gains. But exuberance returned in the afternoon, despite it being a Friday in the school holidays (for most), and the early gains were recovered.

The interesting point is that Wall Street did not go on with it on Friday night. Indeed it closed flat. This might have suggested a bit of a “whoops” moment for the local market, such that the futures should fall back again on Saturday morning, but no, they too closed flat.

Which suggests there’s more to Australia’s strong couple of sessions late in the week than just Facebook and Amazon, which realistically have little connection to our humble market downunder.

Every sector finished in the green on Friday. Sector moves varied but there was clearly an underlying “buy-the-market” theme to the session. The big banks continued to weigh on the index of course, but a good day for Macquarie Group ((MQG)) ahead of its earnings result this week helped the financials sector to a 0.2% gain.

Healthcare (+2.6%) was the standout as investors ploughed back into market darling CSL ((CSL)), but a strong earnings result from ResMed ((RMD)) was also a driver.

Utilities (+2.6%) was another strong performer. Traders clearly liked the news AGL Energy ((AGL)) is planning to build a new gas-fired power station near Wollongong.

Even telcos (+1.5%) had a moment in the sun, despite ongoing warnings of mobile pricing wars. TPG Telecom ((TPM)) and Vocus Group ((VOC)) both finished on the top five leaders’ board.

Topping the leaders’ board was Nanosonic ((NAN)), which rose 8.4% after receiving FDA approval for its disinfection device, while Domino’s Pizza ((DMP)) jumped 7.7% following a very strong earnings result from its US counterpart. As at last week, Domino’s was the second most shorted stock on the ASX at 17%.

So why the sudden ray of light for the Australian market? It can’t be simply Facebook and Amazon. The historic meeting of the two Korean leaders at the DMZ may have provided some geopolitical relief, but then we’ve seen that movie before.

Is it that the US market outperformed in 2017, the Australian market underperformed in 2017, the S&P500 has gone nowhere in 2018 and despite over 80% of reporting companies beating earnings to date, for a run-rate of 23% growth, has not moved an inch?

Could our market be a beneficiary of “peak earnings” talk in the US?

Fizzer

Facebook’s earnings result in Wednesday’s aftermarket led to an immediate 7% pop, translating into a gain of 11% in Thursday’s day-session. Amazon’s aftermarket result on Thursday also led to a 7% pop, but only a 3% gain in Friday’s day-session.

The difference is likely that Facebook had fallen -20% prior and Amazon hadn’t. Facebook’s result provided relief but Amazon was already well-priced.

On the other side of the ledger on Friday night, among the Dow components, Microsoft’s earnings beat was worth only 1.7% and Intel’s beat led to a -0.6% fall. Exxon Mobil beat on revenue but missed on earnings and fell -3.8%. The energy sector was the worst performer on the day.

US Steel disappointed and fell -14%. The steel sector heavyweight had initially rallied some 30% when the 25% tariff on steel was first announced, but gave a lot back when the tariff proposal began to be watered down. It is still unclear as to whether a resolution with China can be reached, as US Steel itself noted, so on Friday night Wall Street gave up on the story.

The first estimate of US March quarter GDP was released before the bell, showing 2.3% growth. While a slower pace than all three previous quarters, 2.3% still beat estimates of around 2.0%, and in recent years the March quarter has always proven to be the weakest (often due to weather).

Across The Pond it was a different story. The UK economy grew by a mere 0.1% in the quarter – the slowest pace in five years. The government is pointing to the weather – the “Beast from the East” hit during the period – but let’s not mention Brexit.

The UK result sent the pound tumbling but after a strong week, the US dollar index had a flat session on Friday night.

For the US stock indices, it was a case of a mix of strong and weak earnings, but more notably a mix of tepid upside and more aggressive downside responses to those results, that had Wall Street closing flat.

We have now reached the halfway point in the earnings season by number of S&P500 stocks.

Commodities

Russian aluminium giant Rusal has announced it will install a new, entirely independent board, which will then install new management, in an attempt to be removed from the US sanction list. If the move fails, Rusal may be forced to halt all production.

It appears LME traders erred on the side of US reprieve, given aluminium fell -2%, with copper and nickel following in sympathy.

Gold finally stopped falling as the US dollar stopped rising.

After solid falls, a 0.3% gain for the Aussie to US$7578 probably represents short-side profit-taking.

The SPI Overnight closed unchanged.

The Week Ahead

This week brings the first of the new month and subsequent May Day holidays in Europe and China, while Japan is closed on Thursday and Friday. The usual round of PMI releases is thus scattered throughout the week, with Beijing releasing its official manufacturing and services PMIs today.

The Fed meets on Wednesday but no rate hike is expected, with post-GFC hikes to date all occurring at quarterly meetings.

US data releases through the week include pending home sales and personal income & spending tonight, including the PCE measure of inflation, construction spending and vehicle sales tomorrow and the private sector jobs report on Wednesday. Thursday it’s factory orders, productivity and trade, and Friday brings the April non-farm payrolls numbers.

US price and wage inflation will thus be back in the spotlight this week as the earnings season rolls on.

Australia will see private sector credit today and building approvals and the trade balance on Thursday. The RBA meets tomorrow, Philip Lowe will speak tomorrow night and the RBA’s quarterly Statement on Monetary Policy is due on Friday.

It’s a very busy week on the local corporate calendar, featuring production reports, quarterly updates, investor days and AGMs. Of particular note, ANZ Bank ((ANZ)) releases its earnings numbers tomorrow, National Bank ((NAB)) on Thursday and Macquarie Group ((MQG)) on Friday.

Today will see production reports from AWE ltd ((AWE)), Northern Star Resources, Origin Energy ((ORG)) and Syrah Resources ((SYR)). Stockland ((SGP)) will provide a quarterly update and Transurban ((TCL)) will host an investor day.

No media appearances for Rudi this week.

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