The Overnight Report: And Now, Over To Iran

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

By Greg Peel

Beyond the Commission

It was another solid session on the local bourse yesterday for the last day of the month, but a very different one to those providing rallies last week. Rather than suggesting market-wide buying, yesterday’s gain for the ASX200 was very sector specific.

All of consumer discretionary, energy, materials, healthcare, industrials and IT barely troubled the scorer. Yet consumer staples rose 0.6%, financials 0.8%, telcos 0.9% and utilities 1.0%. Those four sectors accounted for all of the 29 index points.

For the banks, it was a matter of yesterday’s private sector credit data providing a welcome distraction from the horrors of the RC.

Australian private sector credit growth rose 0.5% in March – the fastest pace of growth since July last year – taking the annual rate to 5.1% from 4.9%. Housing credit growth grew by 0.5% for the third consecutive month but the standout was business sector growth, which jumped 0.8% having risen only 0.1% in February.

Business sector growth has been a missing element in the Australian economy post-GFC, leaving the housing market as the driving force. Yet while March’s number might be good news, ANZ economists suggest it is unlikely to be sustained given a slow pace of business loan approvals.

Still, the market liked the numbers yesterday. A strong quarterly report from Stockland ((SGP)) also provided support for real estate stocks.

The market also liked Alinta Energy’s bid for the Liddell Power Station, pushing AGL Energy ((AGL)) up 1.3% to account for utilities being the winning sector on the day.

Telcos have been having somewhat of a revival these past few sessions which could well reflect a case of the money coming out of the banks having to go somewhere, and Telstra ((TLS)) appearing (to some) to offer value. Ditto consumer staples.

There was no obvious reaction to China’s economic data releases yesterday.

Beijing’s official manufacturing PMI dipped to 51.4 in April from 51.5 in March when forecasts were for 51.3. Weakness in the export segment has been blamed on trade wars.

The official service sector PMI rose to 54.8 from 54.6. Not much to see here.

Indeed, if we look at yesterday’s chart of the ASX200 we can see the market opened doing not a lot, rallied steadily from 11am, when the credit data numbers dropped, for an hour and then did nothing all afternoon.

Which emphasises the point that the ASX200 can go nowhere without the banks.

Flock of Seagulls*

McDonalds was the next big cap to beat the Street last night with its earnings result, sending its shares up over 4% and the Dow to an opening gain of over 180 points. But once again, initial excitement gave way to the sellers moving in.

Aside from traders apparently being lined up to sell into any earnings-inspired pop in this unusual season, other factors weighed on sentiment.

Last night’s US data releases showed consumer spending rose 0.4% in March to mark the first gain for 2018. Incomes rose 0.3%. Both numbers met expectations.

The personal consumption & expenditure (PCE) measure of inflation rose to 2% year on year on the headline, up from 1.7% in February. The core PCE rose to 1.9% from 1.6% to mark the biggest gain since April 2012. The core PCE is the Fed’s preferred measure of inflation, meaning it is this number for which the FOMC’s 2% inflation target applies.

So, we’re nearly there. Yet despite the panic inflation caused on Wall Street back in early February, last night the US ten-year yield actually dropped 2 basis points. Having traded up to 3.02%, the ten-year is now back down at 2.93%. Those suggesting 3% is a line in the sand at which bond yields are becoming a more attractive investment than stock dividends may well be right.

Friday night will bring the April non-farm payroll numbers, including wage inflation, which was what caused the swoon in February. But the Fed will have already met and made its rate decision for the time being.

What did clearly have Wall Street concerned last night was a reignition of geopolitical fears, just as the Kim-Moon love fest was providing some level of hope.

Last night Israeli prime minister Benjamin Netanyahu delivered a speech, in English, with accompanying visual aids, revealing what he claimed was “a ton” of documents collected by Israeli intelligence proving Tehran covered up its ongoing nuclear weapons program before signing the deal with the international community in 2015, brokered by Obama.

Netanyahu suggested this was proof Iran could not be trusted, and encouraged Trump to withdraw from the deal this month. Tehran responded that it was all just Israeli propaganda.

Anyone remember “weapons of mass destruction”?

The speech gave US stock indices the wobbles and pushed up the price of oil, leaving energy as the only S&P500 sector to finish the session in the green. Selling accelerated in the final minutes, which may reflect it being the last day of the month.

Iran has been an issue waiting to become a problem for sentiment since Trump railed against the lifting of sanctions in his campaign. The appointment of uber-hawk John Bolton as national security advisor raised concerns, and this month a decision will be made with regard pulling the deal. Emmanuel Macron, who happens to be in Sydney today to buy some Head & Shoulders, has urged Trump not to do so.

So now Wall Street has something else to worry about, to offset the reality of 20%+ earnings growth in the March quarter.

*Google it.

Commodities

Interim exemptions on Trump’s steel and aluminium tariffs expire tonight but there is no word on what happens from here. Aluminium recovered some ground last night in an otherwise unremarkable session for base metals.

Increased geopolitical tension had no impact on gold, which conceded to another rise in the US dollar.

Oil prices lifted, albeit a premium has already been applied for the possibility of sanctions being reinstated on Iranian exports.

The Aussie is down -0.6% at US$0.7530.

Today

The SPI Overnight closed down -17 points or -0.3%.

European and Chinese markets are closed today for May Day, while others will release their own manufacturing PMIs.

The RBA will meet today and Philip Lowe will speak at a dinner tonight.

ANZ Bank ((ANZ)) will release its earnings result today. Wouldn’t want to have that task.

Dexus Property ((DXS)) and Goodman Group ((GMG)) will provide quarterly updates while Aristocrat Leisure ((ALL)) will host an investor day.

A reminder: no media appearances for Rudi this week.

The Australian share market over the past thirty days…

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