The Overnight Report: Wild Ride

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

By Greg Peel

Bank on it

On Monday the ASX200 posted all of its gains for the day between 11am and midday, before trading sideways all afternoon. Yesterday the index posted all of its gains between the open and 11.30am, trading sideways for the rest of the session.

On Monday the impetus was the March private sector credit data release, which showed a big jump in business lending – the heretofore missing segment in the decade of post-GFC recovery. The banks led the index higher in rising 0.8%.

Yesterday ANZ Bank ((ANZ)) released an earnings report deemed to be largely as expected by analysts, but given current sentiment, “in line” is a blessed relief. The financials index jumped 1.4% to mark its best performance since the RC began. ANZ rose 2.4%, and even Commonwealth Bank ((CBA)) managed 1.9% despite being slapped with an additional billion dollar capital requirement by APRA.

Making yesterday’s move back up through 6000 for the index more surprising was the futures calling down -17 points before the session began, reflecting weakness on Wall Street. But what we’ve observed these past two sessions has nothing to do with Wall Street.

Australian banks did not have a weak April due to Wall Street or any global macro influences. It was all about the shocking revelations of the RC – more shocking than anyone imagined before the process began. Ahead of this bank earnings season analysts were admitting that forecasting just what might ultimately transpire form the RC is rather difficult, but the worst was probably now priced in, and of course, there’s always a floor provided by fully franked yields.

So any “good” news, such as signs of life in business lending and actual earnings numbers being solid, and the scene was set for a rebound. As I have noted recently, the Big Four represent 25% of the ASX200 and the financials sector 35%. The index has cracked 6000 on a domestic-only story.

At the same time the resource sectors have enjoyed net higher commodity prices, so put those two together and we’ll soon be talking about the previous high again, as long as Wall Street doesn’t spoil the party.

The banks are also dragging up other sectors, albeit not all of them at once. Yesterday all bar two finished in the green. Consumer staples (-0.7%) gave back all of its standout gains from Monday, and healthcare fell -0.7%. Perhaps it was the turn of these sectors to fund bank buying.

Often the financials sector does not post the highest percentage sector gain but accounts for the most number of index points given its weighting. Yesterday financials won on both counts.

A Date with the Fed

The US manufacturing PMI for April, released last night, showed a greater than expected fall to 57.3 from 59.3 in March to mark a nine month low. One factor impacting on the result were higher prices for the likes of steel and aluminium.

A PMI of 57 is still representative of strong growth, but clearly growth is slowing. The UK equivalent fell to 53.9 from 54.9 to mark an eleven month low. On Monday we learned China’s PMI dipped to 51.4 from 51.5. The eurozone number is out tonight, but recent data have already suggested the pace of European growth is slowing.

Slowing global growth has now become a focus of bearishness on Wall Street. The peak earnings argument continues to linger. The Fed is not expected to hike tonight, but the Fed’s rate rise plans also have markets worried as the yield curve flattens.

On the basis of “not as weak as elsewhere” when it comes to last night’s PMI numbers, the US dollar index jumped another 0.7% last night and is now back to square for the year. The strong dollar is returning as a headwind for US multinationals and exporters.

The Dow was down over -350 points at its nadir last night. The S&P500 once again tested its 200-day moving average. At that point Wall Street bounced sharply, returning to a less ominous close.

Aside from the technical element, traders cite “Fed drift” as one reason for the bounce. History shows US stock markets invariably rally going into a Fed meeting. Another, likely less impactful, reason cited for the bounce involved Facebook.

Facebook plans to get into the online dating game. Soon Cambridge Analytica will be able to learn you like pina coladas and getting caught in the rain. Facebook shares rallied on the news and a couple of listed dating site companies fell around -20% each. If you’re not getting Amazoned, you’re getting Facebooked.

Tech was overall the major area of strength for Wall Street last night. The Nasdaq closed up 0.9% to the S&P’s 0.3%. The Dow fell -0.3% largely due to weak sales reports from drug-makers Merck and Pfizer. The strong dollar weighed on commodity prices.

The global nuclear watchdog, the International Atomic Energy Agency, last night declared that everything the Israeli PM revealed on Monday night with regard Iran’s nuclear program was old news. Oil prices fell -1.5%.

The tech rally last night was supported to a large extent by anticipatory buying in Apple. The stock has risen this past couple of sessions, having fallen -7% prior on concerns over slow iPhone X sales. Apple reported after the bell, and is up 3.4%.

That’s big move for a very big stock, and should provide for a stronger Wall Street tonight, ceteris paribus.

Commodities

Everyone was wondering what was going to happen when Trump’s exemptions for allies on steel and aluminium tariffs expired last night. What happened was a one month extension. Aluminium had a quiet session for once.

Otherwise the rising greenback is making its mark, with gold in particular bearing the brunt.

The Aussie is down another -0.5% at US$0.7490.

Today

The SPI Overnight closed up 7 points.

The first estimate of eurozone March quarter GDP is out tonight.

The US will see private sector jobs, and the Fed will release its policy statement. No rate change is expected, but the FOMC’s language will be closely scrutinised.

There is nothing on the local calendar today, scheduled, that might affect the banks. That doesn’t mean there can’t be new news.

Qantas ((QAN)) and Genworth Mortgage Insurance ((GMA)) provide quarterly updates today.

Rio Tinto ((RIO)), GPT Group ((GPT)), MYOB ((MYO)) and Smartgroup Corp ((SIQ)) host AGMs.

The Australian share market over the past thirty days…

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