The Overnight Report: Value In Focus

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            [1] => ((CBA))
            [2] => ((SWM))
            [3] => ((SUL))
            [4] => ((SGF))
            [5] => ((IVC))
            [6] => ((MQG))
            [7] => ((JHG))
            [8] => ((SLC))
            [9] => ((SYD))
            [10] => ((WTC))
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            [6] => MQG
            [7] => JHG
            [8] => SLC
            [9] => SYD
            [10] => WTC
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)

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

By Greg Peel

Momentum

There are no two ways about it – the ASX200 is on a roll and that roll has fed on itself all week. Yesterday’s rally was straight out of the momentum text book. All sectors finished in the green for the first time this week, and all by not wildly different amounts.

Which suggests market-wide buying. Most likely by computers blindly following the trend. Momentum trading works until it doesn’t, and typically it would be something on Wall Street that ends the party. But right now, Wall Street is having no impact on the Australian market at all.

The weakest sector move in percentage terms was provided by the banks, which have been the major driver of the rally all week. Yet financials still closed up 0.6% despite a -0.6% fall for National Bank ((NAB)) post earnings result, and despite the latest farcical revelations from the RC that Commonwealth Bank ((CBA)) lost customer data off the back of a truck.

The biggest sector made the smallest move and the smallest sector made the biggest move. IT was up 1.6%. With all other sectors finishing somewhere in between it’s as if each contributed an equal number of points.

There were some micro incentives nonetheless. For one, stronger iron ore and oil prices supported 1.2% gains for both materials and energy – with resources having largely sat out the rally up till now.

Seven West Media ((SWM)) announced it had acquired a stake in a satellite company and jumped 12%. Super Retail ((SUL)) rose 8.6% and SG Fleet ((SGF)) 10.6% after each company presented at the annual Macquarie conference.

The worst ASX200 performer was InvoCare ((IVC)), but with only a -4% fall by comparison. We’re very sorry for its loss.

Heading into the last session of what has been an extraordinary week we have Wall Street relatively flat and the futures up 12 points. The futures have been nowhere near right in terms of magnitude all week, and in some cases even direction. The Dow was down almost -400 points at one stage last night but one gets the feeling if that had been where it closed, we’d still be up today.

For the record, the post-GFC closing high, posted in January, was 6135 – a mere 37 points away. At this rate, we’ll see that by lunch.

Who Sent in the Cavalry?

The mood on Wall Street all week has leant to the bearish side, despite ongoing corporate earnings beats and upgraded guidance. The three underlying concerns remain peak earnings, a slowing global economy and rising inflation.

The mood was further soured early in last night’s session when it appeared the first round of talks between China and a White House delegation had not gone so well. Trade war fears had eased over past weeks as markets assumed the sniping would end and a more conciliatory outcome would be achieved once both parties actually sat down to talk sensibly. So far it seems a breakthrough has no guarantee.

The Dow was subsequently down close to -400 points mid-morning. Towards the low, the S&P500 broke down through its 200-day moving average.

That average has held all year, ever since the February inflation swoon, despite the odd brief drop beneath. Perhaps this is why, at 11 am, suddenly Wall Street rapidly reversed.

Commentators were at a loss to point at any one trigger for the rebound last night, which saw the Dow back to square by early afternoon. The 200-MA might be a clue, as for every bear citing the above three issues, there are also plenty of bulls saying, basically, what a load of rubbish. These are typically the investors who suggest that they’re happy to buy on dips, and last night a dip presented.

The sharpness of the rebound suggests, possibly, that one big buy order came in and then everyone followed, particularly the computers.

What has been most notable about these past few sessions on Wall Street is that while volatility has been heightened, the VIX has barely moved. Indeed, at around 16 presently, the VIX is well below any number suggesting fear. Were investors worried they’d be in buying put protection, which would push up the VIX, but clearly they’re not.

The sectors enjoying the sharpest rebounds were those that had been the most beaten down of late; industrials, on trade war fears; consumer staples, on rising input costs concerns; and chip-makers, on fears of slow Apple iPhone sales.

2017 on Wall Street was all about “growth” stocks, with tech leading the way. After the wobbles of 2018, “value” stocks are back in the spotlight, meaning those considered to have been oversold and are thus cheap.

It is the sort of rotation that, for now, is keeping Wall Street from seriously tanking, as a remarkable earnings season fails to inspire.

Commodities

I noted in yesterday’s Report that the LME closed on Wednesday night just after the Fed release which initially had the US dollar sliding. This provided support for base metal prices to the close, but thereafter the dollar rallied right back again.

Hence it is no surprise aluminium, nickel and zinc gave it back last night, even though the dollar did ease a bit, sending gold a little higher.

Oil prices continue to be supported by the assumption Trump will likely withdraw from the Iran deal.

The Aussie has bounced up 0.5% to US$0.7531 on the rare dip in the greenback.

Today

The SPI Overnight closed up 12 points or 0.2%.

US jobs report tonight.

Japan is closed again today.

Macquarie Group ((MQG)) will report earnings today.

Janus Henderson ((JHG)) will hold its AGM, Superloop ((SLC)) an EGM, and Sydney Airport ((SYD)) and WiseTech Global ((WTC)) both host investor days.

The Australian share market over the past thirty days…

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