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 Good Things

Well, the Australian market did not kick on to a new high on Friday following an extraordinary week of momentum-driven gains, rather profit-taking was the order of the day. No great surprise for a Friday, in an environment in which anything could happen over the weekend with Washington likely behind it, and a US jobs report due on Friday night.

The ASX200 had rallied 140 points to its intraday high for the week on Thursday, so on Friday, gave some back.

The banks have been the big turnaround story throughout last week and on Friday became the biggest drag, falling -0.9%. Commentators suggest the driving factor was the release of the RBA’s quarterly Statement on Monetary Policy, which suggested strong economic growth in 2018 but subdued inflation, thus the cash rate will remain where it is and the currency will come under pressure.

It’s true banks like higher rates, as long as it doesn’t tip mortgage-holders over the edge, but this same mantra has been touted by Philip Lowe all year. It’s hardly new news.

Macquarie Group ((MQG)) did manage to buck the sector trend on the day, rising 0.2% following its result release.

All bar three sectors were down on Friday, to varying degrees. Consumer discretionary (-0.9%) was a solid loser, as was energy (-0.7%), the latter impacting on AGL Energy, hence utilities were down -1.4%.

Telcos managed a 0.4% gain, consumer staples were flat and WiseTech Global’s ((WTC)) investor day presentation led to a 6.7% jump, helping IT up 0.5%.

On Saturday morning the futures closed up 38 points on the back of Wall Street’s rally – more than the drop in the index on Friday. It’s another week loaded with individual stock events – earnings reports, updates, Investor days and AGMs – so maybe this is the week the index can finally push forward.

Buffet Service

The US added 164,000 jobs in April, shy of the 188,000 forecast. The unemployment rate nonetheless fell to 3.9%, dropping below 4% for the first time in 18 years. The underemployment rate fell to 7.1% and is now lower than it was ahead of the GFC.

Wages grew 0.1% to maintain annual growth of 2.6%.

Add it all up and it was, yes, a Goldilocks report. The number of jobs added may have missed slightly but low unemployment rates suggest a strong economy, while tepid wage growth eases inflation fears.

On Thursday night the S&P500 tested, for the third time, its 200-day moving average. It held, and thereafter rallied all the way back from a weak opening which saw the Dow down almost -400 points. When the S&P first hit its 200MA back in February and bounced, traders agreed it would have at least one more go at it, or two, before the bull market could resume.

From a technical perspective, three failed attempts to breach the 200MA is a very bullish sign.

It was that in mind that Wall Street lapped on the jobs report. But that report was nevertheless superseded by news Warren Buffet had increased his stake in Apple.

Apple was already Berkshire Hathaway’s biggest single holding, totalling 165m shares or around 3.3% of the Americas biggest company. Berkshire’s quarterly report revealed on Friday that another 75m shares were acquired in the period.

Apple shares had fallen sharply recently on fears sales of the iPhone X were underwhelming. The stock has begun to recover last week but on Friday night jumped 3.8%, leading the rallies in all three major indices. When interviewed, Buffet laughed at the thought one slow quarter of iPhone sales would make any difference to Apple’s longer term prospects.

So the combination of a strong technical signal, a satisfactory jobs report and the boost from Buffet, Wall Street posted a solid rally to close the week. The Dow rallied over 700 points from 11am Thursday through to Friday’s close.

Investors ignored the fact the delegation sent to China to talk trade in the week achieved nothing, preferring to accept it would be a long process. They also ignored the latest kerfuffle over Trump and a weather-related actress, preferring to suggest “who cares?”

US stock markets were also encouraged by the fact the US dollar has now seemingly plateaued after its solid run up, and that the US ten-year bond yield has slipped back below 3% and appears comfortable there for now.

Commodities

The trade talks in China reached no conclusion last week, but then the outcome was uncertain rather than negative. Uncertainty levels rose once more and hence base metal prices had a run on Friday.

Concerns over falling Venezuelan output and the possibility of renewed sanctions on Iran had the oil price pushing yet higher.

The RBA Statement did little to move the Aussie, which is steady at US$0.7537.

The SPI Overnight closed up 38 points or 0.6%.

The Week Ahead

There is a lot going on on the Australian calendar this week, not the least of which will be tomorrow night’s federal budget.

Economic data releases this week include ANZ job ads and the NAB business confidence survey today, retail sales tomorrow and Westpac’s consumer confidence survey on Wednesday. Housing finance numbers are due on Friday.

A busy week for the stock market kicks off with earnings reports from Westpac ((WBC)) and Orica ((ORI)) today and HT&E ((HT1)) will hold its AGM.

The week is dotted with earnings reports and updates, AGMs and investor days, which I will highlight on a daily basis through the week.

It’s a quieter week for US economic data, but the CPI will be closely watched on Thursday.

China will release trade numbers tomorrow and inflation data on Thursday.

The RBNZ holds a policy meeting on Thursday.                

The UK is closed tonight, hence no LME base metals trading.

Rudi will appear on Sky Business on Tuesday, via Skype, at around 11.15am, then again on Thursday, from noon til 2pm inside the studio, and on Friday's he'll repeat the Skype experience again, probably around 11am.

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