The Overnight Report: Struggling Forward

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(
    [0] => Array
        (
            [0] => ((ANZ))
            [1] => ((MQG))
            [2] => ((TLS))
            [3] => ((TPM))
            [4] => ((LYC))
            [5] => ((NWS))
            [6] => ((GWA))
            [7] => ((HSO))
            [8] => ((AMP))
            [9] => ((NAB))
            [10] => ((CYB))
            [11] => ((GXY))
            [12] => ((MQA))
            [13] => ((VVR))
        )

    [1] => Array
        (
            [0] => ANZ
            [1] => MQG
            [2] => TLS
            [3] => TPM
            [4] => LYC
            [5] => NWS
            [6] => GWA
            [7] => HSO
            [8] => AMP
            [9] => NAB
            [10] => CYB
            [11] => GXY
            [12] => MQA
            [13] => VVR
        )

)

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

On the Money

Yesterday the ASX200 dipped on the open before grinding its way higher to lunchtime, where it met the 6135 previous high and eased back. It then tracked sideways until a late push saw the index close right on the 6135 mark.

That the index should close on the post-GFC high – a clear resistance level – is not so remarkable. What is remarkable is that both ANZ Bank ((ANZ)) and Macquarie Group ((MQG)) went ex yesterday, hence the dip on the open, which was worth -16 points. Add to that a -5% fall, against the market trend, for Telstra ((TLS)), and one wonders what might have been.

If we discard the minimal moves in the IT and utilities sectors yesterday, every sector closed in the green bar telcos, which fell a standout -4.4%. Telstra effectively issued a profit-warning, downgrading to the bottom end of prior guidance, and conceded competition in mobiles will be a headwind for earnings going forward.

The supposed disruptor in the mobile space, TPG Telecom ((TPM)), fell -4.3%.

Telstra and TPG came in third and fourth on the ASX200 leaders’ board yesterday, pipped by Lynas Corp ((LYC)), which fell -9.6% on fears the new Malaysian government may cause problems for the company’s rare earth processing facility, and News Corp ((NWS)), which dropped -6.2% in somewhat of a delayed reaction to Friday’s weak earnings result.

Topping the leaders board yesterday was GWA Group ((GWA)). That company’s garage door business has had its ups and downs over the years but GWA managed a better than expected price when it offloaded the asset, as announced yesterday.

The silver went to Healthscope ((HSO)), which has received a gazumping counter bid.

Within the sectors, materials, industrials, healthcare and energy all rose around 0.8% yesterday to overcome Telstra. Financials also had a strong session – AMP ((AMP)) bounced back 3% — given a 0.2% gain on the day was net of those dividends.

So here we are, poised at the post-GFC high. The futures are of no help this morning, closing unchanged following a flat session on Wall Street. China’s monthly data dump is due today, whether that will provide any impetus, but National Bank ((NAB)) goes ex, so again we’ll start with a handicap.

Eight Days a Week

Friday’s session on Wall Street marked a seven-day winning streak for the Dow, the first in six months, and last night made it eight days for the first time in eight months. The milestone was nevertheless unspectacular, given the Dow was up over 160 points at its peak and the S&P only managed to fall across the flatline at the death.

With earnings season now wound down, commentators are questioning whether the winning streak represents no more than a technical breakout from the earlier downtrend, with no fundamental justification. Now only 5% shy of all-time highs, will Wall Street tip over again?

Notably, the Russell small cap index came within sight of its all-time high last night and then ran away.

What has allowed US stocks to rebound is a plateauing of the US dollar rally and a ten-year bond yield stubbornly resisting a break through 3%. A too-strong dollar undermines the earnings of the big multinationals and exporters and a breakout in yields threatens the valuations of high flying growth stocks, such as Big Tech.

Thus the currently benign environment is causing no concern, at the moment.

There was also some positive news on the trade front, insomuch as the Chinese vice president is flying in this week for a chat and last night Donald Trump extended an olive branch to Chinese telco ZTE. ZTE warned US sanctions were potentially set to send the company into bankruptcy hence Trump has asked for a stay of the sanction order, or at least he tweeted as much.

The nervous nellies on Wall Street nonetheless remain nervous, despite the VIX now falling below 13. The bulls otherwise make an interesting point.

Back in January when Wall Street was going gangbusters, observers rightly suggested valuations had become stretched, pointing to a forward PE (price/earnings) for the S&P500 of around 18.5x. When the S&P bottomed out, three times, at its 200-day moving average following the correction which began in February, that PE fell to a more realistic level, providing the impetus for the buyers to get back in.

But were the S&P to kick on another 5% to a new all-time high, will it simply be overvalued once more?

No, because while P has risen in this rebound, E has been upgraded by a greater extent thanks to 25% year on year earnings growth in the first quarter and guidance upgrades for quarters two and three at the least. If the S&P does get back to its high, the forward PE will be more like 16.5x and therefore not overinflated.

It may be a case that the extra 5% will be a tough grind as volatility eases off and daily moves become less enthusiastic. One element supporting the bear case is that trading volumes have been relatively weak on the rebound.

Oh yes, and it’s also May. To date, this May has seen the best performance for the S&P500 since 2009 – the year QE was introduced and Wall Street bottomed from the GFC.

Commodities

Escalating violence in the Middle East is feeding concerns over the flow of oil, and in that case specifically Brent Crude. Brent jumped 2% last night to further widen the spread to WTI, which gained a sympathetic 1%.

Strong steel market data released over the weekend helped up relevant Australian stocks yesterday but also provided a boost for nickel, used to make stainless steel, last night in London.

The Aussie is a tad weaker at US$0.7526.

Today

The SPI Overnight closed “unch”.

China releases May industrial production, retail sales and fixed asset investment numbers today. The US sees April retail sales numbers tonight, being much slower counters.

The minutes of the May RBA meeting are out today, assuming there actually was one. Philip Lowe is the most envied man in the market at present – being paid a fortune to do nothing.

CYBG ((CYB)) reports earnings today, Galaxy Resources ((GXY)), Macquarie Atlas Roads ((MQA)) and Viva Energy REIT ((VVR)) hold AGMs, and NAB goes ex as noted.

Rudi will connect with Sky News Business via Skype to talk share market and broker calls at around 11.15am today.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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