The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((TLS))
            [1] => ((WES))
            [2] => ((GXL))
            [3] => ((BKL))
            [4] => ((NAN))
            [5] => ((RSG))
            [6] => ((ORE))
            [7] => ((SYR))
            [8] => ((ALQ))
            [9] => ((FPH))
            [10] => ((SDF))
            [11] => ((MLB))
            [12] => ((CGF))
            [13] => ((TNE))
            [14] => ((FAR))
            [15] => ((OGC))
        )

    [1] => Array
        (
            [0] => TLS
            [1] => WES
            [2] => GXL
            [3] => BKL
            [4] => NAN
            [5] => RSG
            [6] => ORE
            [7] => SYR
            [8] => ALQ
            [9] => FPH
            [10] => SDF
            [11] => MLB
            [12] => CGF
            [13] => TNE
            [14] => FAR
            [15] => OGC
        )

)

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

By Greg Peel

Memories

UBS upgraded Telstra ((TLS)) to Buy on Friday, suggesting that while it believes the dividend will need to be cut from FY20, downside risks for the company are known and well factored in.

Telstra currently splits broker opinions, with the FNArena database of leading houses now showing four Buy or equivalent ratings, two Hold and two Sell, the latter including Citi, which this month suggested “drastic action” needs to be taken by the company to minimise the next dividend cut.

The UBS upgrade was nevertheless enough for a 2.9% jump in Telstra’s share price, lifting the telco sector to a market leading 2.7% gain in what was another meandering, tight range session, looking very much like a Friday.

There is no surprise energy fell -1.3% after a dip in the oil price, which will no doubt prove a curtain raiser to today’s action in the space given WTI was down -4.5% on Friday night. A -1.1% fall for materials was less obvious given gold jumped and iron ore rebounded. Profit-taking in the big miners continues regardless.

Stop press: Despite the Royal Commission being in session on Friday, financials rose 0.1%.

And for a second session running, the consumer sectors stole the limelight, alongside Telstra. Wesfarmers ((WES)) waved the white flag and jettisoned Bunnings UK&I, taking a big hit on the ill-fated foray. I guess Wesfarmers board members no longer fall about at lunch when they reminisce about Masters. The stock and the staples sector both rose 0.9%.

Aristocrat Leisure has hit the jackpot, rising to an all-time high with another post-result gain on Friday to come in fifth on the ASX200 leaders’ board and help discretionary up another 1.4%. But try this quick quiz:

What do these four stocks have in common? Greencross ((GXL)), Blackmores ((BKL)), Nanosonics ((NAN)) and Resolute Mining ((RSG)).

Well they are respectively 9.2%, 6.8%, 12.9% and 6.6% shorted, as of last week, and finished one through four on the leaders’ board on Friday.

Mind you, Orocobre ((ORE)) and Syrah Resources ((SYR)) finished one and two on the losers’ board, and they are 11.3% and 19.5% shorted. But wild volatility in battery-related miners is a daily occurrence.

Oil Tanks

It would seem rumours of OPEC increasing production are not exaggerated, despite Saudi Arabia wanting a strong price for when it conducts its Aramco IPO. Reports suggest OPEC may lift production by as much as one million barrels per day to replace lost Iran/Venezuela exports, while Vlad himself said that a US$60/bbl oil price suits Russia just fine.

WTI plunged -4.5% and Brent -3.2% on Friday night. The energy sector was slapped on Wall Street, helping the Dow and S&P lower. Exxon and Chevron alone contributed -40 of the -58 point Dow drop.

The Nasdaq is a lot more tech than frack, so it went the other way.

There is an offset to a lower oil price of course, being lower input costs for all and sundry and a boost for the US summer driving season that begins this weekend, albeit as we all know, prices at the pump seem to take a lot longer to come down than to go up. And the once mighty US oil sector, which produced household names like Rockefeller and Getty last century, is now only 6% of the S&P500. (Australia 5%.)

New durable goods orders are considered an important US economic benchmark so there was some despair when the April data showed a -1.7% fall ahead of Friday night’s open. However, new orders for aircraft swing the headline number wildly each month, and April saw a sharp drop in new Boeing orders. Ex of transport, orders rose a healthy 0.9%.

The US ten-year bond yield nevertheless plunged another -5 basis points to 2.93%. The brief foray above 3% has proved to be just that, easing fears of a breakout to the upside and a swift rise to 4%. The US dollar index conversely rose 0.5%.

Fun and games are currently playing out in European bond and currency markets, where consternation over an anti-EU party perhaps being prominent in what the Italians call a government has sent Italian yields surging while German yields fall. But as of this weekend there is no government in Italy.

There was also some relief that the North Koreans, who only a day before threatened a nuke-out, expressed a “willingness” to sit down with the US and “resolve issues anytime and in any format”.

Trump suggested the June 12 meeting may yet be back on as scheduled.

That is about the upshot for a Friday that went awfully quiet in the afternoon on Wall Street as punters headed for the trains, planes & automobiles ahead of the long weekend.

Commodities

Beyond oil, not much to report. The rebound in iron ore didn’t last long.

The Aussie is down -0.3% to US$0.7552 on the greenback’s rise.

The SPI Overnight closed down -30 points on Saturday morning, looking well oiled.

The Week Ahead

No Wall Street tonight.

Tuesday in the US brings Case-Shiller house prices and Conference Board consumer confidence, and Wednesday it’s the trade balance, private sector jobs, the Fed Beige Book and the first revision of March quarter GDP. The market expects no change to 2.3% growth.

Thursday it’s the Chicago PMI, pending home sales and personal income & spending, including the PCE. Friday it’s vehicle sales, construction spending, the manufacturing PMI and the May jobs report.

China will release its manufacturing and services PMIs on Thursday while everyone else releases manufacturing PMIs on Friday.

Australia’s economic week begins on Wednesday with building approvals, followed on Thursday by monthly private sector credit and the March quarter private capital expenditure numbers.

On the local stock front, ALS ltd ((ALQ)) releases its earnings report today, as does Fisher & Paykal Healthcare ((FPH)). Steadfast ((SDF)) hosts an investor day and Melbourne IT ((MLB)) holds its AGM.

Challenger ((CGF)) hosts its investor day tomorrow, and TechnologyOne ((TNE)) on Wednesday, while FAR ltd ((FAR)) holds its AGM on Wednesday and OceanaGold ((OGC)) on Friday.

Rudi will first appear on Sky Business tonight this week, with Peter Switzer on Money Talks, 7.30-8pm. He's then appear on Tuesday via Skype around 11am; again on Thursday from midday 'til 2pm; and again on Friday via Skype around 11am.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms