The Overnight Report: The Rise And Rise Of Tech

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This story features COMMONWEALTH BANK OF AUSTRALIA.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Looking Strong

The local market has not been consistently following Wall Street in recent weeks, outside of major macro influences, but yesterday morning the ASX200 jumped from the open on the strength of Friday night’s US jobs report. The futures suggested up 35, and that’s where we closed.

But having absorbed US economic strength from the bell, the morning’s domestic economic releases provided for another 10 point leg-up through to lunchtime.

Company profits surprised to the upside in the March quarter, rising 5.9% when 3.0% was forecast. That compares to 2.8% in the December quarter. Mining profits predictably rose 11% on stronger commodity prices but a 3.4% gain for non-mining, to a 6.6% annual rate, is seen as a solid performance.

Wage costs disappointed at 0.8% compared to 1.2% in December, but a 5.1% annual rate is the highest since 2012. All up, ANZ’s economists suggest upside risk for Wednesday’s GDP number, pending today’s current account and trade data.

Retail sales rose a better than expected 0.4% in April following a flat March. The smashed avo’ sector led the way with apparel lagging due to a warm autumn. While the April number is encouraging, economists cannot see ongoing retail strength given slow wage growth, falling house prices and elevated household debt.

The consumer discretionary sector did nevertheless lead the way yesterday with a 0.9% gain, in what was otherwise a fairly even move up across the market. Missing out were telcos and utilities, as US rates continue to recover, but REITs bucked the bond-proxy trend as M&A begins to warm up in the sector.

And for once there was “good” news in bank land, if one wishes to view it that way. Commonwealth Bank ((CBA)) has been fined “only” $700m by Austrac for its money laundering indiscretions. It may be the biggest fine in Australian corporate history by a margin, but given Austrac itself admitted a fine of one trillion dollars was defendable if one considered the 50,000 plus cases individually, CBA has got off easy. The stock rose 1.4%.

Which meant that for once financials could join in the upside, rising 0.6%.

Healthcare managed to post a 0.5% gain despite the Aussie leaping over 1% on the economic data releases. Once again we see evidence of forex markets consistently playing the Aussie from the short side.

Both resources sectors also had strong sessions without any real help from respective commodity prices.

While the 45 point gain mid-session did eventually pare back to 35, the ASX200 is comfortably back over 6000. However, despite Wall Street kicking on with it last night, the futures are down -23 points this morning.

That would mean a retest of 6000 once more, if accurate.

Gold Bless America

Trade wars, European problems, Russia probes – who cares? Last Friday’s US jobs report, on further reflection, has been lauded by economists as unbelievably good. The US economy is firing along nicely and that’s all that matters.

Big Tech is back in big focus. The FANGs have been variously hitting new all-time highs from last week and last night the Nasdaq reached its own new all-time high. Apple is edging closer to becoming the first trillion dollar company.

There has been much debate over what US companies plan to do with their tax-related earnings windfalls, with a large number of announced buybacks and increased dividends raising fears all the benefit will flow to wealthy shareholders and not to the US economy. But there have also been plenty of announcements of increased capex spend, which is the intention in the first place.

When one thinks of capex, one immediately thinks “plant & labour”, but that’s soooo last century. Today’s capex is all about investing in technology, even if the company in question is a common or garden widget factory. It is yet another boost for an increasingly dominant US tech sector, which now represents over 25% of the S&P500, having effectively not existed beyond twenty years ago.

Last night’s ongoing strength on Wall Street came despite the latest trade talks between the US and China again breaking down without agreement. We recall that the two parties are in a “truce”; they try to negotiate some sort of middle ground.

There is no truce in place with fellow members of the G7, however. Following Trump’s renewed tariff impositions, all of Canada, France, Germany, Italy and the UK jointly issued a rebuke to the US expressing “unanimous concern and disappointment”. They’re now calling it the G6+1.

The G6+1 will meet in Canada on the weekend.

Commodities

Oil continues its nervous pullback. While disappointing for energy companies, the surging oil price was threatening to cause a drag on economic growth, so not everyone is upset.

Not much else is going on unless you’re into lead, although iron ore did see a dip.

The Aussie is up 1.1% at US$0.7647 despite the US dollar index being down only -0.2%.

Today

So if we add up lower oil and iron ore prices and the stronger Aussie, there may be some justification for the SPI Overnight being down -23 points or -0.4% this morning.

And we won’t be getting “positive” bank stories every day.

The March quarter current account data are out today, including the terms of trade.

The RBA will phone it in at 2.30pm.

It’s services PMI day across the globe.

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

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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