The Overnight Report: Bring On EOFY

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

By Greg Peel

More Ups and Downs

The local market was at it again yesterday, swinging the sectors back and forward in opposite directions one session after another. The difference yesterday was that the resource sectors actually put in two positive sessions in a row, so if we add that to the banks having an up-day, after being down on Wednesday, we get to a 20 point gain for the ASX200.

It was a solid net result when we note the index started with the handicap of a slew of bond-proxy stocks going ex-div, as is evident in a -0.7% fall for industrials, wherein lie Transurban ((TCL)) and Sydney Airport ((SYD)).

The financials sector, including REITs, gained 0.8% despite the handicap of many ex-div REITs, largely thanks to Macquarie Group ((MQG)), which hit an all-time high. Macquarie now generates more of its revenue outside Australia, and thus is a beneficiary of the Aussie’s decline.

The financials sector also includes insurers, and yesterday nib Holdings ((NHF)) topped the ASX200 leaders’ board with a 5.5% gain.

Worst performing sector on the day was IT, which fell -1.3% having risen on Wednesday. That sector is simply following the Nasdaq at present.

IT just pipped consumer discretionary, down -1.2%, which was up on Wednesday, down on Tuesday…

We have one last session in this financial year, and there’s no reason to expect anything different in terms of profit-taking, book squaring, rotation and window dressing, which could lead us anywhere by the close. Wall Street has provided a positive lead across all major indices, if that makes any difference.

Stressful

The Fed published its latest stress test results for US banks after the closing bell on Wall Street last night. All banks “passed” bar Deutsche Bank US, which received a “qualitative” fail. Goldman Sachs and Morgan Stanley both “passed” but were told they are not allowed to increase distributions to shareholders. Deutsche Bank US is restricted on distributions back to its German parent.

Wells Fargo passed, despite being voted most likely to fail given recent issues at the bank not unlike what is being uncovered at our own Royal Commission.

Having fallen 14 straight days in a row, largely on the ten-year bond yield falling further away from the 3% mark while the Fed threatens ongoing cash rate hikes, the US bank index rose last night ahead of the stress test results. If the ten-year can’t break through 3%, and the Fed implements two more 25bp hikes, the US yield curve will be inverted. Not good for US banks.

Early in the session the US March quarter GDP result was revised down to 2.0% growth from a prior 2.2%. While this is rather old data, being now a full quarter ago, it was enough to give Wall Street pause for thought when expectations for June quarter growth are around 3.5-4%.

Most of the action on Wall Street this week has been centred on the tech sector, as represented by the Nasdaq, and small caps, as represented by the Russell 2000. Having hit new all-time highs last week profits are being taken ahead of books close for the quarter. But for every profit-taker in FANG and Co, there are others taking the retracement opportunity to buy. Hence the yo-yoing.

The Dow and S&P500 have been caught in the crossfire, noting that Apple, for example, is one stock residing in all three major indices. The overall trend has nevertheless been down, under a cloud of trade policy uncertainty, but last night the S&P broke a 13-day losing streak. While the losses each day have been mostly incremental, it was the broad market index’s longest negative run ever.

Amazon was back at it again last night, finally converting a long held desire to get into the US drug market. Amazon has acquired pharmacy distributor Pillpack. All US pharma stocks took a hit as a result last night, as we have come to expect when Amazon moves in, most notably Walgreens, which fell -10%.

Welcome to the Dow. That move was worth -40 Dow points alone.

And if that wasn’t enough, Amazon also launched its “last mile” parcel delivery service, consisting of individual delivery van drivers owning and operating their own Amazon service. The move is a double-whammy for the likes of FedEx and co, as not only will they lose Amazon’s business as a result, they gain a new competitor.

Still, Fedex managed to fall only -1.3%, given such a move by Amazon has been well flagged.

Commodities

The retracement in base metal prices continues, despite the US dollar index being steady overnight, as the same trade war cloud casts its shadow. Copper has fallen back below US$3/lb.

Gold continues to slip, slide away.

Oil, on the other hand, just keeps on rising, as the market tries to figure out just how many barrels of Iranian exports will be lost, how much Saudi Arabia will increase production as a counter, and whether US shale actually has sufficient capacity available to make up the difference itself. For US oil, production is not the issue, it’s one of insufficient infrastructure capacity.

It is that insufficiency that saw Brent blow out to as much as a US$10/bbl spread over WTI in prior weeks, but that gap has been closing steadily and we’re down down closer to US$4/bbl.

The Aussie is up 0.1% at US$7350.

Today

The SPI Overnight closed up 13 points or 0.2%.

Australian private sector data are out today.

In the US, the PCE inflation measure is out tonight.

China will report official manufacturing and services PMIs for June tomorrow.

EOFY is upon us, and thus anything could happen today and tonight.

Rudi will connect with Sky News Business via Skype to talk shares and broker calls at 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.

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