The Overnight Report: Faceplant

Array
(
    [0] => Array
        (
            [0] => ((MQG))
            [1] => ((NEC))
            [2] => ((FXJ))
            [3] => ((DHG))
            [4] => ((APT))
            [5] => ((WTC))
            [6] => ((APX))
            [7] => ((GUD))
            [8] => ((CYB))
            [9] => ((SFR))
        )

    [1] => Array
        (
            [0] => MQG
            [1] => NEC
            [2] => FXJ
            [3] => DHG
            [4] => APT
            [5] => WTC
            [6] => APX
            [7] => GUD
            [8] => CYB
            [9] => SFR
        )

)

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

Buying Opportunity I

We are constantly told that a global trade war would be bad for Australia, thus the news out of Washington early yesterday morning should by rights have been a positive for the local stock market. The futures closed up a tentative 8 points, but the ASX200 plunged -30 from the bell.

It was all because of the announcement, traders suggest, of the retirement of Macquarie Group ((MQG)) CEO Nicholas Moore. Not, I would hasten to assume, because his replacement is female, but because Moore has led Australia’s only true investment bank all the way back from the depths of the GFC and the stock is today a market darling.

Hence any change to the formula must provoke a level of concern, as is often the case when well-respected corporate leaders call it a day. Macquarie shares dropped -5% from the open.

But it didn’t last long. The index recovered most of its early lost ground by midday, before banging around the flatline for the rest of the afternoon. Macquarie ultimately closed down -2.6%, suggesting certain investors saw a buying opportunity.

Moore’s retirement might signal the end of an era but the real news of the day was the Nine Entertainment ((NEC)) takeover (they’re trying to call it a merger) of Fairfax Media ((FXJ)). John Fairfax’s name will now be forever lost to history as, one presumes, will be quality investigative journalism. And hard copies of the Herald.

Fairfax shares leapt 8.4% on the news, pipped only by Domain Group ((DHG)), which rose 9.1%, of which Fairfax owns 60% and is the real target of Nine’s desires. Nine shares dropped -10.3% — the usual takeover reaction.

Elsewhere it was notable that three of the top five ASX200 losers yesterday were tech companies of one form or another, Being Afterpay Touch ((APT)), WiseTech Global ((WTC)) and Appen ((APX)), whose connection with Facebook is tenuous other than all being 2018 high-flyers.

The Australian market opened yesterday with Facebook down -20% in US aftermarket trading.

IT was ultimately the worst performing sector on the day but only to the tune of -0.6%. After a week of wild swings backwards and forwards driven by index-based trading, yesterday finally saw some old fashioned divergent moves among sectors. And no one stood out.

Energy rose 0.8% to win the day and consumer staples gained 0.6% on the announcement Dick Smith can’t compete with the Germans. Otherwise, sector moves were mixed and unremarkable, as was the index by the close.

Buying Opportunity II

As I wrote this Report yesterday, Facebook shares had fallen -8% in the US aftermarket following its after-the-bell result. The result seemed to most not too bad; maybe the loss of users following new EU data privacy restrictions was disappointing; but given the stock was up 40% in a year, despite Cambridge Analytica, no less than a shoot-the-lights-out result could have sparked further buying.

Then came the conference call, during which Facebook dropped further to be down over -20%. It was a Zucker punch.

The intraday chart for Facebook shares last night is interesting – a flat line across the session. The shares de-rated by -20% and the buyers all stood in a line at that level all day.

All year analysts have been calling the FANGs “priced for perfection” and vulnerable to even the slightest bit of bad news. Yet before this US results season, they were all hitting fresh all-time highs. So no one in the wider market is really all that concerned about a -20% fall for Facebook – the largest single day capital loss (US$120bn) for a US stock in history – as it represents a healthy “back to earth” adjustment.

But it is understandable that the Nasdaq would fall -1.0% when a fangless Dow rose 0.4%, just as we can sort of justify Australia’s IT sector taking a hit yesterday, on nervous sentiment.

But relax, Amazon reported after the bell and its shares are up 3%. The FANG scorecard has been Google great, Amazon good, Netflix -11% and Facebook -20%.

The Dow outperformed last night given it has a greater concentration of industrial stocks therein and no “new world” names, if we assume Apple and Microsoft are now a bit run of the mill, compared to the S&P500, in which the tech sector had risen to a 30% weighting.

Industrials continued to enjoy the tailwind of Wednesday’s late news of a trade resolution looking promising between the US and EU.

Trump has threatened to bomb Iran’s nuclear facilities, as early as next month, but given how we all know how the first episode of this soap opera (North Korea) turned out, the second instalment is a bit tedious.

More notable was another strong session yesterday for Japanese long bonds, followed by the ECB confirming last night it will end QE in December. The US ten-year yield rose 4 basis points to 2.98%.

The euro nevertheless fell, as markets wanted a bit more clarity on when actual ECB normalisation (from negative rates) might begin.

The US dollar index thus bounced back 0.6% after falling on Wednesday night. Some of the excitement over the US-EU agreement waned as the Treasury Secretary noted that all that had been agreed upon was an outline – not a hard and fast deal. And auto tariffs remain unclear and thus still a risk.

The Aussie shot up on Wednesday night and has since fallen back -1% to US$0.7377.

Commodities

The bounce in the US dollar likely put the dampener on what might otherwise been a more positive session on the LME, given some easing of trade war fears.

Trump wants to bomb Iran and gold is down nine bucks.

Today

The SPI Overnight closed up 27 points, with the S&P500 down -0.3%. Just the Aussie?

The US will report its first estimate of June quarter GDP tonight. With forecasts ranging from 4.5% into the fives, the scene is set for disappointment.

GUD Holdings ((GUD)) will report earnings today along with a quarterly from CYBG ((CYB)).

Sandfire Resources ((SFR)) releases its production report.

Rudi is ready to connect with Sky News Business via Skype at around 11am to discuss 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.

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