The Monday Report

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

By Greg Peel

On a High

After a stumble at the start, the ASX200 shot up on Friday morning in a straight line towards 6350, suggesting someone was trying to push momentum on the technical trade. It didn’t work – the index peaked out at 6348 and settled back into a typically quiet Friday afternoon, closing a little higher.

Which still means it was a new post-GFC high.

Sector moves were mixed and largely driven by earnings results.

IT won the day with a 1.3% gain, helped by a well-received result from Link Administration ((LNK)), which rose 6.3%. REIT darling Goodman Group ((GMG)) jumped 5.3% on its result despite often being accused of overvaluation.

It just goes to show that the online world still needs bricks & mortar, at least in the form of logistics centres.

Evolution Mining ((EVN)) posted a benign result, but a -3.9% fall for the gold mining favourite suggested the market wanted more. It was not a good week in the gold space, and materials overall still fell -0.1% on Friday despite some commodity price rebounds thanks to news of upcoming China-US trade talks. Energy closed flat.

Healthcare fell -0.5% to be the worst performer, led by residential aged care provider Estia Health ((EHE)). It fell -5.1% following its result and weighed on peers in the sector. Profits were taken in CSL ((CSL)) with the Aussie having rebounded.

Telstra’s ((TLS)) latest burst of sunshine continued to help telcos up another 0.9%, and utilities rounded out the moves of any note with a 0.7% gain.

We are in an interesting position at the moment given a technical break-out is coinciding with, and indeed largely driven by, earnings season. The index managed to stave off fears surrounding Turkey and China last week and wobble its way back up into post-GFC blue sky.

This week is the biggest in the earnings season by a margin, by number of companies reporting. It’s going to be hard to keep up. News that Trump and Xi plan to meet in November spurred on Wall Street on Friday night, and on Saturday morning the local futures were up 28 points.

So strap in.

Rotation

“Rotation” is the buzzword on Wall Street at the moment, and indeed has been all year. 2017 was the year everything just went up, led by tech, and with tax cuts in the bag, 2018 has to date been a year of introspection.

Last week saw a clear shift out of “growth” and into “value”, and also a shift to a more defensive stance. Developments on the US-China trade front meant the beaten-down big name industrials in the Dow enjoyed a comeback, while high growth names in the tech (and consumer discretionary, eg Amazon) stood still or eased off.

With US bond yields seemingly stuck in the mud, utilities, REITs and healthcare are finding favour. Materials struggled all week ahead of the news on trade, but are not yet enjoying any great turnaround.

No one appears to be ready to assume any resolution is nigh on the trade front, but any potential progress is mildly positive. On Friday it was revealed the “low level” trade delegations, which will meet commencing Thursday this week, will be in Washington to work on a “road map” that will lead to a meeting between Presidents Trump and Xi in November.

It is widely agreed that if there were a trade war, the US would ultimately win. But it is also recognised that in the near term, Trump is the most vulnerable, given he has to face mid-term elections in November while Xi is president for life. Thus it was not a surprise that the “high level” talks are slated for November.

Emerging markets remain a concern, with Turkey the flag bearer. News on trade saw the US dollar slip back -0.5% on Friday, easing some of the pressure on EM currencies. The world, too, expects the US would win a trade war, even if it has to suffer casualties along the way, given its economy is simply that much stronger than anyone else’s at the moment. Hence the greenback has been the safe haven of choice, and hence a trade resolution would see a pullback.

Last week the US earnings season, which is now starting to rapidly taper off, saw a focus on the old bricks & mortar retail names that have been slow to move as the world has changed around them. The result is very much a stock specific one – those who have successfully responded to the online threat did well and those that haven’t got carted.

Friday saw Nordstrom surging, while overall all the week saw Wal-Mart on a tear, Macy’s beating with its result but being slammed on profit-taking, and JC Penney being dumped as the loser. All percentage moves were in the teens. There is perhaps a lesson here for our local sector.

And in the new soap opera that is Tesla, Elon Musk aired his emotions via the New York Times on Friday and painted a picture of a man about to psychologically implode under the stress of what he has created. There is no 2IC at Telsa. Shares fell -9% to close at US$305, remembering that Musk suggested last week he will take the company private at US$420.

Commodities

London had closed before the news broke of the November meeting between presidents, so base metal prices were mixed on Friday night and a little less volatile.

Gold enjoyed a bit of a rebound on the pullback in the US dollar.

That pullback has the Aussie up by an equivalent 0.5% at US$0.7300

The SPI Overnight closed up 28 points.

The Week Ahead

As the US earnings season winds down, Wall Street’s focus will be on events later in the week. The US-China trade talks begin on Thursday and on Friday the central bank symposium at Jackson Hole begins, with Jerome Powell booked in for a speech.

The minutes of the last Fed meeting are out on Wednesday along with existing home sales, followed by new home sales and house prices on Thursday  and the all-important durable goods orders numbers on Friday.

Thursday will see all of Japan, the eurozone and US flash August PMI estimates.

Locally, the minutes of the August RBA meeting are out tomorrow and Philip Lowe will speak, while Wednesday’s June quarter construction work done numbers remind us we’re in the run-up to the GDP result.

Huge week of earnings reports – see Calendar.

Today’s biggies include Ansell ((ANN)), Beach Energy ((BPT)), Fortescue Metals ((FMG)) and Woolworths ((WOW)).

Note that Wesfarmers ((WES)) goes ex today.

Rudi might appear on Sky Business on Tuesday via Skype around 11.15am and that should be it for this week due to Chinese sweatshop circumstances here at FNArena, for which the local reporting season is to blame.

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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