The Monday Report

Array
(
    [0] => Array
        (
            [0] => ((BXB))
            [1] => ((APT))
            [2] => ((SGR))
            [3] => ((MYX))
            [4] => ((IEL))
            [5] => ((CGC))
            [6] => ((WTC))
            [7] => ((ALU))
            [8] => ((FLT))
            [9] => ((HTA))
            [10] => ((WBC))
            [11] => ((CSL))
        )

    [1] => Array
        (
            [0] => BXB
            [1] => APT
            [2] => SGR
            [3] => MYX
            [4] => IEL
            [5] => CGC
            [6] => WTC
            [7] => ALU
            [8] => FLT
            [9] => HTA
            [10] => WBC
            [11] => CSL
        )

)

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

By Greg Peel

Playing Politics

The ASX200 rallied from the open on Friday as the futures had suggested, up 27 points, likely with a bit of help from the weaker Aussie, but the reason for that weaker Aussie ultimately weighed. With the spill set to take place in Canberra, the index fell -33 points to 12.50pm.

The news that it was ScoMo, and not Dutton, was worth a 27 point rally. The index then rallied further into the afternoon to be up 29 points on the day, until the last hour saw a rapid plunge on profit-taking. Everyone just wanted to get squared up in order to relax over the weekend after a tumultuous week of politics and earnings results.

Despite the influence of politics, earnings results were still a major feature of Friday’s trade.

Earnings result winners on the day included Brambles ((BXB)), up 6.4%, Afterpay Touch ((APT)), up 6.1% despite having run hard recently, Star Entertainment ((SGR)), up 6.0%, and Mayne Pharma ((MYX)), up 5.7%.

The ASX200 leaders’ board was nevertheless topped by IDP Education ((IEL)), which leapt 9.0% having reported on Thursday.

On the losers’ board, previously high-flying Costa Group ((CGC)) came back to earth with an -11.1% fall, and Sims Metal Management fell -6.8%. But the losers’ board was dominated by profit-taking.

WiseTech Global ((WTC)) fell -15.5%, which sounds like a drubbing, but the stock had run up 50% from its result on Wednesday. Altium ((ALU)) – another tech which had joined in the fun, fell -7.6%. Selling continued on Flight Centre ((FLT)), down -6.1%.

Profits were also taken in the telcos sector after a booming week. Hutchison Telecom ((HTA)) gave back -25% having run up 125% in two days., but it’s not in the ASX200. Telstra fell back -3.9% and telcos closed down -3.2%.

Financials fell -0.5% following a weak quarterly update from Westpac ((WBC)), featuring a surprise miss on net interest margin.

The consumer sectors both enjoyed 1.0% gains but the winner on the day was healthcare, up 2.1%, with CSL ((CSL)) rising yet another 2.9% on the weak Aussie.

Those buyers won’t be thrilled the Aussie has since bounced back over 1%.

We are now sitting -100 points below the previous high, thanks to trade war escalation and the implosion in Canberra. Earnings season has not been a thriller, with the beat/miss ratio currently running below average and broker downgrades outnumbering upgrades two to one. Those downgrades represent either stocks that had run too high, including on reporting day, and stocks that had disappointed.

We still have another one hundred-odd reports to get through this week.

New High

Lock it in: Wall Street has indeed now marked the longest bull market run in US history. On Friday night the S&P500 closed two points above the previous high set in January.

The Nasdaq and Russell small cap also hit new all-time highs, while the Dow remains about 2% shy, being overweight big multinationals most exposed to a trade war.

January saw the peak of tax cut euphoria, before one surprise print on wage inflation sparked the pullback Wall Street had to have. Just a pullback – not a correction – and that inflation print has long since proven to be a furphy.

Despite two quarters of 20% plus earnings results in the meantime, it’s taken this long for Wall Street to recover that big fall in February. That we can put down to tariffs. But those tariffs have not gone away – rather more and more have been imposed as time has marched on – yet here we are at a new high. Those earnings results, and 4.1% June quarter GDP growth, have allowed Wall Street to agonisingly climb the wall of worry.

That wall of worry includes a fear that because of such strong economic growth, the Fed might decide to accelerate its interest rate normalisation program. To that end, Fed chair Jerome Powell’s speech at Jackson Hole on Friday night was going to be critical.

But Powell said all the right things. Economy strong, yes, but the FOMC sees no need to raise rates other than gradually, as it has been saying all year. Thank you Jay, we’ll post a new high then.

Helping to keep sprits high has been the long tail of reporting season, which is largely dominated by retail names. There have been some train crashes, but for the most part the sector has been posting solid numbers. To a great extent this represents an overblown fear of Amazon, but it also suggests the American consumer is alive and well and prepared to spend. Recent retail sales data back this up.

The American consumer represents 70% of US GDP (including spending on essentials and healthcare). If wallets are out, the US economy is strong.

American household debt ratios are currently around their lowest since the GFC.

Where did we go wrong?

Commodities

Jerome Powell’s speech did not budge the US ten-year yield but it did impact on the US dollar index, which fell -0.5%. A quick look at the table above suggests this is good news for commodities.

Gold, in particular, snapped back into action.

There has been a lot of talk lately that emerging market central banks have been forced to sell gold to prop up their currencies in the wake of the surging greenback and the fear sparked by Turkey. Actual numbers are not released until well after the event, but one might conclude that a rally in gold represents a level of emerging market relief.

The Aussie is up 1.2% at US$0.7330 on a combination of the greenback’s fall and the removal of uncertainty in Canberra.

The SPI Overnight closed down one point on Saturday morning.

The Week Ahead

The final week of earnings reports is, this time around, a full week, given the month ends on Friday. So there are still plenty of reports to come.

On the economic front, we’ll see the all-important June quarter private sector capex numbers on Thursday, ahead of next week’s GDP result. Monthly data are due for building approvals on Thursday and private sector credit on Friday.

China releases its August PMI on Friday.

The US will see consumer confidence and house prices tomorrow, pending home sales on Wednesday, personal income & spending along with PCE inflation on Thursday, and the Chicago PMI on Friday.

The US June quarter GDP will be revised on Wednesday. A drop to 4.0% from 4.1% is forecast.

A reminder that as results season winds down, ex-dividend season winds up. There are a few big names going ex today.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am and again on Friday via Skype, probably 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