The Overnight Report: South Of The Border

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This story features GWA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: GWA
The company is included in ASX300 and ALL-ORDS

By Greg Peel

Thank God That’s Over

It was a remarkable day on the local bourse yesterday. For the first time since the results season began, all the ducks lined up in a row.

Well almost. Healthcare and industrials dipped by a whisker but every other sector finished in the green and no one sector particularly stood out within the index’s 21 points gain. And that’s after the session included quite a few influential ex-dividends from the get-go. GWA Group ((GWA)), for example, went ex and finished third on the ASX200 losers’ board.

For a couple of weeks now we’ve seen some very big sector moves in either direction netting out to a less dramatic index move, mostly due to result season, but also due to the odd macro influence, the currency, M&A and of course, politics.

The recriminations will continue, it’s a race between the publishers, and production houses are already trying to work out who’ll play Peter Dutton in the mini-series. But for now, the dust has settled and it’s back to business.

Relevant sectors can start worrying again as the election approaches, but quite possibly a Labor government has already been priced in.

A positive tone was set yesterday morning thanks to Jerome Powell’s dovish-leaning speech at Jackson Hole. US rates are not going to rocket higher. While this does go some way to putting a floor under the Aussie, the cost of offshore funding has been an issue in several sectors (eg banks).

Otherwise, the domestic uncertainty factor has been lifted.

Results season did, nevertheless, play its part yesterday, most notably for G8 Education ((GEM)), which fell -16.5% following its result release. Anyone remember ABC? Beware an industry beholden to government policy.

High-flyer Reliance Worldwide ((RWC)) fell -8.4% following its result to take the silver on the losers’ board. Not such a shock in another crowded trade. The interesting thing about Reliance is that while it’s been acting like a new world tech stock lately, it makes plumbing parts.

Speaking of crowded trades, longs in Afterpay Touch ((APT)) have built further thanks to a capital raising the company had no trouble putting away. Dilution? The stock rose (another) 7.3% to top the ASX200 winners’ board (again).

Three of the remaining top five winners reported on Friday, and kicked on.

As reporting season winds down, yesterday gave the impression investors are looking back up to the new post-GFC high of a week ago and wondering why we’re not still up there. Results season has been okay, not quite US-style, while the ratio of broker ratings downgrade to upgrades mostly suggests the run was a bit too swift, in analyst views.

The futures are up 28 points this morning and the technical still looks good.

Breakthrough?

The S&P500 hit another new all-time high last night, as did the Russell small cap, and the Nasdaq passed 8000 for the first time. The Dow regained 26,000 for the first time since February.

The rally was driven by news the US and Mexico have reached an understanding to enter a deal on trade. At least, Washington is calling it a “deal” while for Mexico it is an “understanding”. Whatever it is, it includes an agreement on autos, auto parts and auto-workers’ wages and zero tariffs on agricultural products and other things, but interestingly does not remove the original steel and aluminium tariffs.

Trump wants to dump the title “NAFTA” and call it the “USMTA” which is interesting on two fronts: it doesn’t include Canada and there is no “F”. Not that there is an FTA in the world that really is F.

Trump wants to keep it bilateral and then deal with Canada separately. Mexico wants to keep it a three-way deal. While Trump might be stubborn in his intentions, there remains a legal issue. No one is quite sure of the legality just yet, but NAFTA was written into law and thus Congress may have to re-legislate. Not every Republican is happy and there are mid-terms coming up.

The possibility of USMTA or any deal with Canada being signed before then looks tenuous at this stage.

But, and it’s a big “but”, Beijing moved yesterday to stabilise its currency after allowing it to freefall in the trade war to date. That freefall has been interpreted as either a means of retaliation by Beijing in a trade war it can’t win or a flight of capital from China given the trade war can’t be won, or both. This stabilisation is seen either as a means of stemming the flow of capital or the first step towards China waving a white flag, or both.

China’s stock market rallied 1.9% yesterday.

So are Trump’s tactics finally showing some signs of success? Maybe. But one would be advised not to hold one’s breath.

The cyclical stocks led Wall Street higher last night, including the usual trade war-exposed industrials, the materials sector, and the banks. Tech clearly joined in as well.

Lots of new highs. Next week it’s September.

Commodities

No, there is no technical issue with the table today. The UK was closed for a bank holiday, so no LME.

So we’ll need to wait until tonight to see just how metals prices respond to this trade breakthrough, if that’s what it is.

The US dollar index is down again as China not only stabilises itself but also smaller emerging markets.

The Aussie is up 0.3% at US$0.7349.

Today

The SPI Overnight closed up 28 points or 0.5%.

Earnings reporters today include Boral ((BLD)), Caltex Australia ((CTX)) and Orocobre ((ORE)).

Ex-divs today include Lend Lease ((LLC)), Newcrest Mining ((NCM)), Santos ((STO)) and WorleyParsons ((WOR)).

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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