The Overnight Report: North Of The Border

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This story features A2 MILK COMPANY LIMITED, and other companies.
For more info SHARE ANALYSIS: A2M
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Banks Bite Back

Trading on the local market started with a positive tone yesterday despite no lead from Wall Street, with glimmers of hope appearing in the US vs ROW trade war. Once again earnings results provided early impetus.

Building materials company Boral ((BLD)) has been in the doldrums since the company offered a soft trading update in April given problems in North America. Yesterday the stock bounced back 10.1% on the release of its full year earnings report.

Also reporting favourably was milk product company Bellamy’s ((BAL)), which jumped 7.5%, and goes down as another “just as bloody well” given the stock rose 8% the day before in anticipation. The result also helped a2 Milk ((A2M)) kick on another 3.9%.

ASX200 movers to the upside posted bigger gains than the falls to the downside, and not one of the top 5 losers was a company actually reporting yesterday. Rather we saw ongoing selling in Reliance Worldwide ((RWC)), Speedcast International ((SDA)), and Infigen Energy ((IFN)), while Afterpay Touch ((APT)) bounces up and down every day with gay abandon and NextDC ((NXT)) copped some squaring up ahead of its result release tomorrow.

Outside of the ASX200, red-faced fast food conglomerate Retail Food Group ((RFG)) managed a 13% bounce on its result.

Beyond earnings season, Metcash ((MTS)) clearly said all the right things at its AGM yesterday, sparking a 10.5% jump. As of last week, Metcash was one of the most shorted stocks on the ASX at 12%.

But the real mover and shaker of the session was Westpac ((WBC)), which yesterday announced a repricing of all its mortgage rates – a move which the bank sorely “regrets”, but one can’t do much about rising offshore funding costs of course, and an RBA cemented to the floor.

How to win friends and influence people.

Westpac rose 2.7% and the other banks were all pushed higher as well on the lay-down misere assumption all the other sheep will follow. The financials sector rose 1.8% to provide the standout move of the day and to provide the bulk of the almost 50 point gain.

By comparison, other sector moves were insignificant, with all of energy, healthcare and industrials closing modestly in the red and IT falling -0.6% on post-result profit-taking.

Well, guess what? Thanks to the banks the ASX200 is back at a new post-GFC closing high. Apparently Canberra Capers were but a nightmare. And trade fears are gently, tentatively beginning to ease.

Canada Can

Canada’s foreign minister was in Washington last night to talk trade, and both sides came away suggesting they were “optimistic” about a deal being reached. Trudeau was similarly optimistic speaking from Ottawa although he has promised to dig his heels in on the matter of protection for the Canadian dairy industry.

So Washington may yet have to milk it, but as was the case with Mexico it looks like progress is being made towards an agreement and that may come as soon as tomorrow night. The Mexicans had been equally optimistic earlier in the week but had hinted they were keen to reinstate a trilateral deal, with Canada on board, rather than just a bilateral deal with the US.

So NAFTA 2.0 may soon rise from the ashes, although it will probably be NATA.

Before this all unfolded, Wall Street learned that the June quarter GDP result had not been revised down to 4.0% from 4.1% as expected but up to 4.2%. No big deal, but positive nonetheless.

While the Dow has been making a comeback of late on the easing of trade war fears and subsequent bounce-backs for the big multinational exporters, the Nasdaq made a comeback of its own last night. The tech-heavy index had stalled somewhat after its stellar run – rising but not outperforming – but last night it was back in favour to the tune of a 1.0% gain to the Dow’s 0.2%.

Amazon, Apple and Microsoft all moved to new all-time highs, with Amazon the standout with a 3% gain. Of the three, Amazon is not in the Dow, given a near US$2000 share price compared to Apple’s US$220. Amazon is almost at the one trillion dollar market cap level having lost the race to Apple, but will need to implement a one for ten consolidation if it ever wants to be in the Dow.

Bezos does not strike me as a bloke who could care less.

The Nasdaq, S&P500 and Russell small cap all pushed on to yet further new highs last night in very low volume trade, reflecting summer in general and the upcoming Labor Day long weekend in particular. It’s one reason why September is historically the weakest month on Wall Street. Everyone comes back from holidays and says WTF?

Commodities

Of the major base metals, aluminium is the only one specifically targeted by Trump’s tariffs so any easing in trade war fears is positive for the metal, which outperformed on the LME last night. Strictly nickel and zinc are indirectly impacted by steel tariffs (stainless and galvanised) but they were asleep.

The oils were once again impacted by the weekly US crude lottery.

The US dollar index was yet again a little weaker but the Aussie is down -0.4%. That’s unusual, given easing trade war fears typically boost the Aussie. Maybe forex traders think bank mortgage repricing will lead to a surge in defaults. The banks can only push households so far.

Today

The SPI Overnight closed up 18 points or 0.3%. Blue skies, smiling at me.

Today sees local building approvals data but the biggie is June quarter private sector capex – a fundamental segment of GDP and forward economic growth expectations.

The Fed’s preferred PCE measure of US inflation is out tonight.

On the local stock front, we can now see the light at the end of the long tunnel. Tomorrow marks the end of results season, but for a handful of September stragglers.

The big names reporting today are Perpetual ((PPT)), Ramsay Health Care ((RHC)) and the old Westfield ((URW)), along with Galaxy Resources ((GXY)) and a suite of smaller names.

Stocks going ex today will not collectively provide too much of an opening handicap but be warned, as of next week the exes really start to pile up.

The Australian share market over the past thirty days…

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