The Monday Report

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            [3] => ((BAP))
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            [5] => ((IGO))
            [6] => ((ANZ))
            [7] => ((NAB))
            [8] => ((MQG))
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            [10] => ((ORI))
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            [12] => ((WOW))
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            [7] => NAB
            [8] => MQG
            [9] => CSR
            [10] => ORI
            [11] => JHG
            [12] => WOW
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This story features G8 EDUCATION LIMITED, and other companies.
For more info SHARE ANALYSIS: GEM
The company is included in ASX300 and ALL-ORDS

By Greg Peel

Saved at the bell

After falling for three sessions, including down over -600 for the Dow on Wednesday night, Wall Street enjoyed a bounce on Thursday night, with the Dow closing up 400. The ASX200 had followed Wall Street all week, thus it stood to reason we, too, would bounce on Friday.

And we did, briefly. The index opened up 36 points but 15 minutes later was falling back again. Choppy sideways movement followed to lunchtime before the Friday afternoon blues kicked in and down we went again.

The problem were the US futures, on which our market was firmly focused. They were falling once again and thus we had to follow. Driving the US futures specifically were aftermarket earnings releases from Amazon and Google, both of which had the potential to save the day on Wall Street.

Amazon posted a record profit, but downgraded Christmas sales expectations, and thus fell -8%. Google beat on earnings but missed on revenue, and fell -1.8%. Intel (Dow) was the highlight, rising 3.1% on its result, but the greatest hope was clearly pinned on Amazon. A trigger-happy Wall Street needed the result to blow away expectations, but instead the opposite was true.

The Australian market thus assumed, correctly as it turned out, that the Thursday night rally on Wall Street would prove fleeting. At 3.20pm the ASX200 was down -40 points, representing a -76 point turnaround from the open based on the result from a company of which there is no like in Australia. But suddenly the cavalry appeared from over the hill and by the closing bell we were back to square.

Shorts squaring up ahead of the weekend or genuine, bold bargain hunting? It is unclear. What is clear is Wall Street did indeed fall again on Friday night, and the SPI futures closed -17 points down on Saturday morning.

If there were bargain hunters it was in the banks, healthcare and materials – beaten down large cap names. They were the only sectors to finish in the green.

Consumer discretionary was the worst performer, down -1.2%, which included a -7% fall for G8 Education ((GEM)) after it announced it was making up for 7 years’ worth of miscalculated wages. Primary Health Care ((PRY)) made a similar announcement and also fell -7%, but was overcome by other stocks in the healthcare sector – one being ResMed ((RMD)), which rallied 3.6% on its quarterly earnings result.

Energy (-1.0%) also stood out, with the sector now under fire from both oil price uncertainty abroad and government policy uncertainty at home.

As we enter a new week, the good news is October ends on Wednesday. Outside of a couple of genuine domestic issues, such as aforementioned energy policy and ongoing bank RC fallout, we are blindly following Wall Street. Friday night’s session in New York showed some signs of promise but was not convincing.

Some Resilience

The first estimate of US September quarter GDP came in at 3.5%, beating 3.3% expectations. At the current run-rate the US economy should post annual growth of above 3% for the first time since 2005. But while impressive, there were some worrying signs in the data.

Private consumption & expenditure (PCE) inflation rose only 1.6% in the quarter, down from 2.0% in the June quarter. The core rate also fell to 1.6%, down from 2.2%. For those afraid of too many Fed rate hikes, this is good news. For anyone else, this is rather alarming.

Lower inflation had nothing to do with lower spending, as consumer spending rose to 4.3% from 3.1% in June. Government spending rose 3.3% from 2.5%, funded by ever increasing debt. The sector causing most concern was business investment, which at 0.8% growth seems out of synch with the tax cuts. The tax cuts were supposed to promote investment. This number can be volatile nonetheless, given the lumpiness of big projects.

Also worrying was an increased trade deficit, as imports exceeded exports, which shed -1.8% from growth. The suggestion is perhaps businesses were front-loading imports to get ahead of tariff impact. This assumption would be borne out by 2.1% growth in inventories. In an era of just-in-time inventory management, inventory growth would normally suggest product is not selling.

So in the wash up, one might have expected a beat on the GDP to translate into an increase on US bond yields, but instead the ten-year fell -6 basis points to 3.08%. That might represent some concern on the economy front, but also a flight to safety element as US stock markets continued to fall.

The Dow opened lower from the bell on Friday night and by 11am was down -540 points. Amazon is not in the Dow — its -8% fall merely simply fuelled further anxious sentiment across the market. Amazon is in the Nasdaq and S&P, but while tech copped another wave of selling on Friday night, all S&P sectors ultimately closed in the red.

At 11am, however, buyers appeared out of the woodwork and started picking up the most beaten-down sectors. At lunchtime the Dow was only down double-digits. But then the sellers regrouped and the Dow was down over -400 as Wall Street entered the final hour. Another rally ensued, the Dow was down less than -200 with ten minutes to go, and finally closed down -300 on late pre-weekend selling.

Such action is promising, but not yet convincing, for those trying to call a bottom in the correction. Does Wall Street still need to see that final washout, capitulation trade? The VIX is still only at 24, when a washout should see more like 40.

This is the question Wall Street was pondering as it headed into the weekend.

Commodities

The iron ore price continues to tick upwards in the face of all that might suggest otherwise. Base metals are doing the opposite, ticking continuously down.

The weaker US dollar on Friday night provided no support, with gold hanging in there as a safe haven.

The oils were up, but volatility reigns in this space given geopolitical uncertainty.

The Aussie is up 0.2% at US$0.7095.

The SPI Overnight closed down -17 points or -0.3% on Saturday morning, bearing in mind that the ASX200 never saw any bounce last week.

The Week Ahead

Following on from Friday night’s US GDP report, the eurozone will report its first September quarter estimate on Tuesday.

It’s jobs week in the US, just to add to the fun. The non-farm payrolls result is due on Friday, following numbers for PCE inflation tonight, consumer confidence on Tuesday, private sector jobs on Wednesday and productivity on Thursday. Friday also brings factory orders and trade numbers.

The US earnings season will roll on.

The US will also release its manufacturing PMI on Thursday – the first of the new month —  as will most of the world, with China’s manufacturing and services PMIs due on Wednesday.

It’s a busy week for data in Australia. Tomorrow brings building approvals and Wednesday private sector credit, along with the September quarter CPI. Thursday it’s ANZ job ads and the trade balance, and Friday it’s retail sales along with the PPI.

On the local stock front, it’s also a busy week.

The AGMs and quarterly updates continue a-pace, with too many on the calendar to highlight. Today sees Bapcor ((BAP)) holding its AGM and Beach Energy ((BPT)) and Independence Group ((IGO)) providing production reports.

Prepare to hold your breath, ANZ Bank ((ANZ)) reports full-year earnings on Wednesday and National Bank ((NAB)) on Thursday, with Macquarie Group’s ((MQG)) interim due on Friday.

CSR ((CSR)) and Orica ((ORI)) also report full-years on Friday, while quarterly results are due from Janus Henderson ((JHG)) on Thursday, along with a quarterly sales report form Woolworths ((WOW)).

Rudi appears on Your Money today, 1-2pm.

The Australian share market over the past thirty days…

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