The Monday Report

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This story features KMD BRANDS LIMITED, and other companies.
For more info SHARE ANALYSIS: KMD

By Greg Peel

Spanner in the works

The rules of politics are such that if a state election is won by the party holding federal government, it is an “endorsement” of that government. If lost, it was an election “fought on state issues”. Fortunately Frydenberg has had just enough time to read the rule book.

Yet the result of the Victorian election was not known on Saturday morning when the SPI futures closed down -37 points. This followed a weak Friday night on Wall Street, granted, but was at odds with the tenor of the local market as last week played out. After a weak opening on Wednesday morning, the ASX200 marked a November low just under 5600. Thereafter it did nothing but rally.

From 5600 to back over 5700, following another solid session on Friday that came without any lead from Wall Street. The ASX200 closed down a mere -15 points for the week. The S&P500 closed down -3.8%. However we’ll have to take today’s local trade into account to get an apples to apples comparison.

The banks began the fightback on Wednesday and picked up momentum into Thursday and onto to Friday to post a 1.1% gain which was not only the biggest influence on the index on the day but also the highest percentage move. Looks like someone said “yield” and then the race was on.

The consumer sectors also had strong sessions after having suffered earlier in the week. Kathmandu ((KMD)), which is not in the index, jumped 13% on its AGM sales update that may be enough to quell the fears generated earlier in the week by another disastrous update from Myer ((MYR)).

Having been sold down for several sessions through the Coles ((COL)) demerger period, Wesfarmers ((WES)) finally caught a bid on Friday.

CSL ((CSL)) gave a little back following its rebound on Thursday, sending healthcare down -0.7%, while IT typically followed the Nasdaq in falling -0.9% and weaker commodity prices had materials down -0.1%. Telcos was the worst performer, down -1.2%, because the coin came up tails.

Energy rallied 0.5%, which is a shame really, given oil prices took another big tumble on Friday night. I had noted that the rebound in oil prices through the week looked rather tentative. The -6.5% fall in WTI could explain at least a chunk of the -37 point close in the futures on Saturday, along with some weak metals prices.

Over the weekend we had the Labor victory in Victoria. Stock analysts have already been starting to pencil in a federal Labor win next year, weighing up the ramifications in various sectors such as wealth management, and little of it is stock market positive in the near term. If Wentworth was the Coalition canary, Victoria is a mine collapse.

We also saw the EU agree to Theresa May’s Brexit deal, following a last minute opportunistic attempt by Spain to leverage an individual deal with Gibraltar. While this is a positive result in terms of reducing uncertainty, the fact it appears no one believes May’s deal will get through the UK parliament makes the point rather moot.

Wall Street was weak on Friday night, oil has tumbled again and the chances of the Coalition holding on next year are now remote. Santa’s put the sleigh back in the garage.

Red Friday

All three major US indices closed down around -3.5% for the week, following another down-day on Friday. It was a half-session and volumes were minimal as expected, but Wall Street ultimately posted its worst Thanksgiving week since 2011.

The focus throughout the session was on Black Friday sales, but at that stage the media was only able to assess whether stores looked full or not. One survey found the average discount being offered across the retail sector was -50%. That’s an average. So volumes aside, actual dollars might be interesting.

The stores did look full and the holiday Thursday had seen a record jump in online sales. A lot of faith is being placed on tonight’s Cyber Monday spree.

But Christmas shopping was overridden by another plunge in the oil price. There was no individual trigger to WTI and Brent both falling over -6% other than the failure of the tentative rebound up to that point. The US and OPEC continue to pump the stuff out, while the demand-side of the equation is looking increasingly tenuous as global growth slows.

OPEC meets on Thursday week. It is assumed Saudi Arabia will make good on production cuts, and the lower oil falls the greater likelihood this will be the case. Maybe traders are trying to ensure such an outcome.

Energy was the worst performing sector on Wall Street by a margin, with Exxon and Chevron big contributors to the Dow’s -178 point fall.

Communication Services was weak again, followed by the banks, which continue to sink along with the US ten-year yield, which is now back at 3.05%. Materials also had a weak session on lower commodity prices.

As we enter the last week of November there is yet no sign of Santa. But December is wrought with uncertainty. It begins with the US-China trade talks in Buenos Aires at the end of the week which no one is overly confident about, followed by the OPEC meeting on December 6 and the December Fed decision and press conference on the 20^th.

Anyone of those three events has the power to be market moving. As to what direction, well therein lies the uncertainty.

Commodities

German industrial giant and maker of batteries for EVs, BASF, announced on Friday night it plans to use less nickel in those batteries. Meanwhile, Chinese nickel traders were on edge given Indonesian plans to bring new capacity into a crowded market next year.

Nickel fell -3.5%. Throw in a 0.5% gain for the US dollar, and general fear the upcoming trade talks will resolve nothing, and all metals were weak.

The Aussie is down -0.3% at US$0.7232.

The SPI Overnight closed down -37 points or -0.6%.

The Week Ahead

The two biggest issues facing Wall Street at present are trade and interest rates. The US-China trade talks are not until the weekend but Fed chair Jay Powell speaks on Wednesday, and will have everyone’s attention.

US data releases across the week include consumer confidence and FHFA house prices tomorrow, new home sales on Wednesday along with another revision of US September quarter GDP (3.6% expected, up from 3.5%), and pending home sales and PCE inflation on Thursday. The minutes of the November Fed meeting are also due on Thursday.

The G20 meeting gets down to business on Friday.

China’s November manufacturing and services PMIs are due on Friday.

In Australia we’ll see numbers for September quarter construction work done on Wednesday and private sector capex on Thursday, ahead of next week’s GDP result. October private sector credit data are out on Friday.

On the local stock front, the AGM season rolls on but winds down this week.

Earnings reports are due from Fisher & Paykel Healthcare ((FPH)) today, Collins Foods ((CKF)) on Wednesday and Aristocrat Leisure ((ALL)) on Thursday.

Investor updates will be provided by Fortescue Metals ((FMG)) tomorrow, TechnologyOne ((TNE)) on Wednesday and Bellamy’s ((BAL)) on Thursday.

Rudi will not appear on Your Money today as he has caught the flu.

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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