The Overnight Report: Counting Down

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

By Greg Peel

Strong Defence

A developing theme late in 2018 was one of the ASX200 not feeling the need to completely mimic wild swings on Wall Street at each session, so wild those swings could be. A more measured approach was again in evidence yesterday as the local market decided Tuesday’s -30 point fall was enough to match a -300 point fall in the Dow on Tuesday night.

Thus while the ASX200 did open lower yesterday, in line with the overnight futures, the dip lasted no more than the opening rotation and by lunchtime we were back to square. Then around ten to three it looks like a largish sell-order hit the market, ensuring a close of -15.

While yesterday’s performance might be deemed encouraging, it was a matter of playing a defensive game, not an offensive game. Healthcare (+0.9%) was the best performer on the day, thanks to the usual suspects, while utilities and consumer staples each gained 0.6%. REITs were also popular.

The balance was provided by energy (-1.5%), materials (-0.5%) the banks (-0.6%) and telcos (-0.4%), which were the exact same sectors that led the market down on Tuesday. A lot of big cap names.

Among the not-as-big caps, Challenger’s ((CGF)) -17% trashing contributed to weakness in financials. The company revealed that volatility in equity markets in the first half FY19 led to a -97% drop in profit.

Outside of the ASX200, car dealer AP Eagers ((APE)) enjoyed a 7% pop after announcing a 3% rise in full-year profit, at a time anything auto has been in the dumps on the assumption Australia’s Major Housing Crisis would imply fewer car sales. To that end, index member Automotive Holdings ((AHG)) also rose 7% in sympathy.

Afterpay Touch ((APT)) was the best performer, yawn, with an 8.6% gain that could possibly reverse today for no particular reason.

We are now a week away from the scheduled meeting between US trade delegates and the Chinese vice premier, assuming nothing goes wrong in the interim. Clearly the outcome of that meeting is as critical to the Australian market as it is on Wall Street. All things being equal, we will likely see ongoing consolidation until more is revealed.

Then we’re into the local results season.

Earnings Stand Out

The Dow was up 300 from the open last night, down -100 mid-session and up 150 at the close. Such is the mindset on Wall Street at present. Or at least, the automated mindset. And on recent performance, we’d call that a quiet day.

The S&P and Nasdaq both tracked similar paths but both closed largely flat. The reason the Dow stood out was a matter of specific earnings results and the distortions of the price-weighted average.

IBM, United Technologies and Proctor & Gamble all posted earnings beats, and there you have your Dow move for the session. In the broader market, consolidation is ongoing.

Looking towards next week’s trade meeting, the president said last night he won’t agree to any deal unless China agrees to make substantive changes to the way it does business and its handling of intellectual property. But we knew that anyway. To date Beijing has simply tried to deflect the issue by offering to buy more and more US products, but that ain’t gonna cut it.

At this stage there is no clue as to whether Beijing is ready to bow to IP demands.

That was the news, now over to the entertainment.

The president is due to give the annual State of the Union speech on Tuesday night. This is delivered to Congress, but only by Congressional invitation. It’s just a procedural matter of course, a historical ritual, but Congress does actually have to vote to provide the president permission. The Speaker calls for the vote.

Except she hasn’t. Nancy Pelosi will not be calling a vote while the government is shut down. Take that.

The president could make his address somewhere else, if he so desires. Stay tuned for next week’s episode.

On the subject of the shutdown, both parties have put proposals to the Senate to end what is now a 33-day ordeal, but neither proposal is expected to gain sufficient bipartisan support.

Meanwhile, Uber has reported a sharp intake of new drivers in the Washington DC area.

US earnings results will continue to roll as we head towards the big meeting. Big Tech will now come into the frame and here things could get interesting.

Meanwhile, the Bank of Japan has thrown in the towel and downgraded its inflation expectations. More signs of a slowing global economy. The ECB holds a policy meeting tonight and no one will be surprised if Mario Draghi also tones down expectations.

Commodities

The US dollar was weaker overnight, providing a little bit of support for metals prices. Iron ore appears to be going into a bit of a holding pattern ahead of Chinese New Year.

The oils also had a quieter session, with WTI rolling into a new front month.

On greenback weakness, the Aussie is up 0.3% at US$0.7140.

Today

The SPI Overnight closed down -4 points.

Local jobs numbers are due today.

Tonight is that time of the month for flashing PMI estimates, with Japan, the eurozone and US all providing numbers, but Australia is now in on the act courtesy of CBA, who today will publish flash readings for manufacturing and services PMIs.

The ECB meets tonight.

Today’s raft of resource sector production reports include those of Evolution Mining ((EVN)), OceanaGold ((OGC)), OZ Minerals ((OZL)), Santos ((STO)) and Syrah Resources ((SYR)).

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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