The Monday Report

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

By Greg Peel

Momentum

If we note that Woodside Petroleum ((WPL)) going ex-dividend represented the bulk of the local energy sector’s -1.7% fall on Friday, and concern and a lack of clarity around China’s coal ban meant weakness in coal stocks, and a flat close for the materials sector, then otherwise Friday saw fairly spirited market-wide buying.

IT stood still on the day but every other sector closed in the green to the tune of 0.5-1.2%. All the big caps were sought, ex-resources – the banks, telco, supermarkets. It appears the index has picked up momentum having finally breached the 6100 mark last week. Is it all down to result season?

There’s still around a hundred companies left to report this week (out of the FNArena universe), but two-thirds of the way through the season, on a stock count basis, the beat/meet/miss ratio is running a third/a third/a third. Now, one might be tempted to assume that when over three hundred stocks report, the law of averages would suggest regression towards exactly such a result. But this is not the case.

The average beat to miss ratio over the past six years is 1.3, not 1.0. CEO’s typically err on the side of conservatism in setting guidance as it is always better to guide low and beat than to guide high and miss, given the stairs and elevators principal inexorably applies to result releases. So we could either call this season benign, in that results have netted each other out, or we could call it historically weak, given the percentage of misses is running at 33% to an average 24%.

Yet the ASX200 has risen around 150 points since the season began in earnest.

Of course, the beat/miss ratio does not take into account magnitude, and there have been some very volatile share price reactions this season, nor does it discriminate by market cap, so we can’t honestly say equal beats, meets and misses imply a flat index result. But nor can we call it a “strong” season, so something else must be afoot.

Locally, the economic signs are not good. The “weakening housing market” has far and away been the standout theme of this result season and of analyst assessments, valuations and ratings, across a wide group of companies. Yet on Friday Philip Lowe told parliament he’s less concerned about housing than he is about slow wage growth. One by one, economists are lining up to forecast an RBA rate cut this year, maybe two.

But the stock market is grinding higher. As the global economy ex-US is clearly slowing, that just leaves the US. And in the US, it’s all about trade, and optimism over a deal with China.

And of course, any deal would be good news for Australia. So it had better play out that way.

Among individual stock reports, InvoCare ((IVC)) knocked ‘em dead on Friday and jumped 12% to top the ASX200 leaders’ board. Automotive Holdings Group ((AHG)) recently issued a profit warning but enjoyed an 8.8% bounce with its official report release.

Kicking on on Friday from earlier reports were Webjet ((WEB)), up another 8.4% despite jumping 30% on Thursday (brokers retained Buy ratings irrespective) and Nine Entertainment, up 7% for a second day running post result.

On the other side of the ledger, Mayne Pharma ((MYX)) was the worst of the index stocks reporting, losing -5%, while outside the index, Hansen Technologies ((HSN)) was the day’s train wreck, falling -10%.

There are some heavy-hitters reporting today and in the meantime, Wall Street’s trade optimism persists, taking the Dow to a ninth consecutive week of gains on Friday night.

Extension

Which represents the Dow’s longest winning streak since 1995. Mind you, it’s a V-bounce out of December’s swoon and the tail end of a “bear market” and the all-time highs of a year ago are yet to be recovered. In 1995, Wall Street bounced out a recession and straight into the dotcom bubble.

On Friday night the Chinese trade delegation announced it would extend its stay in Washington by two days. Given past attempts at deals have been abandoned on schedule given a lack of any breakthrough, this extension can only be a positive sign.

President Trump also met with China’s top man in the delegation, the vice premier, and subsequently told reporters there is a high possibility of a bilateral deal.

So it was another positive session on Wall Street.

The nine-week streak can be attributed to three factors: Wall Street became too oversold in December; trade optimism began to build from Christmas; and the Fed has helped out by pausing, which by all accounts is a response to December over-selling. As Wall Street climbs higher and higher, one question is becoming more and more relevant. How much is priced in?

It is unlikely the deal to end all deals will be agreed upon by Friday – the deadline for tariff increases. Will we see a deadline extension? A more lukewarm deal by Friday that might disappoint? Either way it’s becoming harder for Wall Street to envisage what might provide a further kick up in the near term given how far the market has run to date.

No deal, or sign of a deal in the short term, would be devastating. A lukewarm deal would be a huge disappointment. A good deal may yet also spark profit-taking.

It will be an anxious week.

In other news, shares of Kraft Heinz plunged -27% on Friday night after the company reported earnings, slashed its dividend and revealed its accounting is under investigation by the SEC.

Looks like we got Vegemite back just in time.

Commodities

Trade optimism is driving metals prices, with some help from greenback weakness.

The Aussie has rebounded 0.8% to US$0.7139 after falling -1.2% on Friday on the Chinese coal ban news. Seems there is no coal ban, just an extension of processing time, which is Chinese form of retribution by frustrating you if you’ve upset them somehow – Huawei, hacking accusations, visa revocations – whatever it is this time.

The SPI Overnight closed up 8 points.

The Week Ahead

Still lots of earnings reports to come. Today’s list includes Boral ((BLD)), BlueScope Steel ((BSL)), Lendlease ((LLC)), NextDC ((NXT)) and QBE Insurance ((QBE)).

The daily lists of companies going ex-dividend grow larger this week. Today’s list includes Aurizon Holdings ((AZJ)), Breville Group ((BRG)) and Whitehaven Coal ((WHC)).

Economically, we’ll see the two key December quarter GDP elements of construction work done and private sector capex on Wednesday and Thursday. Thursday also brings monthly private sector credit.

China releases its PMIs on Thursday, everyone else starts with manufacturing on Friday.

The delayed US GDP result is due on Thursday. It looks like January retail sales might be out tonight. Otherwise, with a grain of salt, we’ll see consumer confidence, house prices and new home sales tomorrow, durable goods (probably not), factory orders and pending home sales on Wednesday, and PCE inflation on Friday.

Jerome Powell will begin his mandatory testimony to Congress on Wednesday.

Rudi will not make his weekly appearance on Your Money today, but should be back "in action", so to speak, next week.

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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