The Overnight Report: Doldrums

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This story features WESFARMERS LIMITED, and other companies.
For more info SHARE ANALYSIS: WES
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Sound the Retreat

There was no specific trigger to spark yesterday’s selling on the local market. The clue was actually provided in Monday’s trade.

On Monday we saw the ASX200 open higher on yet another positive session on Wall Street driven by persistently hopeful trade talk news that is heartening but yet to actually get us anywhere. By 11am the profit-takers appeared, and the index chopped its way south all afternoon until right at the death, when news of the tariff deadline extension broke.

No doubt traders assumed the news would drive another strong session on Wall Street on Monday night, but it didn’t. Wall Street was only mildly positive, probably because an extension had been widely anticipated.

So the scene was set yesterday morning. The index had run up 13% from the Christmas low largely uninterrupted, so something eventually had to give. Now that the tariff deadline has been extended we’re in for weeks more of watching and waiting. Perhaps best to lock in some profits for the time being.

It probably didn’t help that the index was always going to take a hit on the open from ex-dividends. The standout poor performer among the sectors by the end of the day was consumer discretionary; a -2.4% plunge included all of Wesfarmers ((WES)), Domino’s Pizza ((DMP)) and Star Entertainment ((SGR)) losing their dividend.

It also didn’t help that both the oil price and the iron ore price had fallen overnight. The resource sectors have been the strongest performers in the run-up. Throw in Alumina ltd ((AWC)) going ex and materials didn’t do too badly at -0.8%. Throw in Santos ((STO)) and WorleyParsons ((WOR)) going ex and energy’s -0.6% fall looks like a strong performance.

The list goes on. For financials (-0.9%), it was Challenger ((CGF)) and IOOF Holdings ((IFL)). In staples (-0.4%) it was Coca-Cola Amatil ((CCL)).

The index opened lower, and just kept going. It wasn’t a train crash, it was just rolling thunder. After a steady decline the market bottomed out in the last hour as some late buying emerged.

All up, nothing to be terribly concerned about. The market needed a wash-out.

For once the result season had little to do with it. Only two companies reporting on the day made it to the top five winners/losers boards. One was SpeedCast International ((SDA)) which jumped 13.1% and reversed Monday’s fall, the other was Bingo Industries ((BIN)), which rose another 5.9% in its slow comeback from last week’s -50% trashing.

The worst performer was Afterpay Touch ((APT)), down -11.5%, but it runs around like a headless chook most days. After that we have to look to the ex-div stocks to make up the worst performers top three.

Today is the penultimate day of result season. There’s still a decent list of reports to get through. But keep an eye out for those ex-divs as well. That list is also extensive today.

Which means the ASX200 will again open with a handicap. The futures are up 14 points this morning on a flat Wall Street, suggesting yesterday was just about getting it out of the system.

Wait and See

The Fed is now in “wait and see” mode, and the same pretty much goes for Wall Street in general. Jay Powell reiterated the central bank’s policy shift last night in his testimony to Congress which contained nothing at all new. Wall Street did nothing at all in response.

Now that the tariff deadline has been extended we’re likely to drift into the trade news doldrums. The US earnings season is all but over. The Fed is on pause. What will drive markets in the near term?

Well, there’s Brexit of course, and now that one could be delayed as well. Otherwise there’s US economic data to catch up on, including tomorrow night’s delayed December quarter GDP result. Last night saw the monthly Conference Board consumer confidence index released, which showed a big jump to 131.4 from 121.7, noting that 100 is the line between pessimism and optimism.

Wall Street is still scratching its head over that surprisingly weak and seemingly contradictory December retail sales number. Perhaps the GDP will clear things up.

What we’re yet to see on Wall Street is that which we experienced yesterday downunder. US indices are not far off all-time highs having V-bounced out of December and a wash-out has been expected for some time. But not yet, it seems.

It’s unlikely anything market-moving will come out of today’s meeting between old pals Donald and Kim. At least nothing that would spark another leg of the rally.

The world has stopped.

Commodities

Not much going on here either.

Iron ore continues to drift back, the oils bounced a bit and only aluminium much troubled the scorers in London. It’s rare to see nickel totally unmoved.

Gold has come to a dead halt.

The Aussie hasn’t however. It’s up another 0.3% at US$0.7190.

Today

The SPI Overnight closed up 14 points or 0.2%.

Locally we’ll see numbers for December quarter construction work done today.

The US is set to catch up on December factory orders.

Stocks reporting today include Bellamy’s ((BAL)), Harvey Norman ((HVN)), OZ Minerals ((OZL)) and Seek ((SEK)), and a surprisingly late in the season report from Rio Tinto ((RIO)).

The list of stocks going ex includes AMP ((AMP)), for what it’s worth, and Telstra ((TLS)).

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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