The Monday Report

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

By Greg Peel

Stand Aside

Having dropped -50 points on the Thursday, the ASX200 opened to the downside on Friday and just kept going, all the way to over -60 points down at lunchtime. Selling accelerated mid-morning when the index passed back through the 6200 mark.

Which suggests a lot of technical trading influence. There was no specific trigger for the two-day rapid sell-off other than the rally that preceded it seemed a touch over-exuberant. Last Monday the index broke up through 6200, triggering technical buying which was then supported by momentum algos. What were the fundamental drivers?

Nothing of note. One might point to “US-China trade optimism” as providing positive sentiment but where was that optimism on Thursday and Friday? Nothing changed. The budget on Tuesday night seemed to be well received but it’s all academic with an election pending.

One can point to stronger prices for iron ore and oil, and yes, these were real. To that end, Friday’s crunch included smaller falls for materials (-0.2%) and energy (-0.3%) compared to other sectors. Telcos (-0.1%) was the outperforming sector on the day but there was no evidence of a switch back into defensives. Utilities and consumer staples both joined in other sectors of falling around -1%.

So having seen market-wide buying up to Wednesday, we saw market-wide selling thereafter. Looks like the break up through 6200 on Monday, April 1, fooled everyone.

The good news is the market did find buyers late on Friday, about the time everyone else was shifting into weekend mode. There was another incremental gain for Wall Street on Friday night and what do you know, the SPI futures closed up 32 points on Saturday morning. If the run-up was overdone, it seems the subsequent sell-off was too.

At the individual stock level, nothing stood out within the ASX200. Outside of the index, Automotive Holdings ((AHG)) won the day, jumping 21% after rival AP Eagers ((APE)) made a takeover offer. The market liked the idea in general, given AP Eagers gained 5.6%.

Goldilocks Returns

The US added 196,000 jobs in March when 178,000 was forecast. Unemployment remained at 3.8%.

The highly anticipated revision to the shock February number was a bit of a fizzer, rising to 33,000 from 20,000. But January was confirmed at the original 312,000 so iron out the bumps and a first quarter average of 180,000 per month is nothing to be sniffed at. But does that mean the Fed might have to think about raising again?

The average weekly wage rose by a whole US4c in March to US$27.70/h. Don’t spend it all at once. Annual wage growth fell to 3.2% from 3.4%. That’s still the fastest pace since the GFC but sufficient to keep the Fed in its box for now. Wall Street continues to price in one to two Fed rate cuts in 2019.

So Friday's jobs report was a good ol’ fashioned Goldilocks result. Neither too hot nor too cold. That didn’t stop the president from suggesting the Fed should not only halt quantitative tightening right now but return to quantitative easing. This came as a shock to Wall Street, being a very radical suggestion after nine consecutive Fed rate hikes since the end of QE.

My guess is what Trump really meant is “cut rates” on his assumption that’s what QE is.

On the trade front, Trump suggested negotiations were “rounding the turn” and that “something monumental” would be announced in a matter of weeks. Why weeks? Do they need to agree as to where to put the monument? The Chinese news agency reported President Xi had sent a letter to Trump noting substantial progress has been made and calling for negotiations to be wrapped up as soon as possible.

So Wall Street grafted on, with the S&P posting a seventh consecutive up-day for the first time since 2017. It has been a very incremental rally, but the broad index is now within 2% of its all-time high.

Yet still no breakthrough on trade. What happens if there is? We all know what will happen if there isn’t.

It’s not beyond the realms that Wall Street will reach that previous all-time high this week, given little change to the current mood and a VIX index now under 13, suggesting a lack of any great concern. The end of the week then brings the first of the major quarterly earnings reports, which will be the next driver while traders await a trade resolution.

Commodities

Not much happening in metals land on Friday night.

Oil prices enjoyed another strong session, which was put down to the strong jobs report, despite this not being reflected in other commodity prices. The escalation of tensions in Libya is a more likely driver, particularly when the US rig count jumped by 15 rigs over the week.

The Aussie has drifted off -0.1% to US$0.7107, matching a gain in the US dollar.

The SPI Overnight closed up 32 points or 0.5% on Saturday morning.

The Week Ahead

Fed policy will again be in focus as US CPI and PPI data are released on Wednesday and Thursday and the minutes of the last meeting are published on Wednesday.

Other US data releases this week include factory orders tonight and consumer sentiment on Friday.

The first of the big US banks report earnings on Friday to kick off result season.

China releases inflation numbers on Thursday and trade data on Friday.

The ECB holds a policy meeting on Wednesday.

Australia will see ANZ Bank job ads today, housing finance numbers tomorrow and the Westpac consumer confidence survey on Wednesday. On Friday the RBA publishes its biannual Financial Stability Review.

On the local stock front, Bank of Queensland ((BOQ)) reports earnings on Wednesday. Sims Metal Management ((SGM)) hosts a strategy day today, Rio Tinto ((RIO)) holds its AGM in London on Wednesday night and Cimic ((CIM)) holds its AGM on Thursday.

The quarterly round of resource sector production reports kicks off on Wednesday with Whitehaven Coal ((WHC)), followed by OZ Minerals ((OZL)) on Thursday.

Rudi will appear on Your Money today, noon-2pm.

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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