The Monday Report

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

By Greg Peel

Back to Business

There was every excuse for Friday to be a nothing day on the ASX, squeezed, as it was, between Anzac Day and the weekend, and indeed the market closed flat. But there was still plenty of offsetting movement among sectors. The index closed up 125 points for the “week”, to a new post-GFC high, in thin holiday-impacted trade.

We’ll see how this week pans out, with everyone back on board. But we have only two more sessions in the month, so volatility may prevail.

Friday was another case of profits being taken in the resource sectors, with lower commodity prices providing the impetus. Materials fell -0.7% and energy -1.5%. And in another case of returning to what had been a recently knocked down sector, healthcare rallied 1.1%.

The prospect of an interest rate cut continued to reverberate following Wednesday’s CPI number, thus REITs and utilities (+1.7%) remain in favour. The banks were mildly positive (+0.2%) ahead of earnings results this week.

The most notable sector move was that of consumer discretionary. While -0.7% was not that large in the scheme of things it came as Flight Centre ((FLT)) issued a second profit warning, downgrading guidance by -10%. The blame was placed on Australian leisure travel not having recovered as expected. Flight Centre fell -11%.

The implication of weak consumer sentiment carried through the rest of the sector, leading to falls of around -3% or more for the likes of JB Hi-Fi ((JBH)), Domino’s Pizza ((DMP)), Lovisa Holdings ((LOV)) and Nick Scali ((NCK)), which have nothing more in common with Flight Centre or each other other than a reliance on a buoyant consumer. The sector had initially popped last week on the weak CPI and RBA rate cut speculation.

Otherwise the biggest falls were among the resource sectors as profits continue to be locked in. Fortescue Metals ((FMG)) fell -5.4% and WorleyParsons ((WOR)) -4.5%.

Things won’t be getting any better for energy today, with oil prices down -3.5% on Friday night.

It’s a big week ahead for resource sector production reports, along with quarterly updates from other sectors, AGMs and, critically, bank reporting season. With Wall Street again at all-time highs, we enter May this week.

And you know what that means.

High Time

President Trump called up OPEC on Friday night and told the cartel to take measures to lower oil prices, or so he said in a tweet. After a strong run for oil prices of late, traders were already set to take profits at week’s end and approaching month’s end. Trump helped prices down -3.5%.

Except that Trump’s “call” was not made to the Saudi Crown Prince, or Saudi oil minister, or the secretary general of OPEC. So it’s a tad unclear exactly who it was the president had supposedly spoken to. Maybe the cleaner picked up the phone.

The move was enough to see the US energy sector dragging on indices in the session. Exxon (Dow) also posted weaker than expected earnings, sending that stock down -2%.

Intel (Dow) nevertheless remained the talk of the day, falling -9% after having reported in the aftermarket on Thursday night. All the chipmakers were caught in Intel’s downdraught.

Yet still the Nasdaq managed to close at a new record high, as did the S&P500, just.

The first estimate of US March quarter GDP was released on Friday night. At 3.2% growth, it rather blew away consensus forecasts ahead of the release of 2.5%, and is a far cry from the 0.2% the Atlanta Fed predicted back in early March. There were a few heads being scratched, but it appears a big jump in inventories provided the bulk of the “beat”, and this may turn around in the June quarter.

It was thus not cause for Wall Street to panic and expect the Fed to go back into hiking mode. Indeed, the opposite is true.

The Fed’s core PCE inflation number for the March quarter fell to 1.7% from 1.9% in the December quarter. The month of March numbers are due tonight. US inflation is not behaving as the Fed had expected it to. Fed futures are now pricing in a rate cut in September.

The US ten-year bond yield fell back -3 basis points to 2.50% due to the weak PCE. The US dollar index eased slightly. All despite the strong GDP result.

In other earnings news, Ford (Dow) jumped 11% after having reported in the aftermarket on Thursday night. Ford’s market cap is now almost back to being equivalent to that of Tesla. It’s hard to get one’s head around that one.

Amazon was another aftermarket reporter, and its shares rose 2.5%, which given Amazon’s size is good enough to ensure those new all-time highs for the Nasdaq and S&P.

Amazon’s latest goal is to offer one-day delivery for Prime members. One reason the behemoth has as good as given up on Australia. One-day delivery?

The Fed is meeting this week with a statement due on Wednesday night, the first of May. Should be interesting.

Commodities

Outside of oil, the only other commodity price move of note on Friday night was that of gold. The US index dipped only -0.2% but the gold price jumped almost ten dollars.

Gold is supposed to be the inflation hedge, but at the same time the weak PCE suggests perhaps a Fed rate cut ahead, which implies a lower US dollar, which implies a higher gold price. Add in the GDP result, which, if one takes out not just inventories but what was considered an oversized boost from trade, and a lump of spending on highways, and growth was more like 1.0%, again supporting a Fed rate cut scenario.

The Aussie is 0.4% higher at US$0.7037. Every time it looks over the edge into the swinging sixties it runs away.

The SPI Overnight closed down -2 points on Saturday morning.

The Week Ahead

The Fed statement is due on Wednesday and the Bank of England also holds a policy meeting, on Thursday.

US data releases include the monthly PCE tonight, consumer confidence and pending home sales on Tuesday, private sector jobs on Wednesday, factory orders on Thursday and non-farm payrolls on Friday.

Wednesday is the first of May, which means China releases its PMIs tomorrow and everyone else releases manufacturing PMIs on Wednesday, except the eurozone, with markets closed for May Day. China is also closed on Wednesday and on Thursday as well. Services PMIs follow on Friday.

The first estimate of eurozone March quarter GDP is due tomorrow.

In Australia we’ll see private sector credit tomorrow, house prices on Wednesday and building approvals on Friday, as well as the PMIs. But it’s a much bigger week in corporate land.

The week is chock full with production reports, quarterly updates and AGMs, which I will highlight on a daily basis. ANZ Bank ((ANZ)) reports earnings on Wednesday, National Bank ((NAB)) on Thursday and Macquarie Group ((MQG)) on Friday.

Today’s calendar has production reports from Newcrest Mining ((NCM)), OceanaGold ((OGC)), Origin Energy ((ORG)), Senex Energy ((SXY)), Syrah Resources ((SYR)) and Western Areas ((WSA)).

Coles ((COL)) releases March quarter sales numbers, GPT Group ((GPT)) provides a quarterly update and Transurban ((TCL)) hosts an investor day.

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

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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