The Overnight Report: Another High

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

By Greg Peel

Sell in April

The ASX200 closed down -34 points yesterday and the futures are up 20 points this morning. In both cases Wall Street has been incrementally positive overnight. It would appear that yesterday’s trade reflected little more than end of month profit-taking.

There was, nevertheless, a small matter of the release of Chinese PMI numbers late morning.

At 10.45 the index was down -14 points and 15 minutes later down -30. A bottom was hit at 11.20, down -43, before a recovery of some of that loss to the close. For 15 minutes the market fell into a hole, likely driven by algos responding to the China data.

China’s official manufacturing PMI fell to 50.1 in April from 50.5 in March when 50.7 was expected. Caixin’s independent measure – a day earlier than usual due to China’s two-day holiday from today – fell to 50.2 from 50.8 when 51.0 was expected.

The results are disappointing when it had appeared China was on a stimulus-led comeback trail from a tariff-led slowdown. However, the results still indicate expansion, just, and a case of two steps forward and one step back, so we can’t assume the worst just yet. With US-China talks proceeding again in Washington this week, we may not be far off a deal that makes these PMIs swiftly redundant.

Maybe.

The resources sectors led the selling yesterday, but had already been coming under pressure towards the end of the month after having run so hard previously. Profits were locked in in materials (-1.2%) and energy (-1.5%) and also AGL Energy ((AGL)) such that utilities were down -2.0%.

The banks again saw some selling (-0.3%) which suggests positions being squared after a brief run-up ahead of bank results season, which begins today. Healthcare (+0.3%) remained the place to be, along with staples (+0.3%).

On the individual stock front, an update from residential aged care provider Aveo Group ((AOG)), which we recall was the focus of a lot of scathing media attention last year, led to a 10.4% gain to top the ASX200 leaders’ board.

On the other side of the ledger, the annual Macquarie conference is generating its usual interest and a presentation yesterday from Domain Group ((DHG)) saw that stock fall -7.5% to top the losers’ board. oOh!media ((OML)) presented and fell -5.5% to take second place. Transurban ((TCL)) and JB Hi-Fi ((JBH)) also presented and also fell, but to prove the conference is not the kiss of death, CSL ((CSL)) presented and rose slightly.

A lot needs to be taken with a grain of salt at month’s end – a month in which the ASX200 has posted a new post-GFC high.

And now it’s May. But we kick off with the futures up 20.

Google It

Google’s revenue miss, reported after the market on Monday night, saw Google (Alphabet) shares down -8.4% last night. At around US$1200, Google’s share price is nominally too big for the Dow (Amazon is around US$2000) so the real impact was felt, index-wise, in the Nasdaq (-0.8%).

The fact the S&P managed another slight gain confirms Wall Street saw Google’s problems as Google’s alone, without implications for the wider sector.

At this point we should note Apple has reported aftermarket this morning, and its shares are up 4.8%, despite having risen 30% year to date. Apple’s share price of around US$200 means it is a Dow component, hence all three major US indices should start May with a kicker tonight, all things being equal.

Countering Google last night among big-cap reporters were all of Dow components McDonalds, Pfizer, Merck and General Electric, which each enjoyed gains on the back of their earnings reports. At around US$10 GE should not be in the Dow, and probably won’t be at the next revision, which means the last of the originals will be gone.

But the bottom line overall is that with just over half of S&P companies having reported to date, earnings growth is running at a net +0.7% when three months ago forecasts assumed anything up to a -4% loss. Initial expectations of a consecutive June quarter earnings retreat, to imply an “earnings recession”, have now evaporated as well.

Wall Street took note of the weaker Chinese data last night but overriding the PMIs was the eurozone’s March quarter GDP result. When the worst was feared, 1.5% growth topped expectations and showed improvement from the prior quarter’s 0.9% growth. Year on year, the eurozone economy grew by 1.2%.

With the US equivalent coming in at 3.2% (pending revision), it remains clear who rules the roost. The Fed meeting had begun and will conclude tonight.

With US earnings season playing out better than expected, the focus, as the S&P again made a new all-time high last night, is on PEs. They were considered lofty going into the season, so it remains to be seen if they are still lofty once all the earnings numbers (E) are in and fresh forecasts are subsequently published.

And now it’s May.

Commodities

If the Chinese PMIs were weak, no one told iron ore traders, and there was no trend in base metal prices last night either.

Nothing much to report elsewhere.

The US dollar fell back as the euro bounced slightly on the GDP result, but did not prompt a counter rally in the Aussie given we are a China proxy.

Today

The SPI Overnight closed up 20 points or 0.3%.

Holiday watch: European markets are closed tonight for May Day, as is China, for two days, while Golden Week holidays continue in Japan.

The Fed statement is due tonight, along with US private sector jobs numbers. Manufacturing PMIs from across the globe are also due from those not on holiday.

Australia will also see the latest house price numbers.

ANZ Bank ((ANZ)) reports earnings today.

Genworth Mortgage Insurance ((GMA)) provides a quarterly update and Bank of Queensland ((BOQ)) goes ex-dividend.

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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