The Monday Report

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

By Greg Peel

Rest Day

After a week of sharp ups and downs for reasons indeterminate, the ASX200 hit the wall on Friday and needed a quiet lie down. The index barely moved all session. After a good rest it’s back to business today. The futures closed up 31 points on Saturday morning. Although that was before Trump’s latest tweet.

At the sector level, a flat close for the index did require some counter to a -1.3% fall in energy, on a lower oil price, and a -0.2% fall in financials, after another fund manager bit the dust and Macquarie Group ((MQG)) suffered a very rare fall post earnings result (-5.4%). Janus Henderson’s ((JHG)) AGM resulted in a -12% caning.

Star of the day was ResMed ((RMD)), which rallied 10% on its quarterly earnings report, but after running up solidly all week, CSL ((CSL)) saw some profit-taking to ensure healthcare closed flat.

It was left to the consumer sectors, industrials and telcos to do the heavy lifting with gains of 0.4-0.7%.

Materials closed slightly weaker despite ongoing short-covering in the lithium space, spurred on by last week’s takeover offer from Wesfarmers ((WES)) for Kidman Resources ((KDR)). Kidman itself took a breather but Pilbara Minerals ((PLS)), Orocobre ((ORE)) and Galaxy Resources ((GXY)) took out second through fourth on the ASX200 winners’ board, behind ResMed.

In economic news, building approvals fell -15.5% in March, greater than feared. However, approvals rose 19% in February so one must take inherent volatility into account, particularly that of lumpy apartment approvals. While the trend remains down, the pace of declines in both housing and commercial approvals is receding, suggesting we may have seen the worst of it last year.

Good News Good?

The US added 263,000 new jobs in April, ahead of 217,000 expectations. The unemployment rate fell from 3.8% in March to 3.6% – the lowest level since 1969.

The result was Wall Street recovered all of the earlier losses of the week to close flat. The Nasdaq hit a new all-time high and the S&P fell about a point short.

But why, all of a sudden, is good news good news? Earlier in the week Wall Street was bemoaning the branding of low US inflation as “transient” by the Fed, implying that of you thought there might be a rate cut coming, you’re wrong. And then we get a stronger than expected jobs number and Wall Street rallies.

Had the Dow fallen -200 points on the strong jobs number the explanation would have been simple. Sometimes news must just be good enough to be good, it seems.

Yet St Louis Fed President James Bullard said on Friday night, post jobs report, that monetary policy seemed “a little tight”. This, apparently, was enough to turn an initial gain for the US dollar index on the jobs numbers into a -0.3% loss. The US ten-year bond rate also fell -2 basis points to 2.53%.

Kicking the S&P and Nasdaq along, nevertheless, was news that Warren Buffett had bought into Amazon, sending the largest market cap stock up 3.2%. Buffett was quick to explain, however, that it was a Berkshire Hathaway minion that made the decision in the normal course of business, and was not a typical Buffett foray. Buffett regrets not buying into Amazon earlier, but as a value investor, and tech-shy, he still has no apparent intention.

Meanwhile the US earnings season is now winding down, so with Fed policy on hold for now, the next catalyst will be trade. Wall Street closed on Friday in anticipation of some sort of announcement this week, but only had to wait until this morning.

Trump has tweeted that tariffs of a raft of Chinese goods will increase to 25% on Friday, suggesting trade talks are moving “too slowly”. The Dow futures are down -400 points.

Commodities

That tweet may well render Friday night’s commodity price moves redundant.

Gold has enjoyed a bit of a kick on the weaker greenback nonetheless.

But whereas a weaker greenback should imply a stronger Aussie, it’s actually flat at US$0.6993, held back by Trump one presumes.

The SPI Overnight closed up 31 points or 0.5% on Saturday morning. We can no doubt dismiss that notion.

The Week Ahead

UK markets are closed tonight so we will have to wait to see what base metal prices get up to.

In local data we’ll see ANZ job ads today and retail sales and trade numbers tomorrow.

The RBA meets tomorrow and it remains a 50/50 bet – a balance between believing the weak CPI result must force the board’s hand or believing the RBA won’t act ahead of an election, particularly given the spending promises being thrown around by both parties that amount to fiscal stimulus.

The RBA’s quarterly Statement on Monetary Policy is due on Friday.

The US will see trade numbers and the PPI on Thursday and CPI on Friday.

China will release trade numbers on Wednesday and inflation on Thursday.

The local market will see a slew of earnings results this week, including those of Westpac ((WBC)) today, CSR ((CSR)) and EclipX Group ((ECX)) on Wednesday, and Graincorp ((GNC)) and Orica ((ORI)) on Thursday.

Thursday also brings a significant list of AGMs, Qantas ((QAN)) will provide a quarterly update, and the ACCC is due to make a decision on the TPG Telecom ((TPM)) merger.

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

The Australian share market over the past thirty days…

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