The Monday Report – 2 Sep 2019

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            [1] => ((FNP))
            [2] => ((ASB))
            [3] => ((APX))
            [4] => ((ASL))
            [5] => ((CTD))
            [6] => ((BLD))
            [7] => ((FMG))
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            [6] => BLD
            [7] => FMG
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This story features HARVEY NORMAN HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: HVN
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

So Ends August

The local market enjoyed market-wide buying on Friday on the last day of what has been a very volatile month, and the last day of result season. All sectors closed in the green, most with gains of between 1.5 and 2%.

We could call it typical window-dressing at month’s end but initial enthusiasm was likely trade-related. Wall Street had surged on both Wednesday night and Thursday night when initially Trump spoke of phone calls from China that China was unaware of, but then China did ensure trade talks would continue in September and suggested it would refrain from further tariff retaliation.

It appears the Australian market was not convinced after Wednesday night but decided to catch up after Thursday night. The futures had suggested up 47, but once the momentum trade kicked in, the index hit the ton mid-afternoon before a slight drift-back.

China’s August PMI data came and went mid-session with little impact. Manufacturing ticked down to 49.5 from 49.7 in July while services ticked up to 53.8 from 53.7, so at least a bit of offset there.

The sectors that underperformed on the day were utilities, up 0.5% after having played a safe haven role through the month,and consumer discretionary, up only 0.3% after Harvey Norman ((HVN)) fell -6.2% to be the worst performer in the index on the day.

Consumer staples, on the other hand, outperformed with a 2.8% gain. Freedom Foods ((FNP)), distributor of healthy snacks and cereals and so forth, jumped 25% on its result. The stock is not in the index but clearly waved a banner for the sector as a whole.

Best performing index stock on the day was ship-builder Austal ((ASB)), which jumped 14.4% on its result. In second place was AI company Appen ((APX)), which rose 6.6% after analysts questioned the severity of the share price fall post result on Thursday. The bronze went to Ausdrill ((ASL)), which kicked on another 6.1% after its positive result on Thursday.

Second worst performer was Corporate Travel Management ((CTD)), which fell -3.9% on its result, and in third was Boral ((BLD)) which has done nothing but fall since its result earlier in the week and lost another -3.4% on Friday.

Local economic news on the day was a -9.7% plunge on building approvals in July. House approvals fell -3.3% but the real culprit were apartment block approvals, down -18.4%. This is a lumpy data point at the best of times but the suggestion is the Mascot/Opal etc debacle is having an impact beyond simple oversupply.

With the local results season now done and dusted, and the long US results season now all but wrapped, we enter September with perhaps a glimmer of hope on trade ahead of the Fed meeting later in the month.

The RBA meets tomorrow but will likely hold off for now.

A note on our results season: After a very poor start the beats to misses ratio had, as of Thursday’s report, closed in to 24/25%. Analyst assessments of Friday’s reports will arrive today, so tomorrow we’ll see where we finally landed.

Take a Break

After two sessions of trade-related optimism, Wall Street calmed down on Friday night. The major indices did not much, mostly trading around the flatline all session. No evidence of window-dressing here ahead of the Labor Day long weekend.

It won’t be much of a weekend on the Gulf Coast. On Friday night the prediction was Hurricane Dorian would weaken as it approached Florida. That forecast has since changed to strengthening to category 5 and moving west towards the Gulf states.

The US consumer was otherwise in focus again on Friday night. While average incomes rose only 0.1% in July when 0.3% was forecast, consumer spending jumped 0.6% to 0.5% forecasts. The Fed’s preferred measure of inflation, the core PCE, increased by 0.2% but year-on-year remains stuck at 1.4%, well under the 2% target.

No barrier to a September rate cut there.

The S&P500 closed up 2.8% for the week, bringing a very volatile yet range-bound month to an end with a -1.8% fall. August and May have been the only losing months this year.

Within that -1.8% fall three sectors had positive months – REITs, utilities and consumer staples. Worst performers were the likes of energy and industrials. In other words, investors rushed out of cyclicals and into defensives. This is the typical response to trade war escalation, and to a flat yield curve, but there is now hope of some positive developments on trade during the month and expectations the Fed will move to unflatten the yield curve.

On the matter of trade, last night the new round of 15% tariffs on US$112bn of mostly consumer goods nevertheless came into effect.

Commodities

No, that’s not a typo. The nickel price did jump 11% after Indonesia announced it would ban ore exports in December. The market had anticipated such a ban was in the offing, but piled in anyway.

Typically oil prices would rise when there’s a hurricane in the Gulf but prices fell on Friday night after reports emerged that the Russian Energy Minister said Russia’s oil output cuts in August will be slightly smaller than those agreed to under the deal between OPEC and non-OPEC producers.

The US dollar jumped 0.6% as the lesser of the evils which brought the gold price back a bit, but with all the talk of the gold rally there’s been a quiet little achiever in the background. Silver has awoken from seeming years of slumber to follow its bigger cousin, and on Friday night actually defied the gold price fall.

The Aussie should be higher on any improved trade hopes but couldn’t beat the greenback, instead falling -0.3% to US$0.6725.

The SPI Overnight closed down -5 points on Saturday morning.

The Week Ahead

It’s GDP week in Australia this week. Today we’ll see numbers for June quarter company profits and inventories and tomorrow we’ll see the current account, which is threatening to hit a surplus for the first time since time immemorial on the terms of trade, and then the final number on Wednesday.

We’ll also see monthly data for retail sales tomorrow and trade on Thursday.

Today is manufacturing PMI day across the globe, followed by services PMIs on Wednesday. The US will report one day late in each case given tonight’s holiday.

No Wall Street tonight. Wednesday brings the Fed Beige Book, Thursday the ADP private sector jobs report and Friday it’s non-farm payrolls.

The local result season has ended so now the ex-dividends have to catch up. They go into overdrive this week and continue throughout September. There are some biggies today, including Fortescue Metals ((FMG)).

The Australian share market over the past thirty days…

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