The Overnight Report: Spooked

Array
(
    [0] => Array
        (
            [0] => ((ANZ))
            [1] => ((CGC))
            [2] => ((PLS))
            [3] => ((BKL))
            [4] => ((ILU))
            [5] => ((MQG))
            [6] => ((CSR))
            [7] => ((ORI))
            [8] => ((ASB))
            [9] => ((BAP))
        )

    [1] => Array
        (
            [0] => ANZ
            [1] => CGC
            [2] => PLS
            [3] => BKL
            [4] => ILU
            [5] => MQG
            [6] => CSR
            [7] => ORI
            [8] => ASB
            [9] => BAP
        )

)

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

By Greg Peel

Frankly Frightening

The futures had indicated yesterday morning that the local market was not all that convinced about the post-Fed rally on Wall Street on Wednesday night, but from the open it mattered little after ANZ Bank ((ANZ)) posted its earnings result. A weak set of numbers provided no great surprise, but a cut in franking from the sacred 100% level to 70% really put the wind up bank investors.

ANZ fell -3.3% and dragged the other banks lower alongside, sending the financials sector down -1.1% to basically provide the day’s net fall for the ASX200.

On closing moves, all of healthcare, industrials, materials and telcos had the day off. The consumer sectors swapped +0.6% for discretionary and -0.6% for staples while energy’s -0.8% fall on the oil price was countered by utilities rising +0.8%.

So if not for ANZ it would have been a flat close to end October.

Not that there wasn’t an additional scare mid-session.

China’s manufacturing PMI fell to a worse than expected 49.3 in October, down from 49.8 in September, to mark a sixth straight monthly decline. The services PMI also fell to a lower than expected 52.8 from 53.7.

The ASX200 dropped to be down -50 points at lunchtime, but quickly recovered that additional lost ground. Nowadays bad news is good news as far as China is concerned as it implies Beijing will need to (a) pump up the stimulus and (b) perhaps be a little more constructive on trade negotiations.

On the individual stock front, the upside moves were actually more noteworthy than the downs, with ANZ Bank making the top five losers board. Post capital raising, the punters moved back into Costa Group ((CGC)) to the tune of 8.4%, while short covering continued in Pilbara Minerals ((PLS)), up 8.3%, Blackmores ((BKL)) provided a less-than-feared update for 7.1%, and Iluka Resources’ ((ILU)) production report was worth 6.7%.

Not getting much attention yesterday were September building approval data, which showed a 7.6% jump when the market expected a flat result. It was all about apartment blocks as usual (+16% from a flattish August) although houses did gain 2.7% to reverse a similar fall the month before.

Unsurprisingly, most of the apartment blocks were not in Sydney.

Economists do nevertheless foresee approvals trending higher in 2020 on the house price rebound, but it will take a while before construction enjoys the benefits.

Five Minute Fed

Wall Street was ultimately happy on Wednesday night that the Fed would not suddenly raise rates were, for example, a trade deal to be signed, while taking on board the Fed’s belief rates were now in “a good place”. But that all changed last night.

The Chicago PMI plunged to four-year low 43.2 in October from 47.1 in September when economists had forecast a rise to 48.3.

The weak Chinese PMI updates were not dismissed either, and then Bloomberg reported that Chinese officials are expressing doubts about their ability to reach a comprehensive, long-term trade deal with the U.S. despite progress toward signing a “phase one” agreement.

So is the Fed behind the curve once more in implying no further cuts are needed? The US ten-year bond yield dropped -11 basis points to 1.69%. The yield curve gap narrowed once more.

It didn’t help that it wasn’t one of the better days for earnings results, with a couple of sizeable drops in the likes of popular mid-caps such as Pinterest and Etsy, although Facebook (+1.8%) and Apple (+2.3%) provided sufficient counterbalance having reported in Wednesday’s aftermarket.

The Dow was down -270 points earlier on before a late rally pared losses, probably reflective of it being the last day of the month.

So the historically volatile month of October is now passed, and historically things should improve from here. But having hit a new all-time high in the month, near term catalysts for further PE expansion are lacking.

A critical factor will be whether Washington and Beijing can reschedule the signing, if that is to be the case, of the phase one deal ahead of the December 15 deadline for new tariffs on consumer products, which would be a Grinch. You’d think a quick get together would be easy, but shifting around presidential schedules is apparently a big ask.

This despite the fact each president now has a gap in their schedule where the APEC summit was meant to be.

Commodities

Commodities in general do not respond well to weak Chinese PMIs or any negative news on trade.

The exception is, of course, gold, which is swiftly back in ‘risk off” mode alongside US bonds.

The RBA will be tearing its hair out ahead of next week’s meeting as the Aussie continues to push higher, “outperforming” weakness in the greenback. It jumped another 0.4% on the building approval numbers to US$0.6930 but thankfully has fallen back to be flat in the interim.

Today

The SPI Overnight closed down -22 points or -0.3%.

Locally we’ll see the September quarter PPI numbers today along with October house prices and manufacturing PMI.

Manufacturing PMIs will be posted across the globe.

US jobs numbers tonight. Nervous Fed?

Earnings results are due today from Macquarie Group ((MQG)), CSR ((CSR)) and Orica ((ORI)).

Austal ((ASB)) and Bapcor ((BAP)) are among those companies holding AGMs.

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.

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms