The Monday Report – 04 November 2019

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            [5] => ((ORI))
            [6] => ((NHC))
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            [19] => ((CCP))
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            [9] => RIO
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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

Bank Blues

The ASX200 dropped -30 points from the open on Friday, reflecting weakness on Wall Street but also selling in the banks. A pall has been cast over the bank sector since ANZ Bank ((ANZ)) cut its franking to 70%, and it didn’t help that Macquarie Group ((MQG)) posted a slight miss on earnings when it reported on Friday morning.

The conference call appeared to soothe investor nerves such that Macquarie managed to recover to a slight gain on the day, but -0.8% for the financials sector by the close was pretty much the balance of gains elsewhere as the ASX200 finished flat.

Westpac ((WBC)) reported today (dividend cut) and National Bank ((NAB)) on Thursday.

So if you sell out of the banks, what do you do with the money?

Late morning the index abruptly started rising, around the time Caixin released its version of China’s manufacturing PMI. It showed an increase to a three-year high 51.7 in October, up from 51.4 in September, and in contrast to Beijing’s number which improved in the month but remained in contraction.

Investors decided to redirect their money to reliable healthcare (+1.1%) and alternative yield-payers in the form of telcos (+0.8%) and industrials (+0.7%). 

Weakness among the big miners was offset in the materials sector by positive earnings results from both CSR ((CSR)), which jumped 4.6%, and Orica ((ORI)), up 3.6%. The oil price took energy up 0.9%, notwithstanding there are some dividends to be had in that sector as well.

New Hope Corp ((NHC)) was the individual index winner on the day with a 6.6% gain as the company took another step towards approval of its New Acland coal mine expansion.

Among the losers, two stocks that have become regular guests in the top five tables lately, both up and down on a daily basis, Jumbo Interactive ((JIN)) and Pro Medicus ((PME)) had sizeable down-days.

We head into the new week on a solid footing as the futures are up 25 this morning on strength on Wall Street. Of course, tomorrow is silly hat day, not to mention there’s an RBA meeting as well.

But for the ASX200 to create its own new all-time high it will need the banks to be involved, and that looks dodgy right now.

Just the Job

The US added 128,000 jobs in October when 75,000 was forecast. The reason the forecast was so low was the month-long General Motors strike, which impacted 50,000 workers. So the 128,000 number could have been a lot better still but for the strike, and the previous two months results were revised up by a net 95,000 jobs.

This is great news for Wall Street, knowing that the Fed is not about to adjust its policy, as jobs mean wages and wages mean consumer spending, and it is the US consumer that has been driving the economy amidst the headwinds of trade and other macro factors.

The US manufacturing PMI for October came in at 48.3, which was disappointing given a forecast of 49.0, but an improvement on September’s shock 47.8, which at the time sent Wall Street tumbling.

With the eurozone September quarter GDP result having come in at 0.2% growth when 0.1% was forecast, China’s (Caixin) PMI showing expansion and the US PMI making a comeback, all talk is of a global economy “troughing”.

It was also another largely positive session for US earnings results, including Exxon (Dow), up 3%. Apple also had another strong session as the company launched its new streaming service and offered it free for a year to anyone who buys an Apple product. Otherwise it’s five bucks a month, for all of nine shows.

Apple helped the S&P to another new high, the Nasdaq to a new high and the Dow within a whisker.

There was also some “positive” news on trade, following supposedly negative news on Thursday night. The Chinese are close to a deal “in principle”, apparently, but this time the news didn’t much resonate on indices that were already higher.

Perhaps Wall Street is finally getting tired of constant happy talk and will await an actual development.

The other good news on the session was that volumes were above average. Recent rallies to get back to all-time highs have been undermined by weak volumes, which suggest a lack of conviction. But there’s nothing like a new all-time high to bring the buyers back in, as appeared to be the case on Friday night.

Commodities

Aluminium stood out on the LME on Friday night, possibly due to Rio Tinto ((RIO)) declaring on Friday that aluminium smelting in Australia is unsustainable at current electricity prices. This follows on from the announcement from Alcoa that it is reviewing its own assets, including those in its Australian joint venture with Alumina ltd ((AWC)).

The US jobs number, Chinese PMI and upbeat trade talk from China were all claimed as driving oil prices higher, along with a drop in the US weekly rig count by -5 to 691. The rig count is now down -183 year on year.

The strong jobs number did nothing to boost the US dollar, which has been in a downward drift as this “phase one” trade deal approaches. The Aussie is up 0.4% at US$0.6917, making the RBA’s job tougher by the day.

The SPI Overnight closed up 25 points or 0.4% on Saturday morning.

The Week Ahead

ANZ aBank’s job ads series is out today along with local retail sales numbers. Victoria is closed tomorrow and you too can back your favourite future can of Chum.

So it may be a quiet afternoon tomorrow but the Glory Days of the market as good as shutting down for the Cup are long gone. The RBA statement is out half an hour earlier.

We’ll also see the trade balance on Thursday and housing finance on Friday.

Tomorrow is service sector PMI day across the globe while the US will also see trade numbers, and consumer sentiment on Friday.

China reports trade numbers on Friday.

Westpac ((WBC)) reported today, followed by National Bank ((NAB)) on Thursday along with James Hardie ((JHX)) and Xero ((XRO)).

News Corp ((NWS)) and Pendal Group ((PDL)) report quarterlies on Wednesday and Super Retail ((SUL)) hosts an investor day on Friday.

There are still a lot of AGMs to plough through, including BHP Group ((BHP)) on Thursday. Today’s highlight is Credit Corp ((CCP)).

Note that the US came off summer time on the weekend so as of tomorrow, the NYSE will close at 8am Sydney time, as will the SPI Overnight.

The Australian share market over the past thirty days…

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