The Monday Report – 24 February 2020

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            [8] => ((WES))
            [9] => ((WPL))
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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Limp Finish

The biggest week in the local earnings season finished on a soft note on Friday as the index continued to come back to earth. Thursday had seen an over-exuberant blue sky peak intraday, driven by earnings results, before profits began being taken in the afternoon. Friday continued that theme.

It will be another day of coming back to earth today, with the futures down -47 points in the wake of weakness on Wall Street.

There were fewer big names reporting on Friday compared with the rest of the week, and only a couple of Friday’s reporters made it onto either the top five index winners or losers boards. All sectors closed in the red bar one.

The banks stood alone with a 0.5% rally, on news Commonwealth Bank ((CBA)) was cutting its fixed rates for mortgages. Otherwise, consumer discretionary was the worst performer (-1.3%), likely a reflection of the spread of the virus. There was a rare -0.9% fall for healthcare, in line with most of the market, as profits were taken.

NRW Holdings ((NWH)) topped the index winners’ board with a 7.1% gain, having reported on the Thursday, while Viva Energy Group ((VEA)) rose 5.9% after selling its REIT stake.

Boral ((BLD)) gained 5.4% on post-result broker upgrades, while Orocobre ((ORE)), one of the most heavily shorted stocks on the market, rose 4.2% on its result on the day.

Mayne Pharma ((MYX)) fell -6.3% on its report, pipped by New Hope Corp ((NHC)) losing -14.2% as a major shareholder sold down its stake, and Sandfire Resources ((SFR)), which fell -6.3% after reporting on Thursday.

The parabolic run-up in the index from Monday to mid-Thursday defied a backdrop of global concern with regard the virus, and subsequent weakness on Wall Street. But that concern is only growing stronger as the virus spreads beyond China.

News from China on Friday was that -300,000 fewer containers than normal left Chinese ports last week, and that data for the first half of February showed car sales in China down -92%.

Even if the pace of new virus cases inside China is slowing, the economic impact domestically and for the rest of the world has only begun to be felt. Estimates of February PMIs had both Japan (manufacturing) and the US (services) sliding into contraction.

The suggestion over the weekend is that the incubation period may actually be longer than the prior 14 day assumption.

The Australian ten-year bond yield slipped back under 1% on Friday and the Aussie briefly flirted in the US$0.65s.

The earnings season rolls on this week with still plenty of reports to come, just not quite as many as were seen late last week. The battle between earnings and virus concerns will continue, after we make a downward adjustment this morning.

Bad Service

A flash estimate of the US service sector PMI for February suggested a 4 point plunge to 49.4, to mark the first monthly contraction since 2015. The manufacturing equivalent fell to 50.8 from 51.9 and tends to steal the headlines, but the service sector is overwhelmingly larger.

One of its components is tourism. While the assumption is such data will bounce back swiftly in coming months as the virus impact subsides, there is still no clarity on just how long this might take. It does appear that the pace of new cases is beginning to slow in China, but now it is the rest of the world causing the angst.

South Korea has moved into lock-down mode following an alarming jump in cases in the city of Daegu. Far away in Italy, Milan and its surrounding province is also being locked down following an outbreak in that city.

Wall Street again saw weakness on Friday night as virus fears ramped up. Just how far will the economic impact spread?

Some of the big names saw significant selling on virus exposure, including Dow stocks Apple, Microsoft and Intel.

The US ten-year yield fell -5 basis points to a five month low 1.47%. Gold jumped over twenty dollars. Talk is once again of possible recession, and likely global recession if the virus continues to spread.

Commodities

Base metal prices remain generally weak but iron ore keeps on hanging in there.

Gold clearly stands out.

News that OPEC will not be pulling forward its scheduled March meeting to deal with the virus impact had oil prices weaker.

The Aussie is sitting at post-GFC lows, down -0.2% at US$0.6603 despite the US dollar index falling back -0.6% on Friday night.

The SPI Overnight closed down -47 points or -0.7% on Saturday morning.

The Week Ahead

There are in excess of a hundred companies covered by FNArena database brokers due to report earnings this week.

Economic data releases include December quarter construction work done on Wednesday and private sector capex on Thursday, and monthly private sector credit on Friday.

The US will see consumer confidence tomorrow, new home sales on Wednesday, durable goods orders on Thursday and PCE inflation on Friday.

China’s February PMIs are due on Friday. Look out.

Note that as the earnings season winds to a close this week, the ex-dividend season ramps up in earnest. Today’s list includes Wesfarmers ((WES)) and Woodside Petroleum ((WPL)).

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.

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