By Greg Peel

The Dow closed up 23 points or 0.1% while the S&P gained 0.2% to 2187 and the Nasdaq rose 0.2%.

Amped Down

To date the local earnings season has featured plenty of ups and downs among individual reporting stocks that have largely netted out to leave the ASX200 in sideways mode. Yesterday we saw more downs than ups, or more specifically, more influential downs than ups, to provide a 0.5% index drop.

AMP ((AMP)) posted a miss that largely came down to weakness in its wealth protection business – a business also conducted by the banks. We thus saw AMP shares down 5% and a flow-through to general financials sector softness in falling 0.9% and proving a major drag on the index.

Heathcare heavyweight CSL ((CSL)) saw ongoing selling following its miss on Wednesday, falling another 3%, While Primary Health Care ((PRY)), having jumped up following its release on Wednesday, jumped straight back down again by 5% yesterday to help take that sector down 1.9%.

This harks back to what I was saying yesterday – first responses to result announcements are not always definitive indicators. And on that point I note Domino’s Pizza ((DMP)) was back amongst the losers yesterday in falling 4%. Down, up, down -- the market really cannot come to a conclusion on that company.

Consumer discretionary fell 0.5% yesterday but it was a very mixed bag for a very diverse sector. Treasury Wine Estates ((TWE)) won the day with an 11% gain for example, and auto parts dealer BapCor ((BAP)), formerly Burson, jumped 6%.

It was left to the resource sectors and consumer staples to provide some offset yesterday, given the telcos and utilities saw a return to weakness.

Speaking of weakness, the monthly Australian jobs lottery surprised as usual yesterday, not because the ABS website managed to stay up for the release but because 26,200 jobs were added in July when 10,000 were forecast. The unemployment rate ticked down to 5.7%.

Oh no, there goes the rate cut, said forex traders, and the Aussie duly shot up over 77c. However, the breakdown revealed 45,400 full time jobs were actually lost during the month, offset by the addition of 71,600 part time jobs. “Underemployment” is the new buzz word. There are plenty of people who would dearly like to work more hours, and the preponderance of part time-only work is why Australia’s wage growth is currently so anaemic.

So as you were, no reason to see the RBA changing its mind on the strength of this particular jobs report. The Aussie subsequently dropped back below 77 before running into US dollar weakness overnight, and is currently up 0.4% over 24 hours at US$0.7685.

It was likely the misleading jobs report that sparked selling in the yield sectors yesterday.

Another Shrimp?

The nightmare of any overnight reporter is that nothing actually happens, leaving nothing to report. Wall Street is offering up just that scenario at present. The US indices bungled a long last night in thin trade once again, reminding us that August in the US is January in Australia and everyone’s having a barbie after a dip rather than trading stocks.

We did see WalMart (Dow), the world’s largest retailer, post a surprisingly good result and oil prices continued to run higher. Brent rose 2% to surge through the US$50/bbl mark while WTI closed some of the gap with a 3% gain to over 48.

And Fedspeak raised its increasingly ugly head again. Following on from no less than three Fedheads suggesting this week a rate hike is either likely or at least needed, St Louis Fed president James Bullard, he of “new regime” fame, last night reiterated his prediction that there won’t be a rate hike until 2018.

What is an investor to think?

Commodities

The US dollar index fell 0.6% to 94.18 last night, probably because the market believes the Bullard camp holds more sway over the FOMC than anyone pushing for a hike. This provided some support for commodity prices.

West Texas crude rose US$1.40 to US$48.34/bbl and Brent rose US$1.07 to US$50.92/bbl.

Aluminium bucked the trend on the LME by falling slightly while the other metals jumped 1-1.5%.

Iron ore fell US30c to US$60.80/t.

Gold continues to graft higher, rising US$3.70 to US$1352.10/oz.

Today

Following yesterday’s local market weakness, the SPI Overnight closed up 15 points or 0.3%.

The index futures are a difficult game to play at the moment nonetheless, given index movements this month have been almost entirely driven by individual company earnings and not by any macro influence. So each day is a bit of a lottery on who might beat and who might miss.

Woodside Petroleum ((WPL)) and Santos ((STO)) are in the frame today, as are Insurance Australia Group ((IAG)), Lend Lease ((LLC)), Medibank Private ((MPL)), and a couple of popular smaller names in the form of Automotive Holdings Group ((AHG)) and Bellamy’s Australia ((BAL)). The latter is quite heavily shorted.

Rudi will appear twice on Sky Business today. First via Skype-link to discuss broker calls, at around 11.05am, and later on Mark Todd's Fixed Interest version of Your Money, Your Call with co-guest Roger Montgomery, 7-8pm.
 

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By Greg Peel

The Dow closed up 21 points or 0.1% while the S&P gained 0.2% to 2182 and the Nasdaq was flat.

Knee Jerk

Another day, another flat close for the ASX200 belying all that was going on underneath amongst individual stocks. The index did open around 20 points lower but a lot of that was Commonwealth Bank ((CBA)) going ex.

The financials sector was quite the mixed bag yesterday as it contains insurers as well as banks. Take out CBA’s dividend and the banks did well yesterday, but QBE Insurance ((QBE)) disappointed with its result and fell 8%. The sector was down 0.3% on the day.

The hardest hit sector was healthcare, thanks to a miss from market darling and sector heavyweight CSL ((CSL)). It fell 5%. But in contrast, the regulated health care names Sonic ((SHL)) and Primary ((PRY)) both reported well and rose 6% and 2% respectively. The sector fell 1.9%.

The resource sectors were strong again yesterday on higher commodity prices while the consumer sectors also had a solid session and utilities finally found some buyers.

The fact that the index as a whole has barely moved this week, given a lack of macro influence, allows us to witness the machinations of a reporting season in this era of high speed trading. Quant analysts will tell you the response to the result on the day is not as important, ultimately, as where a stock ends up a month later.

Once investors have had a proper chance to dig through the details of a report, and stock analysts have offered their assessments, the concept of headline profit as the immediate gauge can prove misleading. Fully valued Domino’s Pizza ((DMP)) dropped 4% when it reported on Tuesday but rallied 8% yesterday. The market initially saw a miss but analysts liked the numbers.

By contrast, stocks such as Newcrest Mining ((NCM)), G8 Education ((GEM)) and InvoCare ((IVC)) posted weak results which saw falls on the day and further falls since, while Ansell ((ANN)) shot up 18% on the day and has managed to hold onto that gain.

High frequency computers don’t have time to do the analysis when a result release hits the wires. They just respond to headline numbers and trigger words. Those who actually do the analysis, or at least take on board stockbroker analysis, have the chance to decide whether the initial response was justified or not.

Earnings results aside, there actually were some macro data to consider yesterday. It didn’t much impact the stock market but the fact the Aussie is 0.6% lower this morning at US$0.7652 is the result of June quarter wage index showing a mere 0.5% gain. This is in line with expectation but at 2.1% annual, wage growth remains at its slowest pace since numbers began being recorded in 1998.

Forex traders saw the release and immediately said “RBA rate cut”.

You Say Tomato

The Dow was down over 80 points from the open last night but ahead of the release of the July Fed meeting, had rallied back to square. On that release the market initially dropped sharply (computers) before bouncing straight back to a mildly positive close.

The FOMC is split. Some members just want to get on and lift rates while others remain cautious and would rather keep watching for more clues in the data. One gets the feeling they could do this forever. The Big Kahunas in the committee, such as Yellen, are on the dovish side so on the release of the minutes, the Fed funds futures priced in even less of a chance of a September hike and trimmed December’s chance as well.

Wall Street just scratched its head. Is this new era of Fed transparency, such that the world is witness to the internal squabbles, beneficial for markets? Or would we all be better off if the only time we ever heard from the Fed is via the official statement released after each meeting? Oh no, that might spark volatility. But all the Fed is managing to spark at the moment is confusion, frustration and criticism.

Speaking of confusion, the key driver of the US economy is domestic consumption which is why so much attention is paid to retail sales figures and retailer earnings results. Over the past week we’ve seen surprisingly good results from US department stores such as JC Penney, then a weak retail sales numbers after three months of very good numbers, and last night weak results from discount chain Target and hardware chain Lowe’s.

Wall Street is finding it difficult to get a handle on the US consumer.

It’s not hard to get a handle on oil, however. WTI is up another percent and Brent is very close to regaining the US$50/bbl mark. What will happen when Saudi Arabia walks away from next month’s OPEC meeting declaring no agreement?

Commodities

West Texas crude is up US53c at US$46.94/bbl. Brent is up US80c at US$49.85/bbl and the gap again begins to widen.

The US dollar index is flat at 94.73 and base metals played their own games last night. Copper and zinc rose 0.5%, aluminium and lead rose 1.5%, and nickel fell 3%.

Iron ore fell US70c to US$61.10/t.

Gold is relatively steady at US$1348.40/oz.

Today

The SPI Overnight closed up 3 points. Looks like we’re in for yet another day in which full attention will be paid to earnings.

We do, however, have the July jobs numbers out today but as each month passes, the market pays less heed given the volatility and often sheer incredibility of the results. Well, the numbers are delivered by the ABS.

It’s the biggest day yet for the earnings season in terms of volume of reports. Highlights today include AMP ((AMP)), ASX ((ASX)), Brambles ((BXB)), Origin Energy ((ORG)), Whitehaven Coal ((WHC)) and Western Areas ((WSA)).
 

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By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.3% to 2190 and the Nasdaq added 0.6%.

Earnings Driven

In the August earnings season of 2015, the ASX200 fell 8.6% across the month. In the February season before that, the index rose 6.1%. In February this year, the index netted a 2.5% fall but that included a big commodity price-based drop and bounce mid-month. In each case, macro factors impacted on the market’s beta – its movement as a whole.

In this August season, the market as a whole is going nowhere much, as international markets also largely stall. What this means, unlike recent prior seasons, is that earnings results can be clearly reflected in stock price movements on alpha, or individual, stock risk without the overriding macro, or beta movement. Yesterday was a clear example.

The index did little, recovering from a slight dip in the morning to post a slight gain on the close. But under the surface sector moves were more notable, thanks to individual stock moves in those sectors. In short: the beats and misses.

Ansell ((ANN)) was the big winner on the day, rising 18% after posting a “less bad” result and announcing it might toss off its condom business. Short positions had been building in Ansell ahead of the season, and for reasons which continue to confound, JB Hi-FI ((JBH)) has always been popular with the shorters. Yet virtually every season the electronics retailer beats, and yesterday was another win which saw JB shares up 10%.

Packaging company Orora ((ORA)) has been a popular defensive plodder for investor portfolios this year but it still managed a 10% gain on the day. On the other side of the ledger, coal hauler Aurizon missed and suffered a 6% fall, and while Newcrest’s ((NCM)) numbers were not so bad, gold stocks have been bought up in a frenzy this year to stretched valuations. Its shares fell 4%.

Adding to the mix was National Bank ((NAB)), which provided a reasonable quarterly update that had its shares up 1%.

So we don’t need to look far to understand why the big sector movers yesterday were healthcare, up 0.5%, consumer discretionary, up 0.8% and the banks up 0.6%, with materials down 1.5%, and industrials little changed on the balance. We also saw some support returning for two sectors lately sold off to provide rotation funding – telcos and utilities.

On the assumption there are no left of field impacts on global markets for the next two weeks, and that’s always a big assumption to make, the season will continue in the same vein. The difference from here on in is the number of companies reporting each day will grow larger and larger, making it more of a task to unscramble the movements.

Hi, Hi, Hi

A second triple-high for all of the Dow, S&P and Nasdaq within two sessions of the first in sixteen years is a bit like winning the silver, but still more exciting than following Australia’s Olympic campaign. The way things are going these records will become routine, as there seems no reason for Wall Street to go down in any meaningful way at present.

And that’s a fact traders, investors and commentators reluctantly admit. You’d think they’d be thrilled, but they know it’s all just smoke and mirrors. Stock markets have turned into bond markets, offering more investment yield than long term government debt, because central banks across the globe have orchestrated such an investment environment.

It is not how it’s meant to be.

In the meantime, there’s no point in “fighting the tape”. The VIX volatility index suggests a high level of complacency, and that has traders worried. But with central bank safety nets in place, what’s there to worry about? Perhaps the time to worry will be when global economic growth starts to fade away completely, and central banks realise there is no more they can do.

Tech stocks continue to be a significant leader on Wall Street, and here we’re talking both old and new. Developments in areas like the cloud and Big Data, electric cars and the Internet of Things are 21^st century growth stories changing the landscape. Meanwhile, 20^th century pioneers like Microsoft, Apple and IBM are also in the game as they reinvent themselves.

Oil is a very old story on Wall Street but no less fresh today. The oil price rose another 2% last night, providing extra impetus to hit those new highs. Apparently the Russians are now in the game, reporting to Saudi newspaper they are prepared to talk production cuts. Still no one believes it, but still no one wants to be caught the day there really is a wolf.

Last night’s US data highlight was the housing market sentiment index, which rose to a comfortable 60 (50 neutral) to beat expectations. Housing is as significant and underlying economic driver in the US as it is in Australia at present.

All up it was another summer-quiet session on Wall Street, and another grinding gain. In two weeks we enter September, historically the worst month for stock market performance, followed by October, historically the scariest.

Commodities

West Texas crude is up US$1.02 to US$45.71/bbl.

After some big falls on Friday night, base metals staged a comeback of sorts last night. Nickel rebounded 2.5% and zinc 1%, while aluminium rose 1% and lead 1.5%. Copper stood still.

Iron ore fell US20c to US$60.00/t.

Gold rose US$2.90 to US$1338.60/oz.

Currency was not in play last night, with the US dollar index largely flat at 95.61. Yet the Aussie is up 0.3% at US$0.7674.

Today

The SPI Overnight closed up 8 points.

The minutes of the August RBA meeting will be released today.

In the eurozone, the ZEW survey will provide an indication of investor sentiment a month after the Brexit result.

The Fed will be talked about again on Wall Street tonight as US numbers for CPI, industrial production and housing starts are released.

On the local stock front, the number of earnings reports will grow today. The highlight is BHP Billiton ((BHP)) but that report is not actually due until 6pm to tie in with London investors.

During the session downunder, Challenger ((CGF)), Domino’s Pizza ((DMP)), G8 Education ((GEM)) Mirvac ((MGR)), and Scentre Group ((SCG)) are among the crowd today.

Rudi will Skype-link up with Sky Business today to chat about broker calls, at around 11.15am.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(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 in the Cockpit 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.

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By Greg Peel

The Dow closed up 117 points or 0.6% while the S&P rose 0.5% to 2185 and the Nasdaq gained 0.5%.

Phone Home

We don’t have to look far to see why the ASX200 closed down 35 points yesterday. The big movers to the downside were telcos and banks.

Telstra ((TLS)) posted a disappointing result and an undercooked dividend increase, sending its shares down 1.6% and the telco sector down 1.3%. Westpac provided a soft quarterly update which renewed the pressure on all bank stocks, sending that index down 1.2%.

Energy was weaker on the fall in the oil price but that will likely reverse with interest today. Materials were also weaker but that includes Rio Tinto going ex.

Elsewhere we saw another 1.1% fall for utilities matched out by a 1.2% gain in consumer discretionary – the rotation trade out of expensive yield and into growth. We must remember that the discretionary sector covers a wide range of companies, not just traditional shop-front retailers. There’s pizza, there’s car parts, there’s classifieds, hotels and vitamin tablets, to name a few.

We also recall that investors shifted into banks early in the week on a good result from Bendelaide and a positive update from ANZ, assuming all boats would float. We’ve since seen a so-so result from CBA and a soft update from Westpac, thus the market has shifted back out again.

We can also note from a technical perspective that while the index traded as low as 5483 yesterday, it closed a little above 5500. We like round numbers. If we can see 5600 reached in the near term the technicals remain bullish. This morning the futures are suggesting we should recover yesterday’s losses but next week will be telling as the earnings season significantly steps up the pace.

Triple Header

All of the Dow, S&P and Nasdaq closed at new all-time highs last night. It has taken until 2016 for the Nasdaq to regain its prior all-time high posted in 2000, just ahead of the tech-wreck. Therefore while it has been common in recent years to see the Dow and S&P both hit new highs in a session, last night was the first time since 1999 all three major indices achieved the feat simultaneously.

There were two major drivers for last night’s strength on Wall Street. The first was a big move up in the consumer discretionary sector, which has distinct importance in America’s consumer-driven economy.

Department store Macy’s posted an earnings beat which took the market by surprise, but the main reason the stock jumped 17% in the session was the announcement Macy’s would close 100 stores across the country. Finally, investors concluded, the old world retailers are realising floor space is but a cost-drag in the online world. Rival Kohls also posted an earnings beat, and its shares jumped 18%.

The other major driver was the oil price, which having fallen on Wednesday night on announced record Saudi production, rebounded over 4% as the shorts scrambled to cover. As to whether such cover is necessary is nevertheless debatable.

I noted yesterday, “OPEC will be meeting shortly for the usual charade of talking production cuts, but it is unlikely Saudi Arabia will do anything other than stay the course”. Well whaddya know, last night the Saudis indicated that in the unofficial OPEC production meeting set for September (the next official one would be December), Saudi Arabia would be open to discussions about production freezes.

They must all fall about over in Riyadh every time they pull this stunt and the oil price stages a Pavlovian surge. OPEC will meet, Iran, if it attends, will say “we’re not freezing” and thus the Saudis will say “well we’re not freezing either”. Then everyone will go home.

But on the Nymex, it would seem it’s safer to be square than caught out.

While such a sharp reversal for oil was interesting last night, it was also interesting to see the US dollar index jump back up 0.4% to 95.93, having fallen on Wednesday night, and the US ten-year yield jump back up 6 basis points to 1.57%, having fallen on Wednesday night. Unusually, stocks are leading bonds on Wall Street at present, traders have noted.

Commodities

West Texas crude is up US$1.92 or 4.6% at US$43.45/bbl.

It was a mixed bag in London, with aluminium, copper and lead all rising 0.5% while zinc fell 0.5% and nickel fell 1%.

Iron ore fell US$1.10 to US$59.60/t.

On dollar strength, gold is down US$7.50 at US$1338.30/oz.

The Aussie is a tad lower and sitting smack on US$0.77.

Today

The SPI Overnight closed up 33 points or 0.6%.

Following the strong department store numbers overnight, Wall Street will be looking tonight to see whether this is matched in July retail sales figures.

Ahead of that release we see a data dump from China today, featuring July retail sales, industrial production and fixed asset investment numbers.

James Hardie ((JHX)) is among those reporting earnings today while Suncorp ((SUN)) will go ex.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(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 in the Cockpit 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.

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