Overnight: Private Matters

World Overnight
SPI Overnight (Sep) 6202.00 0.00 0.00%
S&P ASX 200 6253.90 – 19.10 – 0.30%
S&P500 2858.45 + 8.05 0.28%
Nasdaq Comp 7812.01 + 9.33 0.12%
DJIA 25628.91 + 126.73 0.50%
S&P500 VIX 10.93 – 0.34 – 3.02%
US 10-year yield 2.97 + 0.04 1.19%
USD Index 95.18 – 0.20 – 0.21%
FTSE100 7718.48 + 54.70 0.71%
DAX30 12648.19 + 49.98 0.40%

By Greg Peel

Mixed Bag

There was little lead from Wall Street on Monday night but commodity prices were mostly positive, particularly iron ore, which may have helped the ASX200 to another gain on the day. But individual stories rather eclipsed yesterday’s session.

Amcor ((AMC)) came back after a trading halt following the announced acquisition of US company Bemis Corp for US$5.35bn. The scrip offer means Bemis shareholders will end up with 29% of Amcor. Amcor suggests the move represents a step-change in the Americas, the company will list on the NYSE and inclusion in the S&P500 is possible.

US listing should be a positive but as is typically the case with big M&A deals, Amcor shares were sold down -5.8%. Amcor is in the materials sector, which closed down -1.0% on the day.

Vehicle financer and owner of GraysOnline, EclipX ((ECX)), issued a profit warning yesterday, reducing FY18 profit growth guidance to 13-17% from a prior 27-30%. The downgrade was worth -41% for the stock. GraysOnline is apparently to blame. EclipX is a financial.

Financials closed the day down -0.3% with a bit of weakness for Commonwealth Bank ((CBA)) ahead of today’s earnings result, and a warning from ASIC that more bank “fees for no service” may need to be refunded.

Among those stocks reporting yesterday, the star was accounting software firm Reckon ((RKN)), which had been down around -50% in a year. The big crunch came in May when rival MYOB ((MYO)) decided to drop its merger plans and go it alone, leaving analysts to ponder whether Reckon may go the way of the dinosaur. Yesterday the shares jumped 15%.

Reckon is not in the ASX200.

Other result releases on the day did not shock.

Nor did the RBA. The central bank remains upbeat about the economy, although did give a nod yesterday to the drought.

Wall Street was stronger last night, commodity prices are almost all up again, biu the futures this morning are “unch”.

The highlights for today session will be earnings results from both CBA and AMP ((AMP)).

Getting Weird

The most polarising stock on Wall Street is Tesla. The bulls are the true believers in Elon Musk’s long term vision and the bears think it’s all smoke and mirrors. At 27%, Tesla is the most shorted stock in the US. To put that into perspective, neck and neck as Australia’s most shorted stock are Syrah Resources ((SYR)) and JB Hi-Fi ((JBH)) on 19%.

Last night Musk tweeted he plans to take Tesla private at US$420/share and has the funding. The tweet set off a firestorm. Nasdaq contacted Tesla and requested the stock immediately be halted and proper disclosure provided. It duly was, and the stock came back on very late and jumped 11%.

There was no mention of funding in the disclosure. This meant firstly that the shorters still think it’s all smoke and mirrors, but secondly that Musk may have violated SEC laws regarding how one proceeds with a privatisation. He could be accused of market manipulation and fraud.

It has also been suggested, given Musk is known to have a unique sense of humour, that the US$420 price is his own little joke, being a euphemism for marijuana. (Google it. It’s actually a reference to a date, ie 4/20.)

So basically Tesla was all Wall Street could talk about last night. In the background, more solid earnings results ensured the major indices continued to push back towards prior highs. The S&P mid-cap and small-cap indices actually did hit new all-time highs.

The run-rate on S&P500 earnings growth is currently 24% (year on year) for the June quarter, as we enter the long tail of the season. That would make it one of the best ever seasons, if not the best. Wall Street appears resigned to the likelihood the major indices will indeed return to their highs.

Then what? Then perhaps the trade war, Iran sanctions, and the upcoming mid-term elections will provide the focus, along with economic data. The mid-terms are not till November, but the US always seems to be in a permanent state of campaigning.

For now, Wall Street is summer-quiet, volumes are low and the VIX is again threatening to slip under double figures, which usually causes angst.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1210.50 + 3.30 0.27%
Silver (oz) 15.33 + 0.08 0.52%
Copper (lb) 2.75 + 0.01 0.34%
Aluminium (lb) 0.91 – 0.00 – 0.29%
Lead (lb) 0.97 + 0.01 1.26%
Nickel (lb) 6.20 + 0.08 1.27%
Zinc (lb) 1.20 + 0.02 1.33%
West Texas Crude (Sep) 69.09 + 0.19 0.28%
Brent Crude (Oct) 74.51 + 0.85 1.15%
Iron Ore (t) 69.50 + 0.55 0.80%

No real standouts, but everything other than aluminium, saw a positive session last night.

The US dollar index dipped -0.2% on yen strength, which was a result of a release showing surprisingly strong Japanese wage growth.

The Aussie is up 0.5% at US$0.7418, largely because the RBA just keeps talking the local economy up.

Today

The SPI Overnight closed unchanged.

The RBA governor will have a chance to expand on his view when he speaks today. Local housing finance numbers are due.

China will release July trade data.

Alongside CBA and AMP, Tabcorp Holdings ((TAH)) will report earnings today and maybe Investa Office Fund ((IOF)), although I have a variety of broker calendars suggesting a variety of Investa reporting dates.

And it’s not just Investa, many stocks appear in the FNArena calendar with more than one suggested date thanks to broker contradiction. Our policy is to assume the earliest is correct and if not, move onto the next date. Subsequent dates are not published until such time.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AAD ARDENT LEISURE Downgrade to Lighten from Hold Ord Minnett
ALQ ALS LIMITED Upgrade to Hold from Lighten Ord Minnett
APA APA Upgrade to Buy from Neutral Citi
ECX ECLIPX GROUP Downgrade to Neutral from Buy Citi
FBU FLETCHER BUILDING Downgrade to Underperform from Outperform Credit Suisse
ING INGHAMS GROUP Downgrade to Neutral from Buy Citi
RRL REGIS RESOURCES Upgrade to Hold from Reduce Morgans
SEK SEEK Upgrade to Hold from Reduce Morgans
SUL SUPER RETAIL Downgrade to Hold from Buy Ord Minnett
VCX VICINITY CENTRES Upgrade to Outperform from Neutral Credit Suisse

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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