Overnight: Details Emerge

World Overnight
SPI Overnight (Mar) 6093.00 – 8.00 – 0.13%
S&P ASX 200 6139.20 + 42.70 0.70%
S&P500 2774.88 – 9.82 – 0.35%
Nasdaq Comp 7459.71 – 29.36 – 0.39%
DJIA 25850.63 – 103.81 – 0.40%
S&P500 VIX 14.46 + 0.44 3.14%
US 10-year yield 2.69 + 0.03 1.28%
USD Index 96.62 + 0.16 0.17%
FTSE100 7167.39 – 61.23 – 0.85%
DAX30 11423.28 + 21.31 0.19%

By Greg Peel

Special Times

News hit the market yesterday, as far as I can gather shortly after the ASX close, that Chinese Dalian port has banned Australian coal exports. No clarification has been provided. On the news, the Aussie plunged immediately and is down close to a cent this morning.

There does not seem to have been any reaction in the futures market. The SPI Overnight has closed down -8 points.

Materials was nevertheless the weakest sector in yesterday’s trade, falling -0.7%. While news that Glencore will cap its coal production in response to shareholder pressure with regard climate change may suggest some flow-on to Australian-listed miners is possible, it appears that after a very solid run it was time to take some profits.

And buy the banks. Despite news of a class action being taken against Westpac ((WBC)) – news that the market will have deemed inevitable – the financials sector posted a 1.5% gain on the day, thus finally driving the ASX200 to a clear close above 6100.

News that Labor may back down on its stance against mortgage brokers had Mortgage Choice ((MOC)) and Australian Financial Group ((AGF)) soaring 8.5% and 23% respectively, but neither is in the ASX200.

The standout sector was nonetheless consumer discretionary, up a whopping 3.9%, with a little help from the latest “Are you serious?” share price response to an earnings result. Webjet ((WEB)) jumped 30%. That makes sector peer Nine Entertainment’s ((NEC)) 7.2% rally-on-result look like a miss.

But it was the sector heavyweight Wesfarmers ((WES)) that most contributed – yes, Wesfarmers has moved to discretionary from staples since spinning off the supermarket – with a 6.9% jump. The company is the latest in a long line of large caps with too much money and nowhere to put it, other than to hand it out to shareholders as a special dividend.

For once we did not see a train wreck amongst ASX200 stocks on the day, post result. The worst performers were gold stocks as the gold price tips over. But I have been highlighting all week just how volatile the market has been during this result season in terms of individual stock moves, and thanks to Shaw Stockbroking for pointing out yesterday saw 15 “large” companies post gains in excess of 5% and 20 over 3%, with only 7 falling -5% or more.

On the back of the index move for the week, the season to date looks positive, given the index is up about a hundred points from when results started flowing in. But let’s look at some stats.

In terms of FNArena’s Corporate Results Monitor, the season was about halfway through as of yesterday on number of companies reporting (which is just over 300 in the season, being stocks covered by FNArena database brokers and which report in the standard Feb-Aug cycle). So far beats are running at 36.3%, compared to a six-year average 31.5%.

Looks pretty good. Except that misses are running at 33.8% compared to an average 23.7%. That’s not at all good.

Subsequent broker ratings downgrades are running at 2.25 to one upgrades. Although a lot of those reflect “run too far now” calls.

Still, there’s half a season’s worth of assessments yet to come.

Data Dependent

It seems the longer it takes for the US to catch up on data releases delayed due to the shutdown, the worse that data is. Last night it was revealed new durable goods orders rose by less than expected in December, and indeed core orders fell by -0.7%.

This on the back of flash estimates of February manufacturing PMIs from the eurozone and Japan that both indicated contraction.

After a solid recovery rally, Wall Street has been ripe for a bit of a pullback, which is largely what was seen last night, despite the latest news on the trade front.

The news is the US and Chinese delegations have begun to iron out specific details of a possible trade deal. Well, I suppose that counts as “progress”.

Among undelayed US data releases, the Philadelphia Fed manufacturing index has fallen into the negative this month (contraction) for the first time since May 2016. Put it all together and, inevitably, the R-word is being thrown around again.

The December quarter GDP result is among those numbers still delayed, but the latest forecast has growth at a mere 1.8%. The Atlanta Fed’s running estimate for March quarter GDP has now been cut to 1.4%, although notoriously understates.

With the US earnings season now in its death throes, and economic data both globally and in the US seemingly sinking into the mire, a trade breakthrough is becoming ever more important, if it wasn’t already.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1325.20 – 15.40 – 1.15%
Silver (oz) 15.79 – 0.29 – 1.80%
Copper (lb) 2.87 + 0.01 0.41%
Aluminium (lb) 0.85 + 0.02 1.91%
Lead (lb) 0.93 + 0.01 0.83%
Nickel (lb) 5.75 + 0.02 0.38%
Zinc (lb) 1.23 + 0.00 0.16%
West Texas Crude (Feb) 56.89 – 0.27 – 0.47%
Brent Crude (Apr) 66.96 – 0.17 – 0.25%
Iron Ore (t) futures 86.70 – 0.60 – 0.69%

Commentators have put a -US$15 drop on gold down to a delayed reaction (gold price reactions are always delayed) to the previous night’s Fed minutes, which supposedly were not quite as dovish as assumed. The US dollar index rose only modestly.

Chinese production cuts in the winter meant aluminium production is short of expectation, hence a rally in the price last night.

Weekly US inventory numbers impacted on the oils.

The Aussie is down -1.2% at US$0.7081.

Today

The SPI Overnight closed down -8 points.

The RBA governor will provide a mandatory testimony to parliament today.

The list of companies reporting today is mercifully smaller than yesterday’s peak session, but the season ain’t over yet.

Select Harvests ((SHV)) holds its AGM.

Ansell ((ANN)) and Woodside Petroleum ((WPL)) are among those stocks going ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Hold from Add Morgans
ALU ALTIUM Upgrade to Hold from Sell Ord Minnett
APA APA Upgrade to Neutral from Underperform Credit Suisse
Upgrade to Buy from Hold Deutsche Bank
APE AP EAGERS Upgrade to Add from Hold Morgans
Upgrade to Accumulate from Hold Ord Minnett
ARF ARENA REIT Downgrade to Neutral from Outperform Macquarie
BKL BLACKMORES Upgrade to Hold from Reduce Morgans
Downgrade to Neutral from Outperform Macquarie
BOQ BANK OF QUEENSLAND Downgrade to Neutral from Outperform Credit Suisse
COH COCHLEAR Downgrade to Neutral from Buy Citi
Downgrade to Underperform from Neutral Credit Suisse
COL COLES GROUP Downgrade to Lighten from Hold Ord Minnett
DTL DATA#3 Upgrade to Add from Hold Morgans
FMG FORTESCUE Downgrade to Neutral from Outperform Credit Suisse
GWA GWA GROUP Downgrade to Neutral from Buy Citi
Downgrade to Neutral from Outperform Credit Suisse
HLO HELLOWORLD Downgrade to Hold from Add Morgans
MOE MOELIS AUSTRALIA Upgrade to Buy from Accumulate Ord Minnett
NHF NIB HOLDINGS Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Hold from Add Morgans
ONT 1300 SMILES Upgrade to Add from Hold Morgans
PGH PACT GROUP Upgrade to Hold from Reduce Morgans
RRL REGIS RESOURCES Downgrade to Sell from Hold Deutsche Bank
Downgrade to Sell from Neutral UBS
SFR SANDFIRE Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Neutral from Outperform Macquarie
SGP STOCKLAND Downgrade to Neutral from Buy Citi
SHL SONIC HEALTHCARE Upgrade to Accumulate from Hold Ord Minnett
Downgrade to Neutral from Buy Citi
Downgrade to Hold from Buy Deutsche Bank
SIQ SMARTGROUP Downgrade to Neutral from Outperform Credit Suisse
SWM SEVEN WEST MEDIA Upgrade to Buy from Neutral UBS
SXY SENEX ENERGY Downgrade to Hold from Buy Ord Minnett
VRT VIRTUS HEALTH Upgrade to Add from Hold Morgans
WTC WISETECH GLOBAL Downgrade to Hold from Buy Ord Minnett
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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