Lighthizer, Powell, and Cohen all found themselves testifying to Congress last night, with mixed results. Dow down -72.
|SPI Overnight (Mar)||6130.00||– 1.00||– 0.02%|
|S&P ASX 200||6150.30||+ 21.90||0.36%|
|S&P500||2792.38||– 1.52||– 0.05%|
|Nasdaq Comp||7554.51||+ 5.21||0.07%|
|DJIA||25985.16||– 72.82||– 0.28%|
|S&P500 VIX||14.70||– 0.47||– 3.10%|
|US 10-year yield||2.69||+ 0.06||2.16%|
|USD Index||96.16||+ 0.14||0.15%|
|FTSE100||7107.20||– 43.92||– 0.61%|
|DAX30||11487.33||– 53.46||– 0.46%|
By Greg Peel
As You Were
After Tuesday’s not unhealthy shake-out for the local market it was back to business yesterday, focusing in the twilight of the results season but also reflecting a return to general buying interest.
Sector gains were largely uniform if we discount a result-driven -0.6% fall for IT, which is only 3% of the index, and note Telstra ((TLS)) went ex-dividend, yet telcos fell only -0.3%. It should be noted that while Telstra is still considered a large cap, telcos are only circa 3.25% of the index these days as well (of which Telstra represents circa 2.25%).
Otherwise, the banks had a solid session (+0.6%), energy bounced back along with oil price (+0.8%) and consumer staples saw strength (+0.9%).
The rebound came despite the release of weak numbers for December quarter construction work done. While housing construction fell as might be expected, the surprise came from a weak public construction number at a time federal and state governments are on an infrastructure spree.
It may be a timing issue but the numbers do not bode well for next week’s GDP result.
Among yesterday’s reporting companies, Vocus Group ((VOC)) jumped 10% in its numbers, and announced the company would shift its strategy away from the “complex and economically unattractive NBN” towards 5G fixed wireless. Vocus topped the leaders’ board and countered Telstra’s dividend.
Seek ((SEK)) took the silver with an 8% jump, helping industrials higher, while the staples were aided by Costa Group’s ((CGC)) 4.4% rise having navigated the issues of drought and flooding rains while keeping the market informed.
Bingo Industries’ ((BIN)) comeback continues (+7%).
On the flipside, data centre operator NextDC ((NXT)) demonstrated that new world companies cannot afford to disappoint in falling -8.2%, which is why the IT sector closed down.
Reliance Worldwide ((RWC)) fell -6.6% on news the company’s chairman was resigning and taking his bat and ball home with him, selling out of his 10% shareholding in an off-market block trade at a -4% discount. That’s a cool $367m. Thanks for playing.
Tuesday’s sell-off aside, the market trend remains positive. The index is holding above 6100. Yet by rights it’s been one of the worst results seasons on record.
Okay, “on record” is only six years of FNArena’s result season monitor but yesterday percentage misses crept above beats, being 34.1% misses to 33.7% beats. This has not happened before in that time frame. We got close in August 2017 when the beat/miss ratio was also rounded to 1.0, against an average 1.3.
Ratings downgrades from brokers are running at more than two to one against upgrades, but that’s not all that unusual. When markets are on an upswing into results season typically there’s a lot of downgrades to Hold on overblown valuations.
The simple average net target price change (not cap weighted) is currently at -0.1%, and has never been negative before. The average is +3%. When we consider +3% to a large extent reflects valuation “rollovers” (introducing the next period of earnings out into time and discounting them back to add into today’s valuation), a target increase like 3% is more of a zero than an increase. Thus -0.1% is historically bad.
So why has the market been sideways to strong in the period? The beat/miss ratio does not account for market cap, so if the winners tend to be bigger names than the losers, the bias is to the upside.
Much to Hear
Wall Street’s news vacuum doldrums were swiftly replaced by a storm of testimonies and hearings last night to remind that there is still much going on under the surface. Head trade negotiator Robert Lighthizer, Fed chair Jerome Powell and Trump’s former layer Michael Cohen were all separately testifying before Congressional committees.
Lighthizer was responsible for an early -180 point drop for the Dow after he suggested there’s still a long way to go before a deal will be reached with China that Washington is happy with. While this seems in contrast to Trump’s persistent “great progress” mantra, it is not the first time someone from the administration has made this point.
The Chinese have similarly watered down any excitement.
Powell had little more to add on Fed policy as he faced a House Committee last night, having faced the Senate the night before, other than to suggest the FOMC is working towards ending its balance sheet run-off by year’s end at a level deemed to be the equilibrium point.
All the Fed has to do in the meantime is work out where that point is.
This, again, is not new news, but positive nonetheless in terms of believing the Fed is very close to ending its tightening phase. The Dow recovered a lot of its early losses.
Cohen stuck the knife in, calling Trump everything from an autocrat to a racist, and suggested he knew all about this, that and the other, which Trump denies, although not about any collusion with Russia. But Republican members fought back, basically suggesting Cohen was lying, so we can see this one going down to a “my word against his” stalemate unless new evidence emerges.
Wall Street appeared to shrug.
Of some concern is escalating tensions between India and Pakistan and the perennial battle for the disputed territory of Kashmir. Cue Led Zeppelin. And March 29 continues to draw closer, being Brexit D-Day.
In the end Wall Street saw another slightly soggy session of little import. Tonight’s GDP report might stir things up.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1319.60||– 8.40||– 0.63%|
|Silver (oz)||15.71||– 0.16||– 1.01%|
|Copper (lb)||2.97||+ 0.01||0.43%|
|Aluminium (lb)||0.85||+ 0.01||1.20%|
|Lead (lb)||0.95||+ 0.01||1.20%|
|Nickel (lb)||5.83||+ 0.01||0.24%|
|Zinc (lb)||1.25||+ 0.02||1.58%|
|West Texas Crude (Apr)||56.96||+ 1.27||2.28%|
|Brent Crude (Apr)||66.32||+ 0.93||1.42%|
|Iron Ore (t) futures||83.30||– 0.25||– 0.30%|
Base metal prices were surprisingly strong last night despite Lighthizer’s comments and a tick-up in the greenback. The Chinese must still be ramping up post-holiday.
Iron ore continues to drift.
Gold had stalled in its upward trajectory, so last night bottled somewhat.
The oils recovered further from losses earlier in the week on the usual round of US inventory numbers.
The Aussie is down -0.5% at US$0.7136 on the weak construction numbers.
The SPI Overnight closed down -1 point.
May auld acquaintance be forgot, it’s the last day of result season. Now we can all get some sleep.
Today’s reporters include Adelaide Brighton ((ABC)), Galaxy Resources ((GXY)), Inghams Group ((ING)) and Ramsay Health Care ((RHC)). Note that Galaxy and Inghams are two of the most shorted stocks on the ASX.
On the economic front we’ll see December quarter private sector capex today, along with January private sector credit.
China releases its February PMIs.
The US sees the long-delayed GDP result.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|AFG||AUSTRALIAN FINANCE||Upgrade to Outperform from Neutral||Macquarie|
|AHG||AUTOMOTIVE HOLDINGS||Upgrade to Neutral from Underperform||Macquarie|
|APX||APPEN||Downgrade to Neutral from Buy||Citi|
|Downgrade to Neutral from Buy||UBS|
|CHC||CHARTER HALL||Downgrade to Hold from Accumulate||Ord Minnett|
|CTX||CALTEX AUSTRALIA||Downgrade to Hold from Buy||Deutsche Bank|
|FXL||FLEXIGROUP||Upgrade to Buy from Hold||Deutsche Bank|
|GEM||G8 EDUCATION||Downgrade to Hold from Add||Morgans|
|HUO||HUON AQUACULTURE||Downgrade to Hold from Buy||Ord Minnett|
|KPG||KELLY PARTNERS||Downgrade to Hold from Add||Morgans|
|MYR||MYER||Upgrade to Neutral from Sell||UBS|
|SDA||SPEEDCAST INTERN||Downgrade to Neutral from Outperform||Credit Suisse|
|SGP||STOCKLAND||Downgrade to Hold from Accumulate||Ord Minnett|
|SKI||SPARK INFRASTRUCTURE||Downgrade to Underweight from Equal-weight||Morgan Stanley|
|SLC||SUPERLOOP||Downgrade to Hold from Buy||Deutsche Bank|
|TWE||TREASURY WINE ESTATES||Upgrade to Accumulate from Hold||Ord Minnett|
|WTC||WISETECH GLOBAL||Upgrade to Buy from Neutral||Citi|