Overnight: Manufacturing Malaise

World Overnight
SPI Overnight (Sep) 6447.00 – 15.00 – 0.23%
S&P ASX 200 6501.80 + 18.50 0.29%
S&P500 2922.95 – 1.48 – 0.05%
Nasdaq Comp 7991.39 – 28.82 – 0.36%
DJIA 26252.24 + 49.51 0.19%
S&P500 VIX 16.68 + 0.88 5.57%
US 10-year yield 1.61 + 0.03 2.09%
USD Index 98.20 – 0.08 – 0.08%
FTSE100 7128.18 – 75.79 – 1.05%
DAX30 11747.04 – 55.81 – 0.47%

By Greg Peel

Super Thursday

At the macro level, it was a bit of a nothing day on the local market yesterday. The ASX200 opened higher and did little more than wobble around that level to the close. At the micro level it was a different story – the biggest day in the reporting season calendar.

Sector moves were quite mixed and showed no real trend, thus largely reflecting specific stock moves on the day. And there were lots of them, based on earnings releases.

Within the index, Pro Medicus ((PME)) won the day, jumping 16.1%. Vocus Group ((VOC)) saw 9.6% and Nine Entertainment ((NEC)) 8.0%. After crashing on its result earlier in the week, oOh!media ((OML)) rebounded 9.3%, while it looks like the shorts in Costa Group ((CGC)) may have cold feet as that stock rose 7.7% ahead of today’s release.

On the wrong side of the ledger were IDP Education ((IEL)), down -10.4%, Webjet ((WEB)), the standout star of February’s reporting season, down -8.3%, Bingo Industries ((BIN)), down -7.4% and South32 ((S32)), down -4.4%.

Other big names to report positively were Origin Energy ((ORG)) and Santos ((STO)), along with Coca-Cola Amatil ((CCL)). Star outside the index was Catapult ((CAT)), up 19.8%, and ERM Power ((EPW)), up 42% after a bid from Shell.

I could go on, and on. Suffice to say we’ve seen the initial reaction so now it’s time to see what the analysts thought as the reports flood in this morning.

On reports delivered and assessed up to Wednesday, the FNArena Results Monitor is showing only 19% beats to 31% misses, which continues to track as the worst season on record (August ’13). Yesterday looks on balance to have provided a brighter picture, but we’ll know once yesterday’s avalanche is evaluated.

Eyes on the Hole

Let’s go around the grounds…

Australia’s flash estimate of August manufacturing PMI, 49.5, Japan, 49.6. The eurozone 47.0 with Germany specifically on 43.6. And the US, 49.9 – the first dip into contraction in a decade.

Looks very much like a slowing global economy. At least in manufacturing. Slightly more worrying from a US standpoint was the services PMI estimate, which indicated a fall to 50.9 from 53.0 in July. Services are not a tariff story.

How did Wall Street respond? The Dow rallied 180 points form the open until the PMI numbers came out, then fell -280 points. While US bond yields actually rallied, once again the 2-10 curve inverted.

But only just. It’s clear there are computers programmed to start selling as soon as the curve inverts, but more and more humans are appreciating that an inverted curve is not a definitive indicator of recession, and indeed can more safely be blamed on negative rates around the globe.

Once again last night the US consumer was shown to be in fine fettle, with another round of big share price pops for reporting retailers who have previously been beaten down on tariff concerns. Not all were winners, as again the disparity between those who have adapted to the twenty-first century and those who haven’t was evident.

And so the humans shrugged off recession talk, and indices rallied back. After all the argie-bargie it ended as a bit of a nothing day, and volumes were typically summer-light. A note from an analyst suggesting recertification for the 737 Max may only be six weeks away had Boeing shares up strongly, to the tune of 100 Dow points. So the net result was a soft session.

There is little incentive to take a big position ahead of tonight, when Fed chair Jerome Powell speaks at the Jackson Hole symposium.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1497.50 – 4.70 – 0.31%
Silver (oz) 17.00 – 0.08 – 0.47%
Copper (lb) 2.56 – 0.02 – 0.88%
Aluminium (lb) 0.79 – 0.01 – 1.03%
Lead (lb) 0.93 – 0.01 – 0.59%
Nickel (lb) 7.11 – 0.05 – 0.69%
Zinc (lb) 1.01 – 0.01 – 0.63%
West Texas Crude 55.35 – 0.50 – 0.90%
Brent Crude 60.05 – 0.39 – 0.65%
Iron Ore (t) futures 85.00 + 2.00 2.41%

Weak global manufacturing data are not a good sign for base metals. Iron ore didn’t seem to mind though.

Oil prices similarly dipped, as did the Aussie, down -0.3% at US$0.6758.

Today

The SPI Overnight closed down -15 points.

Jackson Hole will be the big focus tonight.

While the local earnings season may have peaked yesterday in terms of number of reporting stocks, we still have a long way to go. All the way through next week in fact.

Note that Lendlease ((LLC)) and Super Retail ((SUL)) are among those stocks going ex today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Downgrade to Lighten from Accumulate Ord Minnett
ALU ALTIUM Upgrade to Neutral from Underperform Macquarie
AQG ALACER GOLD Downgrade to Underperform from Outperform Macquarie
BAP BAPCOR LIMITED Downgrade to Hold from Add Morgans
BLX BEACON LIGHTING Upgrade to Add from Hold Morgans
BPT BEACH ENERGY Upgrade to Buy from Neutral Citi
BSL BLUESCOPE STEEL Upgrade to Neutral from Underperform Macquarie
BXB BRAMBLES Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Neutral from Buy UBS
CAR CARSALES.COM Downgrade to Accumulate from Buy Ord Minnett
DMP DOMINO’S PIZZA Upgrade to Neutral from Underperform Credit Suisse
GWA GWA GROUP Downgrade to Sell from Neutral Citi
IPH IPH Downgrade to Hold from Add Morgans
MND MONADELPHOUS GROUP Downgrade to Sell from Neutral Citi
NHF NIB HOLDINGS Upgrade to Hold from Sell Ord Minnett
Downgrade to Sell from Neutral UBS
NWL NETWEALTH GROUP Upgrade to Buy from Accumulate Ord Minnett
Upgrade to Neutral from Sell UBS
PTM PLATINUM Downgrade to Sell from Hold Ord Minnett
SBM ST BARBARA Downgrade to Sell from Neutral Citi
SDF STEADFAST GROUP Upgrade to Accumulate from Hold Ord Minnett
SEK SEEK Upgrade to Add from Hold Morgans
Upgrade to Neutral from Sell UBS
SGP STOCKLAND Upgrade to Neutral from Underperform Credit Suisse
Downgrade to Neutral from Outperform Macquarie
SHL SONIC HEALTHCARE Upgrade to Neutral from Underperform Credit Suisse
SHV SELECT HARVESTS Upgrade to Buy from Neutral UBS
SIQ SMARTGROUP Upgrade to Add from Hold Morgans
VRT VIRTUS HEALTH Downgrade to Equal-weight from Overweight Morgan Stanley
WTC WISETECH GLOBAL Upgrade to Hold from Lighten 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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