Overnight: The Biggest Day

By Greg Peel

Common Sense Prevails

A close of up 20 points for the ASX200 yesterday seems reasonable, given Wall Street was as good as flat but oil prices jumped overnight. The futures had suggested up 33 points which seemed a bit excitable but if anyone can get excited it’s a computer, so the index opened up 52 points in the first few minutes.

This is in contrast to the prior two days when the computers sent the index down in a hurry, only to have the buyers step in swiftly. The sellers weren’t quite as swift yesterday, rather the index tracked steadily back down all day to take -32 points off the board.

And let’s face it, the oil price jumped on one week’s US crude inventory numbers that can just as easily go the other way next week.

Energy led the market higher nevertheless, rising 1.5%. Thereafter, the day’s full suite of AGMs provided for individual stock and thus sector moves, but did not upset the index trend.

Consumer discretionary was the second best performer, rising 1.0%. A positive trading update at JB HiFi’s ((JBH)) AGM sent that stock up 6.8% to top the ASX200 leaders’ board on the day. Star Entertainment ((SGR)), also discretionary, got the silver with 5.4%, and the bronze went to Webjet ((WEB)), again discretionary, with 4.1%.

Note that JB Hi-Fi is, for so long has been, one of the most shorted stocks on the market. JB shorters are like zombies – they just keep coming back for more but always remain dead.

Consumer recession?

Just when it looked like WiseTech Global ((WTC)) had won back the market, it fell -6.8% to top the losers’ board. The two IT comrades that also seem to be in the sellers’ sights recently joined in again, being Nearmap ((NEA)) and Bravura Solutions ((BVA)) which took second and third. The IT sector lost -1.2% and was the only sector to close in the red bar telcos (-0.6), which rarely trends consistently in either direction.

All other sectors outside energy and discretionary put in modest and relatively even gains.

But that was yesterday, and this morning the futures are up 42 points or 0.6% with the S&P up only 0.2% overnight. More over-excitement?

Well it can’t be down to oil or iron ore prices – they were only up a tad last night – and a poorly received earnings result from Amazon after the bell in New York will put Wall Street at an opening handicap tonight. So it must be Brexit.

After the bell on Wall Street but before our futures closed, Johnson called an election for December 12, which means parliament would dissolve on November 6. The EU is expected to grant a deadline extension past October 31, but it might only be a short extension and not three months.

Johnson wants to go to the polls having left the EU. The Commons voted in favour of his deal in principal but wants more time to assess and amend it before passing it into law. They have two weeks.

Except that an election requires the approval of a two thirds majority of parliament, and Labor does not want the hospital pass. It wants another referendum.

So are these developments positive? Maybe there is some light at the end of the tunnel. But one is drawn to remembering that the TV show MASH ran for seven years and the Korean War only lasted three.

Tech Fights Back

It was the biggest day on the US earnings calendar last night, and unsurprisingly there were a lot of ups and downs.

Those stocks reporting after the bell on Wednesday night were Tesla, up 17% last night, Ford (Dow), down -6%, Microsoft (Dow), up 2%, eBay, down -9%, and eBay spin-off PayPal, up 9%.

Twitter reported last night and dropped -21%. Would have been a lot of tweeting about that one.

More significant to Wall Street was a -4% drop following an earnings miss for industrial giant 3M (Dow) which, along with Boeing and Caterpillar, has been one of the tariff-impact pin-ups. The main issue with 3M was not the earnings miss but guidance. “The industrial slowdown is continuing, as opposed to bottoming out” management warned.

On that subject we note Markit’s estimate of October US manufacturing PMI came in at 51.5, up from 51.1 in September. Germany’s PMI rose to 41.9 from 41.7 but Japan’s fell to 48.5 from 48.9.

US durable goods orders fell -1.1% in September, or -0.3% net of lumpy transports.

But back to earnings.

Texas Instruments’ earnings miss posted earlier in the week put a scare through the chip maker sector, which is also very China-exposed, but last night results from other chip makers sparked a turnaround for the sector and led the Nasdaq to outperform.

After the bell, Amazon is down -7% in the aftermarket following a revenue guidance miss, Intel (Dow), a chip maker, is up 3.5% while Visa (Dow) is flat.

A -7% fall for Amazon will provide a big handicap from the open tonight for the Nasdaq and S&P500, but given a track record of conservative guidance and a guidance range for the December quarter as wide as the, um, Amazon, perhaps things won’t work out so bad.

Commodities

The Papua New Guinea government ordered the closure of a nickel processing plant yesterday over its failure to take remedial action after a slurry spill. More supply constraint.

Short positions in oil were again unwound.

The Aussie has taken a big hit, down -0.5%, with the greenback up only 0.2%. Were the sellers in our stock market yesterday all Yanks? At least the RBA can relax a bit.

Today

The SPI Overnight closed up 42 points or 0.6%.

Today’s list of AGM holders includes Cleanaway Waste ((CWY)), GWA Group ((GWA)), Healius ((HLS)), Insurance Australia Group ((IAG)), Japara Healthcare ((JHC)) and Qantas ((QAN)), although the latter got the bad news out of the way yesterday.

Mirvac ((MGR)) holds an investor day and ResMed ((RMD)) releases quarterly earnings.

The Australian share market over the past thirty days…