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Overnight: Earnings Disappoint

The Dow closed down -113 points or -0.6% while the S&P lost -0.3% to 2432 and the Nasdaq fell -0.1%.


Could the last investor to leave Telstra ((TLS)) please hang up the phone? I had commented only recently that the telco sector is no longer a defensive space. Yesterday’s ongoing upheaval only underscores the shift in the industry from utility-style plodding to rampant competition akin to any crowded retail arena.

TPG Telecom ((TPM)) came back on the boards with a -15% plunge. I am unaware what the ceteris paribus dilution impact of the company’s capital raising is but telco analysts are certainly unconvinced TPG can pull off a fourth mobile network in little Australia. Any attempt will nevertheless be disruptive, hence Telstra fell another -4% yesterday and Vocus ((VOC)) another -6%.

All up the telcos posted a standout -4.3% loss. Next worst was materials, falling -1.7%. Here we found another exodus, this time out of iron ore producers – Fortescue ((FMG)) down another -7% — and also gold producers. While the report of a seismic event (literally) at Cadia sent Newcrest ((NCM)) shares tumbling, it appears traders bought up gold miners ahead of the weekend on geopolitical risk and then bailed out yesterday given we’re all still alive.

They’ll be ruing that decision today, with gold heading north again last night thanks to the surprise announcement of a UK snap election.

The release of the minutes of the RBA meeting yesterday did little to buoy local sentiment. The board has long expected the labour market to strengthen gradually but noted “Although forward-looking indicators of labour demand continued to suggest an increase in employment growth over the period ahead, this had been true for some time without leading to an improvement in labour market conditions”.

And while the RBA is hopeful recent macro-prudential tightening in the mortgage market will lead to less leverage in household balance sheets, “it would take some time to assess fully the effects of the recent pricing changes and the increased supervisory attention”.

So the RBA still can’t cut. The banks didn’t miss out yesterday, falling -0.7%, while energy (-1.5%) was another victim of lower commodity prices.

We might also assume the prime minister’s scrapping of 457 visas was not particularly helpful either. All up, the sizeable rally on Wall Street on Monday night played no part in local issues.


Wall Street was always going to be under pressure from the get-go last night following Theresa May’s surprise announcement of a snap general election for June. The FTSE plunged -2.5%, the pound shot up 6% and sent the US dollar index down -0.8%, and the US ten-year yield fell -7 basis points to 2.18%. The German DAX also fell -0.9%.

May’s decision makes sense – the aim is to ensure a fully united government ahead of the arduous Brexit process and she inherited only a limited majority from Cameron. With Labour, the Lib-Dems and UKIP all having dug big holes for themselves in the meantime, the Tories look like a shoe-in.

She might just want to have a quick word with our Malcolm.

The end result may prove positive but for now, upcoming elections across all of Europe, including France this weekend, were already offering up risk before the UK jumped on the bandwagon as well. Germany will now follow the UK.

If the lead from Europe wasn’t bad enough, weak earnings results from Dow components Goldman Sachs and Johnson & Johnson helped the Dow down -174 points at one stage. Not only did Goldman lead the charge in the initial Trump rally, the anachronistic make-up of the Dow Jones price average (as opposed to the cap-weighted S&P500) means Goldman is over-represented in the equation. We note the S&P and Nasdaq posted lesser falls on the day.

Despite this imbalance, Wall Street has been looking for a cracker of an earnings season this quarter – a reality required to underpin the fantasy (to date) of what Trump might be able to achieve. The dip-buyers have being doing so on a wing and a prayer. Earnings misses will put the frighteners through the market.

But it’s early days. And the Dow’s -113 loss last night came on the heels of Monday night’s 180 point gain.


Hang on to your hats.

The LME was back in business last night following the Easter break to assess the impact of rising geopolitical tension and the the sudden UK election announcement. Aluminium fell -0.5%, copper -2%, nickel and zinc -4.5% and lead -6%.

Iron ore dropped another -US$3.10 or -4.8% to US$61.50/t.

West Texas crude is down -US40c at US$52.35/bbl.

All this despite the -0.8% fall in the dollar index to 99.51, which has provided some redemption for the materials space today given gold is up US$5.20 at US$1289.20/oz.

The Aussie is also -0.4% lower at US$0.7558.


The SPI Overnight closed down -38 points or -0.7%.

The Fed Beige Boom is due out tonight.

NAB will provide a wrap of March quarter business confidence locally.

Paladin Energy ((PDN)) will publish a quarterly production report.

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