Overnight: Rumour Mill
The Dow closed down -274 points or -1.2% while the S&P fell -1.5% to 2430 and the Nasdaq dropped -1.9%.
Hold the Phone
Prior to yesterday, the eight major stockbrokers in the FNArena database were forecasting a 31c dividend to be paid by Telstra ((TLS)) in FY17 and six of the eight expected a status quo 31c in FY18. There has been speculation for months Telstra would be forced to cut its lofty payout, but most brokers assumed not in the near term. Two of the eight brokers nevertheless broke ranks and forecast a cut in FY18.
Citi and Credit Suisse were both forecasting 25c. Even they missed the mark. The announced 22c dividend, a -30% cut, had everyone in shock.
If you are a Telstra shareholder, not only is your dividend next year -30% lower, you just lost -10% on the value of your position. Standing out like dog’s proverbials yesterday was a -9.6% plunge for the telco sector.
Prior to that bombshell, the ASX200 had followed a choppy start with a rally up to 5806. Yep, back to the top of the range. If that wasn’t enough to trigger selling, yet again, Telstra overwhelmed the index anyway. Sector moves on the day suggest it was not market-wide selling at the top that closed the index down on the day. It was once again mostly about earnings.
Healthcare rose 1.1% thanks to a 7% jump in Cochlear ((COH)) post result, and a dividend increase. Materials rose 1.3%, thanks to strong base metal prices but also a result from Evolution Mining ((EVN)), and accompanying dividend hand-out.
Embattled consumer discretionary rose 0.9% following good reports from Breville ((BRG)) and Tabcorp ((TAH)), with Blackmores ((BKL)) and Retail Food ((RFG)) also appearing among the top ten winners. Financials fell -0.4% on a -7% fall for QBE Insurance ((QBE)) post result.
There were no utilities on the top ten losers board yesterday, but that sector fell -0.9%. Telstra may now have the market rattled about all high-yield plays.
It’s another day of earnings results today but no particularly big caps will feature, and it will be academic anyway with the futures down -51 points this morning on Wall Street’s tumble.
Australia added 29,700 jobs in July, ahead of 22,000 expectations and the unemployment rate remains at 5.6%. There was a shift in the breakdown this month, however, with 48,200 part-time jobs added at the expense of -20,300 full-time. But given the surprising strength of full-time jobs growth in the prior two months, economists see this as nothing concerning.
The underemployment rate remains unchanged, implying “spare capacity” in the labour market remains the norm. This is enough to keep the RBA on hold despite solid jobs growth over the past three months.
Gary Cohn is the head of the White House national economic council, is chief architect of the president’s proposed tax reform bill, and is highly regarded on Wall Street. Cohn is known to be upset with the president regarding the Charlottesville issue. Hence a rumour hit the market last night he was planning to walk out, in the wake of the departure of the CEO council.
Wall Street had already opened lower and selling soon accelerated. Not only would the departure of the tax reform architect throw that most important policy into doubt, the departure of the first of the White House inner circle would beg the question: who’s next? Where will Trump’s agenda be left? Who could he now possibly find to replace the smartest minds in the room?
Later in the session, one particular senator launched a scathing attack on Trump, suggesting he does not “understand” America. Wall Street dipped further.
Initial market weakness had been sparked by disappointing earnings results from Dow components Cisco (-4%) and Wal-Mart (-1.6%). Wal-Mart had been hailed as a success story in its fight to restructure to take on the Amazon threat, so its earnings miss cast a pall over US bricks & mortar retail once more.
Never mind, Amazon shares were hit again last night, as was all of FANG and friends.
And it was not the night to learn of another horrible terrorist attack, this time in Barcelona.
Later in the day the White House issued a statement suggesting rumours of Cohn’s departure were “100% false”. Wall Street kept on selling. If history is any guide when it comes to politics, 100% false means Cohn is probably clearing his office as we speak.
Predictably, the VIX index jumped 32% last night to 15.6. The US ten-year yield fell -3 basis points to 2.20%. Gold was up over ten dollars at one stage, but came back to be up closer to five.
And here’s one for the tea leaf readers…
As the S&P500 rose on Wednesday night, more component stocks hit 52-week lows than hit 52-week highs. This has been the case in five out of the last six sessions, and is known as the Hindenburg Omen. It portends a major pullback. Oh the humanity.
The last time a Hindenburg Omen was seen was in July 2015 and yes, Wall Street fell, but not by too much. Prior to that it was November 2007.
Wednesday night’s enthusiasm for base metals eased last night in London, with aluminium, copper and nickel all falling back -0.5%, zinc -2% and lead -4%.
By contrast, iron ore jumped US$4.00 to US$75.10/t.
Gold is up US$4.70 at US$1287.50/oz.
West Texas crude is up slightly at US$46.93/bbl.
The US dollar index did initially fall but rebounded later in the session, to be up 0.3% at 93.73.
After the prior surge up past 79, the Aussie copped selling overnight to be down -0.5% at US$0.7885.
The SPI Overnight closed down -51 points or -0.9%.
Not quite the number of the past two days, but still plenty of earnings reports out today.
Rudi will connect with Sky Business later today via Skype to discuss broker calls, probably around 11.15am.
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