Overnight: Progress

By Greg Peel

Wild

Never in this writer’s long experience has a result season featured so many wild moves in share prices, up or down, in response to earnings releases. In days of yore it was typical to see the odd double-digit percentage move during the season, maybe even a standout 20%-plus, but this season it seems every day has brought at least one or two. And then yesterday, well…

It seems half of stocks reporting either surged or crashed post release. And the bulk of reports is yet to come. Are analysts getting it so wrong? Are companies failing miserably in their disclosure obligations? Or is it, dare I say, evidence that stock markets are not efficient discounters of future earnings but rather are beholden to market psychology? And I don’t mean human psychology.

Arguably the most popular high frequency trade is the momentum trade – go with the flow. Put enough HFT computers in the room and momentum begets momentum, anxious computers start suffering from FOMO, and they all stumble over each other while humans stand aside in awe.

Let’s just look at some of yesterday’s moves:

Altium ((ALU)), up 20%; IOOF Holdings ((IFL)), up 16%; Blackmores ((BKL)), down -25%; Emeco Holdings ((EHL)), down -24%; Saracen Minerals ((SAR)), down -10%; Cochlear ((COH)), down -8%; Seven West Media ((SWM)), down -8%.

These are not small companies.

There was of course a story behind each move, but was each move justified?

Altium impressed with strong margins for its SaaS business. Nobody had believes IOOF’s claim post RC remediations would be benign, but they have been. Demand for Blackmores pills and potions has slowed in China. Cochlear has lost market share in the US and Germany. Emeco has surged in recent months and disappointed. Saracen suffered from being one of many overpriced gold miners. Seven West found out television advertising is something only baby boomers remember.

Newbie Top 20 member Coles ((COL)) disappointed on sales growth and fell -4%. That move led consumer staples down -1.8% to be the worst performing sector on the day.

Healthcare followed closely at -1.7%, thanks to Cochlear and some sympathy from CSL. Consumer discretionary and materials both fell -0.2%, but every other sector closed in the green. There was not a lot of macro influence on the day.

Energy took a breather on the bench after a long run and closed flat. Financials provided the biggest counter to staples and healthcare in rising 1.4%. Apart from IOOF’s surge, ANZ Bank ((ANZ)) delivered a trading update that was worth 2.3%. The sector gained 1.4%.

The coin came up heads for Telstra so telcos rose 0.7%, while the biggest percentage move on the day was reserved for IT (+2.2%). See: Altium.

Today’s list of reporting companies is the longest to date in the season, and will be pipped only by tomorrow’s season crescendo. Either strap in, or retreat and find somewhere safe.

Nothing Magical

The US trade delegation returned from China over the weekend and on the next plane out was the Chinese delegation bound for Washington, for talks that resumed last night. And you guessed it: “progress is being made”. But forgive my lack of eloquence. Over to you Mr Trump:

“Big progress being made on soooo many different fronts!”

When asked in the Oval Office about the March 1 deadline, which previously was “hard and fast”, the president replied that it was not a “magical” date. The Chinese are keen to avoid the step-jump up in tariffs on US$200bn of exports, he said. The deadline is fluid, he implied.

And that’s enough to keep Wall Street in a buoyant mood, even if stock markets made a stumbling start last night. Once again the early selling came out of Europe, and when Europe closed the US indices recovered to a flattish close.

The long tail of the US earnings season was also back in focus last night as Walmart (Dow) posted its result, leading to a 3.5% gain. The country’s biggest bricks & mortar retailer, which is also now rapidly growing an online presence, followed in the footsteps of the world’s biggest retailer, Amazon, in reporting strong December sales.

Which again has left Wall Street scratching its head about that -1.4% fall in retail sales in December, as reported by the government. Numbers coming out of the non-government seem to be in stark contrast.

Another point of discussion on Wall Street as the rebound out of the December mire continues, fuelled by trade optimism, is as to whether good news is now priced in. Will a breakthrough on trade simply spark a sell-the-fact response?

While US-China talks may be in the foreground, in the background remains Trump’s threat to impose stiff tariffs on auto imports, specifically European cars. We may recall way back last year when Wall Street surged on news Trump and the EU had agreed they would nut out some sensible deal and all would be good – stay tuned, we just have to sort out the detail. Well, here we are, and there’s no apparent resolution.

Mind you, the EU has a 10% tariff on US auto imports while the US currently hits Mercs and Beemers with 2.5%. But then again, no one in Europe drives a Chevvy anyway.

So, still we wait to see what may eventuate on the global trade front.

Commodities

Having looked like it had broken back up through the 97 resistance level, the US dollar index is once again pulling back, down -0.3% last night.

There was little response in metal prices other than gold, which has found renewed vigour in rising US$13.50.

The oils took a break.

The Aussie is up a full half percent at US$0.7167.

Today

The SPI Overnight closed up 11 points or 0.2%.

Tonight brings the Fed minutes, and thus more colour with regard the FOMC’s about-face.

Today sees the local December quarter wage price index, kicking off the countdown to the GDP result next month.

Results? There’s loads. A2 Milk is in there ((A2M)), along with Domino’s Pizza ((DMP)), Fortescue Metals ((FMG)), Stockland ((SGP)), Sonic Healthcare ((SHL)), WorleyParsons ((WOR)) and Woolworths ((WOW)), to name but a few. Please refer to the FNArena Calendar.

Note also that AGL Energy ((AGL)) and Newcrest Mining ((NCM)) are among those stocks going ex today, and Graincorp ((GNC)) holds its AGM and a rain dance.

The Australian share market over the past thirty days…