Overnight: As You Were

By Greg Peel

Lights Turn Green

Having eased monetary policy at the previous two meetings, the Board judged it appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy. Members would consider a further easing of monetary policy if the accumulation of additional evidence suggested this was needed to support sustainable growth in the economy and the achievement of the inflation target over time.

It was a choppy start for the local market yesterday morning. While Wall Street had rallied strongly overnight it was largely in response to the same factors that had driven the rally in our market on Monday, so investors initially appeared reluctant to double-up. But this extract from the minutes of the August RBA meeting provided a spark.

Thereafter, it looked like another round of FOMO, aided by momo, and likely short-covering thrown in.

Judging by the extract the RBA will not be going three from three in September, but clearly the bias remains to the downside. More data will need to pass through before another cut is deemed necessary. The market was fine with this as three from three always looked a stretch anyway.

Beyond the macro was a lot of micro yesterday.

With the FNArena Results Monitor now having covered around a third of the season in terms of number of reporting stocks, misses are leading beats by 33% to 20%. Never in the history of the Monitor (August ’13) have misses ultimately exceeded beats. The closest we came was August ’17, when beats and misses matched 27/27%. And February this year when the score ended 33/33%.

Otherwise, the average beat to miss ratio is 1.4.

Judging by yesterday, we may see that miss number pull back a bit once yesterday’s reports are added today.

Within the index, IPH ltd ((IPH)) led the charge yesterday with a 10.4% gain on result, followed by Estia Health ((EHE)) on 8.4%. Also on the winners’ board were Monday reporters Beach Energy ((BPT)), which kicked on another 9.0%, and BlueScope Steel ((BSL)), which spun around and rallied back 7.7%.

There were also solid moves up for ARB Corp ((ARB)), Charter Hall Group ((CHC)), Oil Search ((OSH)), Seek ((SEK)), Sonic Healthcare ((SHL)) and Senex Energy ((SXY)).

BHP Group ((BHP)) disappointed but one presumes “Big” things were expected given the iron ore price. BHP closed up 0.1% after an initial fall.

Add in additional upside for Lendlease ((LLC)), Altium ((ALU)) and Infomedia ((IFM)) following Monday results and suddenly it looked like the result season will be saved after all. There were some inevitable post-result drops, but no real train wrecks. Indeed the worst index performer was Saracen Minerals ((SAR)), but only because of the gold price and only by -3.5%.

Of course we have to take share price responses in the context of the big pullback in the index we’ve seen from the end-July high, and the macro volatility that has dominated in August. If we were still hitting new all-time highs the response might have been a bit different.

And we also have to consider that while every sector closed in the green yesterday, to varying degrees, Wall Street lost steam last night and our futures are showing down -46 points this morning.

Those Bonds Again

The Italian prime minister resigned last night and dissolved the ruling coalition, thrusting (perennial) Italian political turmoil back into front of mind. Add in expected easing from the ECB and the German ten-year yield fell to -0.9%.

The US ten-year traded back down to 1.54% before settling down -4 points at 1.56%. That was enough to end the three-day snap-back rally on Wall Street. It was a fairly modest breather until selling accelerated at the death.

I mentioned yesterday that the run of US retailer earnings results this week will be critical in corroborating recent data suggesting the US consumer is alive and kicking, and the balance of last night’s results did not disappoint. Consumer discretionary was the only sector in the green right up to the close before just tipping over. A 4% gain for Home Depot put the brakes on the Dow’s descent.

While companies with solid online platforms are succeeding, graves are being prepared for the big legacy department store chains. Here’s a fun fact: TJX Companies is a retailer that buys unsold inventory from the big chains for a song and sells it to the public for a nice price. Some might call it a “parasite” business model. The market cap of TJX is now greater than all the major department store chains put together.

Trump was in the Oval Office last night banging on to the press about how strong the US economy is and how much stronger it would be if the Fed cut by -100 basis points. He also touted not just payroll tax cuts but also capital gains tax cuts. Must be an election coming.

Wall Street didn’t buy it of course, but no one seemed particularly perturbed about a bit of a pullback after a very solid three days.

We also note that with something like 470 of 500 S&P stocks now having reported, the beat to miss count there is 73% to 19%. This is a “hard number” count based specifically on earnings per share result versus consensus forecast. As Australia for some reason measures success on headline profit, which can be totally misleading, FNArena’s assessment locally is more subjective, but underlying earnings play a big part.

Commodities

Nothing out of the ordinary again in commodity markets last night other to note that the drop in bond yields had gold recovering once more.

The Aussie seems to like the Summer of Love, chilled out at US$0.6777.

Today

The SPI Overnight closed down -46 points or 0.7%.

As to whether that will be the result at the close will depend upon today’s list of reporting companies – the second biggest of the season. Tomorrow is the biggest, by a margin. I’m not going to try to list highlights.

Tonight sees the release of the minutes of the July Fed meeting.

The Australian share market over the past thirty days…