POSTED BY ANGUS GEDDES
Good morning,
US Shares traded mostly higher on Friday morning, but then staged a reversal to close mixed on the day. The benchmark S&P 500 and Dow indices closed about flat, up just 0.04% and 0.08% respectively, while the tech-heavy Nasdaq closed 0.23% lower. Over the course of the week, the S&P 500 and the Dow recovered 4.3% and the Nasdaq gained 5.3%, but are still collectively down around 5% from their respective January peaks. Bond yields were slightly weaker while the VIX continued to decline, falling below 18 for the first since January and the DXY strengthened above 89. The futures are pointing to a good start to the week as the dust settles.
The S&P500 has since late January corrected the overextension relative to its long run upward trend, While I think we can expect more consolidation as overbought conditions are corrected, there is a good probability that new highs will be forthcoming later in the year.
S&P500
Dampening sentiment during on Friday afternoon was the announcement from Special Counsel Robert Mueller’s office at the FBI that a federal grand jury had indicted several Russian nationals for allegedly interfering in the 2016 presidential election. It is not alleged that there was any collusion between Mr Trump’s campaign and the Russians.
On the economic front, according to the Labor Department, import prices rose 1.0% in January after ticking up by a revised 0.2% in December. It was expected that import prices would rise 0.6% in January from an earlier reported 0.1%. Export prices were up 0.8% in January, from a revised 0.1% in December.
US consumer sentiment was more buoyant than expected in the first week of February, with the preliminary print coming in at 99.9, up from the final January reading of 95.7. Economists had expected the most recent reading to come in at 95.5.
In terms of other sector movers, it was a mixed bag. Pharmaceutical companies gained modestly, while gold stocks came under pressure, with the NYSE Arca Gold Bugs Index down 2.3%.
Walt Disney shares rose 1.3% on Friday, as the House of Mouse’s latest Marvel offering has all the markings of another blockbuster hit. Reviews have been fantastic and on the rating aggregation site Rotten Tomatoes it has a strong 97% ‘fresh’ rating.
It opened with $78.5 million in box office takings on Friday, ranking at the eighth largest opening day ever. That pipped the $75.5 million tally of another Marvel movie, Captain America: Civil War. That went on to take in a whopping $1.15 billion globally.
Black Panther’s global one-day tally was $122.8 million and the movie is yet to open in China, Japan and Russia. Current estimates for its full run go as high as $1 billion, although there is a long way to go. It seems audiences’ appetite for superhero movies is insatiable and Marvel is the clear leader in the space. Along with Lucasfilm, Pixar and home-grown studios, Disney looks unbeatable at the global box office. If its Fox assets acquisition is successful, it will further extend its lead.
Disney
Among the exporters in Japan, robotics makers Fanuc and Yaskawa Electric gained 0.6% and 1.2% respectively, while the components maker THK Company surged 4.6%. Sony shares closed 1.8% higher, while Nissha Company jumped 5.0%. Nissha is a world leading manufacturer in the touch screen market – we hold the company in the Global Contrarian fund.
The megabanks were up modestly, with Sumitomo adding 0.4%, Mitsubishi UFJ up 0.5% and Mizuho tacking on 1.1%. Sony, Fanuc, Nissha, Sumitomo, Mitsubishi UFJ and Mizuho are holdings in the Global Contrarian Fund, while the other companies are held in the Asian Managed Account portfolios. Most other Asian markets were closed for the Lunar New Year holidays, including China, Hong Kong, Taiwan, Singapore, Indonesia and Malaysia.
In Australia the ASX200 dipped slightly on Friday, edging down 5 points to 5,904. The index was up 1.1% for the week and while the rebound has not been as much as for other markets, the ASX200 didn’t fall by as much either. It may be that investors are already ‘acclimatising’ to the prospect of higher interest rates and inflation, and as I have been writing, this bodes well for key sectors which drive the Australian market, and most notably the financials, resources and the insurance sectors.
This week we have an eagerly awaited result from BHP. The company has typically set the benchmark for the sector, and robust production should combine with rising commodity prices to deliver another strong set of numbers. Shareholder agitation though of course remains a feature, with questions raised over the company’s dual listing structure, and shale assets. There may be some cases here to drive shareholder value further, but certainly the company is doing a good job as things stand.
Australian wage data will also be closely watched. While there is possibly more ‘wiggle’ room in the Australian employment market than in some other countries, labour tightness will inevitably come through into wage pressures in our view.