[table “292” not found /]

A surprising overreaction to the Austrac accusations about mishandling their money laundering prevention processes hit CBA shares, more than most regular market commentators expected, with the country’s biggest bank losing 3.9%. I wouldn’t be surprised if this negativity could be offset by the bank’s show-and-tell on August 9 (next Wednesday).

Sure, the potential fine is likely to be in the millions and probably won’t be so big to materially hurt the bank’s bottom line but I guess uncertainty of a negative kind can hurt share prices.

This could end up being another buying opportunity.

The bank’s fall from grace helped take the S&P/ASX 200 index down 0.25% to 5720.6 but it still ended up 0.3% for the week, which was pretty good, considering there was no great reporting story to raise the optimism levels for the market.

Not so in the good old USA/Trumpland, where the July job numbers smashed expectations with 209,000 positions showing up when economists expected only a good 183,000! And not surprisingly, the Dow kept venturing into record high territory.

It’s like the US economy is saying the President’s economic policies might be nice icing on the cake but this cake is so good it might not need Trump’s toppings!

And I liked this take on the jobs report: “If this were a company reporting earnings, this would be a beat and a raise in guidance,” said Art Hogan, chief market strategist at Wunderlich Securities. “We’re also winding down on the earnings season so this came at the perfect time.” (CNBC)

This is what we need to see – good earnings and great economic news – and this week’s “likes” list below does suggest that our economic story continues to improve. Let’s hope earnings can deliver impressively next week.

Some major companies report but some of the minor outfits’ results could be seen as an indicator for the rest of the sector. Here is the list for next week:

• Tuesday – SCA Property Group, Transurban, James Hardie and IOOF;
• Wednesday – Carsales.com, Skycity Entertainment and Commonwealth Bank;
• Thursday – AMP, AGL Energy and Magellan Financial Group, Virgin Australia;
• Friday –  News Corp, REA Group.

Despite the first week’s underwhelming start, I did note that Suncorp, Rio and Resmed went up a day after the market’s negative response when the results were made public. And Resmed actually got an upgrade to “buy” from Citi!

By the way, Fairfax pointed out that Resmed has fallen for six weeks, as though someone was expecting a flat result – could that be? This “buy” call looks interesting, especially if you believe that the Oz dollar is bound to fall over the next six months.

Why the next six months?

Well, if this good jobs number overnight is a prelude to even better US economic news, then more rate rises for Americans will give the greenback strength and weaken our currency.

The dollar was down in US trading time to 79.31 US cents and the better the economic story for the Yanks, the lower our dollar can go.

It was good to see Tabcorp reveal a $21 million loss linked mainly to the Tatts takeover but its share price still defied gravity, going up 1.4%.

From the “what the …” department, Sims Metal’s CEO and CFO resigned and, not surprisingly, its share price tanked, down 12.5%. Meanwhile, Webjet came out of a trading halt to see its share price spike 8.8%. The days when it was off the market were because of fun and games with institutions ahead of a capital raising. The company’s MD, John Guscic, will be coming on my TV show on its upcoming reporting day but this good news for the stock followed an alleged accounting battle linked to all the above, including the related $332 million it will spend to buy Europe’s JacTravel, which will make Webjet the second biggest online travel wholesaler in the world!

These guys are really flying high. They have been for a few years now. I hope the Webjet story augurs well for what reporting season reveals in coming weeks, where the message is that good companies are out there looking for growth.

What does good reporting look like? Try this from the June quarter earnings results in the USA. Of the 413 S&P 500 companies to have reported, 77% have beaten earnings expectations and 68% have beaten on revenue. Earnings look like coming in around 12% year-on-year, which is almost double the initial expectation!

What I liked

• Citi keeping its “buy” on Rio, despite its slightly disappointing result compared to excessive market expectations. We need material stocks to go higher for the overall index to trend up.
• Retail rose by 0.3% in June to be up 3.8% over the year. CommSec called the rise “robust”.
• The CoreLogic Home Value Index of capital city home prices rose by 1.5% in July and was up 10.5% over the year.
• The Commonwealth Bank Manufacturing Purchasing Managers’ Index fell by 1.8 points to 54.4 in July but a reading above 50 indicates that the sector is expanding.
• The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.3 points (2.9%) to a 5-month high of 118.4 in the week to July 30. Respondents’ views to economic conditions over the next 12 months rose to a near 4-year high!
• Private sector credit rose by 0.6% in June, after a 0.4% rise in May. Annual credit growth rose further from recent 3-year lows, up from 5% to 5.4%.
• Business credit rose by 0.9% in June to be 4.4% higher than a year ago, which is a good sign for business investment, which has been lagging of late.
• Approvals by local councils to build new homes rose by 10.9% in June, after falling by 5.4% in May. House approvals rose 4% to 13-month highs.
• New motor vehicle sales totalled 92,754 in July, up 1.6% on a year ago and a record for the July month.
• The rolling 12-month trade surplus rose from $8.9 billion to $12.7 billion, which is the biggest surplus in five years.
• Export prices for meat & meat products rose 7.2% in the quarter to record highs.
• The NFIB small business survey in the USA showed that a net 19% of firms are planning to increase employment – a four point increase from the prior month and the most since November 2006. US factory orders rose 3% in June. The ISM services PMI eased from 57.0 to 53.9 in July but any number over 50 means the sector is expanding.
• The ISM manufacturing index eased from 57.8 to 56.3 in July (forecast 56.5) but it was still a good number.
• US pending home sales rose by 1.5% in June, more than double expectations, and reversing some of the past three months of declines.
• Apple shares closed 4.7% higher in response to the latest earnings data – what a company!
• Eurozone economic growth picked up in the June quarter to 2.1% year-on-year, its fastest since 2011 and unemployment fell to 9.1% – which is high but down from a high of around 12%. Core inflation rose in July but only to 1.2% over the year.
• “Japanese industrial production bounced back in July and is up 4.9% year-on-year, with business conditions PMIs pointing to reasonable growth ahead.” (Shane Oliver, AMP.)

What I didn’t like

• In its quarterly monetary policy statement, the RBA lowered its forecast economic growth by half a percentage point for this year (to 2-3%), and a quarter-point in the first half of next (to 2.5-3.5%), which is not terrible news but I did like reading that they say the Aussie dollar “had a modest dampening effect” on GDP growth, rather than a significant one.
• Though the trending trade surplus is looking promising, the trade surplus narrowed from $2,024 million to $856 million in June and could slightly hurt economic growth for the quarter.
• That damn dollar is not helping the economy and the share prices of important currency-sensitive stocks.
• US construction spending fell by 1.3% in June (forecast +0.4%) but it’s only one month.
• The Chicago PMI fell from 65.7 to 58.9 in July. The report mirrored other surveys, which suggest a modest slowing in manufacturing activity.

What can we expect from reporting season?

The guess is that earnings will go up by a good 20%, but they will be mainly pushed up by resource companies, where the collective profit rise is tipped to be up by a whopping 130%. However, non-resource companies are only expected to show a 5% collective earnings improvement. If this ends up being better than expected, it could give our stock market a nice boost. And those great NAB business conditions readings, which are at near 10-year highs, might be an omen for optimists. I damn well hope so!

The week in review

• Which companies and sectors could do well this reporting season? I revealed what my old friend and Switzer Super Report contributor, Rudi Filapek-Vandyck, had to say.
• SMSF trustees need to work out whether they are doing a decent job as an investment manager. Paul Rickard explained how to judge your performance.
• With the Australian dollar up around 80 US cents, what are the stocks to watch? Charlie Aitken explained how to play a peaking Aussie dollar.
• Tony Featherstone revealed three ways to gain exposure to offshore companies setting the digital pace.
• King of Charts Lance Lai joined the show this week to share what the charts are saying about the direction of local and global markets.
• Fairfax was in the good books this week while Metcash was downgraded.
• In our second broker report, CYBG was upgraded following its June quarter trading update, while Navitas copped a downgrade.
• New APRA guidance confirms that if you are 60 and hold two jobs, you may now meet the definition of retirement if you cease one of the jobs.
• And the online space was a theme with our stock pickers this week, with REA Group and Trade Me Group nominate as “likes”.

Top stocks – how they fared

What moved the market?

• The first week of earnings season has been underwhelming to the market, which is acting like a spoilt brat! Despite Rio Tinto’s and Suncorp’s OK results, the market took their share prices down because they slightly missed expectations.
• US share markets were singing a different tune, cracking through record highs. A surge in Apple shares on the back of healthy iPhone sales helped the Dow beat 22,000 points for the first time.
• Bank shares came under pressure after Australia’s financial intelligence agency, AUSTRAC, launched a civil lawsuit against the CBA for allegedly breaching money-laundering rules.

Calls of the week

• By now, you’ve probably heard about the guy who got fired before he officially began at the White House, Anthony Scaramucci. Donald Trump’s now former communications director, also known as “The Mooch”, was sacked just ten days after being appointed! The request reportedly came from new chief of staff, John Kelly.
• Charlie Aitken, who was once a bull on the Aussie dollar, has now become a bear! In this week’s Switzer Super Report, he said he believes the US dollar weakness is transitory, the Oz dollar will head back to 75 US cents in the months ahead, and that investors could use this currency bounce to gain more international exposure.
• The RBA kept interest rates unchanged at a record low 1.5%, but with the stubborn dollar, no real surprise there!
• And Rio Tinto rewarded investors with a record interim dividend of US$1.10 per share – up from US45c for the first half of 2016.

The week ahead

Australia

• Monday August 7 – ANZ Job advertisements (July)
• Tuesday August 8 – NAB Business survey (July)
• Tuesday August 8 – ANZ/Roy Morgan consumer sentiment
• Wednesday August 9 – Consumer confidence (August)
• Wednesday August 9 – Housing finance (June)
• Wednesday August 9 – Speech by Reserve Bank official
• Friday August 11 – Testimony of Reserve Bank Governor
• Friday August 11 – Lending finance (June)

Overseas

• Monday August 7 – US Consumer credit (June)
• Tuesday August 8 – US NFIB business optimism (July)
• Tuesday August 8 – US JOLTS job openings (June)
• Tuesday August 8 – China trade (July)
• Wednesday August 9 – China inflation (July)
• Wednesday August 9 – US Labour costs (June Quarter)
• Thursday August 10 – US Producer prices (July)
• Friday August 11 – US Consumer prices (July)

Food for thought

“The quality of a person’s life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor.” – Vince Lombardi

Last week’s TV roundup

• This week, education business Navitas disappointed the market with its results. To discuss the announcement and what’s ahead for the company, CEO Rod Jones joins the show.
• For a look at what the potential market-moving stocks could have in store this reporting season, Contango Asset Management’s George Boubouras joins Super TV.
• Just what are the charts showing about where the dollar and Australian and US stock markets are headed? King of charts Lance Lai from Accountancy Invest joins the show.
• Nathan Bell from Peters MacGregor joins Super TV to discuss the global macro environment, the markets and the companies he’s watching right now.
• Reporting season is underway, so to discuss Rio, Suncorp, iSentia and more, CMC Markets’ Michael McCarthy joins Super TV.

Stocks shorted

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

This week, one of the biggest mover was Western Areas, with its short position increasing 2.44 percentage points to 20.47%.

Source: ASIC

Charts of the week

Consumer confidence hits a 22-week high!

The latest ANZ-Roy Morgan Consumer Confidence Index rose 2.9% to 118.4 points in the week to July 30. The index has now risen for two consecutive weeks and is at the highest point since late February!

Top 5 most clicked stories

• Peter Switzer: What companies are worth buying before reporting season?
• Charlie Aitken: How to play a peaking Australian dollar
• Paul Rickard: Has your super fund done better than 10%?
• Charlie Aitken: The great rotation has commenced
• Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say

Recent Switzer Super Reports

• Thursday 3 August 2017: Aussie dollar rises
• Monday 31 July 2017: Earnings season kick-off

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.