In a week when Donald Trump unwound a lot of his good work with China, North Korea and Wall Street, the S&P/ASX 200 index lost 4.3 points on Friday to end at 6032.8. For the week, however, the Index shed 54.6 points (or 0.9%). And considering the headwinds, it wasn’t a bad effort.

Throw in the fact that the ‘banks behaving badly’ nightmare continues, giving the Royal Commission relevance, while hurting their stock prices. To make matters worse, Telstra plummeted to a seven-year low! For the record, the low was $2.72 but the bargain hunters started to give Andy Penn the benefit of the doubt, which is considerable, so the stock ended at $2.87.

The question is: have we seen the bottom and is it time to buy in? I’ll tackle this issue on my Money Talks program on Sky News Business on Monday.

It comes as TPG’s entry into the mobile market explains why Telstra has seen it share price plummet. Fairfax media says “TPG won’t make any money from each mobile subscriber for their first six months after unveiling a scorched-earth strategy based on a $0 unlimited data plan. Subscribers will then be charged $9.99 a month.”

But wait, there was more bad news, with iron ore prices softer over the week. And oil prices slipped on Friday.

On the plus side, Charlie Aitken’s faith in Aristocrat was seen to be spot on, with the company revealing a 220% spike in its digital revenues, which gave its shares a 10% boost.

And for those courageous contrarian plays, Retail Food Group hit 75 cents this week after the company’s former CEO, Tony Alford, sold $6.3 million worth of his shares, which is a real life example of what the stock market calls “capitulation”. I wonder if this will be a memorable event in this company’s history and will Tony live to regret his need to cash out?

To Trump tweeting and other tidings, this is the one we woke up to this morning: “Trump says dialogue with North Korea has reopened: “We’re talking to them now.”’ (CNBC)

However, this split personality President has not won Wall Street over, with both the Dow and S&P 500 in negative territory, though it’s nothing dramatic.

The cancellation of the Summit with Kim Jong-un is still hurting stocks but I reckon the 7% fall in the oil price this week was more important to stocks. And remember how we started the week with Donald, with Reuters reporting: “US Treasury Secretary Steven Mnuchin said on Sunday the United States and China had agreed to drop their tariff threats, while China on Monday praised a significant dialing back of tensions.”?

Trump is even trumping himself and his own good news!

For bond market worriers, the yield on the 10-year Treasury bond has fallen away from the 3% fear factor level to 2.93% over the week, following the Fed telling us via its minutes that it is prepared to see inflation beat 2%, before getting too trigger happy with interest rates. That said, we now expect a rate rise in the US in June.

A part of that fall in the bond market would be some investors wondering if the US economy’s growth is not strong enough for the bond market. That said, companies such as Lowes (the hardware business that failed here with Woolies’ Masters hardware offering) and Tiffany & Co. reported very strong retail numbers.

On Wall Street going forward, this is a pretty sensible take on the matter: “At the end of the day, it’s going to come down to earnings and the ability of companies to beat,” said Jeremy Klein, chief market strategist at FBN Securities. “Things are quiet ahead of the holiday … [but] there’s nothing to suggest corporate earnings in the next couple of quarters will be any less impressive.” (CNBC)

One final point, which was well made by AMP’s Shane Oliver on Chinese debt:  “China is different to most countries that get into debt problems in that it borrows from itself (so there’s no pesky foreigners to cause an FX crisis), much of the rise in debt owes to corporate debt that’s partly connected to fiscal policy (and so the odds of government bailout are high) and the key driver of the rise in debt is that China saves around 46% of GDP and much of this is recycled through the banks where it’s called debt.

So unlike other countries with debt problems, China needs to save less and turn more of its savings into equity than debt. The Chinese authorities have long been aware of the issue and have been working to slow debt growth. So yes, keep an eye on it but there is no need for alarm.”

What I liked

• The weekly ANZ/Roy Morgan consumer confidence rating rose by 0.7% to a 15-week high of 121.6. Confidence is up by 8.4% over the year and above the average of 113.8 since 2014.
• Sentiment towards family finances over the past year rose by 2% to a 3-month high of 110.1. And views on whether it is a ‘good time to buy’ a major household item rose by 2.6% to 141.7 over the week.
• The economy is flying high with a record 4.77 million passengers flying on the Sydney-Brisbane route in rolling annual terms in March. The load factor on the route rose by 0.8% to 82.9%. And a record 9.19 million passengers flew on the Sydney-Melbourne route in rolling annual terms in March.
• In the year to April, 57.1% of those aged 60-64 years and 13.4% of those aged 65 years and over were in the job market – both record highs. There are 3.9 million Aussies aged 65 years and over and 531,000 of these have jobs.
• Construction work done rose by 0.2% in the March quarter – the fifth increase in six quarters. Work done was up 5.0% on a year ago. Victorian construction was at record highs. The rise was less than expected but I like the five rises out of six bit.
• The Internet Vacancy Index fell a small 0.5% in April after increasing for 17 consecutive months, ending the longest run of consecutive monthly increases since March 2011. The index is still 9% higher than a year ago and just off 5½-year highs.
• The US Markit “flash” manufacturing index rose from 56.5 to 56.6 in May (forecast 56.5) and the services gauge rose from 54.6 to 55.7 (forecast 54.9).
• The Richmond Federal Reserve manufacturing index in the US rose from -3 points to +16 points in May (forecast +9).

What I didn’t like

• Bond yields continued to blow out in Italy and this is Shane Oliver’s take on the country, following its recent election: “Investors are right to worry about a populist Government in Italy – its proposed fiscal policies will blow the Italian budget deficit through the EU limit of 3% of GDP leading to conflict with the EU, sanctions, the ECB excluding it from its bond buying program and ratings agency downgrades.”
• Shares of German car makers Daimler, BMW and Volkswagen dropped 1.7%-2.8%, after the US warned that it may introduce tariffs on foreign auto imports.
• The latest gauges of activity in the manufacturing and services sectors for the Eurozone disappointed. There was also concern about a stalling in US-China trade talks, particularly affecting resource stocks.
• Retailer Best Buy’s shares fell by 6.7% after the company reported a slowdown in quarterly online sales. This could be a bad retail/economic sign but I suspect it’s about the online threat of the likes of Amazon.

Business unusual

This SMH headline this morning: “On again? Trump says still chance of June 12 summit!” That’s my exclamation mark but if ever a guy deserves one, it’s Donald. For a newspaper or media outlet, Donald is the gift that keeps on giving, though he’s not as gift-like for the stock market right now.

He clearly has a ‘can’t stop talking’ issue, which I look at in my Weekend Switzer story.

The Week in Review:

• I believe we could see 7000 on the ASX this year! There are plenty of market optimists out there who believe the glass is still half full.
• Telstra at $2.85? Find out what Paul Rickard had to say.
• Charlie Aitken believes that bonds and Sydney Airport could both lose 20% in value. Chasing yield for yield’s sake could be costing you bigger capital gains.
• The retail sector might be under pressure, but mega shopping centres have good prospects and Tony Featherstone discussed the Unibail-Westfield merged.
• It’s set to be one of the biggest IPOs of the year and James Dunn looked at all you need to know about it. Find out what it is.
• The expansion in the maximum member size of SMSFs could be good news for some, but it’s not all sunshine and rainbows. Graeme Colley discussed why.
• In this week’s Professional’s Pick, Antipodes fund manager Graham Hay explained why this global technology giant is on the road to recovery
• In the first Buy, Hold, Sell – what the brokers say Treasury Wine Estates got an upgrade, while Crown was downgraded.
• And in the second Buy, Hold, Sell – what the brokers say AMP finally got some loving, with an upgrade from Morgan Stanley, while Santos was downgraded.
• Treasury Wine Estates was also featured in this week’s Hot Stocks while Telstra has very few friends.
• Plus, should an investor worry too much about short-term declines? Paul Rickard answered for a curious subscriber in the Questions of the Week.

Top Stocks – how they fared:

What moved the market?

• President Trump cancelling the summit with North Korean leader Kim Jong-un causing Wall Street and European markets to fall.
• Metal Ore and oil prices eased.
• Banks continued to be under pressure as the Royal Commission started its review of lending to small businesses.

Calls of the week:

• I said we can still see 7000 on the ASX this year!
• Donald Trump calling off the summit with North Korea.
• Preacher from the Royal Wedding, Michael Curry “We gotta get y’all married.”

The Week Ahead:

Australia

• Tuesday May 29 – Weekly consumer sentiment
• Wednesday May 30 – Building approvals (April)
• Thursday May 31 – Business investment (March quarter)
• Thursday May 31 – Private sector credit (April)
• Friday June 1 – Manufacturing sector surveys (May)
• Friday June 1 – CoreLogic home prices (May)

Overseas

• Tuesday May 29 – US S&P/Case-Shiller home prices (March)
• Tuesday May 29 – US Consumer confidence (May)
• Wednesday May 30 – US ADP employment index (May)
• Wednesday May 30 – US Economic growth (December quarter)
• Wednesday May 30 – US Trade balance (April)
• Wednesday May 30 – US Federal Reserve Beige Book (April)
• Thursday May 31 – China manufacturing & services (May)
• Thursday May 31 – US Personal spending/income (April)
• Thursday May 31 – US Chicago purchasing managers index (May)
• Thursday May 31 – US Pending home sales (April)
• Friday June 1 – China Caixin manufacturing survey (May)
• Friday June 1 – US Employment report (May)
• Friday June 1 – US ISM manufacturing (May)

Food for thought:

I have a tail and a head yet I have no legs and body. What am I?

(hint: not an animal. Email your answers to subscriber@switzer.com.au)

(The answer to last week’s riddle was 888+88+8+8+8)

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.

Chart of the week:

Top 5 most clicked:

1. Telstra at $2.85? – Paul Rickard
   
2. We could see 7000 on the ASX this year! Seriously! – Peter Switzer
   
3. Bonds and Sydney Airport could both lose 20% in value – Charlie Aitken
4. Buy, Hold, Sell – what the brokers say – Rudi Filapek-Vandyck
   
5. Buy, Hold, Sell – what the brokers say – Rudi Filapek-Vandyck
   

Recent Switzer Super Reports:

Monday 21^st May: Miracles happen

Thursday 24^th May: Yield for yield’s sake?

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.