The Overnight Report: Numbers Game

This story features MYER HOLDINGS LIMITED. For more info SHARE ANALYSIS: MYR

By Greg Peel

The Dow closed down -4 points while the S&P fell -0.1% to 2345 and the Nasdaq lost -0.1%.

Not Convincing

The ASX200 did ultimately post a reasonable revival yesterday after Wednesday’s rolling sell-off but it was a struggle from the outset. Late morning it looked as if the index was set to head back into the red before lunchtime buying saw 5700 regained.

It is not untypical for the market to post a recovery in the wake of a big fall, particularly when that fall appeared rather panicked. The fact Wall Street did not go on with its Trump-related weakness on Wednesday night provided relief. But it was far from a convincing comeback.

The banks, in particular, provided a drag yesterday in not rebounding by the same level as other sectors. Energy rose 1.3% and materials 0.8% but financials managed only 0.1% and telcos went further into the red, falling -0.7% against the tide. Yield payers were nevertheless popular again, indicated by utilities rallying 1.2%.

The local market is very much beholden to Wall Street at the moment given a lack of anything much else going on at present, and the fact Donald Trump’s healthcare bill has implications far beyond sick Americans. How goes the progress of that bill will determine Wall Street’s short term direction.

And Australia will dutifully follow.

Not Healthy

The Dow was up over 80 points mid-session last night, rising steadily from the open, as the trickle of news out of Washington suggested the Trump team was managing to turn some votes and may just have the numbers to put the healthcare bill to Congress. The fact House Speaker Ryan had postponed his usual morning press conference to the afternoon hinted maybe he wanted to wait to be able to confirm such a result.

But eventually Ryan postponed again. The vote in Congress has now been delayed, suggesting Trump does not have the numbers. Wall Street once again retreated to the flatline.

As it is unlikely the vote will be organised for tonight, US markets will probably sit tight for another session.

Given the Republicans control all three houses – upper, lower and White – it is not the Democrats the Trump team has to convince. It is the right wing of the Republicans. As I have suggested before, it is not the healthcare bill itself – no matter how important healthcare actually is – that is determining Wall Street’s mood at present. It is the wider implications of Trump not having sufficient control or support in his own party to move his agenda forward expediently.

Not only does a stalled healthcare bill imply a longer period Wall Street has to wait for tax reform, and other significant policy items such as infrastructure spending and deregulation, it brings into question whether any of Trump’s grandiose campaign promises will actually get off the ground. At the very least, his most ambitious policy changes may take months or years to see the light of day, and then perhaps only in watered down form.

Maybe healthcare will be the only real stumbling block, or maybe all legislation will require a hard fought battle. This remains to be seen, as this is what Wall Street is currently waiting to assess.

The longer it takes the greater the risk Wall Street will take another, more pronounced, step down. Not that anyone much sees this as a bad thing, but as an investor you’d need to get the timing right.

Commodities

At 43 days, the Escondida workers’ strike became the longest in Chilean history by a day before ending last night. BHP offered the union an ultimatum which was rejected, and the union then withdrew and claimed victory, using a specific Chilean law that allows them to continue on the current deal for 18 months before a new round of negotiations must begin.

BHP is not happy with the outcome, given it implies 18 months of not being able to accurately forecast costs down the track, rendering future planning uncertain.

Copper traders had already made their price adjustments, it appears, as the copper price rose slightly in London overnight. Small gains were also posted by aluminium and lead, while nickel dipped slightly and zinc fell -1%.

Iron ore made somewhat of a comeback in rising US$1.40 to US$85.60/t.

Weekly US data have once again shown record US crude inventories. The oil market should now be looking ahead to rising demand from the US summer driving season but will it be enough to overcome growing oversupply?

West Texas crude fell through the 48 mark last night, down -US45c to US$47.70/bbl.

The US dollar index is up 0.1% to 99.73 which is enough to have pulled gold back slightly to US$1245.20/oz.

It appears that having failed to surpass the 77 mark, the Aussie is now hell bent on running the other way. It’s down 0.7% at US$0.7627.

Today

The SPI Overnight closed up 5 points.

Tonight sees durable goods orders in the US and a flash estimate of the March manufacturing PMI, which may provide Wall Street with something to think about other than health. But probably not.

Myer ((MYR)) goes ex-div today.

Rudi will link up with Sky Business today to discuss broker calls via Skype, probably around 11.15am.
 

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