The Overnight Report: Energised

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By Greg Peel

The Dow closed down -42 points or -0.2% while the S&P gained 0.1% and the Nasdaq rose 0.4%.

Break Out

A long time ago, when I was living in a university share house, I went to the local Radio Rentals outlet to look into renting a (beta) VCR for our household. The salesman was offering all sorts of fabulous deals, but at the end of the day could not, or was not prepared to, tell me the actual amount I would ultimately end up paying. So I walked out.

Thorn Group ((TGA)) took a -12% tumble yesterday on the startling revelation Radio Rentals’ fabulous deals are misleading. Meanwhile, the Myer ((MYR)) curtain was pulled back to reveal – you guessed it – Solly Lew. Interestingly, Premier Investments ((PMV)) rose 1% yesterday despite the likelihood of being party to taking over a department store dinosaur, just when Smiggles is doing so well. Clearly, Lew doesn’t like to remain stationery.

But then just about everything went up yesterday. While energy stood out with a 1.3% gain on a recovering oil price and the banks (+1.1%) once again led the charge on a market cap basis, every sector finished in the green. It was market-wide buying, technically based.

The ASX200 had made three previous distinct attempts to break up though the 5800 in 2017 and each time failed. In each case, the chartists insisted that a breach of 5800 would mean a clear run to the 6000 post-GFC high of 2015. On Tuesday, the index finally posted a close sufficiently above 5800 as to suggest the break-out had indeed occurred. So yesterday, investors piled in.

The money is there to do so thanks to, as I noted yesterday, the flood of cash hitting fund manager coffers from dividend payments. Never before has so much of the market paid out so much in dividends. Aside from the usual yield plays – banks, telcos, utilities et al – the big miners have paid big dividends, the big oil companies have paid big dividends, the big industrials have paid big dividends…it is not the way the world used to be.

So will we now see 6000? Well, the problem there is that everyone is assuming so. And if everyone believes a market is going up, that’s usually when it goes down.

We will still be very much beholden to Donald Trump of course, and his Twitter finger. And some older investors may also remember how China used to feature fairly heavily in Australian investor sentiment.

Theresa May was left holding the smoking gun in the UK parliament last night, while Donald Tusk appeared in Europe a shattered man. Much has been made of Brexit risks, and how the world has become very complacent about the great unknown from here. But it’s a two year process. These days, two minutes is a long time in markets.

It’s a Gas

The US quarterly earnings season kicks off around the second week of April, and that will at least draw some attention away from fiscal follies and move it back to fundamentals. Meanwhile, last night on Wall Street was mostly about gasoline.

The past two weeks have seen US oil inventories building to record levels, spooking the oil market at a time 95% compliance to production cut quotas from OPEC was meant to have pushed the WTI price up to US$60. It is with each year’s approach of the northern summer oil markets look forward to the “US driving season”, which is a big draw on gasoline supply. But with US gasoline in abundance, according to previous data, the fear was US drivers would not even make a dent.

But lo, last night’s weekly data showed a lower level of gasoline inventories than feared. WTI jumped 2%.

The energy sector led Wall Street higher.

There were also a couple of minor Fedheads out and about last night touting more hawkish views than their colleagues – suggesting four and maybe even five rate hikes in 2017 – and as a result US banks saw some weakness. But these are not FOMC voting members, so their views are noted but hold little relevance.

FOMC members appear to be sticking to the party line of three hikes this year. And US banks had had a solid run up the night before.

All up the mixed bag of moves, post Monday night’s sudden revival, saw the S&P up slightly as it split the difference between a -0.2% fall for the Dow and a 0.4 gain for the Nasdaq.

Talk is now very much of the approaching earnings season, and a current S&P500 forecast for earnings growth of 9%. That would make it the best quarter since 2011. If recent history is any guide, that forecast will come down ahead of the season kicking off, and then be exceeded by season end.

Commodities

West Texas crude is up US$1.07 at US$49.44/bbl.

All base metals were stronger in London last night except for nickel, bit no move exceeded 1%.

Iron ore rose US$1.20 to US$81.90/t.

The US dollar index is up 0.2% at 99.94, prompting memories of another Donald, while gold is steady at US$1252.70/oz.

The Aussie’s joined in the local stock market excitement. It’s up 0.5% at US$0.7669.

Today

The SPI Overnight closed up 5 points.

The US will see another revision of December quarter GDP tonight, but given the March quarter ends tomorrow, it’s very old news.

Bank of Queensland ((BOQ)) reports earnings today at a time banks are the flavour du jour. It had better be a goodun’.

Rudi will appear on Sky Business from midday till 2pm.
 

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