The Overnight Report: Marching Forward

This story features BANK OF QUEENSLAND LIMITED. For more info SHARE ANALYSIS: BOQ

By Greg Peel

The Dow closed up 69 points or 0.3% while the S&P gained 0.3% to 2368 and the Nasdaq rose 0.3%.

Next Goal

To some extent it was more of the same yesterday on the local market but not quite with the same level of conviction of the previous two sessions. Having now left 5800 in the dust, the ASX200 hit a wall yesterday at the new psychological barrier of 5900.

The index was on target to conquer this level early in the session but when it hit 5899 around midday, the sell orders flooded in. A rapid plunge was then followed by a choppy recovery to a close of 5896.

The recovery to the close suggests the market is still in up-mode, but if we are to return to the 6000 high there is some work that needs to be done.

The rally was a little more sector specific yesterday than had been the case on Wednesday, which featured market-wide buying. The banks again contributed, creeping up another 0.4%, while energy (+1.0%) is back in favour on a resurgent oil price. The winning sector on the day was consumer staples (+1.2%), no doubt reflecting higher food prices ahead at the supermarkets as a result of the cyclone.

The materials sector has gone a little quiet these past couple of days as investors attempt to balance the impact of lost Queensland coal production and shipping against the upward pressure on coal prices such a loss implies.

I suggested yesterday that in the context of the strong rally in banks this past week, Bank of Queensland’s ((BOQ)) result yesterday had better be a good one. It wasn’t, featuring a miss on earnings, and so no surprise BOQ copped a bit of a hammering early on. But all was forgiven following an upbeat conference call with the CEO.

Poor old Bellamy’s ((BAL)). Just can’t take a trick. Having lost its supplier following a sale, Bellamy’s will have to find a new one. This wouldn’t be so much of an issue but for the fact the company will miss the deadline to satisfy China’s new food administration regulations. Bellamy’s shares were the big loser yesterday with an -8% fall.

Today is the last day of the quarter, the lead out of Wall Street is mildly positive, and the futures are showing enough to take the index past 5900 today with perhaps a bit of window-dressing providing a tailwind.

But next week ushers in the June quarter, and signals the approach of May.

Old news is good news too

The final revision of US December quarter GDP came in at a better than expected 2.1%, up from a prior revision of 1.9% which was itself unchanged from the initial estimate. Given the March quarter ends tonight, the December quarter seems like a long time ago, but there is heart to be taken from the kick up.

The first estimate of US GDP takes the numbers from the first month of the quarter and extrapolates them across the whole quarter. The first revision then includes numbers from the second month, and extrapolates again. The final revision adds in the last month for a true picture, although this “final” revision can still be revised yet again at the release of the first estimate of the next quarter.

The fact the final revision brought about an increase suggests growth picked up in December, post-election, which provides greater optimism for performance in the March quarter. The US has suffered a run of weak first quarters over the last few years and has had to wait until the September quarter to make up for it, but the weather has been an issue at least a couple of times. There is much optimism this year that for once, March will be a good one.

So we’ll have to wait and see. There is little doubt US economic data are heading in the right direction, as the Fed keeps telling us. Earnings growth forecasts for the March quarter season about to begin are the best they’ve been in years. There is of course an elephant in the room, with strange orange hair, but Wall Street remains cautiously optimistic on that front too.

The surprise GDP result had the US dollar index raising its bat to the crowd once more, as it passed the ton to 100.51 with a 0.6% gain. The recent rally in bonds was reversed last night as the US ten-year yield rose 4 basis points to 2.42%. We should note, however, that when US stock indices were hitting concurrent all-time highs, the ten-year was at 2.60%. The bond market has not since been quite as optimistic as the stock market.

The Nasdaq hit another new all-time high last night, for the first time in a month. Within the other indices, the banks were again among the leaders thanks to a stronger GDP implying higher rates, and energy joined in as WTI regained the US$50/bbl mark. Both these sectors were big initial Trump winners, before sagging more recently as a bit of the gloss wore off. Initial losers from Trump’s victory were the FANG stocks.

The likes of Facebook, Apple, Netflix and Google were sold down initially when Trump rode to victory, mostly because of the threat of the border adjustment tax and immigration bans. Those bans have since been overruled and the BAT remains a clouded issue. Either way, FANG just keeps making money, and when the dust settles that’s all that really matters. Apple has since passed all-time highs. Amazon (perhaps it should be FAANG, although strictly Google is now Alphabet, which would make it FAANA, at which point we should give up) continues to take over the world. And there we all were worried about China.

By rights, most agree, Wall Street should have had a decent correction by now, post the Trump euphoria, but this hasn’t happened. What should be around 5-7% has only been 3% and the buyers are back. This either means there is a ten percenter around the corner (May?) or there is just so much pent up buying interest that a correction just isn’t on the cards.

Commodities

The jump up in the US dollar has capped gold’s recent run. It’s down -US$9.10 at US$1243.60/oz.

The relief of Wednesday night’s US inventory data continued to support the oil price last night, as West Texas regained the treasured US$50 level with a US93c gain to US$50.37/bbl.

Base metals didn’t do much last night but for nickel rising 1%.

Iron ore fell -US30c to US$81.60/t.

The Aussie has given way to greenback pressure in falling -0.3% to US$0.76.49.

Today

The SPI Overnight closed up 9 points.

The US will see personal income & spending numbers tonight, including the Fed’s preferred PCE inflation measure.

China will release official March manufacturing and services PMI numbers today.

Locally, private sector credit data will be closely watched in the current context.

Galaxy Resources ((GXY)) will post its earnings result.

Note that summer time ends in Australia this weekend for relevant states and as such the NYSE will close at 6am Sydney time from Tuesday on.

Rudi will connect with Sky Business via Sky this morning to discuss broker calls, probably around 11.15am.
 

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