The Overnight Report: Trump Trade Revived

Daily Market Reports | Apr 21 2017

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By Greg Peel

The Dow closed up 174 points or 0.9% while the S&P gained 0.8% to 2355 and the Nasdaq rose 0.9%.

Repositioning

It was a mixed bag of a session on the local market yesterday with some quite divergent moves among sectors. The bargain hunters were back at it again, particularly in Telstra ((TLS)) and, at least initially, the iron ore miners.

The iron ore price turned around in Asian trading and sent the miners back down again, but the banks stepped up to the plate to provide the balance. Telcos rose 2.8% and the financials 0.6% while energy was the big loser on the day with a -1.0% fall thanks to the drop in the oil price.

Meanwhile, it’s been talked about for some time but yesterday Amazon confirmed its move into, or at least expansion of its business in Australia, sending the big retailers lower and consumer discretionary down -0.2%.

Iluka Resources ((ILU)) was the star of the day with an 11% gain following a positive production report and upbeat commentary on the mineral sands markets.

The ASX200 has now held the 5800 support level and consolidated. The futures were showing down -13 points yesterday morning but the index finished up 17, with a lot of help from Telstra, and this morning the futures are showing up 30.

We’ll be talking 5900 again shortly but we now head into what might as well be called another four-day weekend, given Anzac Day is on Tuesday and Monday will be a good day to skip. There is, nevertheless, the small matter of the French election, round one, on Sunday.

Lazarus

Verizon proved to be the latest big cap to weigh on the Dow last night following an earnings miss and a -1% fall, while eBay was another earnings victim, falling -3.5%. However these were standouts in an otherwise positive round of earnings reports from lesser-lights early in the session on Wall Street, which provided for a positive start.

Donald Trump then appeared on screens signing an executive order to investigate steel imports into the US and the potential for supply to be compromised were the exporter (unmentioned, but he means China) to cut off supply in the event of confrontation. A good excuse, one might assume, to justify Trump’s plan to force US infrastructure projects to use US steel.

The order certainly lit a fire under the steel sector, with Dow dinosaur US Steel among those stocks enjoying a nice rally.

Just when it looked like healthcare reform was a lost cause, it now appears the Trump team have come up with a list of compromises that may just sway the recalcitrant Freedom Caucus and get Trumpcare over the line. A vote in Congress is planned for Wednesday, assuming Trump has the numbers.

This is seen as a positive by a market whose faith in Trump the Messiah had begun to waver. And if that wasn’t enough, later in the day Treasury Secretary Tim Mnuchin suggested a tax reform plan was almost ready to be made public. It will only be an outline at this stage, and Mnuchin warned it will still be a goal but not a given that new legislation will be passed before year end, but it does signal progress.

And a further reason for faith to be restored. The Trump trade is back, for now. Despite a soggy Dow these past few sessions, the Nasdaq last night hit a new all-time high.

Commodities

The last couple of days have seen Australian investors returning to supposedly oversold mining stocks, aided by stabilisation in iron ore, and last night it seems the same rule applied to the base metal market. After a period of falls, kicked off by the end of the Chilean copper strike, base metal prices have triggered technical signals that last night had the commodity funds back in buying.

It is also seasonally a strong period for metals demand as the northern winter gives way to spring and construction winds back up again. Last night saw copper up 1%, nickel up 1.5%, aluminium up 2%, lead 3% and zinc 4%.

Iron ore rose another US50c to US$64.70/t.

Gold is little moved at US$1281.70/oz with the US dollar index dead flat at 99.81. Forex traders in Europe have been madly establishing euro hedges to protect against what might transpire in France on the weekend – an outcome which is totally up in the air, it appears.

West Texas crude is down US31c at US$50.27/bbl on the rollover to the June delivery contract.

The Aussie has bounced back after prior weakness, up 0.4% at US$0.7526.

Today

The SPI Overnight closed up 30 points or 0.5%.

Just as well the northern spring has arrived as the flashers will be out and about tonight, providing estimates for April manufacturing PMIs in Japan, the eurozone and US.
 

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