By Greg Peel

Hitting the Wall

In terms of time, the local results season is now some three-quarters of the way through. In terms of number of companies reporting however, we’re only around a third of the way through. This last full week of February will be by far the busiest of the season.

To date, the eight major stockbrokers in the FNArena database have reported on 88 results. Beats are running at a ratio of 1.4 to misses, which is pretty standard stuff, while a total of 19 broker downgrades to 11 upgrades reflects the fact this season has been conducted in a period of market strength, which we can largely attribute to Trump.

What we have seen is some very strong positive responses to upside surprises, with downside surprises in most cases not being too dramatic. But in the downside case, most of the major damage in individual names occurred pre-season thanks to profit warnings. The overall impression of the season to date has been “good”.

Looking at the macro picture, we find the 5800 level for the ASX200 continues to provide solid resistance. This is the level chartists had been tipping for some time as an upside target, thus it is not surprising the market is consolidating around the level and not, as yet, definitively breaking higher. Profits are being taken. Last week saw the index gain 1.5%.

Fridays are also always good days to take profits, and in this case the US is closed tonight for a long weekend which is another good reason to square up.

Results on Friday brought another round of ups and downs. In the winners’ circle was Link Administration ((LNK)) with a 4.2% pipped only by Seek ((SEK)) on 5.7% after that company announced the possible privatisation of Zhaopin. ANZ Bank ((ANZ)) posted a 1.9% gain after providing a well-received quarterly update.

Mantra Group ((MTR)), down -5.6%, and Medibank Private ((MPL)), down -3.9%, led the biggest losers.

We this saw healthcare post the biggest sector loss on Friday of -1.6% while profits were taken in materials (-1.0%). Utilities (+0.7%) found some support, while other sector moves were mixed and less consequential.

Aside from the micro deluge of earnings reports this week, the local market will also be focused on the macro of December quarter data, leading in to next week’s GDP release. This week sees numbers for wages, construction and capital expenditure.

Tenacious

Once again it looked like Wall Street would break its winning streak in Friday’s session and once again it was not to be. The Dow opened down -87 points and then bungled its way higher all session, finally scraping over the line to mark seven consecutive days of gains. The S&P500 notched up a 1.5% rally for the week.

The Dow closed up 4 points while the S&P gained 0.2% to 2351 and the Nasdaq rose 0.4%. Any advance for any index is a new all-time high.

While there was a bit of news about in the M&A space to excite the punters – in particular a swing at Unilever from Kraft Heinz – it appeared more a case of not wanting to go into the long weekend short. There are too many buyers lurking around at only slightly lower levels hoping for an opportunity.

As for how long this can go on is anyone’s guess, as strength is inexorably linked to whatever comes out of Donald Trump’s mouth. And that could be anything.

The US earnings season is now past and while economic data releases roll on, their impact is lost to a great extent because they represent numbers cum Trump policy implementation. Fiscal is the big driver in 2017, while monetary takes a back seat. That may yet change if it looks like the Fed will raise next month, but Wall Street doesn’t seem that concerned.

Wall Street will take a break tonight and then we’ll see what comes next.

Commodities

For once, base metal prices all went the same way in London on Friday night, likely spooked by a 0.5% rally in the US dollar index to 100.92. All prices fell -0.5% to -1.5%.

Iron ore rose US80c to US$90.30/t.

Gold fell -US$3.90 to US$1236.00/oz.

Oil prices were little changed.

The Aussie is down -0.3% at US$0.7667.

The SPI Overnight closed up 5 points on Saturday morning.

The Week Ahead

US data this week include a flash estimate of February manufacturing PMI tomorrow, existing home sales on Wednesday, house prices, the Chicago Fed national index and a flash services PMI on Thursday, and new home sales and consumer sentiment on Friday.

The minutes of the last Fed meeting are out on Wednesday.

The minutes of the February RBA meeting are out tomorrow. The RBA governor will speak on Wednesday, after numbers for December quarter wages and construction work done are released. Thursday it’s private sector capex.

Among today’s reporting companies we find BlueScope Steel ((BSL)), Brambles ((BXB)), Estia Health ((EHE)) and WorleyParsons ((WOR)).

Rudi will appear on Sky Business on Tuesday, via Skype-link, around 11.15am. He's scheduled in for an interview on Switzer TV, between 7-8pm on Thursday and on Friday's he'll repeat the Skype-link around 11.05am.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

For further global economic release dates and local company events please refer to the FNArena Calendar.

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By Greg Peel

The Dow closed up 7 points while the S&P lost -0.1% to 2347 and the Nasdaq fell -0.1%.

The Way We Were

We recall that once upon a time, the people of Australia owned what we now call “Telstra”. John Howard elected to sell off Telstra, owned by the people of Australia, to the people of Australia, and anyone else, or at least those who could afford it, while at the same time telling Telstra what it was allowed to charge, lest any of the people of Australia be disadvantaged.

In more recent years, the people of Australia have foot the bill so the NBN can buy the infrastructure owned by Telstra, and previously by the people of Australia, to complement the new “fast” broadband network, which the people of Australia will own. Until, at least, another government decides to sell off the NBN to the people of Australia.

Once the people of Australia have stopped making payments to the company they once owned for the infrastructure they once owned then Telstra is on its own – just another competing telco. What’s the outlook for this new Telstra? Not good it would seem.

Slow growth in data and mobiles in the first half led Telstra ((TLS)) to miss earnings forecasts. Full year guidance was maintained but management is pointing to the bottom of the range. Telstra shares fell -6.6%. The company did not earn as much as it paid out in dividends. The difference will be covered by NBN payments, until they run out in 2020.

That fall was worth 12 points in the ASX200. Telstra’s woes flowed into weakness in the whole sector, which fell -6.4%, as TPG ((TPM)) and Vocus ((VOC)) were also hit. Telstra’s result release immediately killed off an initial attempt to push beyond 5800 in the index yesterday morning. The index opened 24 points higher on Wall Street’s lead, then plunged -44 points to midday.

It was left to previous result reporters to save the day, and it appeared the market rotated out of one of the biggest caps and into other very big caps. Healthcare was the winning sector with a 2.3% gain, as investors continued to plough into CSL ((CSL)) and Cochlear ((COH)), which had both previously reported well. Ditto the banks (+0.7%), following CommBank’s ((CBA)) result. And throw in the big miners, as materials rose 0.8%.

Moves in other sectors were of less significance in index terms. Buying in the “other” big caps through the afternoon ensured the index made it back into the green by the death, and far enough back to ensure another close above 5800.

The monthly jobs lottery was drawn late morning, and it was not a pretty result. On paper, a 13,500 increase in jobs in January against a 10,000 consensus forecast was a “beat”, until one notes it required a 58,300 increase in part-time jobs to offset a -44,800 loss in full-time jobs.

The numbers show a continuation of the theme of 2016. The government can use a drop in the unemployment rate to 5.7% from 5.8% to its advantage and the fact 103,300 new jobs have been added in the past twelve months, but that consists of a gain of 159,400 part-time jobs against a loss of -59,100 full-time jobs.

Wage growth is thus anaemic. Productivity even more so. Those assuming the next RBA rate move will be up, take note.

Okay, maybe a month…

The last two-three hundred Dow points in the Trump rally come down to excitement that the president’s phenomenal tax reform package will be announced in two-three weeks, as suggested a week ago. But last night Trump announced that for “statutory and budgetary reasons”, Obamacare reform must come first.

The Trump team hopes to have healthcare sorted by mid-March. The tax reform package is being worked on at the same time and will be “great” etc. But its greatness won’t be revealed until at least then.

This news had the Dow tumbling -83 points, having yet again opened higher last night. It looked for all the world like the record-breaking streak might finally have come to an end. But by the closing bell, the Dow snuck back into the green, and to yet another record high.

The reason Wall Street can’t go down is simple – everyone is expecting it to. Beyond those expecting that a very normal and healthy pullback must ultimately eventuate after such a strong run are those simply hoping a pullback will occur. They are the investors and fund managers who were slow to move, are missing out, and as each day passes, they’re becoming more and more frustrated.

Then it becomes a staring competition. If the US market does start to tip over, at what point do the underweight investors jump in to take advantage? We can picture Eddie Murphy saying to Dan Aykroyd: Now? Not yet. Now? Not yet. Now! As soon as one goes, they’ll all go.

And that means the market won’t pullback, because they’ll all be a bit too anxious and trigger happy.

Until it really does pull back. Obamacare reform and tax reform all in a month? Disappointment looms.

But not in Philadelphia, it would seem, where factory owners are suddenly very excited about their prospects under Trump. The Philly Fed index was expected to fall to 20 this month from 23.6 in January but instead it leapt to 43.3 – its biggest one-month jump in seven years and highest level in 33.

These Fed region indices can be highly volatile.

Commodities

There may be plenty of investors who are still underweight the right US equities, but in currency markets, everyone’s long greenbacks to the gills. Between Trump’s fiscal stimulus and the Fed’s rate hike plans, what else could one be? So when Trump effectively delayed his tax reform agenda last night, the dollar index dropped 0.7% to 100.45.

Gold was the beneficiary. It’s up US$8.80 at US$1239.90/oz.

For other metals the currency is more background noise than driver at present. In another mixed session on the LME, aluminium, copper and zinc all fell -1% and lead -3% while nickel rose 1%.

Iron ore fell -US$1.50 to US$89.50/t.

West Texas crude was up a bit.

The Aussie is down -0.2% at US$0.7690.

Today

The SPI Overnight closed down one point.

It was a sizeable day in the local result season yesterday and today only gets bigger. Santos ((STO)), Whitehaven Coal ((WHC)) and the ASX ((ASX)) are among the biggies today while Japara Healthcare ((JHC)) will be one to watch.

ANZ Bank ((ANZ)) will provide a quarterly update.

Rudi will get on Skype to discuss broker calls on Sky Business this morning, probably around 11.10am. Later on, he'll join NAB's Mark Todd and another guest to discuss the world of finance in one hour of Your Money, Your Call, 7-8pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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By Greg Peel

The Dow closed up 107 points or 0.5% while the S&P gained 0.5% to 2349 and the Nasdaq rose 0.6%.

Result

The ASX200 claimed 5800 in spectacular fashion yesterday, having looked set for consolidation on Tuesday after a soggy session. But it was not a macro market achievement yesterday. It was micro writ large, as some of the biggest movers & shakers lit up the boards.

Of the top ten gainers in the ASX200 yesterday, all of Boral ((BLD)), Computershare ((CPU)), CSL ((CSL)) and Wesfarmers ((WES)) posted earnings. Among the biggest sector gains on the day were consumer staples (WES), healthcare (CSL) and info tech (CPU).

The standout sector were nevertheless the banks, which rose 1.7% thanks to a solid result from Commonwealth Bank ((CBA)). CBA floated all boats, such that the Big Banks alone accounted for around half of the day’s 54 point gain. CBA didn’t quite make it onto the Top Ten list, so National Bank ((NAB)) filled in.

Move outside those sectors, and it was a quieter session. The worst performer on the day was consumer discretionary, thanks to the ongoing train crash that was the once high-flying Domino’s Pizza ((DMP)). Having spent the past few years posting upside surprises, Domino’s posted a miss. The stock has already seen an exodus thanks to its wages controversy, so the miss was the final straw that set off a -14% fall.

Consumer discretionary fell -0.6% despite Westpac’s consumer confidence survey for February showing a 2.6% jump in the index to 99.6.

Domino’s “topped” the top ten losers board, and also among the ten were Primary Health Care ((PRY)), Seven West Media ((SWM)), IOOF Holdings ((IFL)) and A2 Milk ((A2M)), all of which posted earnings results as well.

Earnings season is hotting up.

In the background we have a US market making new highs every day. Clearly Wall Street is providing the sentiment to support buying in the local earnings season “winners”. China is also doing its bit in providing some decent data of late, helping to at least keep commodity prices elevated. As long as these factors remain in play, net positive earnings results could be the catalyst to take the ASX200 to a new 2017 high. Realistically, earnings season has only just begun.

Did I Say Tax?

Pavlov would have to take his hat off to Donald Trump, who can send Wall Street racing to its next all-time high just by mentioning the word “tax”. As yet we have no clue as to what Trump’s actual tax policy is going to look like, but we know from last week it will be “phenomenal”, and last night we learned the tax code would be simplified, and therefore be “good”.

Quite the orator, our Donald.

So once again we see the Dow hitting a new milestone, this time crossing 20,600. The Dow, S&P, Nasdaq and Russell are all marking new highs every day now, and the Nasdaq is near to breaking its longest ever winning streak, set in the 1999 tech bubble.

There is nevertheless a cloud to Trump’s tax reform silver lining, and that is the proposed Border Adjustment Tax. Last night saw retail industry CEOs dragged into the White House, who joined the chorus of all industries to date who have tried to convince the president the BAT is a stupid idea and will actually backfire. It is likely Wall Street is prepared to believe the BAT will either disappear, or at least be watered down to something less consequential.

To be fair, there were some strong US economic data releases out last night to help fuel the enthusiasm.

Retail sales rose 0.4% in January when 0.2% was forecast. The December result was revised up to a 1.0% gain from a previous 0.6%.

The headline CPI rose 0.6% in January when 0.3% was forecast, to mark the biggest gain in four years. The 2.5% gain over twelve months is the biggest in five years. Gasoline prices have been the main inflation driver of late, but stripping out food & energy the core rate rose 0.3% in January for a 2.3% twelve month gain.

Dust off that Fed chocolate wheel. March is back in the running.

The only downer was a slip in industrial production in January, but that was blamed on warm weather reducing demand for utilities. Otherwise, manufacturing posted a gain.

So all is going well for the US economy, and still we are yet to learn of what the Trump Administration really has up its sleeve. When does the disappointment arrive?

Not yet.

Commodities

Oil prices are little changed.

Another mixed night for base metals saw copper up 1%, aluminium and nickel up 1.5%, and lead and zinc down -1.5%.

Iron ore is unchanged at US$91.00/t.

Despite the strong US data, the US dollar index is down -0.1% at 101.13. Gold is slightly higher at US$1231.10.

The Aussie, on the other hand, has shot up 0.8% to US$0.7708, ahead of today’s jobs numbers.

Today

The ASX200 closed at 5809 yesterday. A wall of resistance or a break-up towards the 6000 level? The SPI Overnight closed down -3 points.

The local jobs numbers are out today and while forex traders may pay attention, the stock market long ago gave up. Attention will be far more centred on today’s earnings results.

Among these we see Telstra ((TLS)), South32 ((S32)), Origin Energy ((ORG)), Mirvac ((MGR)), Goodman Group ((GMG)) and Evolution Mining ((EVN)), to name a few.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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By Greg Peel

The Dow closed up 92 points or 0.5% while the S&P gained 0.4% to 2337 and the Nasdaq rose 0.3%.

Resistance

The local market surged on the open yesterday driven by the big miners, following iron ore’s jump into the nineties. Is that price for real? We thought a big jump up into the sixties last year looked a bit fantasy land. Whatever the case, it clearly seemed to traders to be a good opportunity to take profits – if not on an iron price basis, at least on the basis the ASX200 almost hit 5800.

The 5800 level has been the technical target for a while, and yesterday the index reached 5794 after a string of solid sessions, before finally meeting resistance. The rest of the session featured a drift back to the flat line and below.

In the wash-up, sector moves were relatively benign. The worst two performers were two of the better performers on Monday, being telcos (-1.0%) and consumer staples (-0.6%). Healthcare also fell -0.6%, highlighting what was not a particularly good day in the result season.

It was not that yesterday’s results were particularly bad, it’s just that they weren’t as great as some may have hoped, and/or guidance was an issue. All of Challenger ((CGF)), Cochlear ((COH)) and Treasury Wine Estates ((TWE)) featured among the losers, each having been well valued by the market. Amongst the smaller names, Nick Scali ((NCK)) was a winner with a 10% gain.

After a pretty sharp run-up from 5500 through 5700 and on to 5800, some consolidation at 5750 is neither unsurprising nor unhealthy. But the futures are showing up 27 points this morning on what might prove a technical breakout for Wall Street. It would appear there is plenty of demand on any pullback.

There is also a lot of confidence in the real world beyond the trading floor. NAB’s monthly business survey jumped again in January, with the conditions (now) index rising to 16.6 from 9.9 in December and 6.0 in November, and confidence (outlook) rising to 9.8 from 5.7 and 5.5. It’s a great time to be doing business, apparently.

Perhaps that reflects some sought of hope with regard the new administration at Washington, because as the new parliamentary session began in Australia, the response can only be “Abandon hope all ye who enter here”. And we thought Trump was a joke.

Marching Forward

The prime focus of attention for Wall Street last night was, for once, not Trump, but Janet Yellen. The Fed chair’s testimony before the Senate Banking Committee was closely watched.

The conclusion is Yellen sounded a little more hawkish than previously, but not a lot more. While she reiterated an expectation of three rates hikes this year, she is as yet unclear whether the first of these could come in March, May or June, while also reiterating that there is a danger of the FOMC moving too slowly. The Fed, like everyone else, needs to see some more clarity on the fiscal policy side before a decision can be made.

The markets have lifted the chance of a March rate hike to 18%. The US ten-year yield rose 4 basis points to 2.47%. The US dollar index is up 0.3% at 101.26.

Runaway inflation is what the Fed will risk if it falls behind the policy curve. Last night saw the US January producer price index post a 0.6% gain, its biggest since 2012.

Gosh, do you remember those heady days when any hint of a Fed rate rise sent Wall Street crashing? If the Fed is intent on raising (implying a strong economy) but not too hastily (gradual steps) then clearly Wall Street likes it. We have only just celebrated Dow 20,000. Last night the Dow hit 20,500.

The technical level to watch on the S&P500 was apparently 2335. Any close above would signal a new bullish phase. As to how you can “break-out” from an all-time high I’m not sure, but the S&P closed at 2337.

Commodities

West Texas crude is sitting somewhere between US$52/bbl and US$54/bbl. I might as well say that as while every day the price goes up or down, on whether OPEC production cuts is a greater positive or restarted US production is a greater negative, without actually going anywhere. It’s slight higher overnight at US$53.14/bbl.

A mixed session for base metals saw aluminium and lead up 1%, copper down -1% and nickel down -2%.

Iron ore fell -US80c to US$91.00/t.

Despite the 0.3% rise in the US dollar index, gold is US$3.10 higher at US$1229.30/oz.

The Aussie is steady at US$0.7651.

Today

The SPI Overnight closed up 27 points or 0.5%.

With Yellen tonight fronting the House, Wall Street can weigh up March probability following a dump of CPI, industrial production, retail sales and housing sentiment numbers.

Locally, Westpac will publish its consumer confidence survey.

Amidst controversy as to actually why Domino’s ((DMP)) can sell its pizza so cheaply (and there I was thinking it was just because they’re bloody awful), the company will report earnings today.

So too will Commonwealth Bank ((CBA)), CSL ((CSL)) and Wesfarmers ((WES)), among others as the season begins heating up.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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By Greg Peel

The Dow closed up 142 points or 0.7% while the S&P rose 0.5% to 2328 and the Nasdaq gained 0.5%.

Material

The ASX officially broke to the upside yesterday according to chartists, clearing a path to 5800 and beyond. While last Friday’s trade was featured evenly spread index buying, yesterday was all about commodities.

Just when it looked like resource sector stocks may have had their run, and were threatening to roll over, China’s January trade data have reignited the mining space. The iron ore price rose US$3.80 on Friday and another US$4.80 yesterday to take it to US$91.80/t. How many in the market six months ago foresaw the possibility of a return to triple digits?

Exactly. And just how distorted were this year’s Chinese numbers for January with New Year falling early? Fortescue Metals ((FMG)) was the biggest winner on the day yesterday in rising 6.2% while Rio Tinto ((RIO)) snuck in at number ten with 3.6%. The two major nickel miners were in the mix as well, with Philippine mine closures providing an extra supply-side boost in the space, along with the copper miners’ strike.

The materials sector stood out with a 2.2% rally yesterday followed by energy on 1.4%. Oil prices fell overnight and gold has dipped so there will be some push-pull today, against iron ore in the nineties.

The banks were mildly stronger yesterday but in a diverse mix, the cyclical resource sectors were joined by telcos (1.2%) and consumer staples (0.9%) in the winners’ circle. Once again all sectors finished in the green, although not as consistently as Friday. Info tech stood still.

Not apparently acting as a drag on the local market yesterday was Japan’s December quarter GDP result. It came in at 0.2% growth, missing 0.3% expectations, but more worryingly the 0.2% followed 0.3% in September, 0.4% in June and 0.6% in March. Not exactly moving in the right direction.

Onward Ever Upward

Nothing new occurred in the US last night to suggest a reason why the Dow should cross 20,400 to set yet another new record, alongside new records for the S&P and Nasdaq, other than the continuation of the current theme. Apple was in the spotlight as well, hitting a new all-time high and driving all three indices.

The banks and industrials again led the charge last night, being major beneficiaries of Trump’s deregulation and infrastructure policies (yet to be determined). US rates are on the rise again, inflation is quietly on the rise, and there is now talk of a March Fed rate hike.

As there was in 2016.

And 2015.

Janet Yellen will front a House Committee tonight so we may or may not learn more.

Otherwise, views on Wall Street are split between “this will just keep going up” and “these PEs are becoming a joke”. But traders sitting waiting for a pullback they assume must come are becoming increasingly frustrated. It would make perfect market sense for the Dow to pull back to the 20,000 level which provided resistance for a while in the early new year. But so far there’s no sign.

If there’s any sign, it’s that a FOMO* trade is now in play.

It was the Canadian prime minister’s turn last night to be Trump’s best chum, despite clear differences on climate change and immigration policies. Suffice to say, even Trump can see there is no closer friendship and trading partnership than with those to the north. It seems that every day Trump doesn’t end up in a barney with a world leader, Wall Street rises. We recall that the day the news broke about the terse phone conversation with our Malcolm, Wall Street fell.

Wall Street is least encouraged by the fact the earnings season, now slowly winding down, has confirmed that the US “earnings recession”, most evident a year ago, has now ended. But while it’s good to see the E in PE heading in the right direction, it is still the runaway P that has many nervous.

The policies are going to be “phenomenal”. So far, we can only take the Donald’s word.

Commodities

Iron ore, as noted, rose US$4.80 or 5.5% to US$91.80/t. Rarefied air.

After rising solidly on Friday night, base metals kicked on again last night but posted gains of only 0.5% or less. Zinc was flat.

The US dollar index rose 0.2% to 100.95 but is still not back at its post-Trump high. Gold is down -US$6.80 to US$1226.20/oz.

Conflicting reports hit the oil market last night, one confirming OPEC members are indeed sticking to production cuts and another indicating US shale production is expected to surge in March. Shale won. West Texas is down -US88c at US$52.90/bbl.

The Aussie is down -0.4% at US$0.7646.

Today

The SPI Overnight closed up 15 points or 0.3%.

China will release inflation numbers today.

The eurozone will report its GDP result tonight, while Janet Yellen will testify before a House Committee.

Locally, NAB will release its monthly business confidence survey.

Today’s reporting calendar highlights include Challenger ((CGF)), Cochlear ((COH)) and Treasury Wine Estates ((TWE)).

*Fear of missing out.

Rudi will link-up with Sky Business today through Skype to discuss broker calls at around 11.15am.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

By Greg Peel

All Hail China

Chinese trade data, released on Friday, showed exports rose 7.9% year on year in January, having fallen -7.7% in December, ahead of 3.3% forecasts. Imports rose 16.7%, having risen 3.1% in December, ahead of 10.0% forecasts.

On that note, the Australian market jumped 1%.

The ASX200 had opened strongly to begin with, following Wall Street’s excitement over Trump’s apparently “phenomenal” tax reform, details of which are set to emerge in the next two-three weeks. The index had begun to level out late morning, setting itself up for a Friday afternoon drift, but then along came the Chinese data.

If Thursday’s trade was all about rotating out of the large cap banks and miners that have driven the latest rally, and into beaten-down growth stocks, Friday was simply a “buy everything” session. All sectors finished in the green – cyclical, defensive, yield plays or growth plays – and no one sector stood out.

The evenly spread 56 point gain for the ASX200 took the index to a close above 5700, signalling to chartists a move to 5800 and ultimately 6000, is on the cards.

Such strength will nevertheless rely on a positive result season.

And there’s one other point.

We go through this every year. Every year China’s data surge ahead of the Lunar New Year holiday, as businesses rush to fill orders before shutting down and households rush to buy what they need for new year celebrations, then drop on the full week of lost activity the following month, before picking up again as businesses get back into the swing. The data of developed world economies are “seasonally adjusted” to smooth such anomalies. Chinese data are not.

Then there’s another consideration. Trump has threatened to slap tariffs on Chinese exports to the US. If so, Beijing may retaliate with a tariff on US exports to China. No one’s sure how this is going to play out, so it might be a good idea to over-export/over-import now before the walls go up.

Or maybe the Chinese economy has suddenly leapt from its sick bed singing “Oh what a beautiful morning”, and no one saw it coming.

Whatever the case, we’ll no doubt learn more when the February numbers are released. Meanwhile, the macro story will roll on, mostly out of Washington, but the micro story will be heavily in focus for the next two weeks as the local earnings season shifts into top gear.

The deluge is coming.

Just buy it

The word “phenomenal” was still ringing in Wall Street’s ears as the market opened on Friday night.  No one knows what it means, but hey, it can only be good one assumes. At least there’s some movement at the station on the much anticipated tax front.

The Chinese data were also taken as a positive by Wall Street.

Wall Street was also heartened by Donald Trump being all chummy at the Whitehouse with his new best buddy Shinzo Abe. You’d think they were long lost friends. After a brief official reception the two took Chopper One down to Florida and stay at one of Trump’s establishments, play some golf and shoot the breeze – all at Trump’s personal expense.

Not only is Japan a major US trading partner, it is the second biggest employer of US workers in US-based factories, pumping out Toyotas and Sony TVs and the like. Bit hard for Trump to erect walls to keep out Japan. Japan is also America’s most important ally when it comes to keeping a rein on China. To see the two leaders being best buddies thus provides a sigh of relief for Wall Street.

Otherwise, the major US indices all hit new all-time highs again on Friday night largely because it seems a bit dangerous at the moment not to buy. The Dow closed up 96 points or 0.5% while the S&P gained 0.4% to 2316 and the Nasdaq rose 0.3%.

There was not a great deal of conviction in the buying, traders reported. Volumes were modest.

The tail end of the US earnings season rolls on this week, and there are quite a lot of economic data releases to absorb. Janet Yellen will provide a mandatory biannual testimony to each house of Congress on Tuesday and Wednesday nights. Yet no doubt, it will be what comes out of the White House that will determine market direction.

Commodities

What do you get when China posts much better than expected trade data?

Aluminium rose 1.5% in London, lead 3%, nickel and zinc 3.5% and copper 4.5%. For copper, there’s also the issue of the Chilean miners’ strike.

Iron rose US$3.80 to US$87.00/t.

West Texas crude rose US73c to US$53.78/bbl.

The Aussie is up 0.7% at US$0.7678.

The US dollar index ticked up 0.2% to 100.78 and gold is relatively steady at US$1233.00/oz.

The SPI Overnight closed up 10 points or 0.3% on Saturday morning.

The Week Ahead

It’s a busy week in the local results season this week, and a busier week next week.

Today’s reporting highlights include Ansell ((ANN)), Amcor ((AMC)), Aurizon ((AZJ)), JB Hi-Fi ((JBH)) and Newcrest ((NCM)).

Japan’s December quarter GDP result is due today and the eurozone’s tomorrow.

Chinese inflation numbers are out tomorrow.

The US will see industrial production, retail sales, housing sentiment and the Empire State index on Wednesday, housing starts and the Philadelphia Fed index on Thursday, and leading indicators on Friday. Janet Yellen will testify before Congressional committees on Tuesday and Wednesday.

In Australia we’ll see the NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday, followed by jobs numbers on Thursday.

Rudi will appear on Sky Business via Skype-link on Tuesday and Friday this week. Plus he'll join Mark Todd (NAB) on Friday late (7-8pm) for Your Money, Your Call Fixed Income.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

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For further global economic release dates and local company events please refer to the FNArena Calendar.

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By Greg Peel

The Dow closed up 118 points or 0.6% while the S&P gained 0.6% to 2307 and the Nasdaq rose 0.6%.

Bag a Bargain

Australian resource stocks have had a spectacular few months on unforeseen commodity price rebounds, having spent most of 2016 being completely unloved. Commodity price strength has begun to flow through to the numbers – for example Rio Tinto’s ((RIO)) earnings turnaround, and Australia’s trade balance. But commodity prices have now consolidated.

The view among analysts is that oil could go a bit higher, but iron ore may dip and coal prices have already started to pull back. Base metals are a bit of a lottery when you take into consideration on again/off again nickel export bans and the current copper mine workers’ strike in Chile. The bottom line is it appears commodity prices have made their adjustment for now. And so, it seems, have resource sector share prices.

The banks have also had a solid run of late, supported by easing fears of further capital raising requirements but also on the back of the Trump-driven US bank sector rally. Is there a direct link between Australian and US banks? Not really. Australian banks can only look forward to subdued earnings growth for the time being.

While the miners, drillers and banks were being bought up last year, many a high flying, high hope, high PE stock had a fall from grace. One by one former stars came crashing back to earth, often on very sharp one day moves. Are they dogs, to use market parlance, or did they just get a bit ahead of themselves?

One can’t call a trend from one day’s trade but yesterday’s session on the ASX was an interesting one. Every sector posted decent gains bar two, yet the index managed only a 0.2% net gain. That’s because the two were materials (-1.2%) and the financials (flat), the latter despite a strong day for AMP ((AMP)).

The winners’ board was composed, aside from a couple of companies posting well received earnings results, of previously beaten-down names. They include SaaS companies iSentia ((ISD)), Aconex ((ACX)), telcos Vocus ((VOC)) and TPG ((TPM)), and even Domino’s Pizza ((DMP)), which despite being a consistent performer has seen some selling of late.

Utilities topped the sector board with a 2.8% gain, thanks to AGL Energy’s result ((AGL)). Investors sold off some of the recent resource sector high flyers such as Fortescue ((FMG)), South32 ((S32)), and back-from-brink contractor Monadelphous ((MND)).

Housing construction was the big theme of 2016 as the miners, until late in the year, wallowed. On the release of tepid December new home sales numbers yesterday, the Housing Industry Association declared it expected the down-cycle to begin in 2017. It will only be mild, said HIA, but yesterday’s biggest loser board included all of James Hardie ((JHX)), Fletcher Building ((FBU)) and CSR ((CSR)).

As I say, one day is not a trend. But if yesterday’s session is any indication, we have hit another period of stock rotation rather than out and out buying or selling. Clearly the earnings season will bring about further big moves in individual names, and news from Trumpland will continue to dominate, but upside will require a change of leadership.

Phenomenal

It’s not often one word is worth a hundred Dow points. But that was the bottom line in last night’s trade on Wall Street.

At a meeting with airline CEOs – never before have so many CEOs beaten a path to the White House in such a short period – the president declared, on camera, that a tax reform policy will be unveiled in the next two to three weeks and that it will be “phenomenal”.

One gets the feeling everything Donald Trump does, in his own mind, is “phenomenal”. But Wall Street has been impatiently holding out for any news on promised tax cuts and now it looks like that news will be not far off.

Buy.

Of course there are those who are arguing that tax reform hopes were a big part of the Trump rally from the beginning, so as Wall Street continues to hit new record highs, why does it have keep going up every time tax is again mentioned? At what point is the market overvalued on buying the same story?

The good news is there are few who see a crash coming – a Trump house of cards falling down in a big way. There are many, nevertheless, who believe the market has to pull back and consolidate at a less exuberant level as the actual process of passing new legislation plays out – slowly.

Aside from the rally in stocks, Trump’s “phenomenal” call was worth a 0.4% jump in the US dollar index and a 4 basis point rally in the US ten-year bond yield to 2.39%.

The jump in yields had US banks back in favour once more, while weekly US oil inventory data showed an unexpected decline in gasoline stockpiles due to strong demand, sending the oil price up and energy stocks along with it.

All the major indices again notched up fresh intra-day highs, with the Dow hitting the 20,200 mark at one point before drifting back a bit at the death and the S&P500 closing above 2300 for the first time.

What will next week bring in Trumpland?

Commodities

West Texas crude is up US62c at US$53.05/bbl.

The 0.4% jump in the dollar index to 100.63 provided a headwind for metals prices, while confirmation that Chilean mine workers will indeed go on strike likely saw a sell-the-fact response given copper has been rallying these past few days in anticipation.

Copper fell -1% in London while nickel fell -1.5%, lead -2% and the others were flat.

Iron ore rose US40c to US$83.20/t.

The victim on night from Trump’s comments was gold, which in the face of the greenback jump is down -$8.90 at US$1230.80/oz.

The Aussie is down -0.1% at US$0.7626.

Today

The SPI Overnight closed up 24 points or 0.4%.

Locally we’ll see housing finance numbers today and the RBA will release its quarterly Statement on Monetary Policy.

China will release January trade data. Watch out for new year holiday distortion.

REA Group ((REA)) is among those companies posting earnings results today.

Rudi will skype-link with Sky Business today, probably around 11.10am, to discuss broker calls.

Plus FNArena is preparing for the launch of a new website over the weekend. Things will look a lot different on Monday...
 

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(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

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