The Overnight Report: Data Dependent

This story features WOOLWORTHS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WOW

By Greg Peel

The Dow closed down 99 points or 0.6% while the S&P fell 0.6% to 2051 and the Nasdaq lost 0.8%.

The Lord Giveth…

Up a hundred points one day and down eighty the next – one would be forgiven for thinking the local market suddenly realised it got it wrong on Tuesday with regard the RBA rate cut, or that the federal budget was an absolute shocker. But neither is the case.

On the prospect of further mortgage repricing courtesy of the rate cut, the banks led the rally on Tuesday, backed up by every other sector that for one reason or another is a beneficiary of a lower rate and/or lower Aussie. The resources sectors stood by and watched. Yesterday the banks gave back 0.5%, but that’s hardly a shock after Tuesday’s gains. Otherwise there were only three sectors which sent the ASX200 spiralling yesterday.

Consumer staples were mildly more positive on Tuesday on the rate cut benefit, but overnight investors took a closer look at the individual plight of Woolworths ((WOW)) and the fact it has spent a lot of money trying to take on the competition, to no avail, so now it will spend more. Woolies’ 7% drop yesterday took staples back down 3.0%.

Meanwhile the energy sector plunged 5% and the materials sector 6%. Overnight oil and iron ore prices fell to provide such impetus, but such big moves are a reflection of just how hard these sectors ran last month. Then there was the announcement that BHP Billiton’s ((BHP)) Brazilian fine will be much bigger than the company had assumed. BHP fell 9%.

There were other sectors in the red yesterday but realistically if you’re in this market but not in resources, you’ve still booked Tuesday’s rally. If you’re not in banks, you’re still ahead. If you’re in the index ETF, you’ve got whiplash.

And the budget had a negligible impact on stocks yesterday.

In economic news, which no one paid attention to as they discussed their super and watched BHP fall out of bed yesterday, Australia’s service sector PMI rose to 49.7 in April from 49.5 in March – still in contraction but moving the right way.

Unproductive

When Donald Trump put his hand up as presidential nominee last year, the pundits gave him about as much chance of winning the nomination as Leicester City winning the EPL.

While there is much talk now of what a Trump presidency might mean for Wall Street, history shows stock markets are typically indifferent when it comes to new administrations. Trump is not what markets are used to in a presidential nominee, but for the meantime, life goes on.

Economic data were back in the frame on Wall Street last night. The US service sector PMI rose to a healthy 55.7 in April from 54.5 in March, but that’s where the good news ended.

The ADP private sector jobs number for April came in at 156,000, well short of a 200,000 forecast. In recent times, the ADP result has been a more accurate predictor of the non-farm payrolls number than it used to be. While a weaker jobs number would keep the Fed at bay, and thus Wall Street happy, there’s no denying the reality that a weak US economy is ultimately not a positive.

More worryingly, US productivity (GDP per man-hour) fell 1.0% in the March quarter from the previous March quarter, to mark the fourth quarterly decline in six. The annual rate is running at 0.6%, well down from the historic 2.2% average. What this implies is that while the growth in US jobs and fall in unemployment rate over the past few years looks very encouraging, it is not translating into the sort of economic growth one would hope for.

The possibility of a June Fed rate hike continues to fade.

The dollar rebound continued last night nevertheless, with the index up another 0.3% at 93.25. Oil prices were relatively steady, while iron ore fell another 2.4%. The US earnings season continues to roll on and after what was a reasonably positive start, later results suggest that heavily marked down expectations heading into the season were actually not that far off the mark.

After the flurry provided by the sharp rebound in oil, Wall Street is once again not far from slipping back into the negative for the year. But it seems there are plenty of buyers ready to jump back in at lower levels, if commentary is any guide.

Commodities

West Texas crude is up US17c at US$44.05 and Brent is down US25c at US$44.72/bbl.

Base metals mostly continued their pullback on the LME. The US dollar rebound remains a driver, as does weaker China data, but traders point to the fact the recent rally was mostly driven by speculators and commodity funds and not by end-users, so profit-taking is in play. Aluminium and zinc fell 0.5%, nickel 1% and copper 1.5%.

Iron ore fell US$1.50 to US$61.00/t.

Gold is down US$6.70 at US$1279.00/oz.

The Aussie is another 0.4% lower at US$0.7459 as forex traders bake in an assumed second rate cut from the RBA, probably in August.

Today

The SPI Overnight closed down 13 points or 0.3%.

Caixin will provide its take on China’s April service sector PMI today.

In Australia we’ll see March data for trade, retail sales and new home sales.

On the local stock front, it’s National Bank’s ((NAB)) turn to shock with a result today and BT Investment Management ((BTT)) will also report its interim. News Corp ((NWS)) will report quarterly earnings.

There are a handful of AGMs to be held today including that of Rio Tinto ((RIO)), albeit this is the local follow-up to the original AGM held in London.

Late breaking news: NAB’s result appears to have featured an earnings miss, albeit bad debts actually fell and the dividend remains intact.
 

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