The Overnight Report: Earnings Watch

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By Greg Peel

The Dow closed up 6 points while the S&P rose one point to 2388 and the Nasdaq added 0.4%.

The New China

Does anyone remember Kevin Rudd’s excited official announcement of the sanctioning of the massive Gorgon LNG project in WA, five prime ministers ago (counting Rudd twice)? Aside from Chevron having to be chased to pay any local income tax on Gorgon earnings in the interim, it reminds us that Australia’s burgeoning LNG export industry, soon to take over iron ore as its biggest, has been more than a decade in the making.

In all that time, energy analysts have beaten a consistent drum: east coast domestic gas prices are set to rise significantly due to an ongoing increase in gas exports to the highest bidders in energy-starved Asia. They’ve been pointing that out for years and years. Yet only now does the government decide something must be done. It has taken so long to respond to the inevitable, a Beijing-style restriction appears to be the government’s only option, and a politically popular one of course.

There are also calls to link the whole country with gas pipelines, so as to spread the supply around. A new idea? It was this dream that brought down Rex Connor, and ultimately led to The Dismissal.

Notwithstanding the NSW and Victorian governments’ political decisions to ban CSG exploration, in fear of Alan Jones, all we can say is the governments state and federal have dug their own bloody big hole through sheer lack of vision – something we’ve unfortunately had to come to accept in this country.

The energy sector fell -1.7% in the local market yesterday.

The counterbalance was the banks, which rose another 0.7% on the tailwind of Basel IV capital requirements being delayed for at least another two years.

Healthcare was also strong, up 0.7%, offset by consumer staples, -0.7%. Coles ((WES)) reported its slowest quarterly sales growth in nine years.

All up, it was a very flat day in the local market, with only a mild kick in the afternoon.

Tech Time

It was a similar story on Wall Street last night. With debate continuing to rage over Trump’s still rather vague tax plan, traders looked ahead to earnings results due from some of the biggest names in tech – Amazon, Alphabet (aka Google), and Dow components Microsoft and Intel. As all were due to report after the closing bell, it was a quiet daylight session. The oil price dropped late morning, sending energy stocks lower, but recovered again in the afternoon.

We can thus dismiss flat trading and look to what tonight may bring, as traders respond to results now out. And the score is, pretty even.

In all four cases, the companies in question posted earnings beats of varying degrees. But this season more than any other has been all about revenues. And here we saw two hits and two misses. Hence in aftermarket trade, Amazon is up 4% as I write, Google is up 4%, Microsoft is down -0.3% and Intel is down -4%.

All things being equal, we should see another all-time high for the Nasdaq tonight, as has been the case in each of the last few sessions, but a drag on the Dow. There will of course be more earnings results tonight, and next week brings those other tech giants, Apple and Facebook.

Tonight also brings the first estimate of US March quarter GDP. So plenty of grist for the mill there. Looking further ahead, many questions still remain over who will be the winners and who will be the losers from Trump’s tax plan, on what we know at this stage, and importantly we can include in that number the US economy and budget deficit.

Will the significant tax cuts, over time, provide a sufficient level of economic stimulus to provide the revenue to offset that lost on lower tax collections? The Treasury Secretary is confident that will be the case, once you count back the abolition of various tax deductions.

The most significant of those is the ability to deduct state and local income taxes from federal taxable income, a system not unlike Australia’s dividend franking rules which avoid investors being taxed twice. American incomes will now be taxed twice, under Trump’s plan, and the level of taxation will vary from state to state.

That is going to be a hard one to get through Congress.

Commodities

The ECB indicated no intention to raise rates at last night’s policy meeting (ditto the BoJ) hence the euro fell back a bit following its French election surge. The US dollar index rose 0.2% to 99.14.

Gold thus fell again, down -US$5.40 to US$1263.60/oz.

A mixed night on the LME saw copper down -0.5%, zinc -1% and aluminium -2%, while lead and nickel rose 1%.

Iron ore is unchanged at US$66.60/t.

West Texas crude is flat at US$49.24/bbl.

The Aussie is steady at US$0.7468.

Today

The SPI Overnight closed down -4 points.

Australia will see March quarter PPI today along with monthly private sector credit numbers.

Both the UK and US will see first estimates of GDP tonight.

Production reports from Origin Energy ((ORG)) and AWE Ltd ((AWE)) are due today while Lend Lease ((LLC)) will provide a quarterly update.

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

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