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The Overnight Report: Oil Gives Up

Daily Market Reports | May 05 2017

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Greg Peel

The Dow closed down -6 points while the S&P gained one point to 2389 and the Nasdaq was flat.

Mixed Bag

It was not a good start for the ASX200 yesterday in the wake of Wednesday’s sell-off as the banks were again hit, miners were sold down on falling commodity prices and telcos took a hit. On the flipside, travel agents were the stars of the session and two new cannabis listings had everyone buzzing.

I suggested yesterday National Bank ((NAB)) might save the day for the sector following on from ANZ Bank’s weak result, but an earnings beat from NAB did nothing to prevent further selling in the sector, with financials closing down -0.7%. This would suggest that ANZ was not so much of a cause but simply a trigger for investors to exit what many considered to be an overvalued space.

No surprise in the miners of gold, base metals and iron ore being sold down hard early on, given weaker commodity prices overnight. Yet some names, including the likes of BHP Billiton ((BHP)) and Western Areas ((WSA)), managed to find some buyers late in the day and actually closed in the green. The latter is one of the most shorted stocks on the ASX. Materials closed down -0.6%.

The late turnaround in resources was largely responsible for the index turning a -37 point loss at 2.30pm into only a -16 point loss by the bell. Sell banks, buy resources?

Iron ore is down -6% overnight.

The annual Macquarie Conference has proven a boon for travel agent stocks as guidance upgrades took the market by surprise. Corporate Travel Management ((CTD)), Flight Centre ((FLT)) and Webjet ((WEB)) all featured on the leaders board yesterday, sending consumer discretionary up 0.8%.

Meanwhile, consumer staples, which were up 0.5% on Tuesday and down -0.5% on Wednesday, were up 0.5%.

News that Chinese investors had increased their stakes in Santos ((STO)) provided some explanation as to why energy yet again defied gravity and rose another 0.7% in the face of the sliding oil price, but it was the much bigger Woodside Petroleum ((WPL)), up 1.0%, that boosted the sector. Woodside is not an east coast gas provider.

The oil price fell -4% overnight.

And just out of interest, there was a lot of talk around the joint yesterday about the two new cannabis IPOs of Cann Group ((CAN)) and The Hydroponics Co, with the cheeky ticker of ((THC)). Both stocks were on a high, leaping 100% on the day. It was bowls of corn flakes all round.

In economic news, yesterday saw the March quarter trade surplus revealed as $3.1bn, down from a revised record $4.5bn in December, but still a very positive result. The value of exports rose 2.8% to be a whopping 35% higher than a year ago, while imports rose 5.8% to be 9.7% higher.

It’s just possible, economists calculate, that Australia’s current account might just scrape over into surplus for the March quarter, for the first time since 1975. But enjoy it while it lasts. The lag to contract pricing from spot pricing means the pullback in commodity prices over the last couple of months is yet to hit the numbers.

Much Ado

Trump got his new, tweaked, healthcare bill through the House last night. He was so excited he dragged the entire Republican House membership and their spouses to the White House to gloat in front of the cameras.

Pity it won’t get through the Senate, as is. This point was not lost on the stock market, despite Trump suggesting the passage of healthcare clears the way for tax reform. There was little response on Wall Street.

Drawing more attention was the capitulation of the oil price, with WTI dropping over -4% on news of a possible détente between two of Libya’s main warring factions. I suggested earlier this week WTI looked like it wanted to go to 45, and it’s now at US$45.49/bbl.

The subsequent fall in energy stocks countered any buying in other sectors, leading to yet another flat close for the major indices. With the jobs number due tonight, there was always a chance last night’s session would be a dull one.

There’s also the French election to consider, although Macron still appears to have that in the bag. As did “Stay”. As did Clinton.

Commodities

No one’s been in control of Libya since Gaddafi was seen off, and battles amongst armed factions have led to constant disruption to Libyan oil exports, and a subsequent economic crisis. The news last night was that two of the biggest factions are close to reaching a deal on cooperation, which may suggest oil production will stabilise.

More global supply, therefore. West Texas crude is down -US$2.06 at US$45.49/bbl.

All base metals were again weaker last night, despite the US dollar index dropping -0.6% to 98.76. Copper was down another -0.5% and nickel another -2.5%.

Iron ore took a tumble, falling -US$4.10 or -6% to US$63.40/t.

The gold exodus continues. Gold is down another -US$9.70 at US$1228.00/oz.

The Aussie is down -0.2% at US$0.7412.

Today

Carnage in commodity land. But the SPI Overnight closed down only -8 points.

The US jobs numbers are out tonight and Australia will be the first market to respond to the French election, being held on Sunday.

The RBA will release its quarterly Statement on Monetary Policy today.

Macquarie Group ((MQG)) will release its earnings report, Qantas ((QAN)) will host an investor day and Woodside will hold its AGM.

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

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BHP CAN CTD FLT MQG NAB QAN STO WEB

For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED

For more info SHARE ANALYSIS: CAN - CANN GROUP LIMITED

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

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For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

For more info SHARE ANALYSIS: STO - SANTOS LIMITED

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