The Overnight Report: And All Stand Still

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By Greg Peel

The Dow closed down -12 points while the S&P lost a point to 2434 and the Nasdaq was little changed.

All Over the Shop

What are Australia’s banks actually worth? That appears to be a question investors simply cannot answer at present. Notwithstanding tax selling, EOFY portfolio movements and now ubiquitous computerised momentum trading, volatility in the big banks these past few days and weeks has been quite simply ridiculous.

Having led the market in its substantial fall on Wednesday, the banks led the market to recover half of that loss yesterday, rising 1.3%. It was not only the greatest market cap influence for a sector but the biggest percentage gain as well. Yet nothing is new in bank land. Or at least it wasn’t at the closing bell.

Yesterday’s three-months-to-May jobs summary was strong, and maybe an excuse to buy the banks, unless you consider that all you had to do is add up the three months of jobs numbers and you would have had the result two weeks ago. It did offer a breakdown by industry, but that told us all the jobs growth is in low-paying sectors while job losses are in high-paying sectors.

It might all be academic today nonetheless, given the aftermarket announcement yesterday that South Australia will impose its own state bank levy on top of the federal levy, taxing the Big Five a further 0.015% on South Australian liabilities. While the amount expected to be raised to save the struggling SA economy – $370m – is chump change for the banks, more onerous is the fact SA is only one of six states. Other struggling states may think “what a good idea!”

We can at least justify a 0.7% gain for materials yesterday on stronger commodity prices, particularly iron ore, while we can only assume bargain hunting in energy (0.8%) given another oil price fall and in consumer staples (1.0%), the latter having been Amazon-ed and perhaps oversold.

Sitting out the rally were the telcos, which are simply unloved at present, and utilities, which have had a good run and were hit by Dexus Property’s ((DXS)) capital raising. Also failing to fire was consumer discretionary. Yesterday’s Amazon-ed stock was Super Retail ((SUL)), owner of Rebel Sports, which sells a lot of runners. We recall Nike now plans to sell directly through Amazon.

Around lunchtime yesterday it looked for all the world as if the ASX200 might recover all of its losses from the day before, but the rally stalled around 2pm and there was a late sell-off to the close of up 40. This puts us just above 5700. The new level to watch on the downside is 5665, as in each case support is at the 200-day moving average and as the name suggests, it moves.

As to where we’ll be this evening is anyone’s guess. It’s a brave commentator who can definitively predict daily moves these days. We can note that iron ore, zinc, gold and oil are stronger overnight. But that bank levy might weigh.

Healthy

The WTI oil price managed to bounce slightly last night, although it did not spark a rush back into US energy stocks. The big winner on the day on Wall Street was healthcare.

Health insurers, hospitals and drug companies all rallied together as a draft proposal of the Republicans’ latest attempt at an Obamacare replacement finally saw the light of day. Clearly the proposal is positive for the sector as a whole. But alas, any hope of this bill being rushed through and the Trump camp now moving onto tax reform have been dashed by a handful of Republicans who have rejected the draft.

So it could yet be back to the drawing board, again.

Strength in healthcare was offset by weakness in financials and consumer staples to ensure another flat close. Flat close after flat close, resulting in the S&P500 basically going nowhere much at all despite the occasional new high, makes it rather difficult to provide a riveting overnight report.

Commodities

Commodity analysts have been calling a looming zinc shortage recently and inventory numbers at the exchanges are starting to support that call. Zinc jumped another 2.5% in London last night as lead rallied 1% and the others were quiet.

Iron ore rose another US60c to US$56.00/t.

West Texas crude managed to rise US25c to US$42.78/bbl after its sharp fall this week which might suggest consolidation, but as for a bottom, well that’s not something we can bet on just yet. We do know that somewhere around here we fall below the marginal cost of US shale production.

The US dollar index was also flat last night, at 97.54, but gold ticked up another US$3.70 to US$1250.00/oz.

The Aussie continues its quiet retreat, down another -0.2% at US$0.7541.

Today

The SPI Overnight closed up 7 points.

It is now summer in the north so the flashers will be out and about tonight, with estimates for June manufacturing PMIs due from Japan, the eurozone and the US.

Locally, CSR ((CSR)) and OceanaGold ((OGC)) hold AGMs.

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

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