The Overnight Report: Not Excited

This story features OZ MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: OZL

By Greg Peel

The Dow closed down -66 points or -0.3% while the S&P fell -0.1% to 2469 and the Nasdaq gained 0.4%.

Can We Hold?

The most notable aspect of movement in the ASX200 over the month of July is the consistent range the index is stuck in, between 5680 and 5800, however we can note that while levels at or near 5680 have been holding on the downside, subsequent highs have fallen increasingly short of 5800.

In other words, we’re making lower highs each time the buyers step in at bottom-of-the-range support, and we keep finding ourselves back at that same support level. Yesterday the index closed at 5688. There is much talk now that 5500 is the next level to watch, but then such talk has been evident every time we go back down again. When will the buyers give in?

Yesterday saw the energy sector thumped thanks to the big drop in the oil price. It was down -2.7%. Selling in the banks continues following the initial two-day APRA-based rally. Financials were down -0.8%. But every sector finished in the red to some degree bar telcos (+0.7%), and that sector has also had its share of weakness of late.

There does not seem to be a lot of faith heading into the local earnings season, which begins to ramp up from next week. That said, “confession session” profit warnings have been fewer ahead of this season than we might normally expect. Perhaps a clearing of the decks and a rebasing of the index ahead of the “real” news of actual earnings is what this market is looking for.

Yet the futures are up 13 points this morning, despite another tepid session on Wall Street, suggesting yet again the index is looking to bounce off the range low. The US earnings season is not providing any positive incentive, as the theme of taking profits on earnings beats, as discussed yesterday, continues.

Alphabet (Google) reported after the closing bell on Wall Street this morning and posted an earnings beat. Its shares are down -3.3% in the aftermarket. This is the busiest week on the US earnings calendar, and many of the high flying tech names are set to report.

Top Heavy

Of the S&P500 stocks having reported so far, 75% have beaten Wall Street earnings estimates and 53% have beaten revenues estimates – the biggest numbers in five years. There’s a long way to go yet, but one week of earnings sees the Dow relatively unchanged and the S&P up only half a percent. The Nasdaq has been doing the heavily lifting, and hit yet another new record last night.

Outside of earnings, oil was in the spotlight again last night as OPEC members met in St Petersburg. OPEC now meets once a month to monitor compliance with production quotas.

The news from this meeting is that Saudi Arabia intends to reduce its oil exports, notwithstanding it’s carrying the biggest load on production cuts, in order to prop up the oil price. Furthermore, Nigeria, which is currently quota-exempt based on the difficulties it typically faces with rebel vandalism of its pipelines, has agreed to cap its production at 1.8mbpd, having pumped 1.6mbpd in June and rising. WTI has bounced back around 2%.

Economic data were also in focus last night. Markit’s take on the US manufacturing PMI has risen to an estimated 53.2 this month from 52.0 in June to mark a four-month high. The services estimate was unchanged at 54.2. The eurozone’s composite (a combination of both) PMI is estimated at 55.8, down from 56.3.

That result spurred on more weakness in the German market overnight, particularly given a poor result for the auto sector. However, numbers above 55 suggest a cracking pace of growth, and Europe is still outstripping the US. The US dollar index didn’t fall last night, for once, but rather is steady at 94.00.

The Fed meets this week, the US GDP is out on Friday and earnings results flood in. Meanwhile Donald Trump is still trying to do something – anything – about healthcare and The Russia Thing drags on. Wall Street, amidst it all, is not really going anywhere. The VIX is sitting under 10.

This suggests a high level of complacency, and makes many a trader nervous. Pride comes before a fall. Yet the VIX has been around the ten mark now for months.

Commodities

West Texas crude is up US88c at US$46.48/bbl.

Copper is in focus on the LME given industrial action underway in both Chile and Indonesia but it rose only 0.5% last night when nickel starred with a 2.5% gain. Zinc rose 1.5%.

Iron ore fell -US20c to US$66.90/t.

With the US dollar steady, gold is steady at US$1255.00/oz.

The Aussie is slightly higher at US$0.7924 as we await tomorrow’s CPI data.

Today

The SPI Overnight closed up 13 points.

The bounce in oil should go some way to reversing yesterday’s big fall for the sector.

Consumer confidence will be in focus on Wall Street tonight, along with earnings.

Locally, OZ Minerals ((OZL)) and Western Areas ((WSA)) provide production reports and Bank of Queensland ((BOQ)) hosts an investor day.

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

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

Click to view our Glossary of Financial Terms