The Overnight Report: Let’s Make A Deal

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By Greg Peel

The Dow closed up 54 points or 0.3% while the S&P gained 0.3% to 2465 and the Nasdaq rose 0.3%.

Lack of Interest

It was a pretty reasonable effort by the local market yesterday not to overly panic, and once again support in the mid-5600s has held. The computers tried to slap the market early, resulting in a -44 point drop on the open, but by late morning the ASX200 was threatening to make it back to 5700.

We may even have closed up on the day, were it not for a slightly disappointing GDP result. The June quarter saw 0.8% growth for a 1.8% annual rate when consensus just prior to release was for 0.9% and 1.9%, with risk to the upside. That took the wind out of the sails, but the index did manage to hold some ground through the afternoon.

While the GDP might have been a “miss”, it was actually a “beat” on forecasts made prior to the run of quarterly data released in the lead-up. It was the strong private sector capex number that had everyone fooled, forcing a scramble to upgrade forecasts. Business investment actually declined in the quarter, which left economists scratching their heads. Household consumption, government spending and net exports were the positive contributors.

While GDP disappointment can clearly be seen in the intraday chart of the ASX200, it was the plunge in US interest rates overnight – to a new low for the year in the ten-year yield – that drove yesterday’s net weakness. The financials were the worst performers, falling -1.2%. US banks had been clobbered on Wall Street but it was not just the Big Four leading the local market down yesterday.

Four of the five worst performers in the index yesterday were wealth managers. Macquarie Group ((MQG)) made a rare appearance in the top ten losers along with Suncorp ((SUN)), representing the insurers.

On the upside, the top three winners were three of the most shorted stocks on the market, being resource stocks Galaxy ((GXY)), Syrah ((SYR)) and Independence ((IGO)), miners of lithium, graphite and nickel respectively, with nickel miner Western Areas ((WSA)) also among the top ten and also heavily shorted.

Mind you, the share prices of these companies fly around with gay abandon on a regular basis.

Materials provided some offset to financials yesterday with a 0.4% gain, but energy was the best performer in rising 0.9% on the strong oil price. It was an interesting day in the sector.

Senex Energy ((SXY)), which is not in the ASX200, announced on Tuesday it had secured a tender to drill in the Surat Basin. The market responded by pushing Senex shares up a little. Broker reports yesterday chorused disbelief that the reaction was not more positive, given the enormity of the win. Yesterday Senex rose 24%.

The other sector move of note was telcos, down -0.9%. It looks like investors who were a bit slow to dump Telstra ((TLS)) after its dividend announcement are seeing any relief rally as a second opportunity.

Trumped

The Republicans are looking a little red-faced in the US this evening. For months Wall Street has been anticipating problems with the debt ceiling being sorted out in Congress, made most problematic by Trump’s insistence on his Wall. If I don’t get my Wall I’ll shut down the government, said Trump.

The Democrats were always going to oppose the Wall, but what they could agree on is the need to quickly sort out the budget and ceiling to allow passage of aid for Harvey relief. And now, pre-emptively, Irma relief as well. So last night Trump and the Democrat leaders of both houses agreed to put the whole ceiling business off for three months. The government will not shut down, for the time being.

It seems at least one good thing has come out of Harvey. Meanwhile, Irma is the strongest storm ever recorded in the Atlantic and is predicted to make landfall in Florida, possibly still as a Category 5 hurricane, on the weekend.

And there are more storms brewing in the Gulf. Gulf crude production is again under threat at a time refineries are reopening in Texas. Hence the energy sector was the best performer on Wall Street last night.

Otherwise, Wall Street saw the debt ceiling deal as a relief, although the Dow was up around 100 points earlier on before fading to the close. North Korea is still there.

Relief was also evident in safe haven trades, with gold easing back and the US ten-year yield rising 4 basis points to 2.11%.

Commodities

Gold is down -US$5.90 at US$1333.50/oz, despite the US dollar index being down -0.1% at 92.23.

Base metal prices were all lower in London, with falls in excess of -2% for lead and zinc the stand-outs.

Iron ore fell -US30c to US$77.20/t.

West Texas crude rose US53c to US$49.15/bbl.

The Aussie initially fell on the GDP “miss” yesterday but has since recovered, to be sitting smack on US80c.

Today

The SPI Overnight closed up 13 points or 0.2%.

July retail sales and trade numbers are in the frame locally today.

The ECB policy meeting tonight will be closely watched. Will Draghi finally back off the stimulus?

Note that BHP ((BHP)) and Woolworths ((WOW)) are among the list of companies going ex-div today.

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