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The Overnight Report: Bipartisanship

Daily Market Reports | Sep 14 2017

By Greg Peel

The Dow closed up 39 points or 0.2% while the S&P rose 0.1% to 2498 and the Nasdaq rose 0.1%.


While the top of the well-entrenched range for the ASX200, in place since May, is 5800, we haven’t actually seen that level since the end of June. There have been numerous upward spikes in the meantime from the bottom of the range but they’ve all failed in the 5770-80 area. And that’s exactly what happened yesterday.

The index jumped from the open and by midday had added 33 points to 5777. But that would have represented a third consecutive day of gains of such magnitude, and profit-taking by traders was always on the cards. It appears traders now aren’t waiting for 5800, they’re happy to get out a bit earlier.

By day’s end the rally had faded completely. Banks had led the rallies on the prior two days but while they still managed to close up 0.3%, it was a pullback from the day’s highs. Materials was the ultimate winner on the day with a 0.7% gain on stronger metal prices but that will all change today.

The bounce in US yields overnight took its toll on yield plays, sending telcos down -1.6%, utilities down -0.9% and consumer staples down -0.4%.

The oil price has been rising as Texas refineries come back on line but not so the local energy sector. Investors have taken to Woodside Petroleum ((WPL)) following analyst calls suggesting the company may be looking at a drop in contract prices in the next three years. Energy fell -0.7%.

Consumer discretionary fell -0.6% despite the Westpac consumer confidence survey showing a 2.5% rise this month after falling -1.2% in August. The market was likely disappointed, if not too surprised, that improvement was not enough to take confidence out of the pessimism range at 97.9. The index fell into pessimism late in 2016 and has remained there ever since, below the long run average of a slightly optimistic 101.9.

Lack of wage growth in the face of record household debt and soaring utility costs is the culprit. Will today’s jobs numbers suggest any improvement on the wages front?

Keep your friends close…

Donald Trump will tonight have dinner with the Democrat leaders of both houses and has called together a bipartisan group to see if he can nut out some common ground on tax reform. Bipartisan? It contains five Republicans to eight Democrats.

Trump had turned to the Democrats to resolve, or at least delay, the debt ceiling issue knowing the anti-debt Freedom Caucus faction of the Republicans, aka the Tea Party, would likely prove a barrier. Hurricane relief provided a convenient excuse but it is now clear Trump considers the way to progress his economic agenda is not to attempt to seek compromise amongst a polarised Republican party – that way be dragons – but to seek compromise with centrist Democrats.

He only needs a handful of Democrats on board and the Tea Party vote is emasculated.

This was not the way Wall Street anticipated things would go back in January, but after the debacle of healthcare reform it seems now there may be a glimmer of hope. While lowering the corporate tax rate remains the primary focus, personal tax rates are also under review and now Trump’s team has admitted in order to achieve meaningful tax cuts for the working middle class, it may be that the rich will see a higher rate.

The Tea Party will have apoplexy. The Democrats, however, might like it.

The US PPI rose by 0.2% in August when 0.3% was expected. Pretty much all of the rise can be put down to the Harvey-driven hike in fuel costs, offset by the biggest decline in wholesale food costs in two years. The headline PPI rose to 2.4% from 1.9% in July. The core (ex food & energy) PPI remains at 1.9%.

Still, the trend is up now, not down. Wall Street awaits tonight’s CPI release but perhaps on a combination of PPI tick-up, possible progress on tax reform and the simple fact it’s been due a bounce, the US dollar index is up 0.5% at 92.41. The US ten-year yield is up another 2 points at 2.20%, having last week seen hitting an intraday low of 2.01% when Wall Street feared both another missile test and massive Irma destruction.

Would you pay a thousand bucks for an iPhone? That’s the question everyone is asking following Apple’s launch of new products on Tuesday night. You don’t have to, because the new iPhone 8 is only slightly more expensive than the iPhone 7. It’s only the whizz-bang iPhone X that’s exorbitant. Investors remain undecided, which is why Apple shares again ticked lower last night after having run up hard ahead of the launch.


A bounce in the US dollar is not what metal markets needed at a time the solid run of past months is being called overblown. Aluminium, lead and zinc fell -1% in London, copper -2% and nickel -5%. Talk of increased nickel supply from Indonesia sealed that metal’s fate.

Iron ore is unchanged at US$74.20/t.

The bounce in the dollar and US rates and the stronger PPI has gold off -US$8.90 at US$1322.50/oz.

Last week saw the biggest drop in US gasoline supplies in history. This surprised no one, given the number of Texas refineries that had to shut down. The oil market took greater comfort from an International Energy Agency report noting global crude output fell in August for the first time in four months, and news that OPEC is hoping to rope some new members into its OPEC/non-OPEC production quota club, being Kazakhstan and Venezuela.


West Texas crude is up US94c at US$49.31/bbl.

The Aussie is down -0.4% at US$0.7985.


The SPI Overnight closed up one point.

Local August jobs numbers are due today.

China will release industrial production, retail sales and fixed asset investment data.

The Bank of England holds a policy meeting tonight, while the August CPI is out in the US.

Myer ((MYR)) will post its earnings result today. Orica ((ORI)) will host an investor day.

There is a very long list of companies going ex-dividend today. Heavyweights include Flight Centre ((FLT)), South32 ((S32)), Seek ((SEK)) and Western Areas ((WSA)).

Rudi will travel to Macquarie Park later today to appear on Sky Business from noon till 2pm.

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