The Overnight Report: Waiting Game

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By Greg Peel

The Dow closed up 17 points or 0.1% while the S&P gained 0.1% to 2584 and the Nasdaq rose 0.1%.

Holding On

The ASX200 started yesterday’s session with a -12 point handicap as both ANZ Bank ((ANZ)) and Westpac ((WBC)) went ex. It was a choppy session thereafter, bouncing in a 19 point range to a close of -7 points, or +5 points net of dividends.

I suggested yesterday the banks might start to come under pressure as Australia prepares for its government to implode, but at -0.5% for the financials sector, those dividends were really the only influence.

You know a government’s in trouble when Four Corners decides to run a program noting just how divisive the government has become. And we all thought it couldn’t possibly get any worse than Rudd-Gillard-Rudd. Forget the citizenship farce – that’s just a sideshow. From what we are learning, tomorrow’s SSM result and subsequent attempt by the government to draft legislation may yet be the final straw.

A double dissolution would probably be welcomed right now. Get rid of the lot of them, particularly those bloody foreigners, and start again.

Stock markets are politically agnostic as a whole. Bull or bear markets are equally likely under either party. What markets do not like is uncertainty. And we are increasingly living in uncertain times.

Take a look at the pound last night. It tumbled once more on talk Tory MPs are readying to knife Theresa May. Forex traders are not thus May supporters by default, they just don’t like uncertainty.

Beyond the banks, sector moves yesterday were mixed. Utilities won the session with a 0.8% gain. Consumer staples (+0.3) had a positive session. Two defensive sectors. What is that telling us?

Materials (+0.6%) had a positive session nonetheless, despite a weaker gold price. Star of the day was graphite hopeful Syrah Resources ((SYR)), which shot up 10% after presenting at a UBS investor conference. As at last week Syrah was 22% shorted, the most of any stock.

Wall Street was mildly positive overnight but this morning the local futures are down -18 points. That would take us down close to 6000 – a level which likely must be tested as new support before 6100 can be considered.

Power Cut

Uncertainty also reigns on Wall Street.

A Senate committee is attempting finalise its version of a tax reform bill to be put to the vote, but already at least three Senators have suggested they would vote against it. One is concerned over the implicit increase in government debt, and the other two want to increase what in Australia we call the family allowance.

Those two objections conflict. The Senate’s proposal is also a good deal different to the earlier House proposal. The possibility of a compromise that would satisfy all parties seems distant at this point. What we can nevertheless say with conviction is that Americans will not be giving thanks next week for their new tax rate. It’s going to take a lot longer than that.

And following on from the announcement of the next Fed chair, Wall Street now awaits the choice of new New York Fed president, in the wake of William Dudley’s announced retirement. The NY Fed president is realistically the second most important US central banker. That president has a permanent FOMC vote and the NY Fed is the controller of Fed open market operations, meaning the actual money all passes through New York.

Wall Street wants to see someone with market experience. Once again there are a number of names being put forward.

Otherwise dominating the headlines last night was 125-year old Dow original General Electric’s announced guidance downgrade and halving of its dividend. The massive conglomerate’s share price has fallen -40% year to date as the major indices continue to hit new highs. Last night GE shares fell -8%.

The Dow nevertheless managed to close higher, after rallying back around a hundred points from earlier lows. In other news, Barbie wants to play Monopoly. And monopoly will be in question when the US regulator assesses Hasbro’s proposed takeover of rival Mattel. In toy land, it would be like Woolies wanting to take over Coles. Mattel shares shot up 20% nonetheless, but a clean merger may be doubtful.

Either way, Merger Mania continues on Wall Street. Mergers at record market highs are typically of concern, although in this case the share prices of both Hasbro and Mattel have been wallowing of late as the two companies try vainly to convince today’s child that playing with something that doesn’t involve a console can be fun too.

Commodities

Nickel enjoyed a 3% rebound in London overnight while copper rose 1.5%. The other base metals did little.

Apologies, but FNArena has been mistakenly (we assume) blocked from access to the spot iron ore price on a live basis. The futures were up US30c last night. The spot price will be updated here a bit later. And we are seeking to rectify the issue.

Update: Spot iron ore fell -US10c to US$61.90/t.

With the US dollar index up 0.1% at 94.49, gold is relatively steady at US$1277.60/oz.

West Texas crude is down -US14c at US$56.72/bbl.

The Aussie is down -0.4% at US$7630.

Today

The SPI Overnight closed down -19 points or -0.3%.

China will release October industrial production, retail sales and fixed asset investment numbers today.

Locally, the monthly NAB business confidence survey is due.

Tonight in Frankfurt, the ECB hosts a forum of global central bankers, led by Draghi, Yellen and Kuroda.

Incitec Pivot ((IPL)) and Ozforex ((OFX)) report earnings today. 

Companies hosting AGMs today include Computershare ((CPU)), Estia Health ((EHE)) and Newcrest Mining ((NCM)).

Orica ((ORI)) goes ex.

Rudi will present in Adelaide tonight. See calendar inside Rudi's Views on the website for details.

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The Australian share market over the past thirty days…

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