The Overnight Report: Growing Confidence

Daily Market Reports | Dec 08 2017

By Greg Peel

The Dow closed up 99 points or 0.4% while the S&P gained 0.4% to 2638 and the Nasdaq rose 0.6%.

That You Santa?

After having been sold down pretty consistently ever since the government announced a Royal Commission last week, the banks bounced yesterday. It was only a matter of time as yields once again crept over the 6% mark.

The 0.8% rebound for the banks was worth around a third of the ASX200’s 32 point gain. The financials sector also had some help from a rally in the ASX ((ASX)) after the exchange announced it was set to replace its dusty old CHESS clearing system with whizz-bang new blockchain technology – that which provides the platform for bitcoin.

The iron ore price plunged -4% on Wednesday night but materials rose 0.3% yesterday. Oil fell -2% but energy closed up 0.2%. The big miners/oil stocks are often sold in a switch when the banks are being bought but not yesterday. Telstra ((TLS)), too, can be another source of funding but despite rising steadily ever since the market realised the NBN’s connection problems are a potential positive, telcos were up another 0.5%.

The session looked very risk-on, which would imply defensives would be the losers on the day. But utilities won the session with a 1.1% gain, property rose 0.6% and healthcare rose 0.6%.

The mixed bag that is industrials just managed to scrape into the green given variance in individual stock stories but otherwise yesterday was a clear case of market-wide, or index, buying.

The market is also currently enjoying some support, on the balance, of an Aussie dollar which has been falling steadily this week, thanks to a stronger greenback, the miss on the GDP result and falling commodity prices. It’s down another -0.7% this morning at US$0.7513.

It looks like 6000 is back in the sights. Wall Street is strong overnight and oil is up 1% and nickel 2%. Don’t mention gold – it’s down twenty bucks, and iron ore’s down again. The futures are up 23 points this morning, and that would take us back over the magic level.

Shutdown Shrug

If both parties can’t come to an agreement on the US budget, the government will shut down three days before Christmas. Sounds scary. Wall Street couldn’t care less.

As I write, Trump is meeting with respective Congressional heads, all of whom have pledged they won’t leave the room without reaching an agreement. Wall Street is confident an agreement will be reached – these shutdown threats are becoming rather common these days, and we’re yet to see one under Trump.

When the US government last shut down, under Obama in 2013, Wall Street rallied 2.4% over the period.

Wall Street is becoming increasingly confident the two tax bills can be reconciled and one tax bill can be passed, even before Christmas. Back when several attempts at a healthcare bill failed, tax reform seemed a pipedream. But the speed in which we have come to this point is a surprising relief for the market.

The US dollar index has been inching back up all week. No assumed shutdown, tax success, a rate rise next week and likely talk of more to come – all are allowing the greenback to fight back against recent strength in the euro and pound. The victim is gold. It’s down US$19.70 at US$1244.20/oz this morning. All of the above have been cited for triggering the fall, As well as one other thing…

Yes, bitcoin charged through US$16,000 last night. It’s up about a thousand percent for the year, and, I don’t know, about a million percent since inception. The old tulip analogy gets trotted out rather regularly these days but in bitcoin’s case, you’d have to think there are distinct parallels. Cryptos may be the currencies of the future but the mob just sees a chance to get rich quick.

Good luck to them. Gold was once the universal store of wealth. Bitcoin is a substitute for gold.

The threat of a strike in Nigeria provided for a bounce back in the oil price last night of 1%. The bounce was nevertheless tempered by data showing US production hit 9.7mbpd last week – the highest level since the 1970s. The US domestic natural gas price fell -5% last night on a big jump in gas production.

The US gas price does not directly impact on Australian oil-indexed LNG export pricing, but it does so indirectly as the US moves quickly to become a significant LNG exporter itself.

The Dow was up 120 points at one stage last night before settling back a bit. Volumes remain to the low side as Wall Street awaits the various developments in question, and oh yes there’s a jobs report tonight.

Growing confidence in tax reform had the Russell small cap index bouncing back 0.8% last night after a week of falls.

Commodities

The US dollar index is up 0.2% at 93.77. Gold has been noted.

Nickel jumped 2% in London but lead fell -3%, while the others were quiet.

Iron ore fell -US$1.30 to US66.40/t.

West Texas crude is up US67c at US$56.68/bbl.

The Aussie has been noted.

Today

The SPI Overnight closed up 23 points or 0.4%.

China will release November trade numbers today. Locally we’ll see housing finance data.

US jobs tonight.

Westpac ((WBC)) holds it AGM today. Could be fun.

S&P/ASX will announce its quarterly index changes.

Rudi will connect with Sky Business via Skype at around 11.15am to discuss markets and broker calls. It'll be the final time in 2017.

****

World
DJIA24240.05+ 99.140.41%
S&P5002638.56+ 9.290.35%
Nasdaq Comp6818.02+ 41.640.61%
S&P500 VIX10.29– 0.73– 6.62%
US 10-year yield2.34+ 0.010.21%
USD Index93.77+ 0.190.20%
FTSE1007320.75– 27.28– 0.37%
DAX3013034.88+ 36.030.28%
Spot Metals,Minerals & Energy Future
Gold (oz)1244.20– 19.70– 1.56%
Silver (oz)15.63– 0.32– 2.01%
Copper (lb)2.96+ 0.010.18%
Aluminium (lb)0.90– 0.00– 0.45%
Lead (lb)1.10– 0.03– 3.03%
Nickel (lb)4.98+ 0.102.03%
Zinc (lb)1.41– 0.00– 0.05%
West Texas Crude (Dec)56.68+ 0.671.20%

The Australian share market over the past thirty days…

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