Daily Market Reports | Dec 11 2017
This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS
By Greg Peel
Maybe Today?
On Friday morning the SPI futures had suggested a 23 point gain for the ASX200, which would have put the index smack on 6000. As it was, the index soared through 6000 from the open to over 6010, thought about it for ten minutes, then duly fell straight back to under 6000. Then everyone went to lunch.
That’s what it looks like on the chart – the index did very little from before midday and volumes were low. In December, we can pretty much write Fridays off.
The local data release of the day was October housing finance. Total finance rose 0.8% for an annual rate of 2.4%. Finance demand is still growing but the pace is slowing. Owner occupier finance rose only 0.1% in the month compared to investor finance, up 1.6%. But year on year, owner-occupier loans are up 10.6% and investor loans down -6.1%.
The data have been choppy over recent months, but the trend is one of a gradual cooling. APRA’s strategy of targeting specific areas of the market – investor loans, interest-only loans – is providing the choppiness. As ANZ’s economists note, it’s not a straightforward easing of demand as would be the case if the RBA simply raised rates.
Chinese trade data for November were released on Friday, and provided a positive surprise.
Exports rose 12.3% year on year, up from 6.9% in October and beating 5.0% expectations. Imports rose 17.7% when 11.3% was expected. It had been assumed by forecasters that Beijing’s move to curtail heavy industry during winter in order to curb pollution would lead to lower commodities exports. Yet Chinese imports of crude oil, for one, reached record levels.
Australia’s energy sector rose 0.8% on Friday, while materials sat it out. Otherwise, Telstra ((TLS)) keeps winning back the fans hence telcos jumped another 1.2%. Amazon fear continues to subside hence consumer discretionary rose 0.9%.
Westpac’s ((WBC)) AGM was not as scary as some may have feared. The bank estimated the cost of complying with Royal Commission demands plus the government’s bank levy will be $280m in FY18. Dividends might be affected. Westpac rose 0.8% and the financials sector gained 0.8%.
Commodity prices will always go up and down on any given day, thus the resources sectors tend to be volatile. Banks should not be volatile, but the reality is the ASX200 is never going to push through 6000 without the support of the banks. The Big Four alone represent around 25% of index capitalisation.
Once again the futures are up 23 points this morning. That would ensure an open above 6000. Can we hang onto it this time?
Goldilocks
Our poor young heroine must be sick and tired of her name being trotted out every five minutes but that’s how Wall Street is describing Friday night’s US jobs numbers, again.
228,000 jobs were added when 200,000 were expected. The unemployment rate remained steady at 4.1% on increased participation. But wages growth remained benign at 0.2% for the month and 2.5% annual.
As the US labour market continues to tighten, expectations are the unemployment rate will soon have a three in front of it. That hasn’t been seen since the late sixties/early seventies, when US factories were full. But back then, inflation was set to hit double-digits. Today, US inflation is non-existent.
Wall Street has priced in a Fed rate rise this week. The question is how many in 2018? The jobs number suggests several. The wage growth data suggest there is no need for the Fed to panic. Hence Goldilocks. The clincher will be tax reform, assuming it is achieved, and what impact that has on jobs and wages.
Before the jobs number was released on Friday night, Wall Street was already prepared for a positive session. Brexit talks had finally reached a breakthrough, settling the Irish border question, so now the talks can shift to trade. New Basel bank regulations regarding capital requirements proved not to be as onerous as feared, sparking a rally in European bank stocks.
The Dow closed up 117 points or 0.5% while the S&P gained 0.6% to 2651 and the Nasdaq rose 0.4%. It was another new record for the Dow and S&P, with the Nasdaq clawing back recent falls. The Russell small cap at least stopped falling, gaining 0.1%.
Wall Street has begun to believe that reconciliation will be achieved between the two tax bills sooner rather than later. There appears a genuine determination by the Republicans to get the thing over the line. The question is as to what then happens. Can Wall Street push ever further into record territory on news that has been priced in all year?
Or will it be “sell the fact”?
This and other questions will presumably be asked before Christmas. First we have the Fed meeting, press conference and quarterly “dot plot” forecasts from the FOMC which will be revealed early Thursday morning Sydney time.
It may all come down to how much tax Santa pays.
Commodities
Finally, base metals had a quiet session for once. Friday night produced mixed moves in London but none over one percent.
Iron ore rose US$2.00 to US$68.40/t.
West Texas crude rose US66c to US$57.34/bbl.
The US jobs numbers were positive for the dollar, but the Brexit news was positive for the pound. The US dollar index rose 0.2% to 93.91. Gold, nevertheless, rose US$3.60 to US$1247.80/oz having supposedly been “bitcoined” earlier in the week.
The Aussie is relatively steady at US$0.7505.
The SPI Overnight closed up 23 points or 0.4% on Saturday morning.
The Week Ahead
The Fed statement is due early Thursday morning our time and Janet Yellen will host her farewell press conference.
US data releases during the week include the PPI on Tuesday and CPI on Wednesday, retail sales on Thursday and industrial production and the Empire State index on Friday. Friday is the quarterly quadruple witching expiry of US equity derivatives.
China will be back in the spotlight on Thursday with industrial production, retail sales and fixed asset investment numbers.
Thursday night sees meetings of both the ECB and Bank of England.
Locally, the monthly NAB business confidence survey is out tomorrow and Westpac consumer confidence on Wednesday. Thursday it’s the jobs report. The RBA governor will speak on Wednesday.
AGL Energy ((AGL)) will host an investor day on Wednesday. This week’s short list of AGMs includes National Bank ((NAB)) and Orica ((ORI)) on Friday.
Changes to the components of the ASX indices, announced on Friday, become effective this Friday.
Rudi will appear on Sky Business on Wednesday to host Your Money, Your Call from 8pm till 9pm and he'll re-appear for a panel discussion on Switzer TV on Thursday, 7-8pm. These are his final appearances on Sky Business in 2017.
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CHARTS
For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED
For more info SHARE ANALYSIS: ORI - ORICA LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION