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The Overnight Report: How Many Hikes?

Daily Market Reports | Dec 13 2017

This story features SCENTRE GROUP, and other companies. For more info SHARE ANALYSIS: SCG

By Greg Peel

The Dow closed up 118 points or 0.5% while the S&P rose 0.2% to 2664 as the Nasdaq fell -0.2%.

Scraping Over

On Friday the ASX200 shot up to 6011 on the open before dropping straight back to under 6000. On Monday the index shot up to 6012 on the open before dropping straight back to under 6000. Yesterday the index hit 6015 before dropping straight back to under 6000. But this time, we did not see a sideways crawl to the close.

This time the index kicked again around 2pm and lo and behold, closed at 6013. We’re over the line.

I don’t have the information at hand to suggest whether the timing coordinates, but at some point yesterday Westfield Corp ((WFD)) went into a trading halt pending its announced takeover. Shares in Scentre Group ((SCG)), Westfield’s spun-off A&NZ shopping mall stable, closed up 4.1%. That’s a big move for a Top 20 stock.

And the Westfield deal was quite the boat-floater among the developers and REITs. Also on yesterday’s top five winners list with gains of 2-3% were Dexus ((DXS)), Mirvac ((MGR)) and Vicinity Centres ((VCX)).

The property sector thus stood out on the day in rising 2.1%. Energy provided support with a 1.3% gain on the higher oil price, which was driven by a leaky pipeline in Scotland. Bad news: someone has shoved a deep-fried Mars Bar in the hole overnight and the problem is fixed. Oil is back down again.

The miners chimed in with +0.4% on stronger metals prices while telcos (+0.3%) is racking up an unusual unbroken run as Telstra ((TLS)) just keeps on keeping on.

Brokers are suggesting AGL Energy ((AGL)) will need to look for further growth options as it moves to close Liddell and that had the stock off yesterday, and utilities down -1.1%. Previously high-flying healthcare (-0.8%) seems like a good place to fund your Telstra buying and your REIT buying.

Consumer discretionary is another sector that’s had a good run of late, rebounding out of the Amazon mire, but yesterday it fell -0.5%. Citi put out a report noting Oz retail sales are trending lower as we head into Christmas than they were in 2016, at barely positive growth.

Business conditions have collapsed, according to NAB’s November survey, and confidence is waning. The conditions index fell to 12.2 from 21.1 in October and confidence to 6.3 from 8.6.

Economists are not that concerned, given October’s conditions number was both a record and a shock, now looking more like a blip, and 12.2 is historically still a healthy level. Confidence is a bit on the weak side, but is considered less of a leading indicator than conditions, even though conditions means “now”.

So don’t panic.

Fed Anticipation

The US producer price index – wholesale inflation – jumped 0.4% for the third month in a row in November, taking the annual headline PPI to 3.1%. The core PPI, ex food & energy also rose 0.4% for 2.1% annual.

Rising wholesale inflation is yet to be passed meaningfully through to retail inflation (CPI) but the assumption is as wholesale margins are squeezed, CPI will soon have to give. The data were released just as the FOMC sat down to begin its two-day meeting, and while a rate rise tonight is taken for granted, the pace of 2018 hikes is the central point of debate.

The PPI number added fuel to the belief 2018 could bring three or maybe four rate rises. This is what the Fed said last year, and the year before, but that was without any inflation to speak of.

The banks were thus winners on the day, as they benefit from higher rates. Dow components JP Morgan and Goldman Sachs enjoyed solid moves. Boeing announced both an increased dividend and share buyback, sending its shares up 2.8%. Between the three, the Dow was the big outperformer among the indices.

And once again investors funded their purchases by taking profits in Big Tech, sending the Nasdaq lower.

I noted above that oil prices retreated last night. Yes, I admit I made up the bit about the Mars Bar. The Scottish pipeline remains out of action and will likely be so for a couple of weeks. That’s why oil prices jumped on Monday night. But last night it was pointed out that there is more than sufficient Brent crude in storage to cover the shortfall. That’s why prices fell back again last night.

The energy sector dragged on Wall Street last night.

So now, it’s over to the Fed. For the last three years the December FOMC meeting has been the most anticipated of the year. The statement release is due about 6am Sydney time tomorrow, and thereafter Janet Yellen holds her press conference. Standing ovation? Tears? We shall see.

Commodities

West Texas crude is down -US73c to US$57.20/bbl. Brent crude, which was the bigger gainer on Monday night, fell -US$1.04 to US$63.56/bbl.

Lead and zinc gained 1% in London last night while nickel fell -1% and aluminium and copper were slightly weaker.

Iron ore rose US60c to US$69.60/t.

The US dollar index strengthened on the PPI result and is up 0.2% at 94.08, while gold is relatively steady at US$1243.10/oz ahead of the Fed.

The Aussie is up 0.3% at US$0.7558.

Today

As I began to write this Report this morning the SPI Overnight was up 10 points and I was about to say we should thus cement the break over 6000 today. But at the close the futures were down -1 point.

Westpac will follow up with its monthly consumer confidence survey today locally and the RBA governor will speak.

AGL hosts an investor day and Tatts ((TTS)) goes ex.

The US will see CPI data ahead of the Fed statement.

Rudi will host Your Money, Your Call tonight, 8-9pm, on Sky Business.

****

World
DJIA 24504.80 + 118.77 0.49%
S&P500 2664.11 + 4.12 0.15%
Nasdaq Comp 6862.32 – 12.76 – 0.19%
S&P500 VIX 9.92 + 0.58 6.21%
US 10-year yield 2.40 + 0.02 0.75%
USD Index 94.08 + 0.21 0.22%
FTSE100 7500.41 + 46.93 0.63%
DAX30 13183.53 + 59.88 0.46%
Spot Metals,Minerals & Energy Future
Gold (oz) 1243.10 + 1.60 0.13%
Silver (oz) 15.69 + 0.01 0.06%
Copper (lb) 3.00 – 0.01 – 0.25%
Aluminium (lb) 0.90 – 0.00 – 0.24%
Lead (lb) 1.15 + 0.02 1.33%
Nickel (lb) 5.01 – 0.07 – 1.31%
Zinc (lb) 1.44 + 0.01 0.94%
West Texas Crude (Dec) 57.20 – 0.73 – 1.26%

The Australian share market over the past thirty days…

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