The Overnight Report: The Dove Flies Away

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By Greg Peel

The Dow closed up 80 points or 0.3% while the S&P lost a point to 2662 and the Nasdaq rose 0.2%.

Held back by the Fed

The ASX200 once again opened to the upside yesterday and once again fell back immediately, but unlike the prior three sessions did not then simply drift towards the close. Trading was choppy through to the bell, with the index hitting 6027 late morning and 6003 mid-afternoon before closing at 6021.

It appears the market does want to rally, but continues to he held back. If we consider that the futures are up 21 points this morning, we can perhaps write off yesterday’s hesitation as representing a preference for being square ahead of what the Fed might have delivered last night.

We should also note that Westfield Corp ((WFD)) came out of its trading halt yesterday and leapt 13.6%, following a takeover bid for the ASX Top 20 company. Take that out and the index did little.

One reason we did manage to kick mid-morning yesterday was the release of Westpac’s consumer confidence survey for December – the Christmas indicator. Grave fears had been held for this year’s Christmas spending given low wage growth and elevated household debt. Westpac’s November index showed a fall in confidence of -1.7 to 99.7 (noting 100 is the line between pessimism and optimism) which did not bode well.

December saw a rise of 3.6 to 103.3. Hallelujah! Deck the halls.

Funnily enough, the consumer discretionary sector closed down -0.3%. But we have to factor in Tabcorp ((TAH)) falling -3% in regard to its long-planned merger with Tatts ((TTS)), which itself went ex-dividend,

Consumer staples, on the other hand, won the session with a 0.6% gain.

Utilities fell -0.6% to be the biggest loser on the day, as AGL Energy ((AGL)) continues to fall back post announcing its Liddell plans.

Otherwise, sector moves were mixed and largely inconsequential.

Yellen has spoken, and today is a new day.

Happiness comes in threes

Late last year and early this year there was much debate and much angst about whether the Fed might deliver as many as four rate rises in 2017. As it was, last night’s 25bp increase to 1.25-1.50% market number three for the year.

There has been much debate and angst recently about whether the Fed might deliver as many as four rate rises in 2018. Last night’s Fed statement suggested no change from the prior FOMC policy assumption of three rate rises.

Everyone breathe out.

Holding the Fed back is persistent low inflation. However, the committee continues to believe low inflation is “transitory” and wage growth will eventually follow the strengthening US labour market. It’s just taking time.

Fittingly, earlier in the session the US November CPI data were released.

The headline CPI rose 0.4%, as expected, for a 2.2% annual rate, up from 2.0% in October. The surprise was a -0.1% drop in the core CPI to 1.7% annual, down from 1.8% in October. While the Fed prefers the PCE measure of inflation, core CPI below 2% still suggests inflation is struggling to rise to the FOMC’s target.

The weak CPI number was one reason the US dollar began to slide ahead of the Fed statement. Another reason was the loss of the Alabama state election by the Republicans, reducing the Republican Senate majority to 51-49. This makes it that little bit more difficult to pass tax reform legislation.

Which should have been a negative for Wall Street, but all eyes were on the Fed. The US dollar index fell post-statement given the suggestion of three hikes instead of four, and is down -0.7% at 93.45.

The greenback’s fall was further exacerbated by a rally in the pound, following the Tories’ critical defeat in Westminster over a bill which will now ensure parliament has a vote on the details of the final Brexit terms. The loss comes just after Theresa May managed a rare win by settling the Irish border issue, opening the way for trade discussions.

The Dow had already rallied to up around 160 points by midday, before falling back as traders squared ahead of the Fed announcement. It then shot back up to the highs, before falling back to a more modest gain of half that amount.

The late sell-off sniffs of sell-the-fact on elevated valuations. Will the same be the case when a tax reform bill is agreed upon? The S&P500 closed as good as square, despite the positive impact of a less hawkish than feared Fed.

Commodities

The obvious winner from a -0.7% fall in the dollar is gold, which is up US$11.10 at US$1254.20/oz.

The obvious loser, if we see it in inverse terms, is the Aussie, which is up a full percent at US$0.7630.

As is the case at each meeting, the LME closes just as the Fed statement is being delivered. For this reason base metals price moves were inconsequential last night beyond a 1% gain for copper. We’ll see what happens tonight.

Iron ore rose US10c to US$69.70/t.

The fallout from the Scottish pipeline issue continues, with West Texas crude down -US51c to US$56.69/bbl but Brent down -US$1.07 to US$62.49/bbl to further close the gap.

Today

The SPI Overnight closed up 21 points or 0.4%.

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

Both the ECB and BoE hold policy meetings tonight.

The US will see retail sales numbers tonight.

Locally we have the November jobs numbers out today.

Oil Search ((OSH)) will hold an investor briefing regarding its plans in Alaska and Elders ((ELD)) will hold its AGM.

Rudi will appear one final time (for 2017) on Switzer TV tonight, between 7-8pm.

****

World
DJIA	24585.43	+ 80.63	0.33%
S&P500	2662.85	– 1.26	– 0.05%
Nasdaq Comp	6875.80	+ 13.48	0.20%
S&P500 VIX	10.18	+ 0.26	2.62%
US 10-year yield	2.35	– 0.05	– 2.25%
USD Index	93.45	– 0.63	– 0.67%
FTSE100	7496.51	– 3.90	– 0.05%
DAX30	13125.64	– 57.89	– 0.44%

Spot Metals,Minerals & Energy Future
Gold (oz)	1254.20	+ 11.10	0.89%
Silver (oz)	16.02	+ 0.33	2.10%
Copper (lb)	3.03	+ 0.03	1.03%
Aluminium (lb)	0.90	– 0.00	– 0.34%
Lead (lb)	1.15	+ 0.00	0.27%
Nickel (lb)	5.02	+ 0.01	0.14%
Zinc (lb)	1.43	– 0.00	– 0.31%
West Texas Crude (Dec)	56.69	– 0.51	– 0.89%

The Australian share market over the past thirty days…

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