article 3 months old

The Overnight Report: No Breakthrough On Tax Yet

Daily Market Reports | Dec 15 2017

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

By Greg Peel

The Dow closed down -76 points or -0.3% while the S&P lost -0.4% to 2652 and the Nasdaq fell -0.3%.

Gravitational Pull

The ASX200 opened strongly and hit 6040 by 10.40am yesterday, and that was the end of that. A choppy downward path saw the index down -10 points on the session for a close of 6008.

The index is significantly struggling to escape the gravitational pull of 6000, just as we saw last year with the 5000 level, and more recently the 5800 level. While having been as high as 6050 early last month, there just doesn’t seem to be sufficient momentum to truly leave 6000 behind.

A lot it is to do with the banks, and all that is going on in that world. Until sentiment turns for the banks, or at least the problems start to be forgotten, it’s hard to see a meaningful index rally being sustained.

At the present time we have a market waiting to see what happens with regard US tax reform, which may annoyingly be a catalyst right when everyone’s meant to be on holiday downunder.

Yesterday’s focus was more specifically on data releases.

Australia added 61,600 jobs in November – around 42,000 full-time and 20,000 part-time – when economists had forecast 19,000. An increase in the participation rate to the highest level since 2011 ensured the unemployment rate remained steady at 5.4%. Female participation is now at its highest on record.

(I could say “well someone’s got to make the coffee,” but I’m of course a big champion of women in the workforce.)

The fourteen-month run of consecutive jobs growth is the longest since the country came out of Keating’s recession.

China’s industrial production rose 6.1% year on year in November, down from 6.2% in October, but beating estimates of 6.0%. Retail sales rose 10.2%, up from 10.0% but below 10.3% expectation. Fixed asset investment rose 7.2% year to date, down from 7.3% and meeting expectations.

In the wake of the Fed’s rate rise announcement, the PBoC lifted the Chinese equivalent rate by 25 basis points to 2.50%.

Monetary tightening comes on top of Beijing’s ongoing push to constrain polluting industrial capacity during the winter, which has been credited with restraining industrial production in November. One current target is aluminium smelting, and aluminium jumped 2% last night.

Closer to home, yesterday’s train crash was Myer ((MYR)), down -9.7% after announcing “surprisingly” weak sales numbers heading into Christmas. Myer’s share price is now down -78% from a prior peak in 2013 with no sign of a turnaround. Ask not for whom the bell tolls.

Interestingly, the shorters have begun to reduce very longstanding positions in Myer these past couple of weeks. Easy profits before year-end?

Every one of yesterday’s top five best performers was a miner.

Yet materials rose only 0.2%. Indeed, every sector move yesterday was small bar two – Telstra ((TLS)) finally saw some profit-taking after a solid rebound and telcos fell -1.1%, while selling in AGL Energy ((AGL)) is gaining in momentum since the company unveiled its big-spending growth plans. Utilities fell -1.7%.

Impatience

Myer executives would be cringing this morning to learn US retail sales jumped 0.8% in November when 0.4% was expected. November, of course, includes Black Friday and Cyber Monday, but these are seasonally adjusted numbers.

The Dow opened up around 90 points on a boost from the sales numbers but that was the high for the day. There followed an orderly decline to the close.

Mario Draghi did not surprise by leaving the EU cash rate unchanged, and making no changes ahead of QE tapering beginning next month. What was surprising is his declaration that there was no sign on the horizon of any change in the cash rate, given despite an improving European economy, inflation is expected to rise no further than 1.7% by 2020.

This is bad news for Europe’s banks, and the German DAX fell -0.4%. The Bank of England unsurprisingly left its rate on hold after hiking last month.

Republican senator Marco Rubio has declared he will not vote for the current proposed tax bill without a greater expansion of the child tax credit. Rubio is only one voice on one of the many constituent parts, but the number of moving parts suggests there may likely yet be other opponents of other elements. Now that Alabama has swung Democrat (Neil Young must be well pleased), the Republican Senate majority has swung to 51-49 from a previous 52-48.

Only two dissenters required.

Wall Street was likely due a breather anyway and with a little bit of doubt creeping in regarding tax, last night seemed an opportune time to take some profits.

Donald Trump made a big show last night of cutting a symbolic red tape signifying reduced US regulation under his administration. Being incremental, regulation reduction is actually an achievement many on Wall Street point to as being a primary, under-the-radar driver of the 2017 rally, reflected in earnings growth, as opposed to simple tax anticipation.

Ironically, Disney finally confirmed last night it will buy a chunk of 21st Century Fox in a mega-billion dollar deal, in a process that from a regulatory perspective is expected to take at least a year.

The old guard is cashing in: Lowy, Rupert…

Commodities

Aluminium, as noted, rose 2% in London while lead fell -2%. Copper gained another 1%.

Iron ore rose US$40c to US$70.10/t.

The US dollar index was steady last night at 93.51 hence gold is little moved at US$1254.40/oz.

West Texas crude is up US37c at US$57.06/bbl.

The strong jobs number has the Aussie up another 0.5% at US$0.7670.

Today

The SPI Overnight closed down -3 points.

It’s the quarterly quadruple witching derivatives expiry in the US tonight and industrial production numbers are due.

Locally, the changes to S&P/ASX indices announced last week come into effect today.

National Bank ((NAB)), BT Investment Management ((BTT))) and Orica ((ORI)) all hold AGMs today.

****

World
DJIA 24508.66 – 76.77 – 0.31%
S&P500 2652.01 – 10.84 – 0.41%
Nasdaq Comp 6856.53 – 19.27 – 0.28%
S&P500 VIX 10.49 + 0.31 3.05%
US 10-year yield 2.35 – 0.00 – 0.13%
USD Index 93.51 + 0.06 0.06%
FTSE100 7448.12 – 48.39 – 0.65%
DAX30 13068.08 – 57.56 – 0.44%
Spot Metals,Minerals & Energy Future
Gold (oz) 1254.40 + 0.20 0.02%
Silver (oz) 15.90 – 0.12 – 0.75%
Copper (lb) 3.06 + 0.03 0.95%
Aluminium (lb) 0.92 + 0.02 2.10%
Lead (lb) 1.13 – 0.02 – 2.03%
Nickel (lb) 5.05 + 0.03 0.60%
Zinc (lb) 1.44 + 0.01 0.75%
West Texas Crude (Dec) 57.06 + 0.37 0.65%

The Australian share market over the past thirty days…

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

AGL MYR NAB ORI TLS

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS 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