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The Overnight Report: There’s A Turn Up

Daily Market Reports | Feb 15 2018

World Overnight
SPI Overnight (Mar) 5845.00 + 55.00 0.95%
S&P ASX 200 5841.20 – 14.70 – 0.25%
S&P500 2698.63 + 35.69 1.34%
Nasdaq Comp 7143.62 + 130.10 1.85%
DJIA 24893.49 + 253.04 1.03%
S&P500 VIX 19.26 – 5.71 – 22.87%
US 10-year yield 2.91 + 0.07 2.57%
USD Index 89.08 – 0.58 – 0.65%
FTSE100 7213.97 + 45.96 0.64%
DAX30 12339.16 + 142.66 1.17%

By Greg Peel

Results In Play

Wall Street closed as good as square on Tuesday night ahead of the critical US CPI release. The SPI futures suggested a 15 points gain for the ASX200 yesterday but instead we fell -14. Commonwealth Bank ((CBA)) going ex-dividend was worth -13 points, so we basically finished square as well.

It was not a case of square sector moves nonetheless. We are now into the heat of result season and that’s when we would expect the micro to take over from the macro, as long as the macro behaves itself, which it didn’t last week.

Market darling CSL ((CSL)) did not disappoint, topping the leaders’ board on the day with a 5.1% gain and sending healthcare up a standout 2.9%.

Second place went to Computershare ((CPU)), which rose 4.9% to take the IT sector up 1.2%. The bronze went to Aveo Group ((AOG)), up 3.5%, and just off the podium was Insurance Australia Group ((IAG)), up 3.2%. Both those stocks disappear into financials, with Aveo in the subset of real estate.

All four stocks reported earnings.

The reporting failure on the day was Domino’s Pizza ((DMP)), which fell -6.1% because as usual, investors wanted an upside surprise and didn’t get one. Challenger ((CGF)) reported on Monday but cautious broker assessments in the meantime were behind that stock’s -4.1% fall yesterday.

Troubled Fletcher Building ((FBU)) came out of its trading halt and fell -7.1%.

Going into a trading halt was Woodside Petroleum ((WPL)) which reported yesterday and announced a $2.5bn capital raising via a -10% discounted rights issue. This rather makes the company’s result redundant, as aside from the dilution implicit from the raising, the money is to be used to acquire longer term growth assets that will not produce earnings in the short term.

It is unlikely Woodside will maintain its high payout ratio on dividends. Woodside’s dividend bonanza only came about because the company had nothing else to invest in.

The other drag yesterday was telcos (-1.4%), given the Telstra coin came up tails, while pizza had its impact on consumer discretionary (-0.9%).

It was a mixed bag, just as one would expect in reporting season. Traders would have been happy to go home square ahead of last night’s US CPI release.

Storm in a Tea Cup?

The assumption was that if the US January CPI reading came in above expectations, a new wave of selling could be triggered, given inflation fear, regarding wages growth, is what started the rout in the first place. Economists had forecast 0.4% growth at the headline. It came in at 0.5% — the biggest monthly gain in five.

The Dow opened down -150 points.

But wait…

The annual headline rate remained unchanged at 2.1%. Central banks only look at core rates, and the core CPI rose 0.3% to be unchanged at 1.8%. The Fed prefers the PCE measure of inflation over the CPI, and it was unchanged in December at 1.5%.

And to top it all off, the data showed inflation-adjusted wages declined by -0.2% in the month.

The Dow closed up 250 points.

Another pointer to inflation are retail sales. If consumers are spending, price rises can be implemented.

US retail sales fell -0.3% in January – the biggest drop almost a year. Forecasts were for a 0.2% gain.

So suddenly, that little pop in wage growth (not inflation-adjusted) in the January non-farm payrolls report looks a lot less ominous. But there was also another event to take into consideration last night.

The front month VIX futures contract expired, and rolled into a new month. The headline VIX immediately fell to 19 from 25 – the point at which it had settled having popped to 50 during the carnage. Not only does the lower VIX suggest traders are less desperate to buy protection for a month away, those short VIX positions yet to be unwound have actually trimmed some losses on paper.

Meanwhile, the US earnings season has again been another success, the US economy continues to look healthy, and stock market PEs have now come back to more realistic levels.

The odds remain in favour of a March Fed rate hike, thus a hike next month would not provide cause for another sell-off. All things being equal, maybe the prior stock market low is safe for the time being.

The US bond yield jumped 7 basis points to 2.91% last night, yet stock markets rallied. The jump to 2.85% on the Friday of the non-farm payrolls release had stock traders heading for the exits.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1353.70 + 24.50 1.84%
Silver (oz) 16.86 + 0.29 1.75%
Copper (lb) 3.23 + 0.08 2.44%
Aluminium (lb) 0.99 + 0.02 1.86%
Lead (lb) 1.17 + 0.01 0.67%
Nickel (lb) 6.36 + 0.29 4.71%
Zinc (lb) 1.63 + 0.04 2.45%
West Texas Crude (Mar) 60.77 + 1.61 2.72%
Brent Crude (Apr) 64.47 + 1.73 2.76%
Iron Ore (t) 78.25 + 0.40 0.51%

The hot CPI release had the stock market initially selling, then reversing once the data were more closely assessed. The same happened in the US dollar last night, the other way around. The dollar popped on the release, and then fell – substantially.

The -0.7% plunge for the greenback put another rocket under commodity prices. Gold jumped US$25. Base metal prices surged, including a near 5% gain for nickel.

Oil posted its biggest gain since falling from its highs a couple of weeks ago, up almost 3%.

Aside from the mathematical relationship, we might assume there was a sigh of relief in commodity land that the CPI number did not trigger another Wall Street rout, which could spill over into the wider economy.

Iron ore trading does not actually shut down over the Chinese New Year break, which begins today, but it might as well. Expect little to no movement in price before next Thursday.


The SPI Overnight closed up 55 points or 0.9%. That suggests a push back towards 5900 for the ASX200 on relief Wall Street did not have another tantrum.

Standing in the way of 5900 will be results from Evolution Mining ((EVN)), Healthscope ((HSO)), Newcrest ((NCM)), Origin Energy ((ORG)), South32 ((S32)), Sonic Healthcare ((SHL)), Suncorp ((SUN)), and Telstra ((TLS)), among others.

Our own January jobs numbers are out today.

China closes for a week.

The US will see wholesale inflation numbers tonight, but the fear has subsided.

Rudi will appear on Sky Business today, noon-2pm.

The Australian share market over the past thirty days…

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