The Overnight Report: Anticipating The End Game

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World Overnight
SPI Overnight (Mar)	5957.00	+ 3.00	0.05%
S&P ASX 200	5962.40	+ 67.40	1.14%
S&P500	2728.12	+ 7.18	0.26%
Nasdaq Comp	7372.01	+ 41.30	0.56%
DJIA	24884.12	+ 9.36	0.04%
S&P500 VIX	18.36	– 0.37	– 1.98%
US 10-year yield	2.88	– 0.00	– 0.14%
USD Index	89.63	– 0.46	– 0.51%
FTSE100	7146.75	+ 30.77	0.43%
DAX30	12113.87	+ 23.00	0.19%

By Greg Peel

As You Were

The RBA left its cash rate on hold yesterday, shocking no one.

Australia’s current account deficit widened by more than expected in the December quarter to -$14bn. Export volumes fell -1.8% from the prior quarter, mostly reflecting decade-low volumes of cereals and grains in the wake of a dry season. An offset was provided by strength in iron ore and gold.

Import volumes rose 0.5%, reflecting falling prices for imported consumer goods. The terms of trade rose a mere 0.1% to be -6% below the peak in early 2017, although stronger commodity prices in the interim suggest a rebound in the March quarter.

Retail sales rose only 0.1% in January when a 0.4% rebound from December’s disappointing -0.5% drop was forecast. It appears that the combination of high household debt and low wages growth is making a noticeable impact.

Not that the data mattered much yesterday in the local market. After four days of falls, the ASX200 rebounded sharply as Trump tariff and trade war fears eased, and Wall Street provided a strong overnight lead.

It is looking increasingly like Trump may have used the announcement of hefty tariffs as a lever to encourage a more favourable result from the ongoing NAFTA negotiations. Initially he said the tariffs would apply to everyone, then he said maybe there is room to make concessions or exemptions for allies like Canada and Mexico.

Take this to its conclusion and we can probably safely assume Australia will also be granted exemption. If the tariffs become specifically targeted, imposed only on either certain geographies (China) or certain products, then we might also assume a global trade war will be averted.

That seems to have been the case yesterday, when every sector of the local market finished in the green.

Leading the charge were two sectors that in recent months have proven the most consistently volatile – utilities and telcos. The opposite should be true, but constant interest rate debate, notwithstanding individual issues in telco land, are leading to a great deal of flip-flopping. These two sectors both rose around 2% yesterday.

Next were the resource sectors, which are most closely linked to talk of tariffs in steel, aluminium, and whatever might come next. Energy and materials both rose around 1.8%.

Thereafter, everything else rose a little more or a little less than 1%. Underperfomer on the day was financials, up only 0.9%, but then the banks were outperformers (falling by less than the market) on the way down. Even consumer discretionary managed a 1.0% gain when realistically the weak retail sales number should have been a negative influence.

So here we are, back at around 5950, which has been the midpoint of the range of the last couple of months. We have weathered the US inflation scare plunge, and the Trump tariff plunge, while in between posting a very strong earnings result season.

Whereto from here? Well, we need to see exactly what Trump will settle on, which we are supposed to learn by week’s end, but given polarisation amongst both White House advisors and Republicans in Congress, it may take a while longer.

On Friday night we get the next US jobs report, remembering it was the last one that sent Wall Street into correction mode.

Waiting Game

The Dow was up over 100 points early in last night’s session and down by more than -150 around noon, but in this day and age if the industrial average hasn’t swung through a range of 500 points or more it’s considered a quiet day.

The Dow closed flat and the S&P slightly positive, while the Nasdaq jumped 0.6% and the Russel small cap index continued its strong run with a further 1% gain.

We recall that in last week’s initial tariff scare, and knee-jerk reaction, investors “read through” the implications of hefty US trade tariffs to envisage tit-for-tat from the rest of the world, particularly China, on US tech-based products such as iPhones and the like. As a large export industry, Big Tech was hit hard.

So as fears ease, Big Tech is rebounding. The small cap index is weighted to stocks that are not involved in international trade, and who stand to be the greatest beneficiaries of the tax cuts.

For other big multinationals that dominate the Dow and fill out the S&P500, it’s now a wait and see as to what the final tariff plan is going to be. The S&P is also back to around its average over the past month of turmoil.

It is unclear how long that wait will be and, as noted, non-farm payrolls numbers are due at the end of the week. The US ten-year yield is also sitting near its average for the past month at 2.88%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1334.10	+ 15.10	1.14%
Silver (oz)	16.73	+ 0.33	2.01%
Copper (lb)	3.16	+ 0.04	1.28%
Aluminium (lb)	0.97	– 0.00	– 0.17%
Lead (lb)	1.11	+ 0.00	0.40%
Nickel (lb)	6.18	+ 0.11	1.73%
Zinc (lb)	1.50	+ 0.00	0.27%
West Texas Crude (Apr)	62.50	– 0.13	– 0.21%
Brent Crude (May)	65.71	+ 0.09	0.14%
Iron Ore (t)	75.00	– 0.65	– 0.86%

Last week’s tariff fears fed into weakness in the currencies of America’s major trading partners, leading the US dollar index to rise. As fears subside, those currencies have rebounded and the dollar index is this morning down -0.5% at 89.63.

It is also suggested that the announcement of talks to be held between the leaders of the two Koreas, the first in over a decade, prompted some selling out of the safe haven of the greenback. Gold has jumped 1% as a result, which seems counterintuitive if we assume the Korean summit can only be a good thing.

Greenback weakness means that despite a wider than expected Australian trade deficit, the Aussie is up 0.7% at US$0.7818.

Today

The SPI Overnight closed up 3 points.

It’s GDP day today downunder. The weaker than expected net export number for the December quarter has economists revising down their expectations, with 2.4% growth now pencilled in.

The RBA governor will speak today.

The US will see the private sector jobs numbers for February and the Fed Beige Book.

Among those stocks going ex-div today are Blackmores ((BKL)), Brambles ((BXB)), Corporate Travel Management ((CTD)), Qantas ((QAN)), and Treasury Wine Estates ((TWE)).

The Australian share market over the past thirty days…

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