The Overnight Report: Enough Is Enough

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World Overnight
SPI Overnight (Mar)	5934.00	– 34.00	– 0.57%
S&P ASX 200	5974.70	– 21.40	– 0.36%
S&P500	2765.31	– 17.71	– 0.64%
Nasdaq Comp	7511.01	– 77.31	– 1.02%
DJIA	25007.03	– 171.58	– 0.68%
S&P500 VIX	16.35	+ 0.57	3.61%
US 10-year yield	2.85	– 0.02	– 0.77%
USD Index	89.73	– 0.18	– 0.20%
FTSE100	7138.78	– 75.98	– 1.05%
DAX30	12221.03	– 197.36	– 1.59%

By Greg Peel

Playing Politics

The lead from Wall Street had been weak but not to the extent that might suggest a -50 point fall for the ASX200 by lunchtime yesterday. There were two factors that specifically drove additional weakness – commodity prices and politics.

Iron ore has fallen for the past few sessions but strength in base metal prices had provided some offset. On Monday night the ducks all lined up as all of iron ore, base metal prices and oil prices fell, with iron ore’s drop below US$70/t providing a psychological sell signal. Oil has seen a lot of ups and downs recently and Monday night was a down-night.

Hence materials closed down -1.1% and energy -0.6%.

Yesterday Bill Shorten further outlined the tax policies Labor intends to take to the next election. The critical element was an intention to scrap the cash back component of the dividend imputation tax system that has been in place since the Keating era.

It was the Howard government that took Keating’s policy a step further, which Labor now wants to reverse. Keating introduced dividend imputation – franking – so that investors did not have to pay tax twice – once when the company paid tax and again on dividends paid to the investor. But Costello took it a step further and provided those investors paying little or no tax, such as retirees, with a cheque for the amount they would otherwise have not paid had they been paying tax.

Given this policy is forecast to soon cost the government $8bn, Shorten has seen the opportunity to square the ledger while not upsetting the majority of Labor voters.

Given retirees favour high-yield large caps in their portfolios, such as the big banks and Telstra ((TLS)), which pay fully-franked dividends, the financials sector was down -0.3% yesterday and telcos -0.9%.

Industrials, where we find the likes of yield plays (mostly without the franking) Transurban ((TCL)) and Sydney Airport ((SYD)), also fell -0.3%.

The market recovered in the afternoon to a more modest loss but notably, all other sectors did very little at all. Utilities just scraped into the green and consumer staples bucked the trend with a 0.3% gain, having been an underperformer on Monday.

The monthly NAB business confidence survey had the conditions index rising in February yet again, to a record high. Business confidence dipped slightly, but that’s no surprise given market volatility at the time.

Ring the Bell?

In January, US wage growth printed at a higher than expected 0.3% and Wall Street had a heart attack. When the January headline CPI printed at a higher than expected 0.5%, Wall Street swooned once more, until it was realised annual core inflation had remained flat.

In February, wage growth printed at a lower than expected 0.1%, as revealed last Friday, and Wall Street surged. Last night February CPI inflation came out at 0.2%, as expected. Core inflation again remained flat at 1.8%.

Wall Street did not surge last night.

The big news of the day was Trump’s sacking of Secretary of State Rex Tillerson. Commentators suggest the news did not much impact on Wall Street. Tillerson is well respected but has clashed with Trump over pretty much everything since day one. The only real surprise is he lasted this long.

Trump has already nominated the CIA director as Tillerson’s replacement. Wall Street has become relatively inured to White House musical chairs. Mike Pompeo will need to be approved by Congress, which takes a while, so the only real surprise is Trump decided to make his move just as an historic summit is to be planned with Kim Jong-un.

On Monday the Nasdaq hit a new all-time high. Not only did Big Tech quickly recover from the February correction, it surged ever upward thereafter. Many a tech name had risen 10-20% for the year to date. It’s not just the FANGs and friends, but anything to do with big data, cloud, disruption and everything that goes with it. The tech sector now represents around 25% of the S&P500 by market cap.

With the March quarter coming to an end soon, it appears that all-time high was as good as any signal that it’s time to lock those profits in. There appeared no other reason why the Nasdaq should fall -1.0%. Tech was largely responsible for the S&P falling -0.6%.

As selling gathered pace, the major indices closed near their session lows.

Throw in ongoing uncertainty with regard trade tariffs, and it seems Wall Street is now struggling for a reason to go higher. Outside of a confirmation of trade policy and whatever might transpire when Trump meets Kim, perhaps we will have to wait for the next US earnings season, which begins a couple of weeks into April, to provide the next catalyst.

That will be the first set of results that will include the benefit of corporate tax cuts.

In the meantime we have the March Fed meeting, but given the chance of a rate hike is priced in as a done deal, there should be no shocks.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1325.70	+ 2.80	0.21%
Silver (oz)	16.56	+ 0.05	0.30%
Copper (lb)	3.12	+ 0.01	0.32%
Aluminium (lb)	0.95	+ 0.01	0.64%
Lead (lb)	1.09	+ 0.02	2.21%
Nickel (lb)	6.28	+ 0.08	1.37%
Zinc (lb)	1.50	+ 0.03	1.92%
West Texas Crude (Apr)	60.64	– 0.71	– 1.16%
Brent Crude (May)	64.54	– 0.42	– 0.65%
Iron Ore (t)	69.00	0.00	0.00%

The US dollar index dipped -0.2% last night. Whether or not that reflects Tillerson’s departure is unclear. It did provide some relief for metals prices nonetheless, although base metal prices have been particularly volatile of late.

Iron ore’s bounce will be welcomed today.

Oil nevertheless continues to slip away as traders anticipate another US weekly inventory build.

Despite the weaker greenback to Aussie is down -0.2% at US$0.7856.

Today

The SPI Overnight closed down -37 points or -0.6%, mimicking the S&P500.

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

US retail sales data are out tonight.

Locally we’ll see the Westpac consumer confidence survey.

Brambles ((BXB)) will host an investor day today amidst another round of ex-divs, the most notable of which is CSL ((CSL)).

The Australian share market over the past thirty days…

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