The Overnight Report: Faceplant

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World Overnight
SPI Overnight (Jun)	5925.00	– 33.00	– 0.55%
S&P ASX 200	5959.40	+ 10.00	0.17%
S&P500	2712.92	– 39.09	– 1.42%
Nasdaq Comp	7344.24	– 137.74	– 1.84%
DJIA	24610.91	– 335.60	– 1.35%
S&P500 VIX	19.02	+ 3.22	20.38%
US 10-year yield	2.85	– 0.00	– 0.11%
USD Index	89.89	– 0.30	– 0.33%
FTSE100	7042.93	– 121.21	– 1.69%
DAX30	12217.02	– 172.56	– 1.39%

By Greg Peel

Much Ado

The ASX200 shot up over 30 points on the open yesterday for reasons that were unclear. The lack of clarity was underscored by the fact the index fell immediately to be down -16 points by midday. Too far? An afternoon rally resulted in a close of up 10 points.

A lot of apparent movement for very little result.

The only sector to make any mark yesterday was energy, which jumped 1.7% on the stronger overnight oil price. Otherwise healthcare came in second in rising 0.3%, despite Cochlear ((COH)) going ex.

The banks were again the biggest loser on the downside as Royal Commission revelations continued to flow, but that only required a -0.2% drop. Other sectors did little to trouble the scorer.

On the subject of banks, ANZ and CBA might have been in the hot seat yesterday but it was National Bank ((NAB)) springing into action by offering a discount on its standard variable mortgage rate of a sizeable -1.42%. Only on principal & interest, owner-occupier loans of course, which will now attract a rate of 3.69%. It will only be offered, one presumes, to applicants that can actually afford the payments, and no worthless insurance will be tacked on.

Perhaps this move is representative of what Australia’s banks can now look forward to. It is expected that the Royal Commission will result in likely fines and compensations of some sort, notwithstanding the cost of complying with the Commission’s requests, but the real pain will be felt in the banks’ earnings growth trajectory.

Last year the banks were able to grow earnings almost solely on the back of mortgage repricing – lifting rates on interest only and investor loans with the excuse APRA made them do it. Now we see NAB moving swiftly in what we might assume is a Royal Commission pre-emptive response tactic of discounting its SVR, which no doubt will need to be matched by the others.

Is 2018 the year of negative mortgage repricing?

At least the banks can feel safe the RBA is not about to raise its cash rate for the time being. Assuming the Fed raises tomorrow night, it will be the first time in a decade the Australian rate is lower than the US rate.

Meanwhile the local market is merely hovering, wondering what to do next. Wall Street is not providing any incentive. This morning the futures are down -33 points, but one wonders why that should be when there’s nothing listed on the Australian market remotely resembling Facebook.

Nowhere to run to

Through 2018 to date, Wall Street has experienced a period of regular rotation. Tech stocks, particularly the FANG’s drove the US market to new highs in January before getting somewhat ahead of themselves.

But when tech pulled back, the slack was picked up by the big industrial names, on the story of global synchronised growth. If they faltered, US banks found support on the promise of rising US interest rates. Or energy stocks led the market higher on stronger oil prices. Or all of the above.

Last night Facebook shares plunged -7% following the weekend’s revelations of a data breach and accusations against UK company Cambridge Analytica of using that data to influence the US election. The plunge triggered a wider sell-off in the FANGs, and tech in general, which dominates the Nasdaq and represents 25% of the S&P500.

So, time to rotate into industrials once more. But US industrials are now under a cloud, because no one yet knows what Trump’s specific tariff plans are and what response they might draw from trading partners.

So, time to rotate into the banks. But despite the inflation scare in early February, recent US date have suggested inflation is not an immediate threat after all. Fears of four rate hikes have now abated, and even three might come under question if the data remain benign.

Buy energy then? The oil price keeps moving around, but it’s really not going anywhere at present.

Last night Wall Street fell sharply, but in an orderly fashion. Facebook plunged from the open, but it wasn’t until mid-afternoon that the major indices hit their lows. Quite simply, there were no buyers. At least not until the last hour.

There were no other sectors ready to pick up the losses in tech. It was actually a quiet day, traders observed, and volumes were to the low side.

The new Fed chair delivers his first policy statement and press conference on Wednesday night and while not an unknown quantity by any means, Jerome Powell’s thinking on the current state of the US economy and monetary policy is yet to be articulated. Until some clarity emerges, there’s no reason to jump in and buy stocks.

The US ten-year yield is steady at 2.85% — exactly the level it hit when the wheels fell off in early February.

Traders continue to suggest that given there is a lack of upside catalyst for Wall Street at present, the assumption that indices must go down and retest the February lows is gaining further credence.

In the case of Facebook, what the social media giant will now need to do is shore up its defences against unsanctioned data mining. That will cost money. But otherwise, it is not expected too many media-mad school girls are about to abandon the platform in fear of their data being exploited. Facebook will rise again, and every time tech pulls back, buyers emerge who missed out in the big 2017 run-up.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1316.70	+ 3.10	0.24%
Silver (oz)	16.31	– 0.02	– 0.12%
Copper (lb)	3.10	– 0.02	– 0.54%
Aluminium (lb)	0.94	+ 0.00	0.12%
Lead (lb)	1.07	– 0.01	– 1.12%
Nickel (lb)	6.11	– 0.07	– 1.13%
Zinc (lb)	1.48	+ 0.00	0.07%
West Texas Crude (Apr)	62.13	– 0.11	– 0.18%
Brent Crude (May)	66.17	+ 0.05	0.08%
Iron Ore (t)	69.60	0.00	0.00%

The big mover on commodity markets last night was again iron ore, which fell -3% following Friday night’s breach of US$70/t. Analysts are attributing iron ore price weakness to the lull that typically follows Chinese New Year, and the drawing down of stockpiles as steelmaking ramps back up after the winter.

Base metals were also modestly weaker despite a 0.3% gain for the US dollar index.

The possibility of a global trade war has weighed on the Aussie of late, but it is sitting little moved this morning at US$0.7719.

Today

The SPI Overnight closed down -33 points or -0.6%.

The minutes of the March RBA meeting are out today.

Kathmandu ((KMD)), New Hope Corp ((NHC)) and TPG Telecom ((TPM)) all release earnings results today.

Crown Resorts ((CWN)) is among those stocks going ex.

Rudi will connect with Sky News Business via Skype this morning to talk broker calls and share market at around 11.15am.

The Australian share market over the past thirty days…

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