The Overnight Report: Fifty-Five Mile Rally

This story features MACQUARIE GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MQG

By Greg Peel

Morning Run

Yesterday the ASX200 opened slightly lower and looked set to do not much at all, earnings results notwithstanding. Then from 10.30 to 11.45 the index rallied 40 points in a straight line.

Thereafter, the market settled back and drifted a more moderately positive close.

Looks like a big buy order hit the market. The energy sector closed up 1.2% despite the oil price being down overnight. Materials gained 0.7% despite a dip in the iron ore price. Healthcare (+0.9%) and telcos (+0.8%) joined in. That’s most of the big caps covered but it appears the banks were left out.

Financials closed down -0.2%, as a 2% gain for Macquarie Group ((MQG)) post trading update failed to counter weakness in all of the Big Four, with the market still reeling from yesterday’s Bendigo & Adelaide ((BEN)) result. Bendalaide fell another -2.6%.

News came through late in the session of another US shutdown possibly being averted, which drove the Dow futures higher, and the Chinese stock market has been strong on both days since China reopened. But by then the ASX200 had made its move and that was that.

Among the day’s reporters, Challenger ((CGF)) rose 1.2% after confirming a previously flagged near -100% drop in profit from the prior period. Transurban ((TCL)) fell -2% despite higher toll revenue in NSW as investors contemplated the sizeable capital requirement of the WestConnex acquisition.

A late-in-day profit warning (the company reports next week) was issued by serial profit warner Pact Group ((PGH)), downgrading earnings expectations and announcing a big write-down of the value of assets and goodwill. That stock fell -9.7% to be the worst performer in the ASX200.

The best performer was Ausdrill ((ASL)), up 7.2% on news a Norwegian oil fund had taken a substantial position in the company.

In a notable third place, REA Group ((REA)) rose 4.5% after falling near -8% in the two sessions post earnings result.

Yesterday was a quiet day in the earnings calendar but things heat up a bit more today, with a few heavy hitters among those reporting. Healthcare in particular will be in focus.

Yesterday’s economic news included a slight rebound in business conditions and confidence in January, according to NAB’s survey, following the steep drop in December. The decline in housing finance demand continued to accelerate in December, with the biggest drop seen in owner-occupier loans. Housing loans are down -20% year on year.

Wall Street has rallied hard on shutdown news, the oil price is up and iron ore and base metal prices are down. The futures are showing up 29, which would take the index to 6100.

Shut Up!

The Republicans and Democrats have reached a deal that will see Trump get 55 miles of new border fencing at a cost of US$1.2bn. Not the US$5.7bn sought after. The president is reportedly “not thrilled” with the agreement, but has not yet rejected it. The deal will prevent another government shutdown.

Fifty-five miles of the stretch from the Pacific to the Atlantic. That’ll stop ‘em in their boots!

It has been a matter of conjecture as to whether the prior shutdown was anything Wall Street was really bothered about, given (a) shutdowns have happened before and (b) the US stock market did nothing but rally through the last one. Perhaps if it went on and on and on, commentators offered, Wall Street might take notice.

So for the past week or so the discussion has been as to whether a shutdown averted or not averted would have any impact on Wall Street. The general consensus was not really. Last night the Dow rallied 400 points on the news.

The president is yet to actually sign the deal.

Suffice to say market commentators last night were rather taken aback. There was some talk of the rally also reflecting trade deal optimism but there was no new news on that front. Talks among the lesser-lights moved into day two ahead of the heavy-hitters Mnuchin and Lighthizer joining the table to meet their equivalents tomorrow night.

The oil price took off again last night after a couple of soggy sessions on the latest OPEC monthly production report showed a substantial reduction. This will have provided support for the stock market rally, although prices did fall back a bit for a net 1.5% gain after US Energy Information Agency increased its US production forecasts for 2019-20.

Importantly, the S&P500 rallied back to its 200-day moving average last night, then stopped. With much anticipation surrounding the trade talks, perhaps Wall Street has decided this is the most appropriate jump-off point for whatever the outcome might be.

Commodities

Note that movements in base metal prices in the table above reflect a combination of last night’s session and Monday night’s session for which data was unavailable.

While the Chinese may have returned from holiday to buy stocks, they appear to be selling metals. An iron ore price in the nineties probably came as a bit of a shock.

The US dollar index fell back -0.4% last night after an eight-day run that took it back to 97. That level has been unsuccessfully tested many times in past months, and traders suggest squaring up was evident ahead of any trade talk news.

The Aussie has subsequently jumped 0.5% to US$0.7100, with traders no doubt playing the short side yet again.

Today

The SPI Overnight closed up 29 points or 0.5%.

The RBNZ has met this morning, and locally we’ll see the Westpac consumer confidence survey today.

US CPI numbers are out tonight.

Today’s list of reporting stocks includes CSL ((CSL)), along with Carsales ((CAR)), Computershare ((CPU)), Orora ((ORA)) and Tabcorp ((TAH)), among others.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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