The Overnight Report: Onward Ever Upward

This story features CSL LIMITED, and other companies. For more info SHARE ANALYSIS: CSL

World Overnight
SPI Overnight (Mar)	6182.00	+ 20.00	0.32%
S&P ASX 200	6161.20	– 13.60	– 0.22%
S&P500	2810.92	+ 19.40	0.69%
Nasdaq Comp	7643.41	+ 52.37	0.69%
DJIA	25702.89	+ 148.23	0.58%
S&P500 VIX	13.41	– 0.36	– 2.61%
US 10-year yield	2.61	+ 0.01	0.23%
USD Index	96.47	– 0.47	– 0.48%
FTSE100	7159.19	+ 8.04	0.11%
DAX30	11572.41	+ 48.24	0.42%

By Greg Peel

The R-Word

The local futures swung to be slightly weak yesterday morning despite a small rally on Wall Street, possibly in deference to Theresa May’s failed Brexit deal. By 15 minutes in the ASX200 was down -30 points.

By the close the index recovered half that loss, but not before falling in a big hole at lunchtime, down almost -50 points, and then crawling out again. Must have been a big sell order.

The economic news of the day is that Australian consumers have become pessimistic. The Westpac index of consumer confidence has fallen to 98.8 from 103.8 in February. Throughout 2018, consumers were mildly optimistic, such that the index posted numbers just above 100, but in 2017 they were on average more pessimistic than 98.8.

The reason for the sudden case of the jitters, according to Westpac, was the weak December quarter GDP result implying less than 1% growth in the second half of 2018, and the hullaballoo the media made over this implying a “per capita recession”, in which economic growth fails to outpace population growth.

Chicken Littles they may have been, but considering that within the confidence index, the house price expectations segment fell further to 85.4 – the lowest on record since the survey began in 2009, and the unemployment segment registered an 8.9% increase, suggesting more consumers fear job losses in the year ahead, one cannot dismiss the R-word completely.

The signs aren’t flash.

Investors swung into defensive mode yesterday, buying telcos, utilities and staples while selling banks and energy, with materials closing flat. Healthcare fell -0.7% but there were a couple of exogenous factors, one being CSL ((CSL)) going ex-dividend.

The other was a rejection by the board of Sigma Healthcare ((SIG)) of a cash/scrip offer from rival Australian Pharmaceutical Industries ((API)). The API board said it is now “reviewing” its 12% stake in Sigma hence Sigma shares fell -12.3%. API lost -3.6%.

Brexit

Before Theresa May put her latest Brexit deal to UK parliament, she warned that were it to fail a vote on “no deal” would follow, implying it’s “this deal or no deal”. May hoped “anarchy in the UK” fears would tip the balance but she was wrong, and again faced defeat this morning as “no deal” was rejected, albeit by a slim margin.

Some of her cabinet ministers voted against her, so heads may possibly roll, one of which might be hers. The rejection now leads us towards an extension of the March 29 deadline, but that assumes the EU is willing to extend. Earlier signs were that it was. It also potentially sets the UK up for a general election, or even another referendum, although no one’s quite sure a second referendum on a same topic is even legal.

What it does imply, presumably, is that this soap opera could go on for years, and years, and…

Grounded

…and hence there’s been little response from markets. Wall Street didn’t blink, as was the case on Tuesday night when May’s deal was rejected. The pound nonetheless rallied, given the potential of “no deal” calamity has been averted for now.

The US dollar index is down -0.5%.

Dollar weakness can also be attributed to the US PPI for February, which showed 0.1% growth when 0.2% was forecast. Annual wholesale inflation fell to 2.3% from 2.5% in January, well below a peak of 3% six months earlier.

Durable goods orders nevertheless surprised to the upside, rising 0.4% in January when a dip of -0.1% was expected. Core capital goods orders rose 0.8% after falling in the previous two months.

It was this number that provided Wall Street with further impetus, safe in the knowledge weak inflation will keep the Fed at bay. Having fallen five days in a row last week, Wall Street is this week up three days in a row and counting.

The laggard continues to be Boeing. Last night the president issued an emergency order, grounding all Boeing 737 Max 8s and 9s at their point of destination, with many still in the air at the time. Initially it looked like Trump has muscled in and overruled the FAA, who had previously called the planes safe, having watched everyone from China to Europe and Australia grounding the planes out of caution.

But the FAA issued a new statement thereafter, informing that new satellite and ground evidence had implied that a grounding would be advisable to reflect “an abundance” of caution.

Boeing shares initially fell, again, on the news, but recovered to a slight gain by the close. Having fallen -14% since the Ethiopian disaster, Boeing shares are looking attractive to some investors who recall that airlines always eventually recover from such setbacks.

Hence the gains across the three major US indices were more consistent last night. This despite Trump saying he is in no hurry to hammer out a trade deal with China.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1309.90	+ 8.40	0.65%
Silver (oz)	15.43	+ 0.02	0.13%
Copper (lb)	2.96	– 0.00	– 0.03%
Aluminium (lb)	0.85	+ 0.01	1.41%
Lead (lb)	0.95	+ 0.01	1.08%
Nickel (lb)	5.91	– 0.04	– 0.70%
Zinc (lb)	1.31	+ 0.01	0.76%
West Texas Crude	58.35	+ 1.43	2.51%
Brent Crude	67.65	+ 0.96	1.44%
Iron Ore (t) futures	84.10	– 0.95	– 1.12%

The drop in the US dollar helped push gold higher once more when by rights the aversion of a “no deal” Brexit (for now at least) should have eased some of the geopolitical risk built into the recent rally.

Industrial metals did little last night.

The WTI price jumped on the usual weekly US inventory lottery.

The Aussie keeps backing further away from the swinging sixties, up another 0.2% to US$0.7097.

Today

The SPI Overnight closed up 20 points or 0.3%. What will support such optimism?

Maybe Chinese data. Today sees February numbers for industrial production, retail sales and fixed asset investment.

There is a long list of stocks going ex-div today but no sizeable names.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ	ANZ BANKING GROUP	Downgrade to Neutral from Outperform	Credit Suisse
APX	APPEN	Upgrade to Buy from Neutral	Citi
IPH	IPH	Upgrade to Outperform from Neutral	Macquarie
SGR	STAR ENTERTAINMENT	Upgrade to Outperform from Neutral	Credit Suisse
STO	SANTOS	Downgrade to Neutral from Buy	UBS
WPL	WOODSIDE PETROLEUM	Downgrade to Neutral from Buy	UBS

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms