Tag Archives: The Overnight Report

article 3 months old

The Monday Report

By Greg Peel

China Shock

The local market opened slightly higher on Friday morning before flattening out and looking very “Friday”. Talk around the desks would have been of where best to go for lunch. But then out came Caixin’s China data.

Beijing’s official January manufacturing PMI, published at the usual time of first of the month, showed a slight dip to 51.3 from 51.4 and caused little concern. Caixin waited until the holiday week was over before releasing its own PMI, which showed a more significant drop to 51.0 from 51.9 in December.

That December number had represented the best result in 47 months, in a trend that had been rising. Now a pullback. The Australian stock market was just starting to sell out of resources stocks when the double-whammy came through.

The PBoC announced a hike for its benchmark seven-day interest rate (closest equivalent to cash rates elsewhere) by ten basis points to 2.35%. The rate had not moved from 2.25% since October 2015 and this is the first move up in rates in six years. Suddenly, and without warning, China is in tightening mode.

The assumption is Beijing is acting to stem China’s worrying pace of debt growth. As is evident from Caixin’s PMI, it is not about runaway economic growth. China’s December quarter GDP came in at 6.8% against 6.7% forecast but that’s not a reason to hike rates.

The response in the Australian stock market was swift. Tighter lending conditions imply lower demand for commodities. In an otherwise relatively flat session for the ASX200, the materials sector closed down -2.2% and energy -1.2%. Traders took that money out and put it into the defensives of healthcare (+0.6%), telcos (+0.7%) and utilities (+0.9%).

The Chinese move also took a bit of wind out of the Aussie dollar’s recent run, but only briefly, before the US session opened.

On Friday night, metals prices duly fell although it wasn’t a trashing. Then a strong session on Wall Street changed the mood.

About Time

The US added 227,000 new jobs in January to mark the best result in four months, beating expectations of 197,000. The unemployment rate ticked up to 4.8% but this was because the participation rate rose as more people decided it was worth looking for a job again. Wage growth was an anaemic 0.1%.

I suggested last week US jobs reports will likely now be met with more of a shrug than the sort of angst we’ve been used to this past few years, given we’ve seen a changing of the guard in Washington and it’s only early days. But this particular report could not have been much better.

There was a risk that such a “beat” on new jobs could put upward pressure on wages and thus inflation, leading the Fed to raise rates more rapidly than previously assumed and pushing up the US dollar, the strength of which is acting as a headwind for US exporters and multinationals. But to add 227,000 jobs and only see 0.1% wage growth is real cake-and-eat-it-too stuff.

However, the ultimate rise in the Dow of 186 points or 0.9% to regain the 20,000 mark, a 0.7% gain for the S&P to 2297 and a 0.5% gain for the Nasdaq to a new all-time record, was not just about jobs. The jobs report was just the opening support act.

On Friday, Donald Trump signed an executive order directing the Treasury to review Dodd-Frank legislation, which was put in place after the GFC as a response to the banking crisis. While most US bankers agree there needs to be some legislation in place to reduce the risk of another GFC, Dodd-Frank has always been seen by the sector as overbearing and unnecessarily restrictive.

Indeed, there are few who disagree that Dodd-Frank – hastily pushed through in a time of severe crisis – could use a bit of a rethink. What might be a little more concerning is that Trump signed another executive order which will delay the implementation of the so-called “fiduciary rule” – that which requires brokers and investment advisors who handle what we in Australia call superannuation clients to act in the best interest of their clients.

Why “act in the best interest of clients” should require legislation in any jurisdiction is a cause for concern, but clearly legislated punishments are needed to deter the shysters. Either way, Trump’s move on perceived over-regulation in the US banking system had the unsurprising effect on the US financial sector on Friday night. The banks drove Wall Street higher.

This is what, among other things, Wall Street has been waiting for, having become more and more impatient and uneasy as Trump concentrated on killing off free trade, introducing immigration bans (now overturned) and generally pissing off one world leader after another.

Now, about tax reform…

Commodities

The strong US jobs number might on any other day had sent the greenback higher but with no sign of wage inflation, the dollar index was down -0.1% to 99.76. For metals prices, it was all about the Chinese rate hike, although moves were not dramatic.

Aluminium remained steady on the LME while copper, lead, nickel and zinc all fell -1-2%.

Iron ore awoke from its New Year slumber to fall -US40c to UD$82.00/t.

West Texas crude rose US24c to US$53.83/bbl.

Gold rose US$4.40 to US$1219.40/oz.

The Aussie had come off a little on Friday on China’s news but shot up again when the US jobs report was released. It was 0.3% higher on Saturday morning at US$0.7682.

The SPI Overnight closed up 24 points or 0.4% on Saturday morning.

The Week Ahead

It’s a quiet week for US data releases this week, with the trade balance tomorrow and consumer sentiment on Friday the only highlights. The US earnings season has passed its peak and now heads into its long tail.

The opposite is true in Australia, where this week sees the earnings season ramping up. There are several reports due out this week before the following two weeks see an inundation.

Data-wise, Australia will see retail sales and ANZ job ads today, the construction PMI tomorrow, new home sales on Thursday and housing finance on Friday. The RBA will hold it first meeting for 2017 tomorrow and leave rates on hold, before releasing a quarterly Statement on Monetary Policy on Friday.

Caixin will release its China service sector PMI tomorrow and Beijing will release January trade numbers on Friday.

National Bank ((NAB)) will provide a quarterly update today. Alacer Gold ((AQG)) may report today or, given total disagreement among covering brokers, any day this week.

Rudi is in Perth this week to present to members of the Australian Shareholders Association (ASA) and of the Australian Investors Association (AIA), both on Tuesday. After his return to Sydney he will appear on Sky Business on Thursday at noon.

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article 3 months old

The Overnight Report: Tense Times

By Greg Peel

The Dow closed down -6 points while the S&P rose one point to 2280 and the Nasdaq fell -0.1%.

Super Surplus

It was a lacklustre day’s trade on the ASX yesterday, reflecting a US market stalled as it awaits news on Trump policies and a local earnings season just beginning, encouraging traders to hold fire until the numbers are known.

On that front, biggest winner on the day was engineering company Downer EDI ((DOW)) which has had a stellar run since switching focus from mining to infrastructure. An earnings beat had that stock up 13%.

Close behind was nickel miner Western Areas ((WSA)), which after having fallen last month on the lifting of the Indonesian export ban shot up 10% yesterday as the Philippines government released its list of mines that will be shut down for environmental reasons. They specifically include nickel mines, but also one of OceanaGold’s ((OGC)) assets. That stock fell -15%.

Elsewhere on the downside, the cost of the will they/won’t they merger saga with rival Tatts Group ((TTS)) weighed on Tabcorp’s ((TAH)) earnings result, sending that stock down -6%.

Beyond the individual stories, most sectors were flat yesterday. Utilities and telcos, which had enjoyed a sudden burst of renewed support on Wednesday, were the main losers.

Economic data took centre stage on a quiet day as the much anticipated December trade numbers hit the wires.

Economists had always expected a return to a strong trade surplus as the surge in commodity prices last year flowed through to export contract prices. But the consensus forecast of a $2.2bn surplus fell well short of the record $3.5bn result. Exports rose 5.4% while imports only rose 0.7%.

We don’t have to look too far to find the main contributors, Coal exports rose 13.7%, minerals (including iron ore) rose 9.7% and agriculture chimed in with 2.6%. Australian exporters have been enjoying not just higher prices, but increased demand despite those higher prices. Thank you China.

Economists expect surpluses to persist for a while yet, leading to increased tax revenues, a reduction in the current account deficit, and a boost to GDP. Which is why the Aussie dollar jumped on the release and is currently over a percent higher at US$0.7660.

The mining sector’s Lazarus routine may have come just in the nick of time. While mining wallowed these past couple of years, housing construction kept Australia out of recession. Yesterday’s December building approvals data showed residential approvals down -1.2% for the month and down -18% from the peak last June.

House approvals fell -1.6% while apartment approvals rose 0.9%. The apartment number is volatile, given the greater cost and building time required. When that number starts to tip over, it will be fat lady time.

Crikey

Australia had America’s attention last night. The Trump-Turnbull stoush may have been all the news services were talking about locally yesterday but it didn’t go unnoticed on Wall Street either.

Wall Street remains in stall mode as it balances up what it hopes it's going to like about the Trump Administration – lower taxes, deregulation and so forth – against what it is nervous about right now – border taxes and tariffs, immigration bans, and creating a deal of friction with America’s trading partners and trusted allies. Hot on the heels of the Mexican president cancelling a visit in protest, the Australian prime minister has the phone hung up on him.

In Trump’s first test of Middle Eastern diplomacy, he has put Iran “on notice” for a return to sanctions.

In the background, the US earnings season rolls on and the trend remains positive. But Wall Street is reluctant to focus on improved earnings right now as every day brings a new bombshell out of the White House, and another day passes without any news on the policy changes Wall Street is impatient to hear about.

Wall Street thus posted a flat session last night.

Commodities

The response on the LME to the news out of the Philippines was muted. Nickel rose 1.5%. Aluminium rose 0.5% and lead 1% while copper and zinc fell -1%.

Things may pick up in London as of tonight given the Chinese will be back on board. The same goes for iron ore, which remains unchanged at US$82.40/t.

The US dollar index is 0.2% higher at 99.85 but gold is up US$7.40 to US$1215.00/oz, quite possibly on geopolitical risk (Iran).

West Texas crude is a tad higher at US$53.59/bbl.

The Aussie has now breached the 76c mark and if the US dollar does not resume its rally – remaining stalled along with the US stock market at present -- then technically the Aussie has broken to the upside.

Today

The SPI Overnight closed up 6 points.

It’s jobs night in the US tonight. Once a main event, the monthly non-farm payrolls release has become just another piece of economic data.

China’s return to the fray means we’ll see Caixin’s take on the manufacturing PMI today, while around the globe everyone else will release service sector PMIs.

On the local stock front, James Hardie Industries ((JHX)) will report earnings.

Rudi will link up with Sky Business via Skype at around 11.10am this morning to discuss the latest broker calls. He'll travel to Perth on the weekend to present to local investors on Tuesday.
 

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

(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 in the Cockpit 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

article 3 months old

The Overnight Report: Fed Waits And Watches

By Greg Peel

The Dow closed up 26 points or 0.1% while the S&P was flat at 2279 and the Nasdaq rose 0.5%.

Defensive

The local market finally consolidated yesterday after its sharp pullback, managing a rally which grew in strength as the session progressed. It appeared as if the buyers were waiting to see if there was to be anymore selling, and there wasn’t. It was also the first day of the new month.

The pattern yesterday was very much different to that we’ve seen since last year when, firstly, the Fed looked set to raise rates, and secondly, when Trump was elected. Almost all sectors finished in the green yesterday but the leaders were utilities (+1.4%), telcos (+1.1%) and consumer staples (+1.2%). Aside from these sectors being sold off last year to fund reinvestment in cyclicals such as the miners and banks, hence being a lot cheaper now, it appears a level of caution has crept into the investor mindset as Trump’s policies roll out.

It was still a solid day for the banks and miners nonetheless, with a higher oil price driving energy and a higher gold price driving materials. All talk now is as to whether Fortescue Metals ((FMG)) can hit the $7 mark. The stock has run up from under $1.50 a year ago and continues to beat production and sales expectations. Too pricey? Or too successful?

And yesterday saw another former high PE stock come back to earth, although it’s not the first time Ozforex ((OFX)) has taken a hit on a guidance downgrade. That’s probably why the shares fell -24%.

China’s manufacturing sector continued to expand in January. The official PMI came in at 51.3, down from 51.4 in December but ahead of forecasts of 51.2. The official service sector PMI rose to 54.6 from 54.5. Beijing’s plan remains intact – to shift focus from manufacturing and export towards domestic consumption.

We will no doubt now have to endure the annual period of distorted Chinese data, which are impacted every year by the week-long New Year break.

Short and Sweet

No one expected the Fed to raise again in January having raised in December, and so it came to pass. In an unusually brief policy statement, Janet Yellen noted the US economy is growing modestly and inflation is rising gradually. Three rate hikes are still expected this year but not just yet.

Which is hardly surprising. The Fed, like everyone else, is waiting to see just what fiscal policies will eventually make it out of the Trump camp, specifically with regard the likes of taxes, tariffs and infrastructure stimulus. If there are to be three rate hikes they would most likely come in the second half of the year, assuming it takes six months to push any radical new policies through Congress.

We now find ourselves in the unusual position of the Fed being background noise, rather than the centre of the universe as it has been for eight years. Last night’s ADP private sector report for January showed the addition of 246,000 jobs – many more than expected. Wall Street shrugged. It will shrug again on Friday night when the official non-farm payrolls number is released.

The US manufacturing PMI rose to 56.0 in January from 54.5 in December to mark its fastest pace of expansion in two years. While again this is good new economically, things will be a lot different for US manufacturers if Trump gets his way. Whether or not that will prove ultimately beneficial is another matter.

The main focus on Wall Street last night was on Apple. Having posted a corker of a result in Tuesday night’s aftermarket, the Dow component’s shares rose 7% last night. Considering the Dow only rose 26 points, it was pretty much Apple on one side of the ledger and everyone else on the other. Apple’s move also led the Nasdaq to outperformance.

So realistically it was a soft session on Wall Street last night, but for one stock.

Facebook has posted in this morning’s aftermarket but has only managed a 2% gain so far.

Commodities

Mineworkers in Chile have voted to reject BHP Billiton’s ((BHP)) new pay deal and unless a resolution is forthcoming, will go on strike. Seems we go through this charade about every couple of years. The copper price has jumped up in anticipation of a strike, so last night actually fell -1% in London.

BHP shares actually rose 0.4% in London. Lead took another -2% beating on the LME last night, while nickel shot up 3%.

Iron ore remains unchanged at US$82.40/t.

The US dollar index has clawed back 0.1% to 99.69 and gold is off a little at US$1207.60/oz.

Are spot Aussie traders all still on holiday? The Aussie is yet again steady as a rock at US$0.7581.

Today

The SPI Overnight closed up 9 points.

Maybe the Aussie traders will come out of the woodwork today when the local trade balance for December is released. A surplus is anticipated, thanks to the commodity price rebound.

Building approvals data are also due today.

The Bank of England will hold a policy meeting tonight.

On the local stock front, earnings results are due from Downer EDI ((DOW)) and Tabcorp ((TAH)).

Rudi will appear on Sky Business today, 12.30-2.30pm.
 

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

(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 in the Cockpit 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

article 3 months old

The Overnight Report: Trump Slump Continues

By Greg Peel

The Dow closed down -107 points or -0.5% while the S&P lost -0.2% to 2276 and the Nasdaq fell -0.1%.

Finding Support

Education company Navitas ((NVT)) opened the local result season yesterday with a weak offering, sending its shares down -6%, while IVF practitioner Virtus Health ((VRT)) became the latest Confession Session victim, issuing a profit warning that prompted an -18% rout. Fortescue Metals ((FMG)) tried to save the day with a solid production report but aside from having already had a good run, met another day of market-wide selling.

Despite the futures calling only a -5 point drop yesterday morning, yesterday saw another session very similar to Monday’s. The index opened lower, traded lower still, and found a bit of support in the afternoon. This time we bounced off 5600 in the ASX200, and it appears this may be the level traders have decided is the bottom of the pullback. Despite Wall Street being down again overnight, this morning the futures are indicating an optimistic 20 point rebound.

Selling was again fairly even across the sectors yesterday, other than energy underperforming with a -1.7% drop following a fall in the oil price, and utilities and healthcare outperforming by standing still.

With reporting season ramping up from this week, it is no doubt better to kick things off at 5600 than it is at 5800, allowing for more upside response to decent results. Assuming we get decent results.

NAB’s businesses confidence survey for December, released yesterday, showed a rebound in confidence and conditions from what had been a fairly dour few months. The current conditions index rose to +11.4 from +5.7 in November while confidence rose to +5.7 from +5.5. We can’t really give that one to Trump – he may have instilled confidence but he had no influence over actual business conditions during the month.

A return to better business conditions was also reflected in yesterday’s private sector credit data for December. Credit growth surprised to the upside at 0.7% for the month and 5.6% for the year. The main driver was business credit, which popped 1.1% for the month to also be up 5.6%. Lending to property investors is showing no sign of waning. Housing credit rose 0.5% to be up 6.3% for the year. That’s not much lower than 2015’s rate of 7.4%.

Dollar Dive

If it’s not the president himself throwing around hand grenades, it’s one of his advisors. Last night a leading Trump policy advisor took a swipe at Germany in suggesting the euro is “grossly undervalued” and an implicit Deutschemark which is providing Germany with an unfair trade advantage.

Is there a country left as yet untrashed by the Trump team? Australia must be in line for a bollocking soon.

The euro promptly shot up, although it did enjoy some actual support from the eurozone’s December quarter GDP result, released last night. At 0.5% growth for the quarter, the European economy performed better than the US economy in 2016, for the first time since 2008, according to news service Dow Jones. Both economies grew at just below 2% last year. The US dollar index has plunged -0.8% to 99.57.

While the dollar was a point of focus for Wall Street, last night was otherwise a simple repeat of Monday night’s session. On Monday night the Dow was down -220 points at its lows before recovering to close down -120, and last night the average fell -190 points before closing down -100.

There was no specific driver beyond a continuation of the blow-off from inauguration exuberance. Oil prices steadied, and Trump’s meeting with Big Pharma CEO’s did not result in any disaster for the sector.

It is also notable that last night the Dow was clear underperformer in falling -0.5%. The broad market S&P500 only fell -0.2% and the Nasdaq -0.1%.

The economic news of the day is that confidence also waned slightly in January, with the Conference Board’s monthly consumer confidence index falling to 111.8 from a 15-year high 113.3 in December.

Wall Street closed the month of January relatively flat. Traders have welcomed the consolidation, and there remains concern that while the market is impatient for policy change, Trump is spending every waking hour trying to do five different things at once. Last night he made a move on cyber-security. But tax reform? That’s still somewhere in the pipeline.

That’s the fiscal side. Remember the Fed? It was all the rage in 2016. The first Fed policy statement for the year is due tonight.

Commodities

The US dollar dive clearly had an impact on base metal traders in London, again in a thin market absent of Chinese participation. Lead missed out, falling -1%, but aluminium rose 1% and copper, nickel and zinc all jumped 2-3%.

Iron ore remains unchanged at US$82.40/t.

West Texas crude rose slightly to US$52.82/bbl after a couple of down-days.

The winner on the night was gold, which responded to the weaker greenback by rising US$15.80 to US$1211.30/oz.

The Aussie is up 0.4% at US$0.7580, with 76 continuing to provide stiff resistance. A breach of that level could spark a rally to 78.

Today

The SPI Overnight closed up 20 points or 0.4%. That seems optimistic in the face of the last couple of sessions. However we note (a) Wall Street has now twice threatened to really tank and not gone on with it, and (b) it is the first day of the new month.

We’ll also likely see a pop for local gold stocks today.

The first of the month means manufacturing PMIs from around the globe, while Beijing will stoically release both its manufacturing and services PMIs despite the holiday.

The US will see private sector jobs numbers along with the Fed statement release.

On the local stock front, GUD Holdings ((GUD)) will release its earnings report.

Rudi will tonight host his first Your Money, Your Call Equities broadcast for the calendar year on Sky Business (8-9.30pm). Tomorrow he'll travel to Macquarie Park and appear in the studio from 12.30-2.30pm.
 

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

(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 in the Cockpit 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

article 3 months old

The Overnight Report: Downdraft

By Greg Peel

The Dow closed down -122 points or -0.6% while the S&P lost -0.6% to 2280 and the Nasdaq fell -0.8%.

Sell-Off

The local market was looking pretty positive on Friday, having reclaimed the 5700 mark in the ASX200 following the pullback from the peak. Chartists were calling a return to 5800. Yesterday morning, the index was slapped on the open and kept falling, before recovering slightly in the afternoon.

So what happened?

The stand-out sector fall on the day was info tech, which lost -3.4%. But that was an individual story. Once high-flyer and more lately highly volatile software stock Aconex ((ACX)) issued a big Confession Session profit warning and investors decided it was simply time to walk away. Aconex fell -45%.

Earlier this year Aconex became the most shorted stock on the ASX.

Beyond info tech, all other sectors fell relatively evenly, suggesting it was a sell-the-market session rather than anything industry or stock specific. If sellers were anticipating a negative reaction on Wall Street last night to Donald Trump’s immigration bans, declared over the weekend, then it was the right call.

From the weak opening, selling begat selling. Momentum traders would have helped push the index to down -60 points at midday. It was the second last day of the month, ahead of the new month which brings corporate earnings season. Perhaps a good time to square up and lock in some profits.

Excuse to Sell?

Trump’s election sparked a Wall Street rally because there were elements to his campaign pledges that the financial markets liked – tax reform, deregulation, infrastructure spending – all economically stimulatory and in tune with the capitalist ethos. There were also elements not all of Wall Street agreed with, but were prepared to overlook on the assumption they would be watered down.

We saw a glimpse of this a couple of weeks ago, when Wall Street pulled back from reaching the Dow 20k mark as Trump first set about dismantling free trade agreements and started talking tough on border taxes and import tariffs. This is not in tune with Wall Street’s capitalist, free market ethos. And when would we get to tax reform?

Wall Street kicked again when Trump signed orders to expedite the Keystone XL and Dakota Access oil pipelines, which had been stuck in environmental limbo under Obama. This was progress. This was infrastructure spending. This is something Big Oil has been pushing for for a long time. Oh yes, and a wall would be built as well – not in everyone’s view a positive thing, but think of the cement sales!

The Dow hit 20k, and the other major indices all marked new all-time highs. The talk was of how quickly the Dow might reach 21k, but also that there would likely need to be some consolidation beforehand. A VIX at 10.5 is unsettling.

Over the weekend Trump signed executive orders restricting immigration from seven Muslim countries. While such an order might be cheered in the rust belts and on the prairies, it does not sit well with Wall Street – a “street” where many an immigrant has made his or her fortune. Nor does it sit well with Silicon Valley.

It is suggested Silicon Valley boasts the highest proportion of immigrant workers than anywhere else in the US. Not fruit pickers – rather a collection of some of the smartest minds from around the globe. Without immigrants, said Apple CEO Tim Cook in response to Trump’s order, there would be no Apple.

Whether or not a 90-day restriction of immigration from seven selected mostly-Muslim countries is going to send Silicon Valley crashing is debatable. It’s the wider implications of a Trump White House that had the US tech sector up in arms last night, and sent the share prices of FANG and company tumbling.

Energy stocks also suffered a weak session last night, but not because of Trump. Concern over the rapid pace of US rig count growth in the wake of OPEC production cuts met a research paper published last night suggesting only 75% compliance with the agreed cuts. Having been weaker on Friday night, oil prices fell again last night.

But is the Trump immigration policy the real reason Wall Street posted its biggest loss since the election last night? Commentators suggest it was more a case of triggering a pullback that was waiting to happen since the Dow hit 20k. Aside from tech and energy, all sectors were lower last night in a relatively even move, as was the case for the ASX200 yesterday. It’s hard to find someone who doesn’t see some consolidation as positive.

The VIX jumped 15% to 12.1. Ironically, President Trump was on camera in the morning taking credit for the Wall Street rally to now – something US presidents never do. Aside from wishing to keep politics at arm’s length from the markets, what does the president say when the market falls? Perhaps this claim alone was enough of a counter-trigger.

Wall Street did see a recovery in the final hour of trade. At its low, the Dow was down -223 points.

Commodities

West Texas crude is down -US48c at US$52.64/bbl.

Base metals were back to their more volatile ways last night, with trading thin in the absence of China. Aluminium and copper fell -1%, zinc rose 1.5% and lead and nickel rose over 2%.

Iron ore was nevertheless unchanged again at US$82.40/t. Price moves during the Lunar New Year break are rare.

The US dollar index fell -0.2% to 100.38, which allowed gold to rise US$4.80 to US$1195.50/oz.

The Aussie is currently a rabbit in the headlights at US$0.7548.

Today

The SPI Overnight closed down -5 points. This suggest the market believes yesterday’s action on the ASX was pre-emptive of Wall Street last night.

The Bank of Japan will hold a policy meeting today.

In Australia we’ll see private sector credit, housing affordability and the monthly NAB business confidence survey.

There is a raft of production reports due out today, including those of Fortescue Metals ((FMG)) and Iluka Resources ((ILU)).

CYBG ((CYB)) will provide a quarterly update while earnings reports are due from Credit Corp ((CCP)), Energy Resources of Australia ((ERA)) and Navitas ((NVT)).

The earnings season is upon us.
 

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

(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 in the Cockpit 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

article 3 months old

The Monday Report

By Greg Peel

Trade Surplus

It was a strong session on the ASX on Friday to end the week, leading to a reconquering of the 5700 level for the ASX200. Again the banks and big miners helped the index higher, but for once there was some broader support.

A 1.3% gain for financials was aided by strength in the likes of Macquarie Group ((MQG)) and QBE Insurance ((QBE)), both of which benefit from rising US interest rates. Rising rates are not, however, beneficial for Australian yield payers, yet utilities (+1.1%) and telcos (+0.7%) both had a good session and consumer staples (+1.6%) was the winner on the day.

The only losing sector was materials (-0.6%), despite further gains for the big diversified miners, as gold stocks came under pressure and Alumina Ltd ((AWC)) shares pulled back after Thursday’s surge.

Otherwise, all other sectors finished in the green to a varied extent, suggesting a bit more breadth as we look towards possibly reclaiming the previous high at 5800.

The economic news of the day centred around the December quarter export/import price index. When Australia posted a soggy September quarter GDP result, it was suggested at the time this would only be a blip ahead of stronger commodity prices flowing through to the numbers. Sure enough, Friday’s data suggest a much improved terms of trade.

Export prices surged 12.4% in the December quarter, thanks mostly to iron ore and coal and to put that quarter into perspective, rose 12.4% year on year. Import prices rose by only 0.2% to be down -4.6% year on year. The economists at CBA suggest the terms of trade could rise by 12.5% in the quarter to be 18% higher for the year, boosting GDP, tax revenues and, in CBA’s belief, wage growth.

Not necessarily interest rates, however, which are still anticipated by many an economist to see at least one more cut. While the December quarter was a stand-out for commodity prices, CBA notes, 2017 is not likely to see a repeat.

Consolidation

The Dow closed down -7 points while the S&P lost -0.1% to 2294 and the Nasdaq gained 0.1%.

The US GDP grew by 1.9% in the December quarter, missing the most recent forecast of 2.2%. It’s a big drop back from the September quarter’s 3.5%, but then that was a big jump up from two anaemic quarters prior.

Economists consider 2% growth the be “the new normal” for the US. The difference will be Donald Trump and his stimulus policies, but while Trump wants to see 4%, it’s not going to happen overnight, and is also a big call when structurally weak productivity growth remains an issue. Economists are expecting 2% or slightly better growth in 2017.

December durable goods orders also came in weaker than expected on Friday night, but there was little in the way of negative response. These numbers are considered Obama-era. Wall Street has hit new highs in anticipation of what the Trump era will bring.

On that note, the indices stalled on Friday night after a solid week, and there is talk of a mild correction being needed to consolidate the gains before another leg-up can begin. Of concern to many is the VIX volatility index on the S&P500. Recent history suggests every time the VIX fall to 11 or below, a correction is on the cards. The implication is the market has become too complacent.

The VIX closed on Friday night at 10.5. It is not unheard of for the VIX to fall into single figures for a period, but this has not occurred since the GFC.

While the trend in December quarter earnings remains positive, Friday night was a bit of a losers’ night. Starbucks, Chevron (Dow), Alphabet (Google), Colgate-Palmolive (Dow) and American Airlines all saw their share prices lose ground following results releases, while Microsoft (Dow) went the other way.

Energy stocks in general were under pressure on Friday night as oil prices fell over -1%. The balance, at present, is between the extent to which OPEC, Russia & Co can reduce production against the extent to which idled US production comes back on line. Friday night saw another jump in the US rig count, and so oil was sold.

Realistically the WTI price has been to-ing and fro-ing in the low 50s for the past month without any substantial trend.

Commodities

West Texas crude fell -US67c to US$53.12/bbl.

Copper and nickel both gained over 1% on the LME as the other base metals took a breather.

Iron ore was unchanged at US$82.40/t.

The US dollar index rose 0.2% to 100.57 but gold is relatively steady at US$1190.70/oz.

The Aussie is steady at US$0.7548.

The SPI Overnight closed down -11 points or -0.2% on Saturday morning.

The Week Ahead

The Fed holds a policy meeting this week. Funny how Trump has managed to suck all the oxygen out of last year’s primary focus of attention. Nobody seems to care that much about the Fed on Wall Street at present, and nor is Friday night’s jobs number considered an event. It’s the first meeting of the year, and the first of the Trump era. No doubt the Fed will draw more attention as the year progresses.

It’s otherwise a busy week for US data.

Tonight sees personal income & spending and pending home sales and tomorrow brings Case-Shiller house prices, the Chicago PMI and Conference Board consumer confidence. Wednesday it’s the manufacturing PMI, construction spending, vehicle sales, private sector jobs and the Fed meeting, and Thursday it’s chain store sales and productivity.

Friday sees the service sector PMI, factory orders and non-farm payrolls.

Manufacturing PMIs will be published across the globe on Wednesday and service sector PMIs on Friday. Beijing will publish both on Wednesday despite the week-long Lunar New Year holiday being in full swing. Chinese markets are closed until Friday.

The Bank of Japan holds a policy meeting tomorrow and the Bank of England on Thursday.

In Australia the focus will be on the housing sector, with numbers due for housing affordability and private sector credit tomorrow, house prices on Wednesday and building approvals on Friday. Thursday should bring a welcome trade balance number, while the PMIs are out on Wednesday and Friday.

On the local stock front, there are a few more quarterly production reports to get through this week, including Fortescue Metals ((FMG)) tomorrow. But this week is also the first genuine week of the February reporting season, featuring a handful of company results.

It is thus a good opportunity to direct readers to the FNArena Calendar (link below). Please note that as is the case every six months, the calendar is compiled on a best endeavours basis. Companies are not by law obliged to disclose a result release date, nor stick to one they’ve suggested. This leads to the same company reporting on three different days, according to the different brokers.

Which of course they don’t, but be warned, often the FNArena Calendar can be caught out.

If everything goes to plan, Rudi will host Your Money, Your Call on Wednesday, 8-9.30pm, and thus make his first appearance for 2017 on Sky Business. He should re-appear on Thursday, 12.30-2pm and Skype-link on Friday, at around 11.05am, to discuss broker calls.
 

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

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For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

The Overnight Report: All The Way To 20k

By Greg Peel

Wednesday

Australia’s headline CPI rose 0.5% in the December quarter to a 1.5% annual rate. Underlying inflation rose 0.4%, slightly below expectation, to 1.6%. While the numbers suggest inflation remains subdued – we remain a long way from the RBA’s 2-3% target band – the fact the headline dropped to 1.0% in the June quarter indicates a healthy rebound.

Economists therefore do not expect any change in RBA policy at the first meeting of the year.

The Aussie dollar fell to US75.4c from around 75.8c on the news but recovered that ground on Wednesday night thanks to a dip in the greenback.

Wednesday’s 0.4% rally for the ASX200 was all about the resources sector. Materials gained 2.0%, with BHP Billiton ((BHP)), Rio Tinto ((RIO)), South32 ((S32)) and Alumina Ltd ((AWC)) alone providing 16.5 points to the net 21 point increase. BHP posted a better than expected production report, Rio was still enjoying momentum from its Coal & Allied sale, and Alumina proved the biggest mover on the day (+11%) after a strong earnings result was posted by Alcoa in the US.

Second biggest mover on the day was Western Areas ((WSA)), which finally found some support when the nickel price didn’t drop for once.

The banks were also back in favour after having been sold off from their peaks following a raft of overvaluation warnings from brokers. Financials rose 0.6% and provided 8 index points. The main drags on the day were the defensives – telcos, utilities and consumer staples.

To recap, we have seen the local market rally alongside Wall Street in the initial Trump euphoria, and then rally again post-Christmas while Wall Street took a breather. As many a market participant returned from their holidays, it appears they saw a market looking a bit overdone, particularly in the banks and big miners. A pullback ensued.

That appears now to be over, and as the Trump rally is reignited in the US, more upside is on the cards. The futures closed up 39 points on Thursday morning. But for any rally to be sustained, more breadth is required. We can’t just keep pushing the mega-cap banks and miners into overbought territory.

Wednesday Night

Round numbers provide psychological barriers for markets, for no more reason than they are round numbers. And numbers don’t come much rounder than 20,000.

Late in December, all were convinced the Dow was set to hit 20,000 before Christmas. It reached 19,999, and then proceeded to pullback as Wall Street fell into a vacuum between Trump’s election and inauguration.

Trump has hit the ground running. While the market was uneasy about the wider protectionist implications of the axing of the TPP, the next day’s orders to expedite the construction of oil pipelines were met with enthusiasm. On Wednesday night, Trump signed the order to begin construction on his infamous wall. What Wall Street is really looking for is news on much vaunted tax reforms, deregulation and infrastructure stimulus. Pipelines and walls are stimulus. The other two will take time.

But not as long as feared, it would seem. On Wednesday night House Speaker Paul Ryan suggested tax reform was part of a 200-day agenda. Many had been assuming nothing could really be achieved before 2018. This was good news for a Wall Street concerned Trump would prove all campaign promise and no action.

And thus it was enough to take the Dow through 20,000 on the opening bell.

The Dow closed up 155 points or 0.8% at 20,068. The S&P gained 0.8% to 2298 and the Nasdaq jumped 1.0%. All three indices hit new all-time highs. The only absentee is the Russell small cap index, which remains a tad shy of its high. If that, too, can hit the mark, then it’s on for young and old, traders suggest. The Dow 20k psychological barrier has been breached.

But it’s not all just about Mr Trump, although clearly the promise of a brighter future for the US economy is a primary driver. In the background, the US earnings season continues to prove a positive one, and on-trend. Since bottoming out in the March quarter 2016, US earnings have risen 20% (S&P500). That’s not a policy promise, that’s real money.

Further into the background, the global economy as a whole is quietly improving. The confluence of these three factors is providing Wall Street momentum, symbolised by conquering of Dow 20,000.

The blue chip average has doubled since 2010, when the Dow recovered the 10,000 mark. The average halved from 14,000 in the GFC. The Dow first hit 10,000 in the 1999 tech bubble.

Thursday Night

Having reached the magic milestone on Wednesday night, Wall Street largely stalled for a breather last night. The Dow managed to gain another 32 points or 0.2% to 20,100, but the S&P fell -0.1% to 2296. The Nasdaq was flat.

The focus was again on earnings reports. Last night’s results were mixed, but the trend remains positive. To date, 120 S&P500 companies have reported and 78% have beaten earnings forecasts. But more pleasingly, 57% have beaten revenue forecasts.

In the period from the GFC to now, US companies have managed to return to earnings growth but not by growing revenues. Earnings growth has been achieved by cutting costs, and earnings per share growth has been enhanced by share buybacks. These are not the signs of a growing economy.

As late as last year, analysts were still bemoaning a lack of revenue growth after all this time. So to see more than half of S&P companies reporting to date beating revenue estimates is a positive sign, made more positive by the expectation of Trump-led economic growth providing a revenue boost.

This may be the case domestically, but there remains concern among multinational companies and exporters as to just what the impact of Trump’s protectionist trade agenda might be.

Commodities

Despite the US dollar index falling -0.4% to 99.98 on Wednesday night, gold dropped -US$7.90 to US$1199.60/oz. The US dollar rebounded 0.4% last night to 100.44 and gold fell another -US$10.30 to US$1189.30/oz.

On Wednesday night, base metal prices were all modestly weaker but last night suffered more substantial falls. As China heads into its week-long New Year holiday break from today, traders squared up ahead of the lack of activity the annual holiday ensures.

Copper was down -1%, aluminium and zinc -1.5%, and lead and nickel -3%.

Iron ore fell -US60c on Wednesday night to US$82.20/t and rebounded US20c last night to US$82.40/t.

Oil prices were slightly weaker on Wednesday night. Last night, industry data showing a faster than expected fall in global inventory in the December quarter of 24 million barrels to 5.7 billion barrels sparked a rebound, despite another increase in the weekly US rig count. West Texas crude is up US92c at US$53.79/bbl.

The Aussie was down -0.1% at US$0.7572 on Thursday morning and on greenback strength, is down another -0.3% this morning at US$0.7547.

Today

The SPI Overnight is down -2 points this morning. Take that off Wednesday night’s move and the futures are up 37 points since the ASX last closed.

As noted, Chinese markets are closed today and will be so for the period of a week.

Tonight in the US sees numbers for durable goods and consumer sentiment, but more importantly the first estimate of December quarter GDP – the final quarter, one might suggest, before the new Trump era. Forecasts are for a dip to 2.1% growth from September’s 3.5%.

Australia will see the December quarter export price index and Perseus Mining ((PRU)) will release its production report.

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

(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 in the Cockpit 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.

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article 3 months old

The Overnight Report: Back In The Game

By Greg Peel

The Dow closed up 112 points or 0.6% while the S&P rose 0.7% to 2280 and the Nasdaq gained 0.9%.

Resourceful

Moves in commodity prices on Monday night were nothing special, yet after a stuttering start yesterday, the local market appeared to decide the pullback we’ve seen from the post-Christmas highs in the mining stocks has now rendered that sector value once more. The materials sector finished the day up 2.7%, and almost single-handedly drove the index’s 0.7% gain for the day.

There was good news to be considered – BlueScope Steel ((BSL)) upgraded guidance (a rare Confession Session positive), construction company Cimic ((CIM)) made a takeover bid for mining services company McMahon Holdings ((MAH)), and Rio Tinto ((RIO)) announced the sale, pending shareholder/regulatory approval, of the bulk of its remaining thermal coal assets to the Chinese.

The sale would represent a nice little win for Rio shareholders as the company proceeds with its plans to divest of its thermal coal assets. Imagine the difference in price were Rio to have considered selling a year ago.

All the big bulk mining names led the index higher yesterday, with steelmaker BlueScope’s 8% gain the winner on the day. But second on the list of top movers was sleep specialist ResMed ((RMD)), which enjoyed a 7% pop following the pre-open release of its December quarter earnings result.

The healthcare sector rose 1.4%. No other sectors much contributed to the day’s action.

It is interesting to note that while the Aussie is back up near US76c at present, when all hope was for a drop through 70c on the back of a Trump-driven greenback surge, no one seems to mind. The Aussie is not strong simply because other currencies are weak – the bane of Glenn Stevens’ RBA governorship – but rather because commodity prices are strong. That’s the way Australia likes it. Although it’s not good news for exporters of other products and services.

The Aussie will be in focus today when the December quarter CPI numbers are released. Economists are looking for 2.0% annual headline inflation, up from September’s 1.3%.

Pay the Piper

Suddenly it seems Wall Street is back in the game.

Since November, we’ve seen the Trump euphoria surge on the promise of what might be, the pre-inauguration cool-off as the market awaited what Trump might do, and up until yesterday, impatience that he wasn’t doing enough, and an apparently tepid response to his axing of the TPP. Last night, that all changed.

Last night Trump met with the CEOs of the big US automakers, having met the day before with manufacturing CEOs. The jury may still be out on Wall Street on Trump’s protectionist stance on trade, but feedback from the CEOs with regard his desire to return manufacturing to the US, and thus restore jobs, has been positive. Yet last night it appeared another matter was the trigger for Wall Street’s sudden return to bullishness.

Trump signed two executive orders last night – one expediting the construction of the Keystone XL oil pipeline from Canada and the other expediting the Dakota Access pipeline. Both pipelines have been in limbo for years under the Obama administration due to environmental concerns. Trump has decreed he will speed up the regulatory approval process.

The caveat is the pipelines can only be constructed using US steel.

While the US energy sector has been pushing for the pipelines to be built for a long time now, and thus energy stocks led Wall Street higher last night, these executive orders appear to be testament to the expectations of Trump Wall Street had post-election. These orders represent actually getting things done.

And so the S&P500 hit a new all-time high last night, as did the Nasdaq, while all talk is once again of Dow 20,000. The rally did fade a little at the death, hence the Dow still has some way to go from 19,912.

Underpinning the rally was a barrage of corporate earnings reports, released last night, which on a net basis were seen as positive.

Meanwhile, across the Pond, the UK stock market and the pound reacted poorly last night to the UK Supreme Court’s decision Brexit cannot be triggered without the approval of parliament. While this May seem a setback to May’s “hard Brexit” plans, the bottom line is (a) she has already vowed to allow parliament to vote on the government’s Brexit plans and (b), what politician is going to overturn the vote of his/her constituency back in June?

Commodities

Building pipelines is representative of the US infrastructure push promised by Trump in his campaign. While end-products will no doubt be sourced where possible from the US, the raw materials are not all at hand in the US. Last night all base metal prices rallied in London, including a 2.5% jump for copper.

In copper’s case, nonetheless, a strike in Chile is the additional driver.

Iron ore rose US$2.10 to US$82.80/t.

West Texas crude rose US30c to US$53.07.

The US dollar index is up 0.2% at 100.33. Hence gold is off -US$8.10 at US$1207.50/oz.

The Aussie is slightly higher this morning ahead of today’s CPI release, at US$0.7582.

Today

The SPI Overnight closed up 37 points or 0.7%.

The CPI numbers will be out at 11am.

Today also sees quarterly reports from BHP Billiton ((BHP)), Alumina Ltd ((AWC)), Independence Group ((IGO)) and Senex Energy ((SXY)).

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

(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 in the Cockpit 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.

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article 3 months old

The Overnight Report: The Single Step

By Greg Peel

The Dow closed down -27 points or 0.1% while the S&P fell -0.3% to 2265 and the Nasdaq was flat.

Confession Session

Another Monday in January, and another swag of local market participants returning to work for 2017 with a cautious view. On the back of the Trump inauguration rally on Wall Street, and after a soggy week last week, we saw the futures suggesting a 27 point rebound yesterday morning.

We booked 32 points on the open and immediately ran into a wave of selling. By the end of the day, the index was down -43 and every sector closed in the red. This would tend to suggest market-wide selling rather than individual stock/sector divestment, but there were a couple of stand-out individual moves.

Recently listed McGrath Real Estate ((MEA)) must by now be wondering why they ever did, falling another -5% on a profit warning as agents flee the company. The tragedy at Dreamworld last year has cost Village Roadshow ((VRL)) (-9%) on a flow-over basis. And the saga continues for Bellamy’s ((BAL)) (-4%), as a class action is launched accusing the company of a lack of disclosure. One of the law firms is Slater & Gordon ((SGH)).

I’ll leave you to ponder the irony.

But the whale on the day was ASX Top 20 member Brambles ((BXB)), who issued a profit warning and copped a -15% hammering as a result. The fact there are as good as no short positions on Brambles suggests (a) it is considered a low volatility plodder of a stock and (b) there was no safety net of short-covering yesterday. Hence a big plunge into the void.

Brambles sent the industrials sector down -4% and alone accounted for about a quarter of the ASX200 fall. The next worst sector was healthcare, down -1.7% as traders finally took profits on CSL ((CSL)). Otherwise, it was a Sell Australia session.

With the February earnings result season looming, we have clearly now entered the traditional Confession Session, in which companies admit before their result release they’re not going to hit guidance. Better to get it out there than to wait for a shellacking on reporting day. Rarely will you ever see a positive “confession”. The market likes upside surprises on the day.

There Goes the TPP

It’s official. Trump has signed an executive order killing off the TPP. Turnbull can now stop playing Pollyanna and get on with negotiating the kissing-your-sister ex-US version. Trump now has NAFTA in his sights.

Trump has kept at least one campaign promise of what he said he would do on Day One. But a weaker session on Wall Street, and a very lengthy White House press conference, suggest both the market and the fourth estate have taken Trump’s “Day One” rhetoric rather literally. What about tax reform, what about Dodd-Frank, what about infrastructure, what’s going to replace Obamacare? There’s only so much the man can actually achieve in a day.

Or even in several months. Perhaps Wall Street will soon settle down to realise these things are going to take time, and moreover, just because the Republicans control both houses it doesn’t mean Trump has an imprimatur. Perhaps at this stage it’s just best to concentrate on earnings season and let the political story unfold in its own time.

Earnings season to date has seen 75% of reporting S&P500 companies beating earnings estimates, but so far only 54 have reported. Two themes are emerging, being the impact of the Trump-driven stronger dollar on forward guidance, and the fact the Trump rally to almost Dow 20,000 means any beat has to be significant if profit-taking is to be avoided.

On the latter front, last night saw all of Boeing, Exxon and McDonalds leading the Dow lower.

As it was, Wall Street had given up all of its inauguration day gains by midday, at which stage the Dow was down -95 points, before a graft-back began to a modest fall by the close.

What will Day Two bring? Well, a lot more earnings results, and as the week progresses, a lot of economic data, culminating in the December GDP release on Friday.

Commodities

Trump’s attack on free trade, and a lack of counterbalancing economic stimulus policy so far, sent the greenback tumbling last night. The dollar index is down -0.7% at 100.14.

This should have provided an all-things-being equal boost for commodities but while all base metals were stronger in London, only lead (+2%) posted a move of any significance. At least nickel was spared for a day.

Iron ore rose US60c to US$80.70/t.

Gold rose US$7.80 to US$1215.60/oz.

The dollar had little impact on the oil market, where concern over a rapid restart of idled US rigs is overwhelming the evidence of OPEC production cuts actually being implemented. West Texas crude is down -US45c to US$52.77/bbl.

The weak greenback has the Aussie up 0.3% at US$0.7574.

Today

The SPI Overnight closed up 19 points or 0.3%. Why such optimism? Yesterday’s 27 points up turned into -43 down by the close. Wall Street is mildly weaker. Is it because we’ve now fallen too far, having first risen too far?

Japan, the eurozone and US will post flash estimates of January manufacturing PMIs tonight.

Locally, quarterly production reports are due today from Oil Search ((OSH)), Sandfire Resources ((SFR)) and Orocobre ((ORE)) while ResMed’s ((RMD)) quarterly earnings result has just been released.

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

(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 in the Cockpit 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

article 3 months old

The Monday Report

By Greg Peel

Back to Earth

The pressure has eased for the local banks with regard the possible need for capital raisings, analysts suggest, but that doesn’t mean valuations achieved in the post US election rally, spurred on by strong rallies for the US banks, are realistic. A slow credit growth environment in Australia continues to drag on bank earnings.

Thus local bank share prices ran too far, and hence have been pulling back in the past few sessions as analysts call for a reality check. Macquarie, for one, downgraded its bank sector call to Neutral from Outperform late last week and the Friday session was another in which a -1.2% fall for the financials sector was the influential move on the day.

The miners have also enjoyed a solid run and here, analysts have been forced to play catch-up with regard commodity price forecasts. They have not, however, caught up to spot price levels, which all agree are more likely to ease in the near term than run further. Analysts have upgraded forecasts based on commodity prices forecasts still sitting below spot.

Indonesia has also thrown a spanner in the works in the nickel sector by lifting export bans, and overall the materials sector has also seen some cooling. Friday saw materials down -1.3%.

After a big jump on Thursday, CSL ((CSL)) enjoyed another kick on Friday from the latecomers to provide the only significant sector offset to the banks and miners. Healthcare rose 1.1%.

There was no doubt an element of squaring up on Friday ahead of Trump’s inauguration, as was the case on Wall Street. The ASX200 is now close to 200 points lower than its peak at the height of Trump excitement, as reality awaits.

There was no excitement generated when China’s December quarter GDP came out at 6.8% year on year, beating 6.7% forecasts.  For 2016, GDP rose 6.7%, meeting Beijing’s target of “at least 6.5%”. Blow me down.

Industrial production rose 6.0% in 2016, compared with 6.1% in 2015, retail sales rose 10.4% (10.7%) and fixed asset investment rose 8.1% to December, down from 8.3% to November. Friday’s data dump provided no reason to be either delighted or particularly concerned.

New Era?

Day One and President Trump is already bitching about how many people the press have suggested didn’t turn up to his inauguration parade. And many of those who did were protesters. It’s going to be a turbulent four years.

Wall Street’s focus was on the inauguration ceremony but there were still earnings reports to digest. Among the Dow components, American Express missed on earnings but beat on revenue, which is actually a welcome surprise, General Electric missed on revenue and Proctor & Gamble posted a solid earnings beat.

The Dow was nevertheless around 90 points higher form the opening bell, likely suggesting the pullback from the peak of Trump euphoria had been sufficient, according to traders. Trump’s address potentially offered more upside after the pullback than downside. But as was anticipated, Trump’s address contained nothing of note on the policy front. The Dow duly dropped back again, not quite to square.

Yet the word from the new Administration is that promised policies such as tax reform will be seen to as quickly as possible. As the afternoon progressed, and Trump managed not to make a fool of himself at each step, the Dow quietly regained its mid-session losses. It is typical for Wall Street to fall on the day of any inauguration. Not this time.

Okay. That’s over and done with. Aside from ongoing earnings reports, Wall Street will remain focused on cabinet confirmations and actual movement on policies. A retest of Dow 20,000 likely depends on policy clarification and action.

The Dow closed up 94 points or 0.5% while the S&P gained 0.3% to 2271 and the Nasdaq rose 0.3%.

Commodities

Nickel was down yet another -2% in London in a mixed session that saw aluminium rise 1% and lead 2%, while copper and zinc stood still.

Iron ore fell -US30c to US$80.10/t.

The US dollar index fell -0.3% to 100.85 but gold remains relatively steady at US$1207.80/oz and the Aussie is little moved at US$0.7552.

The International Energy Agency’s December report, released on Friday morning in the US, showed OPEC production dropped by -320,000 barrels per day in the month to 33.09 million barrels. By God, they’re actually doing it. OPEC’s target ceiling is 32.5m barrels.

This news had oil prices shooting up early in the day but they soon eased off when the weekly US rig count showed an increase of 29 to 551. West Texas crude ultimately closed up US$1.05 or 2% to US$52.42/bbl.

The SPI Overnight closed up 27 points or 0.5% on Saturday morning, suggesting the local market may also see a break in the pullback today.

The Week Ahead

Aside from any news from Camp Trump this week, it will be a busy time for Wall Street at both the corporate and economic levels. A flood of earnings reports will be joined by a slew of economic data.

Tomorrow night sees existing home sales, the Richmond Fed index and a flash estimate of January manufacturing PMI. Wednesday it's FHFA house prices and Thursday brings new home sales, the trade balance, leading economic indicators, the Chicago Fed national index and a flash services PMI estimate. On Friday it’s durable goods, consumer sentiment and a first estimate of December quarter GDP. Forecasts are for 2.1%, down from September’s 3.5%.

The UK will also deliver its first estimate of December GDP on Thursday.

Holidays will dominate this week, with New Zealand off today, Australia off on Thursday, and China off on Friday for the beginning of the week-long New Year break.

The key data release for Australia this week is Wednesday’s December quarter CPI numbers.

On the local stock front, the resource sector production reports will continue to flow, with BHP Billiton ((BHP)) the highlight on Wednesday.  Northern Star Resources ((NST)) and Syrah Resources ((SYR)) are today’s reporters.

This week will also see a couple of early earnings results reports, ahead of next month’s season proper. ResMed ((RMD)) reports tomorrow and Alumina Ltd ((AWC)) on Wednesday.

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