Tag Archives: United States

article 3 months old

The Overnight Report: Commodity Price Surge

By Greg Peel

The Dow closed up 88 points or 0.5% while the S&P gained 0.8% to 2198 and the Nasdaq rose 0.9%.

Confused

It was a quiet session on the local bourse yesterday. Volume was weak as the ASX200 meandered its way in a minimal range to a soggy close. But again the lack of movement in the index belies what was going on underneath amongst the sectors.

It would seem investors are simply not sure how they should be positioned going into year-end. I have highlighted in the previous couple of sessions that it appeared the long sell-off of yield stocks and defensives was finding a bottom and the abrupt run-up in resource stocks was tipping over. But yesterday, we went back the other way once more.

On a tick-up in the oil price, energy was the best performer on the day with a 1.7% gain. It would seem traders were heartened by the WTI price rising back through the US$45/bbl mark on cautious confidence of an OPEC agreement being reached, rather than tanking down through 40. That buying will prove rather prescient today.

Materials chimed in with a 0.3% gain but other than a flat day for the banks, all other sectors finished in the red. Notably, consumer staples and healthcare each fell 1.3%, telcos fell 0.9% and utilities fell 0.5%. The theme of the previous couple of sessions was reversed. Perhaps the seemingly relentless rise of US bond yields is just too much.

The US bond yield stalled last night and the US dollar index dipped for the first time in several sessions. The door was opened for commodities to take centre stage.

Commodities

APEC meetings are not what we’d normally think of as market movers but aside from the attention being drawn by it being President Obama’s final outing, the attendance in Peru of Vladimir Putin and Xi Jinping has provided us with some headlines.

The Russian president sees “a high probability” of an agreement being reached in Vienna on November 30, when OPEC tries to implement a production freeze. Russia will cooperate, Putin suggested, as a production freeze “is not an issue for us”.

Those comments were worth 4.2% for the West Texas crude price, which rose US$1.92 to US$47.49/bbl.

What is good for oil is seen as good for other commodities. Meanwhile, the Chinese president used his speech in Peru to confirm China’s support for a free trade area in the Asia-Pacific. The Chinese government is pushing for a Regional Comprehensive Economic Partnership of 16 countries. The now dead-in-the-water TPP was to involve 12 countries, including the big one, the US. We might presume China sees an opportunity to further step-up its global strength as the trade wall goes up around the United States.

Free trade offers up the possibility of increased Chinese imports of raw materials, including lead, up 1% on the LME last night, aluminium and zinc, up 1.5%, copper, up 2.5%, and nickel, up 5%.

Xi Jinping did not, however, manage to light a flame under the bulks, which few disagree have run too far, too fast. The thermal coal price was steady last night and iron ore plunged US$2.80 to US$69.80/t.

The 0.3% dip in the US dollar index to 100.97 provided a green light for those commodities that did rally to do so, and also allowed gold to tick back US$3.30 to US$1211.90/oz.

And the Aussie to tick back 0.3% to US$0.7361.

Quadruple Watching

The energy sector duly led Wall Street higher last night with materials trailing in its wake. But otherwise the positive mood was market-wide. The Dow, S&P and Nasdaq all simultaneously hit new all-time highs, for the first time since August. Back in August, US small caps were underperforming. Last night the Russell 2000 index also hit a new all-time high, marking a rare quadrella.

What’s good for M&M Enterprises is good for the country. Except in this case Milo Minderbinder is Donald Trump and no one can yet identify the Catch-22.

Outside of the commodity story there was no real new news to drive Wall Street higher last night. Only the dip in the greenback after a long run higher could be seen as any particular incentive. And the ten-year bond rate stalling.

Donald Trump continues to interview prospective cabinet members but there has been no new news on that front either. Either way, US business television currently features commentator after commentator suggesting a Trump presidency cannot be anything other than positive for the stock market. They just can’t see any other scenario.

The previous couple of sessions showed signs the Trump euphoria rally might be losing steam. Not so last night.

Today

Fresh all-time highs on Wall Street and surging commodity prices. How will this affect the Australian market today? Forget iron ore, the SPI Overnight has closed up 40 points or 0.8%.

Earnings results are due out today from CYBG ((CYB)), Fisher & Paykel Healthcare ((FPH)) and Technology One ((TNE)). There is another round of AGMs to digest including another prominent Kiwi, The A2 Milk Company ((A2M)).
 

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Next week will be a short week in the US, realistically three days. All markets are closed on Thursday for Thanksgiving and although the NYSE does open for a half-day session on the Friday, only a handful of skeletons ever turn up.

Suffice to say there are no US data releases on those days, rather they are all crammed in earlier in the week. They include the Chicago Fed national and Richmond Fed indices, new and existing home sales, house prices, durable goods, consumer sentiment and the minutes of the November (pre-Trump) Fed meeting.

Friday next week is known as Black Friday in the US. It is when Christmas-reliant retailers offer a day of discounting to lure in customers, and for the first time in the year, so the story goes, their P&Ls go “into the black”. More recently, online retailers follow up with the same deal on the Monday, dubbed Cyber Monday. How goes these two days determines whether or not retailers have a good Christmas.

Except that the whole thing has rather gone out the window these days. Retailers start discounting this week or earlier, such that the actual Friday and Monday no longer have the same impact.

In Australia we can look forward to September quarter numbers for construction work done and private sector capex – two of the more important releases in the lead-up to the following week’s GDP result.

And we can also look forward to another relatively busy week on the AGM front.


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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Back in The World Before Trump, the market was pricing in around an 80% chance of a Fed rate hike next month, and no further rate hike until, probably, December 2018. A hike would no doubt be off the table however, were Trump to win, given the stock market would crash.

The stock market hasn’t crashed – the bond market has. In the two days post election the US ten-year bond yield has already risen by the 25 basis points the Fed would hike, and that’s from the starting point of 80% already being priced in. Although vague at this point, Trump policies are likely to pick up the stimulus baton on the fiscal front to take the burden off monetary policy.

The Fed could justify a 50bps hike next month. Or at least a rethink its “gradual” approach. It’s a whole new world, this World of Trump.

Do US data now matter? Next week sees numbers for retail sales, inventories, industrial production, inflation, housing sentiment, housing starts and the Empire State and Philly Fed activity indices.

Does China now matter as much? Next week sees a dump of October retail sales, industrial production and fixed asset investment numbers.

Japan and the eurozone both release September quarter GDP results.

In Australia we’ll see the minutes of the November RBA meeting. They’re old hat. We’ll also see the September quarter wage price index, beginning the countdown towards our own GDP result.

And Trump or no Trump, the AGM season will roll on. Indeed, next week is one of the busiest. We’ll also see earnings results from Elders ((ELD)), Oxforex ((OFX)), Graincorp ((GNC)), James Hardie ((JHX)) and AusNet ((AST)).


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article 3 months old

Fed Rate Hike Back On

By Kathleen Brooks, Research Director, City Index [writing prior to the close of Wall Street last night]

The Fed rate hike is back on, even with Trump in the White House

Reaction to Trump’s shock win in the US election continues to be relatively muted as we move to the final stretch of the London session. Equity markets are generally lower, however, losses are not of such a magnitude that they suggest market panic, in contrast, the markets appear to be sanguine about a Trump Presidency, which dramatically increases global economic uncertainty. Perhaps Trump’s conciliatory tone in his victory speech has eased concerns about his Presidency, or perhaps markets have no idea how to price in his victory as we have no precedent for someone like Trump. Either way, a mere 24 hours ago no one would have predicted such a calm market reaction on the back of this result.

Trump not an obstacle to a Fed rate hike?

In the lead up to the election result we looked at market expectations of a Fed rate hike to see if it reflected the election polls. On reflection perhaps we were naïve to think higher expectations of a Fed rate hike signalled a win for Clinton, rather than for Trump. The Fed Funds futures market is a reliable indicator of market expectations for interest rates. Prior to the polls closing, expectations for a Fed rate hike in December were above 85%, during the results expectations fell below 50%, and at the time of writing they are now above 80%.

So a Trump Presidency does not appear to be an obstacle for a rate hike from the Fed. This could be for two reasons: 1, Trump’s softer approach in his victory speech may suggest that he will leave the Fed alone, and allow them to get on with their job, which includes hiking interest rates. 2, Considering the win for Trump hasn’t been America’s Brexit, the Fed does not need to refrain from hiking interest rates to suppress market volatility and protect from stock market declines. Interestingly, expectations for more than one hike next year have also risen on Wednesday.

Bond yields a major mover on Wednesday

This is significant for bond yields, which have risen strongly today. The 10-year Treasury yield is back at its highest level since March, above 1.90%, which is 20 basis points higher on the day. For now we think that higher yields represent optimism for the US’s economic outlook, possibly because the Republicans have control of the Senate, which could boost growth. But, if yields continue to rise at this pace then concern may grow that bonds are selling off due to fears of America’s creditworthiness under a President Trump, who said that he may default on some of America’s debt burden.

A Trump boost for the dollar

Rising bond yields are also significant for the USD, as they have been the building blocks of this dollar rally. After selling off sharply late on Tuesday, the dollar has been in recovery mode ever since Trump looked like a winner. At the time of writing the dollar index is virtually back to where it was prior to the close of polls on Tuesday.

What our clients are doing?

It is worth noting that our clients are also buying into this recovery in the dollar. Of our clients that trade USD/JPY 58% are long, while clients that trade EUR/USD, 62% are short. USD/MXN IS 62% sold, suggesting that our clients could be squaring up short peso positions, potentially because they think that the Trump news is now priced in after USD/MXN reached a record high on Tuesday night/ Wednesday morning. Although our clients are net short of the S&P 500 and FTSE 100 on Wednesday, it is not as large a percentage of sellers as you might think on the back of such a large political shock, 65% of those trading the S&P 500 are short, with the same amount for the FTSE 100. Thus, our clients, like the markets, seem to be having a restrained reaction to the Trump news.

Wrap Up

This price action definitely feels strange, and was not what we had expected. We still think that there are considerable risks to a Trump Presidency, and risk sentiment could remain fragile in the coming weeks and months. It is difficult to determine if the rise in Treasury yields is a sustainable trend, we are beginning to think it is since it is backed up with soaring expectations of a Fed rate hike for next month. For now, this is likely to sustain a rally in the dollar, particularly against the EUR, JPY and GBP, which could see further declines against the greenback in the next day or so.
 

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Re-published with permission. Views expressed are not by association FNArena's (see our disclaimer).
 
 
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article 3 months old

S&P500: Playing The Trump Card

By Michael Gable 

The S&P 500 Index was down for nine days in a row and had clocked up its longest losing streak since 1980. It is no wonder that it was due a bounce (are we really surprised?), and the last 24 hours have seen markets jump on the expectations of a Clinton victory - just as markets jumped in the days before the Brexit referendum. So does this mean we are buying the rumour, and even if Hillary gets in, we sell into that?

Before last night, the S&P 500 Index lost less than 3 per cent in the prior couple of weeks. In our opinion, that doesn't sound like a market factoring in a Trump victory. This means that we believe the Clinton victory has already been priced in, despite this so called "sell-off" in US markets. Counter to this, there is a lot of money on the sidelines that wants a home, and everyone seems to be getting very bullish again, so which way will it go? The big opportunities arise when something unknown comes out of nowhere, people panic, and it smashes the market to much cheaper levels.

This US election has been the most talked about in history. I just don't see the recent move down as the "opportunity of 2016" to buy into equities and that we have to make a rash decision before the election result. Let’s see what happens over the next few days/weeks and not go rushing in for the sake of it. There are still some good companies out there worth grabbing, but it needs to be on a case-by-case basis, not a "lets go all in for whatever I can get because Trump was defeated" mentality.


S&P500


The S&P 500 Index rallied strongly overnight which was inevitable after being down for many days in a row and heading into oversold territory. The key level we are looking at for resistance is the 100-day moving average which currently sits near 2145. The level of 2150 has also been a major one in the past, so unless we see a nice close above those levels, we would remain cautious. If the index retests those levels and fails, then we could see several-percent downside towards 2000. As mentioned previously, the most bearish scenario puts us back near 1870.
 

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

Presumably by some time on Wednesday afternoon we’ll know the result of the US election, unless of course it’s too close to call. Even if a Clinton victory is clear-cut, we still don’t know whether Trump will challenge the result.

Before that we have to get through tonight’s US jobs report, but with the Fed now seemingly having made up its mind, this report does not carry a lot of weight. The only issue would be if the number came in way low.

US data is otherwise thin on the ground next week, with consumer credit and the fortnightly consumer sentiment survey the only highlights. Friday is Veterans Day which is one of those half-holidays in which banks and the bond market are closed but stocks and commodities are open. Given 11/11 this year falls on a Friday, we can assume most of Wall Street will be taking a long weekend.

China will nevertheless be back in the frame with October trade and inflation numbers.

The RBNZ holds a policy meeting on Thursday.

In Australia we’ll see ANZ job ads and the NAB business and Westpac consumer confidence surveys along with housing finance numbers.

Earnings results are due from Westpac ((WBC)), DuluxGroup ((DLX)) and Incitec Pivot ((IPL)). Commonwealth Bank ((CBA)) will provide a quarterly update ahead of its AGM.

Next week sees another solid round of AGMs.

Note that US summer time ends of the weekend so as of Tuesday morning the NYSE will close at 8am Sydney time.


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article 3 months old

Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

The local AGM season takes a bit of a breather until later in the week next week but from Thursday they start to come thick and fast once more.

There are still some straggler production reports to get through from the resource sectors and quarterly updates from the likes of Qantas ((QAN)) and REA Group ((REA)). There are also a further handful of earnings results.

CSR ((CSR)), Orica ((ORI)), BT Investment Management ((BTT)) and Xero ((XRO)) are all in the frame next week but the biggie in ANZ Bank ((ANZ)) on Thursday.

There are no corporate events on Tuesday that do not involve lunch and empty afternoon offices, being Cup Day. Victoria is of course shut, in case anyone doesn’t notice. The all-important Rate That Stops The Nation will still go ahead as usual, but all the money is on the favourite, No Cut.

It’s a relatively busy week for economic data with private sector credit, building approvals, the trade balance and manufacturing and services PMIs all due. After the meeting on Tuesday, the RBA will release its quarterly Statement on Monetary Policy on Friday.

As Tuesday is the first on the month, manufacturing PMIs will be published across the globe and services on Thursday, except for China’s official number which both land on the Tuesday.

Tonight’s US GDP release will be important in determining whether the odds of a December Fed rate hike will shift from a current 70% and so too will be Monday’s release of the personal consumption expenditure measure of inflation. In case anyone doesn’t realise, the Fed actually meets on Tuesday night, but few expect a pre-election rate hike (17%).

Other US data releases across the week include the Chicago PMI, personal income & spending, construction spending, vehicle sales, chain store sales, factory orders, trade and September quarter productivity. And being the first week of the month, the private sector jobs report is out on Wednesday and non-farm payrolls on Friday.

The Bank of Japan also holds a policy meeting on Tuesday. The Bank of England will wait until Thursday.

The eurozone’s September quarter GDP result is out on Monday.
 

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article 3 months old

The Overnight Report: Bonds On The Move

By Greg Peel

The Dow closed down 29 points or 0.2% while the S&P lost 0.3% to 2133 and the Nasdaq fell 0.7%.

Sell Australia

It seemed as if we had found a bottom in the ASX200 at 5350 technical support yesterday as the index spent the morning holding its ground, following Wednesday’s surprisingly severe sell-off. But 5350 prove only a pivot point as there seemed no great desire to drive a rebound.

And sure enough, another wave of selling hit at midday, and down we went again. Reports suggest the selling has been futures-led, implying a large fund manager or fund managers have decided to “Sell Australia”. It only takes a small reallocation of a giant global portfolio to send little old Australia spiralling.

The quickest way to achieve a wholesale “Sell Australia” is to first sell the SPI futures on the ASX200. This locks in the exit, and fund managers can at a later date, when the dust settles, sell actual stock positions and buy back the futures at a lower level. When the futures are sold, those on the buy-side have the unenviable task of trying to cover by selling stocks into a falling market.

And it is unenviable at present because the local market is in a panicky mood anyway, sparked by a run of bad news coming out of AGMs and other matters. We can see the market-wide confirmation in the fact all sectors, bar one, fell in unison yesterday and the hardest hit were those where the large caps mostly reside. The top 20 will give you about an 80% or more replication of the whole 200 in market cap terms. Only info tech finished in the green, dominated by Computershare ((CPU)) which is being supported by rising US rates.

There were only a couple of notable up-movers bucking the trend otherwise – one being Ardent Leisure ((AAD)), which saw some bargain hunting despite a rather poor AGM performance. Challenger ((CGF)) has gone from strength to strength lately on the popularity of annuities, and it jumped another 4% after its AGM.

On the other side of the ledger, the biggest percentage moves down were reserved for resource sector stocks. Outside of an 11% drop for APN News & Media ((APN)) on capital raising dilution, eight of the other nine top ten down-movers were miners – the same miners who have been enjoying stellar runs lately on improved commodity prices (eg South32, Whitehaven) or futuristic over-exuberance (eg Orocobre, Syrah).

Clearly those investors having dined out lately on the outperformance of their mining-weighted portfolios were in a desperate race to lock in profits yesterday before the sky fell in.

The other big news was of course National Bank’s ((NAB)) decision not to cut its dividend, yet. NAB thus managed to fight back against solid bank selling.

Ticking Up

US monthly data flow of late has been fair to reasonable, positive but not shooting the lights out. Either way, not bad enough for the market to assume the Fed won’t hike in December. Tonight sees the more substantive first estimate of September quarter GDP, so any shock there might change the mood. But these days both the Atlanta and NY Feds publish continuous GDP run rates, thus expectations of around 2.5% growth have fairly solid evidence behind them.

As we move closer to December, the US ten-year yield is again starting to tick up. Last night it rose 5 basis points to 1.84%. We recall that 1.85% was the pre-Brexit vote high, hence traders assume that a break of 1.85% could mean a rush back to 2%. And it’s not just US Treasuries. Bunds, gilts, JGBs and others are all quietly on the move.

It’s not good news for bond-proxy stocks, hence an early one hundred point fall in the Dow last night was largely driven by telcos, utilities, REITs and the like. Yet as we have seen so often in past sessions, the early drop was met by a choppy recovery.

Choppiness can be put down to individual earnings results, which continue to be mixed but net positive, while fourth quarter guidance remains an area of concern. Among the Dow stocks, last night saw a miss from Ford and a 1% drop and a miss from Colgate-Palmolive and a 1% drop, while outside the Dow, ConocoPhillips was a winner and jumped 5%.

This morning’s major after-the-bell reports see Amazon down 5% and Dow component Alphabet (Google) up 1%.

The other big market influence at present is of course oil, and it found some support last night after Saudi Arabia actually came out with a number – a 4% production cut from those who can cop it. While the official meeting is not until the end of November, this weekend sees another gathering to further nut out possibilities.

Could it be that this time there really is a wolf?

Commodities

West Texas crude is up US49c at US$49.60/bbl.

Base metal prices all rose around about 1%, except lead, which rose modestly.

Iron ore finally retreated, down US40c to US$62.30/oz.

The US dollar index is up 0.3% at 98.91 and gold is relatively steady at US$1269.00/oz.

The Aussie is down 0.7% at US$0.7588. This may give weight to the assumption stock market selling is coming from offshore.

Today

The SPI Overnight is rather boldly up 28 points or 0.5%. This would suggest that maybe the selling has now been completed, or at least the market hopes it has. There should be some bargains on offer.

Locally we see the September quarter PPI and September new homes sales numbers today. Tonight the US GDP will be in focus.

Woolworths ((WOW)) will report September quarter sales today. Having seen what happened to its rival, they would want to be good.

Macquarie Group ((MQG)) releases first half earnings.

And there’s another handful of AGMs.

Rudi will connect with Sky Business today, via Skype, to discuss broker calls for about ten minutes, starting around 11.05am.
 

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article 3 months old

The Overnight Report: Wild Ups And Downs

By Greg Peel

The Dow closed up 30 points or 0.2% while the S&P fell 0.2% to 2139 as the Nasdaq fell 0.6%.

Pent Up

For a month the ASX200 has been up and down in a range of 5400-5500, meeting bargain hunters at the bottom and profit-takers at the top. The topside has looked the least likely to be penetrated given uncertainty surrounding upcoming, very influential global events.

Which leaves us with the downside. We saw a bit of a hint of it on Monday, but on Tuesday the bargain hunters reappeared. They also reappeared yesterday when the index dropped immediately to 5400 on the open. They hung on for almost an hour but it was to no avail. There was just too much bad news about.

Yesterday’s bellwether trigger was Wesfarmers ((WES)), or more specifically Coles. Looks like the honeymoon’s finally over. Stoic investors have continued to back the big supermarkets because...well…of tradition mostly. Wesfarmers does not traditionally fall 6% but it did yesterday.

Then there’s the tragedy of Ardent Leisure ((AAD)), down another 15%, an ongoing exit from stocks reliant on the Chinese consumer, following Tuesday’s Bega Cheese ((BGA)) scare, and the other China story – Crown Resorts ((CWN)). And we have Healthscope ((HSO)). Having been sucked down in the vortex, peer Ramsay Health Care ((RHC)) issued the briefest of statements yesterday to allay fears of any similar problems. Ramsay shares managed only a very modest bounce after a solid fall.

When the levy broke at 5400 it was on for young and old – market-wide. Tuesday night saw a big jump in the iron ore price, solid moves up in base metals and a bit of a rebound for gold, yet the materials sector closed down 0.7% yesterday. It was at least an “outperformance”. The banks that had been bought up this week on the dividend play were dumped, down 1.3%, ahead of National Bank’s ((NAB)) earnings report today.

The big loser on the day was consumer staples, down 3.3% thanks to Wesfarmers, but consumer discretionary wasn’t far behind with a 2.5% fall. This sector is very much influenced by monetary policy, but it appears yesterday’s CPI release had little impact on a market already hell bent on heading south.

The media will always focus on the headline inflation rate, and it was up 0.7% in the September quarter for an annual rate of 1.3% when 0.5% and 1.1% were forecast. There goes your RBA rate hike, is the conclusion. But the core rate rose only 0.3% when 0.4% was expected for an annual 1.5% against 1.7% expectation.

The RBA focuses on the core rate, ex food & energy. Thus we can say inflation was actually weaker than expected. But not as weak as it was back in the March quarter, which prompted the last rate cut. So will we see a Cup Day cut next week?

CBA’s economists say yes, but with less conviction. St George says yes, but it’s a “line ball call”. ANZ believes the data increases the odds of a cut – next year. Others say no cut on Tuesday. Place your bets.

The immediate reaction in forex markets was no cut, given the Aussie jumped straight to 77, but then traders read further down the document, past the headline result, and by late evening the Aussie was back where it started. It is this morning unchanged over 24 hours at US$0.7643.

Did we see the shake-out in the stock market yesterday that we needed to see? The index held 5350, which is also an important technical level. Certainly some of the high-flying names for which analysts have been calling valuations overstretched have come back to earth somewhat. Buying opportunity?

Well we’ll probably have to get past Trump, OPEC and the Fed first. Santa is watching closely.

Motion Sickness

The Dow was down a hundred points from the open last night and then up 70 points before midday. The major underlying driver was oil.

US oil forecasting is a JOKE. Yesterday I noted weekly inventory forecasts are never right and in the past I’ve pointed out how numbers from the American Petroleum Institute and numbers from the Energy Information Agency are so often wildly different. Before the open on Wall Street last night, the API had predicted a weekly crude inventory build. The market was expecting a build, but not by as much.

Already looking nervous under US$50, particularly with the whole production freeze issue looking decidedly shaky, WTI plunged to below US$49/bbl from the open on Nymex. Then the EIA report came out indicating a small drawdown, and WTI shot back up over US$50. Hence we saw the Dow down a hundred and then up 70.

The oil price drifted back towards the close to be down US67c over 24 hours at US$49.15/bbl. The Dow closed up 30.

Outside of oil, we saw a weak result from Apple in Tuesday night’s aftermarket, mostly guidance related, send apple shares down over 2%. On the other hand, Boeing posted a very strong result which saw its shares up almost 5%. Both are Dow stocks, but only Apple is a Nasdaq stock. That’s why the Dow closed up 0.2% last night and the Nasdaq closed down 0.6%.

Some 40% of S&P500 companies have reported to date and the run-rate is 2.5% earnings growth. That should be good news, given a 2% fall had been predicted. And revenues are up 2.8%, which is very positive. Yet Wall Street is failing to respond in a positive fashion. One reason is aforementioned uncertainty with regard upcoming events. The other is disappointing December quarter guidance, despite strong September earnings results. But then a lot of that has been put down to uncertainty in the quarter, given upcoming events.

Commodities

Oil has been noted.

After their strong session on Tuesday night, last night saw base metals moves return to being mixed and minimal. Zinc fell 1%.

Iron ore has kicked on, rising another US$1.10 to US$62.70/t.

Tuesday night’s gold rally proved fleeting as gold is down US$7.20 at US$1266.70/oz, despite the US dollar index slipping 0.1% to 98.63.

Today

The SPI Overnight closed up 8 points. Not quite the stuff of rebounds after a day of carnage, but then Wall Street has not provided much impetus.

In a case of unfortunate timing, Ardent Leisure ((AAD)) will host is AGM today. Indeed it’s a very busy day on the AGM calendar.

But the greatest focus will be on NAB’s earnings result. And more specifically, its dividend. NAB did not cut, yet (?).

Rudi will appear on Sky Business, 12.20-2.30pm.
 

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article 3 months old

The Overnight Report: Ups And Downs

By Greg Peel

The Dow closed down 53 points or 0.3% while the S&P lost 0.4% to 2143 and the Nasdaq fell 0.5%.

Cheesed Off

The AGM season claimed another victim on the local market yesterday. Bega Cheese ((BGA)) shares fell 17%. Clearly the company was wrong in believing the Chinese market is insatiable.

Not content to continuing selling just its well-known cheese products, Bega had decided to hook up with Blackmores ((BKL)), which clearly was not content to only sell dietary supplements. The two took on the Chinese infant formula market, where already there are a crowd of A&NZ milk companies operating, and found it oversupplied.

Go figure.

The other big loser on the day is a tragic story. Ardent Leisure ((AAD)) fell 8% very late in the session so there may be more to come.

Otherwise, having surprised all and sundry by falling so heavily on Monday, the ASX200 again defied overnight futures trading in jumping back up 47 on the open before settling up 34. It was more of a step-jump than a rally, which again prompts the question what on earth was going on on Monday.

The banks clearly led the market up yesterday in what is a traditional seasonal pattern. The 0.8% sector gain reflects the fact there are three juicy dividends on offer (albeit maybe less than in previous years), and you need to get in now if you want a piece of the action. Then you sell in December and switch into CBA on the different cycle.

All sectors finished in the green yesterday bar consumer staples, thanks to Bega and friends, and energy, which dipped slightly on lower oil.

Having reset, the market will now look ahead to today’s September quarter CPI number, which will set the agenda for RBA policy and determine whether the Aussie goes higher or lower. Economists are looking for 0.5% headline growth for 1.1% year on year, and 0.4% core growth for 1.7% year on year.

Guidance Concerns

Russia is now apparently wavering on a production freeze agreement with OPEC. The WTI price thus slipped under US$50/bbl last night which was one source of weakness on Wall Street.

US consumer confidence has fallen to its lowest level since May, according to the Conference Board monthly measure. It’s not great news for retailers with the Thanksgiving shopping spree now only a month away. But it is typical of confidence to dip going into a presidential election, and the bizarre offering this time around is more reason to be cautious.

The main reason Wall Street was lower last night centred around earnings season. It is not third quarter earnings that are the issue, as they continue to point to the first positive result for the S&P500 in six quarters. It is fourth quarter guidance which, given all the uncertainty in the world at this time, has been disappointing in many cases.

Among the Dow stocks, consumer staple stalwart Proctor & Gamble has been a popular stock to hide one’s money in this year and it did not disappoint, rising 3%. But despite posting positive results, all of 3M, DuPont and Home Depot shares fell on underwhelming guidance.

Outside the Dow, Whirlpool went down one, falling 11% on weak, Brexit-impacted UK sales. General Motors suffered the same fate, and fell 4%. High flyer Under Armour fell 13% and had Wall Street wondering whether the “athleisure” bubble has now burst.

Add it all up and the Dow fell 50 points. On Monday night it rallied 70 points. With PEs looking stretched and December quarter earnings guidance failing to provide support, the upside currently appears limited. With funds managers lined up to swoop on any weakness so they can put money to work on a TINA basis, the downside appears limited.

As Gerry Rafferty would put it, here I am, stuck in the middle with you.

Commodities

Forecasts this week are for a build in US crude inventories following a couple of weeks of surprise drawdowns.

Forecasts are never right.

Throw in doubt over Russia and West Texas crude is down US81c at US$49.82/bbl.

Between environmental shutdowns forced by the governments of China and the Philippines, and economy-based restrictions in Indonesia, the supply of bulks and base metals is expected to be constrained going forward. Yet there appears no constraint on Chinese demand, which is on the rise.

Last night lead and nickel rose over 1% and aluminium, copper and zinc rose over 2%.

Iron ore has jumped up US$2.90 or 5% to US$61.60/t.

We are entering one of the two holiday periods in which Indians typically exchange gifts of gold. Outside of monetary policy influences, such demand from India can be a real mover of the dial for the gold price. Last night gold rose US$9.40 to US$1273.40/oz.

The rally in gold, and indeed other commodities, may also lend itself to creeping belief the recent run-up in the US dollar has come to an end for now. The greenback has adjusted to the expectation of a December Fed rate hike and now must wait for confirmation. The dollar index has been flat for a few sessions in a row now, which suggests it might just be ready to tip over. It is little changed this morning at 98.73.

On commodity price strength, the Aussie is up 0.4% at US$0.7641.

Today

The SPI Overnight closed down 12 points or 0.2%. Seems strange in the face of commodity price strength but the SPI’s been no sort of indicator these last few sessions.

The local CPI result is due late morning.

There’s another round of AGMs today and quarterly earnings results are due from Alacer Gold ((AQG)) and ResMed ((RMD)) and quarterly production numbers from Independence Group ((IGO)).

Wesfarmers ((WES)) will report quarterly sales figures. While Coles will be in focus as always, don’t forget Wesfarmers also produces coal.

Rudi will gear up in the afternoon to host Your Money, Your Call on Sky Business tonight, 8-9.30pm.
 

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