The Overnight Report: The Waiting Game

This story features NATIONAL AUSTRALIA BANK LIMITED. For more info SHARE ANALYSIS: NAB

By Greg Peel

The Dow closed down 41 points or 0.2% while the S&P lost 0.3% to 2065 and the Nasdaq fell 0.1%.

Flat

As trading sessions go, yesterday’s action on Bridge Street could not have been much flatter on a net basis, with the index managing only to flip-flop around the flatline all day. On a sector basis the story was nevertheless a little different.

It was not that long ago WTI crude looked set to break out of its long running US$45-50/bbl range to the topside on a falling US rig count and geopolitical rumblings, but this week WTI has broken down through the bottom of the range on a combination of US dollar strength and realisation that lower rig count or not, the world remains oversupplied vis a vis restrained demand.

Yesterday the local energy sector fell 2.3% on weaker oil prices. Daily oil price fluctuations still override a sector now clearly into a consolidation phase, although the M&A game will take a while to play out just yet. At the same time, the iron ore price is threatening to fall through US$50/t once more, weighing on the materials sector. It was down 1.2% yesterday.

With the banks going nowhere yesterday thanks to National Bank’s intriguing trading halt ahead of its profit result this morning, now assumed to relate to a sale within its insurance business, it was left to healthcare (+1.2%) to provide most of the offset. The consumer sectors have also become more popular of late, and they also added some green to the screen to ensure a net flat close for the ASX200.

There are two significant events to consider over the next 24 hours, being today’s release of Australia’s September quarter inflation numbers and their potential influence on the RBA ahead of Tuesday’s meeting, and tonight’s Fed statement and any potential clues it may provide about a December rate hike.

We could also throw in the possibility of the Bank of Japan scaling up the global “race to the bottom” among central banks in boosting QE to counter fresh ECB QE and further PBoC rate cuts as reason to wait on the sidelines this week.

Apple to Fall

Wall Street is clearly awaiting central bank updates as well but last night was also in a quiet mood ahead of the aftermarket release of Apple’s September quarter earnings.

Apple, America’s biggest company and a recent addition to the Dow Jones Industrial Average, has become an economic bellwether for Wall Street as the “new world” leader. Sales of iPhones in the US will provide a gauge of consumer demand, so important to the US economy, and sales in China will add colour to the picture of a China slowdown and the country’s shift towards domestic consumption.

As I write, Apple shares are struggling to rally 2% post release on strong Chinese sales and a beat on revenue, which is a rare achievement in post-GFC America.

Twitter is another new world company reporting this morning, after the close of Wall Street, and also closely watched despite many believing it is no longer a social media platform but merely a news service, destined never to monetise its popularity. Not a good result there, given Twitter shares are currently down 10% in the aftermarket.

Oil prices were again weaker overnight which weighed on the US energy sector. With Wall Street on Fed-Watch, there was also a raft of US economic data to consider.

Durable goods orders fell 1.2% in September, having fallen 3.0% in August. Stripping out lumpy auto/aircraft orders left a 0.4% fall, with the strong US dollar being blamed for falling orders offshore for US-manufactured goods.

The Conference Board’s monthly index of consumer confidence came in at 97.6, down from 102.6 in September, when economists had expected 102.1. September was the best result since January so the dip is not too onerous, but the world’s biggest consumer economy would be better served by rising confidence going into the “Holiday Season”, as it is known.

There was improvement in the Richmond Fed activity index, which rose to minus 1 from minus 5 last month when economists had forecast minus 3. Still contraction though.

The better news was Case-Shiller’s 20-city house price index, which rose 4.7% in August having risen 4.6% in July.  Year on year, prices were up 5.1% in August compared to 4.9% in July, supporting decade-high strength in NAHB’s housing market sentiment index this month.

All up, however, there is nothing here to suggest the Fed is destined to pull the trigger in December. Maybe tonight will provide more clues.

Commodities

Iron ore closed unchanged overnight at US$50.80/t, marking the end of a consecutive ten-day run of falls.

The LME was deathly quiet ahead of this week’s central bank posturing. Base metal price moves were small and mixed.

As noted, the oils fell again. West Texas dropped US57c to US$43.22/bbl and Brent fell US46c to US$46.86/bbl.

I noted yesterday a sudden 9% plunge in the US domestic natural gas price to US$2.08/mmbtu. Last night the price stabilised at US$2.10.

The US dollar index is up a tick to 96.91 while gold managed at US$3.30 gain to US$1166.50/oz. Weaker commodity prices appear otherwise to be weighing on the Aussie, which is down 0.7% to US$0.7197.

Today

The SPI Overnight closed down 20 points or 0.4%.

Australia’s September quarter CPI numbers are out today. Economists are looking for 1.7% annual on the headline.

The Fed’s latest policy statement is due tonight.

Locally it’s another very busy day for AGMs but all eyes will be on National Bank’s ((NAB)) full-year earnings report, due this morning.

Rudi will host Your Money, Your Call Equities tonight, 8-9.30pm, on Sky Business.

 

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