The Overnight Report: Not This Time

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By Greg Peel

The Dow closed down 75 points or 0.4% while the S&P lost 0.8% to 2047 as the Nasdaq lost 1.5%.

Nice Bottom?

I suggested yesterday that perhaps the time was nigh for some bottom-picking in resource sector stocks, particularly in energy, given what appeared to be quite the capitulation trade in oil markets on Tuesday night. As it turned out, only three sectors finished in the green yesterday within a 0.5% fall in the index. One was utilities, up, 0.3%, while materials rose 0.1% and energy rose 0.4%.

But it appears someone had a red hot go at index bottom-picking in general at 11am yesterday. Having opened down 40 points and plateaued, the ASX200 suddenly shot back up to the flat line in a blink. It then began a slow drift down in the afternoon.

Momentum was probably deflated by yesterday’s local data releases.

Consumer confidence fell by 0.9% in Westpac’s December survey. That’s not really what retailers want to hear before Christmas. The two consumer sectors finished down 0.6% yesterday. However, the index remains on the optimistic side of the ledger, at 100.8, and is up from this time last year.

The fall in the index is mostly due to a lack of confidence in the economy going forward, out to five years, rather than right now, which remains fairly buoyant. There is thus no need to fear the Grinch. Household goods retailers, who have had a cracking couple of years, need also not cry into their egg nog, based on yesterday’s housing finance numbers.

The value of all housing loans fell 6.0% in October to slow to an annual pace of growth of 8.4%. Efforts by the regulator to cool runaway investment loans has clearly worked, given loans to investors fell by 6.1% and are now slowing at an annual rate of minus 9.2%. But, repricing of mortgage rates has not completely deterred owner-occupier borrowers, as o-o loans rose 0.1% to maintain a healthy growth rate of 21.1%.

Given it is the owner-occupiers and not the investors who will be buying all the furniture, spending on household goods should remain supported for now, and clearly there’s a lag effect. But builders and building materials providers will not be too thrilled that the investment housing boom has clearly now run its course. Industrials were the worst performer yesterday, down 0.9%. Falling loan numbers in general are not encouraging for the banks, which were down 0.8%, although the metrics of NAB’s UK demerger has not been met with great enthusiasm either.

Yesterday also saw the release of Chinese inflation data for November. A rise to 1.5% annual for the CPI, up from 1.3% in October, suggests Beijing’s stimulus measures might finally be having some effect. But industrial overcapacity remains rampant, as indicated by a 5.9% annualised fall in the PPI. That’s unchanged since October at least, but represents the 45^th consecutive month of declines.

Too Soon?

The bottom-pickers were indeed poised for action on oil markets last night. When weekly US crude inventory data showed an unexpected drop in stocks, WTI shot up to US$39/bbl. Given the US oil and stock markets are currently attached at the hip, the Dow shot up 200 points as a result.

But then reality interfered.

Corresponding heating oil inventory data showed an unexpected rise, even as the US heads into winter. And while crude inventory levels may have fallen in one week, there’s no getting past the fact they are still as high as they have been in 80 years of data. The rapid WTI bounce quickly ran out of steam, reversing to a slight fall in price on the session.

The Dow subsequently closed down 75 points. It was not the day.

Commodities

West Texas crude is down US20c at US$37.37/bbl, while Brent has managed a slight gain of US17c to US$40.38/bbl.

Global divergence was apparent in a 1.1% fall for the US dollar index to 97.35 as the euro rallied. Weak oil prices are bad for the US market, but good for a European market that imports all its energy. The irony is that it is the US about to raise interest rates, while eurozone has just cut. But the fall in the greenback provided little support for commodity prices.

Base metal prices were all slightly higher last night, other than nickel which was flat, but no metal managed a 1% gain.

If we’re on the lookout for bottoms, there no sign of such yet in iron ore. It’s down another US50c at US$38.30/t.

Gold has managed to gain US$3.00 to US$1076.80/oz, while the Aussie is up 0.3% to US$0.7229.

Today

The SPI Overnight closed down 23 points or 0.5%.

Australia’s November jobs numbers are out today. Always good for a giggle.

Market darling CSL ((CSL)) will hold its annual R&D day today.

Rudi will make his final TV appearance for 2015 today at noon, on Sky Business' Lunch Money.
 

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