The Overnight Report: Pause And Reflect

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Greg Peel

The Dow closed down -19 points or -0.1% while the S&P lost -0.2% to 2292 and the Nasdaq fell -0.1%.

Fade Away

The ASX200 shot up 38 points from the bell yesterday as the computers took a 0.7% gain on Wall Street as a buy signal, but from that point it was straight-line selling all the way through the session, heading into the red mid-afternoon. Clearly traders did not see Wall Street strength as offering direct translation.

Friday night’s US jobs number was a positive, and what’s positive for the US economy should be positive for the global economy. But Friday night’s rally on Wall Street was driven primarily by the banks, in response to Trump’s move to unwind Dodd-Frank regulation.

Australian bank stocks were at the forefront of the initial local rally yesterday, and often track US bank performance, but clearly the question was asked as to just what impact changes to US domestic bank regulations have on Australia’s domestic banking system, specifically the Big Four?

Exactly. So the banks were sold back down while still managing to be only one of two sectors to finish in the green yesterday. National Bank ((NAB)) posted an okay if not underwhelming quarterly update and the sector put on 0.3%. Materials closed down -0.3% as ongoing selling in the bulk/base metal miners in the wake of the Chinese rate hike was countered to a degree by strength in the gold miners (that has proven a good call overnight).

Telstra ((TLS)) found some support after its major outage disaster of last week and the telco sector closed up 0.8%. Telcos and banks managed alone to counter weakness in every other sector, which just goes to underscore the influence of five large caps in Australia’s distorted market.

One of the bigger losers on the day was consumer discretionary, which lost -0.6% on the back of weak retail sales data. Sales fell -0.1% in December when a 0.3% gain was forecast.

Breaking down the numbers, the weakest segment was household goods, which includes hardware. CBA economists suggest steep discounting in that space as Masters ran out its inventory probably had a lot to with it. Take out household goods and sales rose 0.4%.

Meanwhile, ANZ’s job ads series rebound by 4.0% in January after December’s -2.2% fall, suggesting the labour market remains in a positive trend.

And Pause

The computers on Wall Street decided to sell from the open last night and they, too, got it wrong. Indices were back at the flat line almost immediately and there followed a very quiet session. The Super Bowl had been on the night before, there were no major data releases, and after a big jump on Friday night Wall Street was happy to pause.

While the Dodd-Frank news is positive, there remains concern among investors regarding the very public battle that is now playing out with regard to Trump’s immigration ban order and its subsequent blocking. In scenes akin to Berlin in the forties, immigrants are taking the window of opportunity to rush back to the US before the proverbial wall goes up. Trump clearly does not like that publicity, nor the “fake news” suggesting his ban is unpopular.

Handy thing, this “fake news” call. Counters everything.

Trump was on television ahead of the Super Bowl addressing that which Wall Street is most eager to hear about – tax reform. The upshot is he expects tax reform to be pushed through by year-end, while the process of dismantling Obamacare and replacing it with a new policy will likely drag into 2018.

Which is sort of what Wall Street was expecting, in terms of timing, while still being impatient for some policy hints. The last major overhaul of the US tax system occurred under Reagan, as many a commentator keeps pointing out, and that took three years.

Commodities

The US dollar index has slipped back this past week or so from its earlier Trump-driven strength, on post rally consolidation, but also on strength in other currencies vis a vis what was a fairly subdued US GDP result. As a result, gold has been recovering further ground from its initial Trump-driven plunge.

Throw in a bit of geopolitics as well, regarding Iran, and gold is back in the spotlight. Momentum has been building and despite a 0.1% rise in the dollar index to 99.89, gold is up US$15.30 at US$1243.70/oz.

Nickel was back in business last night as the ramifications of the Philippines government’s closure of many nickel mines flow through. Nickel rose 2%, while copper and lead rose 1%.

On the flipside, perhaps a -US$1.80 fall in iron ore to US$80.20/t is a more considered reaction to Beijing’s rate hike.

West Texas crude is down -US73c at US$53.83/bbl as it continues to ebb and flow and, currently, go nowhere.

The Aussie is -0.3% lower at US$0.7659 with a little help from the weak sales data.

Today

The SPI Overnight closed down -6 points.

The RBA will meet today and keep rates on hold. Of interest will be the governor’s response to the record trade surplus.

Today’s earnings reporters, subject to possible change, include Alacer Gold ((AQG)), Royal Wolf Holdings ((RWH)), Shopping Centres Australasia ((SCP)) and Transurban ((TCL)).

Rudi will get on stage in Perth twice today to present to local chapters of Australian Investors Association (AIA) and Australian Shareholders Association (ASA).
 

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