The Overnight Report: Overbought?

This story features TRANSURBAN GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TCL

By Greg Peel

The Dow closed up 37 points or 0.2% while the S&P was flat at 2291 and the Nasdaq rose 0.1%.

Note: This report has been updated due to a previous error in which I had foolishly assumed Transurban resided in the ASX utilities sector. It's in industrials. As far as GICS is concerned, it's in transports. When FNArena launches its new website next week, TCL will reside in our own, more extensive sector/sub-sector system in Industrials: infrastructure & utilities. It is not FNArena's intention to usurp the ASX, just to add more logic and greater diversification for the benefit of subscribers.

Industrial Strength

Yesterday’s trade on the local market was a mirror image of Monday. Monday saw the ASX200 shoot up on the opening rotation before drifting off all day on lack of any buying follow through. Yesterday saw the index plunge on the opening rotation before spending all day being bought back to just past square.

Interestingly, the Dow was up 186 points on Friday night and down -19 on Monday night, so we can dismiss Wall Street as being any primary driver of the turnaround.

Industrials rose 2.1% yesterday, thanks to a strong result and dividend that increase saw Transurban ((TCL)) in the winners’ circle, posting a 6% rally. Buyers of the toll road operator apparently sold out of Telstra ((TLS)) to do so, as telcos fell -1.4%.

A disappointing update from Macquarie Group ((MQG)) had that stock down -1.4% to help the financials sector down -0.6%. Macquarie may not count as a “Big Bank” but it’s still an ASX20 member. On the other hand, materials rose 0.9% driven by the gold miners. Moves in other sectors were less influential.

The RBA shocked no one in the afternoon when it left rates on hold. Philip Lowe’s statement was relatively upbeat, giving a nod to commodity price increases and for once not mentioning the “complication” of the strong Aussie. Inflation is low but the economy’s okay, employment looks alright and the housing market is not too much of a worry. All good.

It’s so nice to read any document these days that does not contain the word “Trump”.

In China, Caixin’s independent China service sector PMI dipped to 53.1 in January from 53.4. Nothing to write home about there.

Dizzy Heights

The Dow opened up over a hundred points last night before spending the rest of the session drifting off. Prompting concerns was news the US trade deficit blew out in December to its widest level in four years.

The stronger greenback has been blamed for the increase. That’s not just a result of Trump – we recall the US dollar spent 2016 rising on Fed rate hike expectations. But Trump can certainly jump on the numbers to support his protectionist agenda. The deficit with China is by far the biggest amongst the major US trading partners. The deficit with Mexico hit a five-year high. Stand back, here comes another tweet.

Mind you, the last time the US ran a trade surplus, Gerald Ford was president.

The US dollar index jumped 0.4% last night to reclaim the ton at 100.28. Dollar strength reflects to some extent euro weakness, given Mario Draghi suggested on Monday there’s no sign of it being time to wind back QE, but last night a Fedhead came out to suggest a March rate hike was on the table, just to throw fuel on the fire.

The other issue last night was a near 2% drop in the oil price. Selling was triggered, traders suggest, by the publication of data showing long positions in oil futures had hit their highest level on record. When everyone is long and prices fail to rise – WTI has been in a consolidation phase basically all year – it’s not hard to guess what might happen next. And the stronger greenback provided some impetus.

But in support of such bullishness, a survey published last night suggests the ten OPEC members achieved 91% of their targeted production cuts in January. And there we were all laughing that OPEC has never stuck to a production quota in its existence. Well, early days…

On the open last night, both the Dow and Nasdaq hit new record intra-day highs. The argument currently on Wall Street is as to whether the market has priced in too much Trump exuberance, opening up a valuation gap to reality.

Those on the cautious side say the market is too keenly pricing in something that hasn’t happened yet and may take some time, such as tax reform, while those on the bullish side point to Wall Street’s healthy consolidation at current levels as it awaits policy reality. There has been no post-honeymoon pullback to speak of.

Commodities

West Texas crude is down -US93c at US$52.17/bbl.

The stronger dollar weighed on base metal prices, but none were down more than -1% in London.

Iron ore rose US$2.00 to US$82.20/t.

Gold held its ground, relatively steady at US$1233.30/oz.

There’s been a few ups and downs for the Aussie of late, but it, too, is not really going anywhere much at the moment. It’s down -0.3% at US$0.7633, mirroring the greenback jump.

Today

The SPI Overnight closed up 3 points.

There are no data releases of any note locally or across the globe today, leaving the market to focus more keenly on earnings results from Carsales.com ((CAR)) and Cimic ((CIM)) among today’s reporters, along with the biggie, Rio Tinto ((RIO)).

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

Click to view our Glossary of Financial Terms