The Overnight Report: One Way Street

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By Greg Peel

The Dow closed up 142 points or 0.7% while the S&P rose 0.5% to 2328 and the Nasdaq gained 0.5%.

Material

The ASX officially broke to the upside yesterday according to chartists, clearing a path to 5800 and beyond. While last Friday’s trade was featured evenly spread index buying, yesterday was all about commodities.

Just when it looked like resource sector stocks may have had their run, and were threatening to roll over, China’s January trade data have reignited the mining space. The iron ore price rose US$3.80 on Friday and another US$4.80 yesterday to take it to US$91.80/t. How many in the market six months ago foresaw the possibility of a return to triple digits?

Exactly. And just how distorted were this year’s Chinese numbers for January with New Year falling early? Fortescue Metals ((FMG)) was the biggest winner on the day yesterday in rising 6.2% while Rio Tinto ((RIO)) snuck in at number ten with 3.6%. The two major nickel miners were in the mix as well, with Philippine mine closures providing an extra supply-side boost in the space, along with the copper miners’ strike.

The materials sector stood out with a 2.2% rally yesterday followed by energy on 1.4%. Oil prices fell overnight and gold has dipped so there will be some push-pull today, against iron ore in the nineties.

The banks were mildly stronger yesterday but in a diverse mix, the cyclical resource sectors were joined by telcos (1.2%) and consumer staples (0.9%) in the winners’ circle. Once again all sectors finished in the green, although not as consistently as Friday. Info tech stood still.

Not apparently acting as a drag on the local market yesterday was Japan’s December quarter GDP result. It came in at 0.2% growth, missing 0.3% expectations, but more worryingly the 0.2% followed 0.3% in September, 0.4% in June and 0.6% in March. Not exactly moving in the right direction.

Onward Ever Upward

Nothing new occurred in the US last night to suggest a reason why the Dow should cross 20,400 to set yet another new record, alongside new records for the S&P and Nasdaq, other than the continuation of the current theme. Apple was in the spotlight as well, hitting a new all-time high and driving all three indices.

The banks and industrials again led the charge last night, being major beneficiaries of Trump’s deregulation and infrastructure policies (yet to be determined). US rates are on the rise again, inflation is quietly on the rise, and there is now talk of a March Fed rate hike.

As there was in 2016.

And 2015.

Janet Yellen will front a House Committee tonight so we may or may not learn more.

Otherwise, views on Wall Street are split between “this will just keep going up” and “these PEs are becoming a joke”. But traders sitting waiting for a pullback they assume must come are becoming increasingly frustrated. It would make perfect market sense for the Dow to pull back to the 20,000 level which provided resistance for a while in the early new year. But so far there’s no sign.

If there’s any sign, it’s that a FOMO* trade is now in play.

It was the Canadian prime minister’s turn last night to be Trump’s best chum, despite clear differences on climate change and immigration policies. Suffice to say, even Trump can see there is no closer friendship and trading partnership than with those to the north. It seems that every day Trump doesn’t end up in a barney with a world leader, Wall Street rises. We recall that the day the news broke about the terse phone conversation with our Malcolm, Wall Street fell.

Wall Street is least encouraged by the fact the earnings season, now slowly winding down, has confirmed that the US “earnings recession”, most evident a year ago, has now ended. But while it’s good to see the E in PE heading in the right direction, it is still the runaway P that has many nervous.

The policies are going to be “phenomenal”. So far, we can only take the Donald’s word.

Commodities

Iron ore, as noted, rose US$4.80 or 5.5% to US$91.80/t. Rarefied air.

After rising solidly on Friday night, base metals kicked on again last night but posted gains of only 0.5% or less. Zinc was flat.

The US dollar index rose 0.2% to 100.95 but is still not back at its post-Trump high. Gold is down -US$6.80 to US$1226.20/oz.

Conflicting reports hit the oil market last night, one confirming OPEC members are indeed sticking to production cuts and another indicating US shale production is expected to surge in March. Shale won. West Texas is down -US88c at US$52.90/bbl.

The Aussie is down -0.4% at US$0.7646.

Today

The SPI Overnight closed up 15 points or 0.3%.

China will release inflation numbers today.

The eurozone will report its GDP result tonight, while Janet Yellen will testify before a House Committee.

Locally, NAB will release its monthly business confidence survey.

Today’s reporting calendar highlights include Challenger ((CGF)), Cochlear ((COH)) and Treasury Wine Estates ((TWE)).

*Fear of missing out.

Rudi will link-up with Sky Business today through Skype to discuss broker calls at around 11.15am.

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