The Overnight Report: Consolidation And Corruption

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By Greg Peel

The Dow closed up 9 points while the S&P gained 0.1% to 2591 and the Nasdaq rose 0.3%.

Bank Blues

Westpac ((WBC)) became the latest bank to announce a disappointing full year earnings result yesterday, falling -2.3% from the open and basically staying there all day. The bank sector closed down -0.6% and ensured what had started as a small gain for the ASX200 became a small loss by day’s end.

There was little in the way of market-wide action on the local bourse yesterday, rather sector and stock-specific moves. Materials was the other big loser with a -0.6% fall on lower metals prices.

That’s all set to change today.

Energy chimed in with a 0.7% gain as the oil price continued to climb. That’s all set not to change today.

With the currency now falling once more, investors can’t get enough of CSL ((CSL)), providing for a 1.3% gain for healthcare. AGL Energy’s ((AGL)) announced sale of its metering business helped utilities up 1.3%.

Orica ((ORI)) blew up, falling -10% on its earnings result miss, while the real train crash of the day was McGrath Real Estate ((MEA)), whose profit warning was worth -16%. Tighter lending controls, tighter controls on foreign buyers and a cooling housing market. Who knew? McGrath was down -25% early on.

So a lot of shuffling around without much movement in net terms as the index does some work around the 5950 level.

This morning we see iron ore up 5.6%, copper and nickel up over 1%, oil up 3% and gold up over ten dollars. No surprise the futures are up 28 points.

CBA reports tomorrow so we have a hiatus in bank reports but Macquarie goes ex so the banks will still look weak, all things being equal. The RBA statement is due this afternoon and then the rest of the session will be written off.

Merger Mania

Hot on the heels of yesterday’s announced Broadcom/Qualcomm takeover attempt came news last night that Disney has been in talks with Twenty-First Century Fox regarding buying most of Fox’s assets other than News and Sports. It’s all anyone could talk about late in last night’s session.

I noted yesterday that typically a takeover announcement leads to a jump in the share price of the acquiree and a fall in the share price of the acquirer, but Broadcom shares rallied on Friday night and last night Fox’s 9% gain was met with a 2% gain for Disney – worth around 15 Dow points. Again, Wall Street likes the idea.

The whole point is for the Hollywood dinosaurs to be able to compete with Netflix, having done nothing for years, and having passed up an opportunity to buy the New World cheaply in the early stages. Rupert was probably still having nightmares about MySpace.

Rupert has also been trying to buy the 61% of Sky he doesn’t own but that deal has been bogged down in UK regulator scrutiny, and as for what it all might mean for Foxtel is unknown at this point. Presumably it is not included.

The other big news impacting on Wall Street last night was the weekend’s purge of allegedly corrupt Saudi princes, ministers and businessmen by the new Crown Prince, with many arrests being made. What will it all mean for the Saudi oil industry and relations with Iran? Oil is up 3% and gold is up ten dollars.

Beyond those news stories it was a simple case of Wall Street grinding incrementally higher, again, last night.

Commodities

What the Saudi corruption crackdown actually means to the oil market is anyone’s guess. What we do know is the new prince remains committed to curtailing supply, and listing part of Aramco, and consolidating power in the kingdom. With OPEC-Russia production cuts likely to continue, and the US rig count continuing to fall, oil is on a tear.

West Texas crude is up US$1.72 or 3.1% to US$57.38/bbl.

The potential for the crackdown to fuel instability in the Arab-Persian world sees gold up US$10.70 to US$1280.60/oz.

In unrelated news, iron ore jumped US$3.30 or 5.6% to US$62.70/t, again suggesting it does not like being in the fifties.

Aluminium fell -1% in London but copper rose 1%, nickel 1.5% and lead 2%.

The US dollar provided some support, falling -0.2% to 94.77.

When commodity prices jump so too does the Aussie. It’s up 0.6% at US$0.7690, wiping out a lot of Friday’s retail sales-related tumble.

Today

The SPI Overnight closed up 28 points or 0.4%.

Trading should be a little thinner than usual today with all of Victoria frocked up and fascinated and traders will be looking to square up after the RBA meeting this afternoon.

There’ll be no change from the RBA but thoughts on inflation and a weak consumer segment will be closely scrutinised.

Fletcher Building ((FBU)) will host an investor day today.

Macquarie Group ((MQG)) goes ex.

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The Australian share market over the past thirty days…

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