The Monday Report

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

By Greg Peel

Poised

Trading opened on the local market on Friday night to the weak side, following Wall Street’s lead. Concern that the US tax bill had hit a roadblock prompted an easing in US markets.

On Friday night that roadblock was been removed, making Friday’s action on the ASX largely redundant. The futures closed up 29 points on Saturday morning suggesting maybe, this time, we might escape the gravitational pull of 6000.

Friday was spent banging around this level, up and down, all day.

The banks were weaker on Friday, down -0.6%, following Wall Street’s lead. Industrials rose 0.9%, with large cap Transurban ((TCL)) gaining 4.8% in what appears on offset to Macquarie Atlas Roads’ ((MQA)) -3.8% fall following Macquarie Group’s ((MQG)) announced exit.

Train crash of the day was the outdoor ad-focused HT&E, which fell -7.0%.

Sector moves largely netted out on the day for a small loss.

This is the week the Australian stock market typically winds down. Christmas parties and lunches draw away market attention and broking houses begin to shut up shop. With school holidays now underway, trading floors are already thinning.

It could thus be a tumultuous week. If the US tax bill does get up, the jury is still out on just what Wall Street’s response might be – buy it yet again or sell the fact. Thursday is derivatives expiry day locally and you can bet your bottom dollar there’s a lot of positions at the 6000 level, which would help to explain why so far, we’ve been unable to break away. It could be wild on the day.

It could be a wild week.

All Clear

On Thursday night Florida Senator Marco Rubio said he would not vote for the US tax bill as is unless the child tax credit was expanded.  Wall Street eased back as a result, as the chances of a successful passage of a tax bill before Christmas appeared to diminish.

On Friday night, Rubio got his wish. The child tax credit has been expanded and it appears there are no other Senators opposed to the bill. A vote can now be forthcoming, perhaps as early as Tuesday night, and if passed in the Senate, it will then go back to the House.

As far as Wall Street was concerned on Friday night, it was the green light. The Dow closed up 143 points or 0.6% and the S&P gained 0.9% to 2375 as the Nasdaq jumped 1.2%. It was another round of new records for all three major indices, and another positive week for all.

Strength in the Nasdaq was against the grain as to date, each step forward towards a tax bill has usually resulted in the Nasdaq funding buying in the other indices – in other words, traders selling Big Tech, that has run very hard and is not a beneficiary of tax cuts, to buy the banks and industrials, which are greater beneficiaries. But Friday night was different. Exuberance is building.

Of no surprise was a 2.6% gain for the Russell small cap index, as high tax-paying, domestically-focused small caps will be the greatest beneficiaries of all.

There was another positive piece of US economic data on Friday night to provide extra sugar, with industrial production booking its third straight monthly gain with a 0.2% increase in November.

But really it was all just about tax. It’s been mostly about tax all year – sure, US earnings have been positive, regulatory wind-backs have been touted as underappreciated and the US economy has been showing strong signs, but Wall Street continues to jump every time a tax bill seems one step closer.

For how long?

Commodities

LME traders suggested Friday night saw a round of short-covering in base metal positions, prompted by a strong Chinese industrial production number, a strong US equivalent, US tax anticipation and, presumably, a desire to square positions ahead of the weekend and the last trading week before Christmas.

Aluminium and zinc rose 0.5%, copper and lead 1.5% and nickel 3.5%.

Iron ore rose US60c to US$70.70/t.

The US dollar index jumped 0.5% on the tax news to 93.94 but gold managed to hold its ground, steady at US$1255.60/oz. Are gold punters hanging on for the bitcoin bubble to burst?

A quiet night in oil markets saw West Texas crude up US27c to US$57.33/bbl as Brent slipped a little.

The Aussie is off -0.3% at US$0.7653.

The SPI Overnight closed up 29 points or 0.5%.

The Week Ahead

Tax will be the focus but data-wise, the US will see housing sentiment tonight, housing starts tomorrow, existing home sales on Wednesday and house prices, leading indicators and the Chicago Fed national activity index on Thursday, along with a “final” revision of third quarter GDP, which is forecast to remain unchanged at 3.3%.

Friday it’s durable goods orders, personal income & spending, new home sales and consumer sentiment.

The Bank of Japan holds a policy meeting on Thursday.

New Zealand releases its September quarter GDP result on Thursday.

Locally, the Treasurer will deliver the MYEFO budget update today while tomorrow brings the minutes of the December RBA meeting and a December quarter summary of Westpac’s consumer confidence gauge.

Thursday brings the December quarter expiry of all of the futures and futures options, index options and stock options. Call it quadruple witching downunder.

ANZ Bank ((ANZ)) holds its AGM tomorrow while DuluxGroup ((DLX)) and Incitec Pivot ((IPL)) follow suit on Thursday.

World
DJIA	24651.74	+ 143.08	0.58%
S&P500	2675.81	+ 23.80	0.90%
Nasdaq Comp	6936.58	+ 80.06	1.17%
S&P500 VIX	9.42	– 1.07	– 10.20%
US 10-year yield	2.36	+ 0.01	0.38%
USD Index	93.94	+ 0.43	0.46%
FTSE100	7490.57	+ 42.45	0.57%
DAX30	13103.56	+ 35.48	0.27%

Spot Metals,Minerals & Energy Future
Gold (oz)	1255.60	+ 1.20	0.10%
Silver (oz)	16.05	+ 0.15	0.94%
Copper (lb)	3.10	+ 0.04	1.39%
Aluminium (lb)	0.93	+ 0.01	0.78%
Lead (lb)	1.15	+ 0.02	1.67%
Nickel (lb)	5.23	+ 0.18	3.58%
Zinc (lb)	1.45	+ 0.01	0.53%
West Texas Crude (Dec)	57.33	+ 0.27	0.47%

Rudi will appear on Sky Business on Wednesday at 5.30pm and on Thursday at noon and again between 7-8pm for the Switzer Report.

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