The Overnight Report: Where To Next?

This story features AURIZON HOLDINGS LIMITED. For more info SHARE ANALYSIS: AZJ

By Greg Peel

The Dow closed up 13 points or 0.1% while the S&P lost 0.4% to 1979 as the Nasdaq fell 0.7%.

Hitting the Roof

It was of no surprise that the ASX200 was once again off to the races yesterday morning, on the back of a 300 point rally in the Dow. From the opening bell the index pierced through the top of the recent range to hit 5214, before falling back to what is now a resistance level at 5200. The troops reassembled and another raid took us to 5220 at 11am.

And that was it for the session. Stocks drifted back again, another less convincing attempt to penetrate was made at midday, but when the third attempt failed it became clear to day-traders it wasn’t going to be the day. Profits were duly taken and by the closing bell a 70 point rally had become a 16 point topping on Monday’s 100 point rally.

Typically, it takes more than one session to break a stiff resistance level.

There was also the economy to think about yesterday, but fundamentals are not the major driver at present. Australia’s August trade data showed a bigger than expected blow-out in the deficit, but was really no surprise given weak commodity prices. Export volumes are still strong – indeed, iron ore exports hit a record in August, believe it or not – but prices remain the issue.

The lower Aussie dollar is quietly working to offset weaker prices, and is also starting to make an impact in tourism, which is an export, as has been anticipated.

The other local economic event yesterday was the RBA meeting. Yet again no one expected the central bank to cut its cash rate and yet again the forex market acted as if completely dumfounded by the decision not to. The Aussie jumped around half a cent on the news, and is higher still this morning, up 1.2% over 24 hours at US$0.7169, given an overnight fall in the greenback.

One needed a microscope to find any difference in Glenn Stevens’ statement yesterday from the previous statement. The only difference is that in September, Sydney house prices were a worry and “The Bank is working with other regulators to assess and contain risks that may arise from the housing market”. In October, both Sydney and Melbourne house prices are a worry but “Regulatory measures are helping to contain risks that may arise from the housing market”.

Otherwise, the RBA remains on data-watch.

A lack of rate cut made little difference to the afternoon performance of the stock market yesterday. Having failed to break 5200, the index was always going to retreat to regroup.

Breather

The other news that continues to resonate downunder is of course the Trans-Pacific Partnership trade agreement. And last night it was resonating for another signatory.

As has been well documented, pharma had proved a potential stumbling block for the entire agreement before the Americans relented on the time limit before generic versions of new drugs could be sold. They wanted eight years, we (and partners) wanted five, and we won.

Subsequently, US biotech stocks took another tumble last night on Wall Street. Indeed, the moving averages on the biotech index completed a frightening Death Cross and there was much wailing and gnashing of teeth.

We might recall that last week, all the major US indices posted Death Crosses, the sky was expected to fall in, and then the Dow rallied 750 points in two sessions. If those who believe in Death Crosses were to learn that Santa rallies are not caused by an actual Santa Claus, they’d be shattered.

So hush.

The end result was nevertheless a 0.7% fall for the Nasdaq. The Dow managed a 0.1% gain thanks to DuPont shares jumping 8% on the news the longstanding CEO is to retire. Thanks for coming. The S&P split the difference. Otherwise, a blow-out in the US August trade deficit highlighted the ongoing impact of a stronger dollar on US exports.

But when said and done, last night on Wall Street was really only a breather after solid rallies post the end, for now, of Fed rate rise speculation. The question now is: where to next? No doubt US earnings season, which begins at the end of this week, will have a say in the matter.

Commodities

Today is the last day of the Chinese Golden Week holiday, and last night trading on the LME was deathly quiet. Tin managed a 1% gain, but all other metal price moves were negligible.

Iron ore was again unchanged at US$54.00/t.

It was left to oil markets to provide some action.

The big news on oil markets is that OPEC looks like it might finally be about to buckle. Speaking in London overnight, the OPEC chief suggested oil prices are set to rebound due to steep reductions in oil investment globally. This in itself is not new news, but Mr el-Badri also suggested he is open to discussing the current oil market turmoil with the US.

Amidst the tantalising possibility of oil market peace talks, last night also saw the US Energy Information Agency report a 120,000bpd cut in US production in September from August and forecast a continuation of production reduction all the way through to next August.

Subsequently, West Texas crude is US$2.35 or 5% higher at US$48.69/bbl and Brent is US$2.64 or 5% higher at US$52.02/bbl.

Oil prices were also supported by a weaker US dollar, which was weaker due to the US trade deficit blow-out, which was caused by a stronger dollar. Funny old world. The greenback nevertheless continues to come under pressure as emerging market currencies continue to recover post the time-out for Fed speculation. The dollar index is down 0.7% at US$95.42.

The weaker dollar helped gold up US$11.80 to US$1147.60/oz.

Today

The SPI Overnight closed up 6 points.

Australia’s construction PMI is out today, along with new home sales numbers. China remains closed for one last day and the Bank of Japan will hold a policy meeting, although no changes are anticipated.

Aurizon ((AZJ)) will hold an investor day today.

Rudi will appear on Sky Business' Market Moves, 5.30-6pm.
 

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