The Overnight Report: Top Of The Range

This story features BANK OF QUEENSLAND LIMITED. For more info SHARE ANALYSIS: BOQ

By Greg Peel

The Dow closed up 122 points or 0.7% while the S&P rose 0.8% as the Nasdaq gained 0.9%.

Energized

Yesterday on Bridge Street was all about investors piling back into beaten-down energy stocks, following 5% gains in oil prices overnight on news OPEC may be prepared to discuss the global oil situation with the US. While materials is another sector in which investors are looking for bargains (it rose 1.6% yesterday) and utilities continue to experience bizarre volatility (up 1.2%), yesterday’s gain for the ASX200 was all about a 6.7% rally for energy.

Nothing else moved much, and for some reason those buying energy stocks decided to wait until around 11am to begin doing so. Perhaps they were still strapping on their boots. The index fell sharply from the open to be down 30 points at 11am probably on profit-taking on this latest rebound and due to the buyers not yet being ready.

Thus realistically the big oil stock buying spree was worth 60 ASX200 points.

Yesterday’s economic news reinforced the notion the Australian economy is currently dealing with a double-edged sword. Australia’s September construction PMI actually fell back to 51.9 from 53.8 in August but in not falling back into contraction (<50), the PMI posted its first back-to-back expansion in twelve months.

It’s all about residential construction, the sub-PMI for which increased by 2.4 points to 56.8, and residential construction is all about apartments, the sub-sub-PMI for which increased by 4.5 points to a breakneck 64.9. The sub-PMI for non-residential construction slid 6.5 points into contraction at 48.1.

The housing boom continues – that’s great news for Australia’s non-mining economy. But it’s also about the only thing driving Australia’s economy at present, as we await the slow moving beneficial impact of the lower Aussie. And how long can it last?

Australian new home sales jumped 2.3% in August, according to HIA. For months the trend of increasing sales has been driven by apartments, with sales of houses lagging behind. But in August, house sales rose 3.5% to offset a decline in apartment sales of 1.7%.

Last week the ABS reported building approvals were down 6.9% in August, and that approvals for apartment blocks were down 8.5% from their peak in May. The apartment boom, it would appear, has experienced a blow-off top.

How will this impact on Australia’s non-mining economy going forward? At least detached house sales are picking up, and houses require more building materials per dwelling than apartments.

Oil Dominates

It was another rollercoaster ride on US stocks markets last night and that mostly came down to a bit of a rollercoaster for oil prices. Following on from Tuesday night’s gains, West Texas crude rallied again for the open last night to almost reach the US$50/bbl mark, but then the sellers moved in.

The issue was the weekly US production and inventory numbers published by the Energy Information Administration. They showed an increase in both last week, and indicated that US production is currently in a rising trend yet again, not a falling trend as higher oil prices would suggest and as everyone might expect.

As oil prices fell back again last night, the Dow turned a 170 point opening rally into unchanged on the session. But as oil prices stabilised, investors turned their attention to other sectors. There were some big moves up in metal prices last night, so materials sector stocks were bought. Big healthcare names have been sold down recently along with the biotechs, on price regulation threats and the implications of the TPP trade agreement, so bargain hunters moved in there. And talk of big M&A moves afoot in the beer market attracted some attention.

The other point to note is that at the peak of Wall Street’s opening rally last night, the S&P500 hit 1999. It was only last Friday night that the S&P hit 1900 on an opening jobs-related plunge, before this latest Fed-related Wall Street surge began. Traders had always assumed 2000 in the S&P would provide a short-term cap, and so it proved to be. But on the afternoon rally back again, the S&P made it back up to 1995.

So traders may now be eying a breach of that level.

Commodities

Activity on the LME has been fairly quiet this week with China on holiday, but China has missed quite a lot in its absence. In particular, that the Fed won’t be raising anytime soon, and hence that the US dollar is not about to surge further and weigh on commodity prices, and that global stock markets have rallied strongly ever since.

So last night base metal traders decided it was not a good idea to be short ahead of China’s return today. Subsequently, aluminium and tin rose over 1%, nickel and zinc rose over 2% and lead rose 3% last night. Copper had already been stronger over the week, and managed only a 0.4% gain.

The US dollar did not have any impact. It is up 0.1% at 95.54.

For the third day running, iron ore is stuck on US$54.00/t, awaiting the return of the Chinese.

As noted, the oils had an up and down session last night. West Texas is down US54c to US$48.15/bbl having flirted with 50 and Brent is down US33c to US$51.69/bbl.

Gold is a tad lower at US$1146.00/oz.

The short-covering rebound in the Aussie continues, on a combination of no rate rise expected from the Fed soon, as was not previously the case, and no rate cut forthcoming from the RBA, even though no one expected one. The Aussie is up half a cent at US$0.7207.

Today

The SPI Overnight closed up 32 points or 0.6%, suggesting the index is set for another assault on the 5200 resistance level today.

Australia’s September jobs numbers are out today. Will Scott Morrison follow in Joe Hockey’s footsteps and spin the results such that a positive number is all down to Coalition brilliance and a negative number is all down Labor ineptness, or will he say something intelligent?

The minutes of the September Fed meeting are out tonight. These will be pored over for clues of just how close the FOMC was to pulling the trigger last month, but are now rendered somewhat outdated by last week’s shock US jobs report.

Bank of Queensland ((BOQ)) will report FY15 earnings today.

Rudi will appear on Sky Business at noon (Lunch Money) and later again on Switzer TV, between 7-8pm.
 

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