The Overnight Report: Waiting For Jobs

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By Greg Peel

The Dow closed down 4 points while the S&P lost 0.1% to 2099 and the Nasdaq lost 0.3%.

Banked

Commonwealth Bank released its quarterly earnings report yesterday just as RBA governor prepared to warn bank shareholders at that upcoming global banking regulation is a “juggernaut” that is still growing in strength, threatening to undermine future bank returns. If the market thought this recent round of big bank capital raisings is the end of it, it is possibly in for disappointment.

Critical to bank capital requirements is the potential loss of the capacity to internally model loan book risk and set appropriate capital weightings, which seem set to be determined by international regulations. Locally, clarity is being sought on the Financial Systems Inquiry’s vague suggestion that the banks should be “unquestionably strong”.

It was not a good day for the banking sector yesterday, down 1.3%, albeit NAB went ex. The consumer sectors also fell over 1%, likely on a kick-on from Wednesday’s uninspiring retail sales numbers and a shrugging off by Glenn Stevens in his Melbourne speech of any need for the RBA to counter bank mortgage repricing with rate cuts. Meanwhile, the materials sector  (down 1.0%) is beginning to fear iron ore is not going to rise above US$50/t again.

Yesterday’s sharp sell-off for the ASX200 began from the bell and accelerated as the index again passed back through the 5200 support level, before a bit of late buying righted the ship just a little. The index still closed under support at 5193, suggesting “support” is rapidly becoming the wrong word to use. Wednesday’s failed rally was enough to keep buyers in their boxes for the most part.

Booked

In contrast to the RBA’s reluctance to cut rates at this stage, across the ocean the story is a different one with the Fed still trying to prepare the market, it would appear, for a December hike. Critical to that decision will be two months of jobs reports prior to the December FOMC meeting, and tonight sees the October numbers.

Wall Street thus all but shut down last night, having rallied back to near previous highs following the China scare of August to once again be poised where it had been when the year began, waiting for direction from the central bank.

With little else going on, last night’s centre of attention was Facebook, which rallied 5% after posting an earnings beat in Wednesday night’s after-market. This took the stock into illustrious company at a market cap of over US$300bn – bigger than General Electric.

CNBC had some interesting stats this morning: In 1995, the three biggest US companies were General Electric, AT&T and ExxonMobil. In 2015 its Apple, then daylight, then more daylight, then Google and Microsoft. Exxon comes in fourth. Facebook’s not far behind.

New world.

Commodities

On Wednesday night the talking point on Wall Street was confirmation by both Fed chair Janet Yellen and New York Fed president William Dudley that a rate rise in December is a “live possibility”. The US dollar subsequently rallied strongly, but most of the action occurred after the LME session had ended. Hence it was last night when metal traders were able to fully respond.

Copper fell 2.3%. Tin also fell over 2% while lead, nickel and zinc fell over 1% and aluminium managed to hold firm.

The US dollar has since held steady at 97.94.

Iron ore fell another US60c to US$47.70/t. How long before we begin seeing consolidation in the iron ore market, a la energy?

Oil prices also continued to slide last night. West Texas fell US$1.26 to US$45.23/bbl and Brent fell US79c to US$47.97/bbl.

Gold is also lower, down $3.20 to US$1104.70/oz.

It appears commodity markets are locking in a December Fed rate hike.

The Aussie is slightly lower at US$0.7142.

Today

The SPI Overnight closed down 11 points or 0.2%.

Now that we’re back below the 5200 mark and looking shaky, 5000 looms once again as support at the bottom of the previous range.

The RBA will release its December quarter Statement on Monetary Policy today, which will be one of the more closely read statements for a while.

Australia’s October construction PMI is out today.

China will release trade data on Sunday but before that, it’s the US jobs report tonight.

More AGMs today, REA Group ((REA)) will provide a quarterly update and ANZ Bank ((ANZ)) goes ex.
 

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