The Overnight Report: Armistice

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By Greg Peel

The Dow closed down 55 points or 0.3% while the S&P fell 0.3% to 2075 and the Nasdaq lost 0.2%.

Confident

The local market opened yesterday on news Australian consumers are feeling rather confident. Westpac’s consumer confidence index for November showed a 3.9% lift to 101.7, the highest level since May.

Within the components of the index, the biggest rise came from expected economic conditions in the next five years. Is this the so-called Turnbull Factor at play? The weakest result was in family finances compared to a year ago, but this is likely the impact of the banks’ out-of-cycle mortgage rate increases.

Whatever the case, retailers will be relieved to know confidence is on the optimistic side of the ledger as we head into Christmas. The most relevant sector here is consumer discretionary, which we recall on Tuesday fell heavily following the apparent tip-over of housing finance growth numbers. Consumer discretionary was up 0.6% on the session but this was not a stand-out result, merely in line with the overall index movement.

It was a very choppy session on Bridge Street yesterday, highlighting indecision amongst investors as we head towards the summer break. Twice the index rallied before turning tail and threatening to go negative, until finally the buyers won on the day. The BHP factor still hangs over the materials sector, which was down 1%, but otherwise all other sectors posted roughly similar gains.

It should have been a session in which China’s monthly data dump played a part, but for some reason Beijing decided it would release those numbers not at midday, our time, as has always been the case, but at 4.30pm, after Bridge Street’s closing bell.

Tentative Signs

China’s October industrial production showed 5.6% year on year growth, down from 5.7% in September and missing expectations of 5.8%. Fixed asset investment rose 10.2% year to date, in line with September but below 10.3% forecasts.

That was the bad news, before a backdrop of Beijing’s stimulus measures to date.

The good news was 11.0% growth in retail sales, up from 10.9% in September and marking the fastest pace of growth since December 2014. It is no secret China’s industrial sector is still struggling from overcapacity that Beijing seems reluctant to address, but given Beijing’s goal of swinging the Chinese economy around into one of consumption, this retail sales number seems a positive step down that path.

Further evidence of the rise of the Chinese consumer was provided yesterday by much talked about “Singles Day” – a reference to the date, 11/11. Singles Day is an online shopping spree along the lines of Cyber Monday in the US when online retailers offer discounts on their products and shoppers go nuts. It was introduced by Alibaba, China’s eBay, in 2009, and the closest thing we can compare it to in Australia is the bricks & mortar Boxing Day frenzy.

Singles Day turned over US$14bn yesterday, up from US$9bn last year.

Thin

By contrast, US department store icon Macy’s posted its quarterly earnings result last night and missed on the revenue line, resulting in a 14% share price shellacking. The company blamed the strong US dollar for lower sales to tourists and an unseasonably warm autumn crimping winter-wear sales, but failed to acknowledge the slow demise of the bricks & mortar department store globally.

There is little likelihood the digital age will usher in the death of beer, so the positive news on the night was an agreement between Anheuser-Busch InBev and SABMiller, two of the world’s biggest brewers, to merge, no doubt pending approval from relevant competition regulators.

These were about the only talking points last night in a session where US banks and the bond market were closed for Veterans Day and stock and commodity market attendance became optional. There were no data releases to speak of, volumes were thin, and without any particular incentive at present, the indices drifted lower. Mostly on lack of interest.

Commodities

Oil markets are “surprised” every week by weekly US inventory data, and I think John D. Rockefeller was the last person to actually make a correct forecast. But last night two separate surveys had the oil markets expecting a 500,000 barrel increase in US crude supplies or a 1.1m barrel increase, so when the number came in at 6.3m barrels the only way for oil prices to go was down.

West Texas is down US$1.15 or 2.6% at US$43.08/bbl and Brent is down US$1.59 or 3.4% at US$45.92/bbl.

The oils fell despite some respite from the US dollar, which has pulled back 0.3% to 98.95 on its index.

The weaker dollar was welcomed on the LME, which was otherwise disappointed in the weak Chinese industrial production and fixed asset investment numbers. The market remains very short, so gains were actually seen in all bar lead, while zinc recovered a percent having fallen two percent the night before.

Iron ore is again unchanged at US$47.70/t.

A combination of the strong local consumer confidence numbers and a weaker greenback has the Aussie up 0.5% at US$0.7060.

Today

The SPI Overnight closed down 17 points or 0.3%.

The local October job numbers are out today, providing the first opportunity for new treasurer Scott Morrison to test out his spin credentials.

Amidst another flurry of AGMs, Graincorp ((GNC)) will release its full year result.

Rudi will make his weekly appearance on Sky Business, Lunch Money, noon-1pm.

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