The Overnight Report: Flying Pigs

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By Greg Peel

The Dow closed up 212 points or 1.3% while the S&P gained 0.8% with the Nasdaq up 0.4%.

Choppy

Alas poor Dick, I knew him well.

The ASX200 headed south again from the open yesterday, with Wednesday’s trashed names coming in for further selling, including the banks. But once the opening rotation was complete, buyers emerged to begin a choppy, bungling ride back towards square by lunchtime.

As the index fell into the low 4800s it’s possible technical buying was in play, and let’s face it – every time we get down this far we eventually end up back at 5000. But when the Shanghai index started sliding in the afternoon, we went with it. Around 2.30pm, someone placed a big buy order and we quickly shot back to a small gain on the session.

The Chinese stock market is a circus best viewed from the bleachers, offering little in the way of correlation to the Chinese economy. While China’s collapsing market was giving everyone a scare in August, by now it’s been largely dismissed as a joke and not something to lose too much sleep over.

The Australian government may nevertheless lose some sleep over yesterday’s December quarter private sector capex numbers.

The good news is capex actually rose 0.8% in the quarter when economists had forecast a decline. There was enough spending outside of mining and manufacturing to overcome ongoing falls in those sectors. The bad news is, capex intentions over 2016-17 dropped by 19.5% from a quarter ago. This implies that “non-mining” will not have sufficient firepower to overcome ongoing spending cuts in mining (and energy), thus providing a negative influence on the GDP.

And the housing construction boom is expected to end, or at least ease, in 2016. This has been the main offset to declining resource sector capex these past couple of years.

But is the bad news good news? Yesterday’s numbers provide more fodder for an RBA rate cut.

When the dust settled on Bridge Street yesterday, the banks had squared up, higher oil sent the energy sector up, and a mixed bag of earnings reports saw industrials up a percent. The big loser on the day was once again consumer staples, as the selling continued in Wesfarmers ((WES)) and impacted on Woolworths ((WOW)).

Woolies reports today.

Seriously?

In Wednesday night’s trade, oil fell from the open in the wake of the Saudi oil minister’s dismissal of any thought of production cuts. It then bounced into positive territory when it was revealed US production might actually be starting to fall.

Last night saw oil fall again from the open, and once again bounce back into positive territory. And while the US stock markets didn’t have much of a chance to follow oil down before it was dutifully following it up, the reason why oil rebounded is a case of back to the same old pie in the sky.

Venezuela has announced plans to meet with Russia, Saudi Arabia and Qatar next month to talk production cuts.

I wonder if the OPEC members have decided to take turns. Each time oil looks like slipping dangerously below US$30/bbl, someone comes out and talks “meeting” and the oil price rebounds, temporarily. Last night must have been Venezuela’s turn. Each time commentators scoff and suggest it’s all just brinkmanship, or at the very least a bet to nothing. But each time the oil price has a Pavlovian rebound. As does Wall Street.

Traders are just too worried that this time, maybe it might actually be true. Better to be safe than sorry. Particularly if you’re short oil.

Last night’s major US data release was January new durable goods orders, which posted their biggest gain in ten months. But take out lumpy aircraft and auto orders, and the gain was much more modest. Zero in on core capital goods – the component considered the true indicator of business investment – and orders are down 3% year on year.

Nothing there to ensure a Fed rate hike in March.

Commodities

West Texas crude is up US88c at US$33.06/bbl and Brent is up US74c at US$35.20/bbl.

Is iron ore’s little run now over? Iron ore fell US$1.00 to US$49.20/t.

Base metal prices continue to chop around and traders admit there’s no real direction evident at this point. Daily movements have been volatile but metal prices have basically been stuck in clear ranges. Last night aluminium, copper and lead all fell around a percent while nickel and zinc fell close to 3%.

The US dollar index is 0.2% lower at 97.30 and gold is US$6.80 higher at US$1235.80/oz.

The Aussie is 0.4% higher at US$0.7238.

Today

The SPI Overnight closed up 32 points or 0.7% — about the same as it did yesterday. Yesterday the ASX200 fell 30 points from the open.

US personal income and spending data will be closely watched in the US tonight as these included the Fed’s preferred measure of inflation, the PCE. The US December quarter GDP result will be revised once more.

On the local stock front, it is with unimaginable pleasure I can announce that effectively, today is the last day of the results season. There are a few reports to come on Monday, being the last day of the month, but the avalanche ends today.

Today’s highlights include Harvey Norman ((HVN)), Super Retail ((SUL)), Tatts Group ((TTS)) and – brace yourselves – Woolies.
 

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