The Overnight Report: Waiting For Mario

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

By Greg Peel

The Dow closed up 36 points or 0.2% while the S&P gained 0.5% to 1989 and the Nasdaq rose 0.6%.

Resilience

There was every reason to expect a sharp pullback on Bridge Street yesterday given reversals in commodity fortunes overnight (other than for iron ore) and indeed the ASX200 dropped 27 points form the open, matching the futures’ prediction.

But that’s where the pullback ended.

By the end of the day energy was down 2.7% and materials 0.7% but on a steady climb-back throughout the session, every other sector finished in the green. Leading the charge were the banks, up 1.6%, following some brief profit-taking from traders earlier in the week.

By the closing bell, utilities was the only sector of note not to post a gain of in excess of 1%. It was a market-wide buying spree, ex resources. Healthcare (+1.6%) was back in vogue, having previously provided the funds for a switch into resources, and even telcos (+1.2%) had a solid session.

This market currently looks determined to go up.

Consumer sentiment is not quite as solid as it was nonetheless. Yesterday’s Westpac survey for March showed a drop in the index to 99.1 from 101.3. It’s only a modest pullback, Westpac suggests, but numbers below 100 imply pessimism. It’s nevertheless notable that the Turnbull boost of last year is still holding its ground despite the dip.

Perhaps housing is something consumers can start worrying about. Yesterday’s January housing finance data were indicative of a slowing market.

The number of loans to owner-occupiers fell 3.9% in January but is still up 7.3% year on year, while the value of loans to owner-occupiers fell 4.3% but is still up 16%. The big move is in the value of loans to investors, which while only down 1.6% in January, is down 14.8% year on year, reflecting APRA’s tightening of bank lending capacity.

Imagine if negative gearing were removed. Mind you, economists admit January data can always be a bit misleading given everyone’s on the beach.

What’s Mario got in store?

It’s usually the day before a Fed meeting when Wall Street goes quiet, but that will happen next week. This week Wall Street, and the world, is focused on the ECB meeting tonight. There are great expectations.

If recent history is any guide, there will therefore be disappointment. Mario Draghi has, since his appointment as ECB president, pledged to do “whatever it takes”. Last year that meant the introduction of eurozone QE, which was increased in December, and a negative central bank deposit rate. Yet still the eurozone is at risk of deflation.

Thus the market is expecting Mario to bring out the big bazooka tonight, whatever that may be. Mario, on the other hand, tends to be a little more cautious with regard the weaponry he brandishes. So the scene is set tonight, and ahead of that meeting, markets are also being cautious.

Which is why another 5% surge in the oil price failed to spark much enthusiasm on Wall Street last night.

If Goldman Sachs is short oil, which we can assume from the investment bank’s “overbought” call on Tuesday night that saw oil prices drop back, last night wasn’t a winner. Interestingly, oil rallied despite another big increase in US weekly crude inventories, above expectation. And disappointingly, weekly production ticked up a tad once more after two weeks of encouraging falls.

But last night the market decided that increasing inventories – to maintain the highest levels since 1930 – are sufficient to force production cuts. Not just in the US, but across the globe. There is much anticipation that a long talked about OPEC/non-OPEC production freeze will finally eventuate following the March 20 meeting in Moscow.

I’ll just pause for a moment while this pig passes overhead.

The good news from amongst the US data, however, was that gasoline saw a drop in inventories three times that which was forecast. Heating oil inventories also declined. The US Energy Information Agency has implied from the data that US motor gasoline demand has risen 7% over four weeks.

So that is something the oil market can hang its hat on. Demand is rising. We just need supply to fall.

Commodities

West Texas crude is up US$1.91 or 5.3% to a new 2016 high of US$38.15/bbl. Ditto Brent, up US$1.36 or 3.5% at US$40.81/bbl.

After some solid China-related selling on Tuesday night, last night LME traders squared up again ahead of tonight’s ECB meeting. Nickel rebounded 3%, and even zinc managed a 1.5% rally. The other metals all saw rallies of roughly a percent.

It is inevitable that iron ore should see some pullback following its ridiculous price jump on Monday night. It’s down US$3.70 to US$59.60/t. Have we seen the blow-off top as the last Chinese steelmakers race to restock?

Currency markets were quiet last night and the US dollar index is steady at 97.13. A little bit of caution in the gold market sees that metal down US$7.30 at US$1252.80/oz.

There’s no holding back the Aussie nonetheless. It’s up 0.7% at US$0.7484.

Today

The SPI Overnight closed up 11 points or 0.2%.

The RBNZ has this morning cut its cash rate by 25 bips to 2.25%.

What will the ECB do tonight? Before we get there, Beijing will release Chinese inflation data today.

In another round of ex-divs on the local bourse today, BHP Billiton ((BHP)) will deliver its meagre offering, while Cochlear ((COH)), Brambles ((BXB)) and QBE Insurance ((QBE)) are other big names on today’s list.

Rudi will appear twice on Sky Business today. First from 12.30-2.30pm and later again on Switzer TV, between 7-8pm.
 

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