The Overnight Report: Where To Now?

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By Greg Peel

The Dow closed up 21 points or 0.1% while the S&P gained 0.1% to 2051 and the Nasdaq rose 0.3%.

Bring It On

There is likely a level of fiscal nervousness creeping into the Australian stock market now that the government has pulled the double dissolution trigger and brought forward the budget release to allow for an early election. We have Easter this weekend and then we head into April – so often a peak month for the market ahead of the old “Sell in May” period.

The healthcare sector has been suffering from fiscal nervousness for some time given the number of government reviews underway of various elements of the country’s healthcare system. But at this stage of the game, the government’s May budget is still a bit of a mystery. Tax reform looms as a potential issue for the superannuation industry. Thereafter, well, we just don’t know yet.

Commodity prices have stabilised for now and we are still in the vacuum left behind from the February results season. Market news and research is very thin on the ground. Glenn Stevens is set to speak today and the market will be very interested to hear what he has to say, summed up by the one question: Is an interest rate cut now likely in response to global developments?” Just suggesting the Aussie is “too high” probably ain’t gonna cut it.

The overnight futures market signalled another strong day for the local market yesterday but it never happened. Energy was down a percent on a lower oil price but otherwise most sectors appeared to be hit with a bit of profit-taking, with one exception being healthcare, having suffered enough of late.

There is no doubt also some nervousness with regard Wall Street, which as of last night has posted its longest winning streak since December 2014, marking seven consecutive up-days and a 13% rally from the February low for the S&P500. What will drive it higher from here?

Hanging On

That will probably come down to US earnings reports, which will begin to flow next month. Meanwhile, there’s Easter and then end-of-quarter and plenty of profits to be locked in following the 13% run. Stock markets do not keep going up forever and hence there must be a pullback around the corner.

The oil correlation appears to have faded for now given consolidation in the oil price, but that’s not to say Wall Street wouldn’t tumble in a heartbeat if oil were to suffer another dip. Many believe it will, although there are tentative signs emerging of US production finally responding to low oil prices.

There are always more economic data releases to consider of course. Last night it was revealed US existing home sales plunged 7.1% in February, more than economists expected. But then economists did not forecast December’s record jump in sales and incorrectly suggested January would see some give-back. Existing home sales numbers can be volatile.

The Chicago Fed national activity index fell to minus 2.9 in February from plus 0.41 in January. January was actually a surprise blip. The index has fallen five months out of six.

WTI crude did close a little higher last night but given it was the expiry of the April delivery contract, there’s not much to be read into it. More interesting is that after surging all the way up to 2050 at the quadruple witching expiry on Friday night, last night the S&P500 held on for a 2051 close when no one would have been surprised by a pullback.

Volumes were nevertheless minimal last night following the biggest numbers for the year on Friday’s expiry/rebalance day. There were a couple of merger announcements to excite the market, but not much else.

Of course the problem with markets that can no longer find a reason to go up is that they inevitably go down instead.

Commodities

West Texas crude is up US58c at US$39.91/bbl and Brent is up US16c at US$41.62/bbl.

Base metal markets have found themselves in a similar position to stock markets, and with a four-day break coming up for the LME there’s likely to be some squaring. With the US dollar index ticking back further overnight with 0.4% gain to 95.37, metal prices were mixed. Copper was steady, aluminium and tin fell 0.5% and lead, nickel and zinc rose 1%.

The fun and games continued in iron ore nonetheless. Analysts have been scratching their heads as to exactly why iron ore has found such renewed strength, outside of seasonal restocking, and thus the warning stands that strength will likely be fleeting.

Last week it looked as if we might have begun the pullback but no – iron ore has turned around again and last night rose US$1.70 to US$58.00/t.

While the slight recovery for the US dollar following its Fed-related plunge last week is not having a lot of impact on consumable commodities, last night gold fell US$12.10 to US$1243.00/oz.

The Aussie is down 0.3% at US$0.7580.

Today

The SPI Overnight closed up 11 points or 0.2%.

All ears will be on the RBA governor when he speaks today.

Kathmandu ((KMD)) and TPG Telecom ((TPM)) post earnings results today.

Rudi will Skype-link up with Sky Business today at around 11.15am to talk broker calls and tonight from 8-9.30pm he will host Your Money, Your Call Equities. Nigel has not been invited.
 

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