The Overnight Report: All The Way With Woz

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By Greg Peel

The Dow closed up 17 points or 1.0% while the S&P gained 1.0% to 2066 and the Nasdaq rose 1.2%.

Healthy

The futures had suggested down 15 points yesterday morning but it didn’t take the ASX200 long to ignore this call and head higher. Much was made of disappointing Chinese data before trading commenced but on a disappointment scale, they weren’t really up there.

The local market is becoming increasingly inured to big moves on Wall Street, particularly since ups and downs of 200 Dow points have become de rigeur. Unless the moves relate specifically to something that impacts on the Australian market, such as oil prices, or it’s all part of general global macro fear/exhilaration, there’s not enough correlation between Bridge Street and Wall Street on any given day to suggest one must always be determined by the other.

The big story on the local market yesterday was the government’s agreement to do something about above-market rents being paid by pathology collection centres, as a trade-off against last year’s cuts to bulk billing incentive payments. Health Cares Primary ((PRY)) and Sonic ((SHL)) both jumped 5% yesterday as a result, sending the healthcare sector up a market-leading 2.0%.

Next best was materials with a 0.8% gain, in the face of the Chinese data, and a 0.6% rise in the banks would have had the biggest index clout. Elsewhere, some renewed support for supermarkets and more buying in telcos offset a fall in energy.

The ASX200 is sitting right in the middle of that 5300-400 range and it has to be said, still gives the impression of wanting to go up. While we’ve had a couple of stumbles on the way, it’s been a while since we’ve had one of those big one percent plus wash-out sessions that were quite frequent earlier in the year.

Hope I’m not speaking too soon, albeit the futures closed up 47 points overnight so we may yet have another shot at 5400 today, assuming the profit-takers don’t get toey.

Tonight’s mass media headlines will suggest there was a rally in stocks “despite selling in the banks”. That’s because both NAB and Macquarie go ex today, so be warned.

Nine Reasons to buy Apple

Celebrated iThing maker Apple is one of those stocks that’s simply too big for its own good. I’m assuming after last night’s 3.7% share price gain Apple is back to being the biggest company in America by market cap, having briefly seceded to the artist formerly known as Google. When you’re that big your every little move shifts market cap weightings exponentially and forces index trackers to react, exacerbating ups and downs. The herd follows blindly.

Apple is a stock everyone though they must own, until it was declared ex-growth, and everyone bailed out again. Never mind the barrow-loads of cash the company continues to generate every day. In the recent sell-off, Apple’s PE ratio fell to a low of nine times. That makes the company look more like an iron miner than what has arguably become more of a consumer staple. This wasn’t lost on Warren Buffet, who last night revealed he’d bought over a billion dollars’ worth of Apple shares.

So there’s the bulk of your 175 point Dow rally overnight. Apple, of course, bears no relevance to the Australian market so we’d need something else to justify a 47 point jump in the SPI overnight.

Enter Goldman Sachs. The investment bank was obviously feeling the pain on its short oil position – Goldman has been bearish oil – so decided to square up and try the long side instead. Last night Goldman issued a note suggesting that on a balance of strong demand and sharp declines in production, the oil market had shifted from “nearing saturation to being in deficit much earlier than we expected”.

Goldman now expects WTI to average US$45 in the June quarter and US$50 in the second half of 2016, up from US$35 and US$45 respectively. WTI subsequently jumped 3.3% last night.

Meanwhile the Empire State activity index dropped to minus 9.0 from plus 9.6 last month, completely confounding forecasts of plus 5.8. While this might be good for those not wanting a Fed rate hike, I seem to recall April rebounding very sharply from a weak March. In other words, activity in the New York Fed region either surges one month and collapses the next in a cycle, or this series is increasingly misleading.

Commodities

West Texas crude is up US$1.51 or 3.3% at US$47.89/bbl. Brent is up US$1.34 or 2.8% at US$49.14/bbl.

LME traders had their first opportunity to respond to the “disappointing” Chinese data last night, and subsequently sold down base metals from the bell. But the selling didn’t last long, and helped by a benign greenback, which is flat over 24 hours, and the jump in oil prices, base metal prices recovered to post a positive session.

Copper and nickel rose 0.5%, aluminium and tin 1%, and lead 2%.

Iron ore rose US30c to US$53.80/t.

With the dollar index steady at 94.58, gold is steady at US$1274.00/oz.

With commodity prices stronger, the Aussie is up 0.3% at US$0.7290.

Today

The SPI Overnight closed up 47 points or 0.9%.

The US will see inflation, housing and industrial production data tonight.

Before that, the RBA will release the minutes of its May meeting and forex cowboys will have their fingers on the trigger in case there’s any hint of a back to back cut.

DuluxGroup ((DLX)) and Ozforex ((OFX)) will release interim earnings today and James Hardie ((JHX)) will release quarterly earnings either today or tomorrow, depending on which broker you believe.

As noted, National Bank ((NAB)) and Macquarie Group ((MQG)) will go ex-dividend today which will appear to take a sizeable chunk out of both the financial sector and the index on the session.

Rudi will Skype-link with Sky Business around 11.15am to discuss broker calls and later tonight he'll participate in a webinar organised by VFSGroup: https://vfsgroup.com.au/seminars/

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