The Overnight Report: Putin On The Spin

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By Greg Peel

The Dow closed up 88 points or 0.5% while the S&P gained 0.5% to 2163 and the Nasdaq rose 0.7%.

On The Money

The futures had suggested an 8 point gain for the local stock market yesterday and that’s exactly where the ASX200 closed. As to why the computers pushed the index up 27 points on the opening rotation is anyone’s guess. From there on, all we did is drift back.

We are seeing these sharp opening moves followed by immediate reversals time and time again. If the high frequency traders are putting in bogus bids/offers to push the market up/down, then selling/buying into the move, they are doing it very well.

The wash-up among the sectors yesterday indicated no clear trend whatsoever. Energy was down and materials up. Banks were up and industrials down. Telcos were up and utilities were down, again. The tepid US jobs report on Friday night has done little to change the status quo. A December Fed rate rise is still expected.

The consumer discretionary sector was the worst performer on the day, with a 0.9% fall, but that was all about individual stories in individual stocks.

Despite the quasi-holiday in the US last night, we should see some more definitive movement in the market today. For that we can thank Russia and China. The index shied away from 5500 yesterday but today may be different.

Blind Faith

Speaking at another informal meeting of oil producers last night, this time in Istanbul, Vladimir Putin said Russia was ready to “join in common efforts to limit oil production and urges others too as well”. At the same meeting, the Saudi oil minister suggested he was confident an agreement will be reached at the formal OPEC meeting in November and that it was “not unthinkable” oil could reach US$60/bbl.

What does one do with that information? OPEC has set production quotas throughout its history which members have famously never stuck too. Russia has offered to curb production several times over past years and never done so. But once again oil traders have decided they have no choice but to play it safe. Hence WTI has jumped 3%.

If it turns out the Saudis and Russians are simply gaming the market once more, then oil will come crashing back down again. But at least they’ll get to sell some oil at a better price for a couple of months. And there’s also the reality that were oil really to trade up to US$60, a lot of marginal US shale rigs would be brought out of mothballs.

But on a day when US banks and the bond market were closed, and only about half of the usual stock market participants bothered to turn up to play, Wall Street rallied on the energy sector’s lead. It was not too convincing nonetheless. On light volume, the Dow opened up 160 points and spent all day drifting back again.

A nod was also given to the US presidential debate the night before. While it is considered Clinton did not deliver a knock-out blow, it is suggested Trump did nothing to improve his position either. Hence the polls still favour Clinton and Wall Street is happy with the status quo.

Commodities

West Texas crude is up US$1.62 or 3.2% at US$51.20/bbl.

The Chinese are back. While they were off celebrating Golden Week, Fed rate rise speculation saw the US dollar on the rise and metals prices on the sag as a result. This, it appears, has provided Chinese traders with the opportunity to pick up some cheap supplies.

Aluminium, copper and lead all rose over 1% in London last night, while zinc played wood duck. Nickel shot up 4% but that came down to the Philippines issue. When Duterte is not off murdering drug dealers he is shutting down polluting nickel mines, and then he’s not, and then he is again. He shut one down yesterday so nickel is up 3.7%.

Iron ore jumped US$1.40 to US$55.80/t.

Metal markets were not fazed by the fact the US dollar index rose another 0.5% last night to 96.92. Indeed all oil-related currencies rose. The Aussie is up 0.3% at US$0.7605.

By rights gold should be lower, but after its big plunge last week gold has been inching back up since. It’s up US$3.10 at US$1259.40/oz.

Today

The SPI Overnight closed up 21 points or 0.4%. The energy sector rollercoaster should head up the hill today, providing for another opportunity to test resistance at 5500.

Housing finance numbers are out locally today along with NAB’s monthly business confidence survey.

Not much attention will be paid to Energy Resources of Australia’s ((ERA)) September quarter production report, given ERA is no longer producing, but it does signal the production report season is upon us.

More attention will be paid to the Telstra ((TLS)) AGM.

Rudi will link-up with Sky Business today, at 11.15am, via Skype to discuss broker calls.
 

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