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The Overnight Report: Holiday Spree

FYI | Nov 24 2016

This story features FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: FPH

By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.1% to 2204 and the Nasdaq fell 0.1%.

Let slip the bulls

The SPI Overnight was suggesting only a 7 point gain before the opening bell on the local market yesterday – a fair call despite more records on Wall Street given the ASX200 had rallied 60-odd points the day before. Iron ore had jumped 6% that night but iron ore futures had already rallied during Tuesday so the market was on to it.

But we closed up another 71 points. The chartists had suggested a breach of 5400 would pave the way for a move to 5500 and there seemed some level of self-fulfilment yesterday. As was the case on Tuesday, the local market did not step-jump up yesterday, it started from zero and tracked a straight line up to the close, without as much as a stumble. Momentum was at work.

It seems as if the local market has been in a daze this past couple of weeks as it tries to come to terms with a Trump presidency. There have been many reports in the media warning of just how bad Trump could prove for Australia. But as each passing day indicates Trump’s policy pledges were all about winning the election and not about how he would actually run the country, those initial fears have begun to be tempered.

If it didn’t happen on Tuesday, it happened yesterday – investors suddenly saw Wall Street breaking records and decided Australia was missing the boat. Get in and buy!

Only the healthcare sector missed out on an otherwise market-wide rally yesterday, thanks to the ongoing fallout from Fisher & Paykal Healthcare’s ((FPH)) earnings result. That stock was down 7% and the healthcare sector closed flat. Otherwise, it was green-on-screen.

The resource sectors were again in the frame – materials up 2.0% and energy up 1.3% — but the fact industrials were up 2.2%, telcos 2.1% and utilities 1.4% indicated investors were moving back into the likes of bond proxy stocks and previous high-PE names that had been trounced over the past month or more. The banks also made their contribution with a 1.1% gain.

Did anyone notice yesterday’s major data release? It seems not.

Construction work done fell 4.9% in the September quarter to be down 11.1% year on year. It was a much softer result than economists were expecting. Private sector work fell 6.6% to be down 36%. The bulk of that fall reflects the ongoing wind-down of resource sector construction. Engineering fell 3.8% to be down 23.2%.

Last year it was all about building work, particularly residential, striking the balance. Building work in general fell 5.7% to now be only 1.4% higher year on year. Within that, residential fell 3.1%. The decline in resource sector construction will soon reach its nadir, but now we see the beginning of the cooling of the housing market. The Australian economy needs a new hero.

Within those companies most impacted over the last few years by the mining downturn – engineers & contractors – a scramble has been on to diversify into public infrastructure and away from the mining and oil & gas sectors in order to re-establish themselves. In the September quarter, public construction rose by only 1.4% but it is 15.7% higher year on year. Economists estimate the overall construction number for the quarter will shave 0.4 percentage points off GDP. As housing cools, public sector spending will need to take the baton.

Happy Thanksgiving

The healthcare sector was also a drag on Wall Street last night. Test results showed that Eli Lilly’s prospective Alzheimer’s drug failed to deliver. That stock fell 10% and weighed generally on biotechs, sending the Nasdaq down 0.1% following two record-breaking sessions.

It looked for most of the session that the S&P500 would also ease back after its record thirteen-day winning streak, but the broad market index just managed to fall over the line at the death. The Dow, on the other hand, powered on.

The Trump theme continues to underscore for many of the big caps in the Dow Industrials and very much so in the Dow Transports. But there was more to be positive about last night.

Deer & Co shares jumped 11% following that company’s earnings report. Deere is not a Dow stock but peer Caterpillar is. The banks continued on their merry way last night and because of the peculiarities of the arcane price-average, recent addition Goldman Sachs is very influential because it is a US$200-plus per share stock.

US durable goods orders surged 4.8% in October when 3.3% was expected. It mostly came down to lumpy aircraft orders, but ex-transport the result was still a 1% gain.

The minutes of the November Fed meeting were released last night but no one paid any attention, given they are pre-Trump. The indications are nevertheless a rate rise next month is baked in, but everyone knows that.

There would have been no surprise had Wall Street eased off last night as traders squared up ahead of what is effectively a four-day holiday. But that was not the case. We’ll need to see what happens next week after everyone’s had a rest.


Iron ore is up another US$1.10 at US$74.90/t. At what point will the Chinese government step in with more dramatic measures to curb speculation?

And not just in the bulks, but in base metals too. Aluminium and lead rose another 1% last night, copper and nickel 2% and zinc 3%.

These moves came, yet again, despite a stronger greenback. After one little dip, the US dollar index is back up 0.6% at 101.64.

Alas, the death knell sounded for gold. It fell US$24.60 to US$1187.10/oz, accelerating once the 1200 mark was breached.

The oils were little moved last night.

The Aussie is down 0.2% at US$0.7386. On a combination of US dollar strength and the weakness in yesterday’s Australian data, we might expect a bigger drop. But look at those commodity prices.


The SPI Overnight closed down one point.

There’s no holiday in Australia tomorrow, but with Wall Street closed, it may be a case of looking to square up a bit downunder, particularly after a 130 point rally over two sessions.

Today brings September quarter capital expenditure numbers.

It is also a very big day on the AGM calendar, with highlights including South32 ((S32)) and Woolworths ((WOW)).

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