The Monday Report

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By Greg Peel

Happy New Year to all. I hope those who are now back at the desk for 2017 have, like myself, enjoyed their summer break.

Funny Old World

The point of a break is, of course, to detach oneself from the action so forgive me if it takes a couple of days for this writer to get back into the swing. While not completely ignoring the world this past month, I can’t say I’ve tried to pay a great deal of attention. But I have noticed two interesting points.

Back in mid-December the Dow had fallen back from a first attempt to reach the 20,000 mark but most commentators were convinced the typical end of year rally would see the milestone reached. It hasn’t been. Indeed a month later, it’s basically where I left it. I do note, nonetheless, a 52-week high of 19,999.

Despite an assumption the Dow would have hit 20,000 by now, another popular belief was that the post-Trump euphoria rally would continue through to inauguration on campaign promises before petering out on the reality that (a) policy changes will take time and (b) a lot of what Trump was promising in the campaign is just not feasible or at least will be watered down. But as we approach Trump’s inauguration this coming Friday, already doubt is creeping in.

Aside from the US-Russia-China brouhaha that has dominated the past month, and has had many a global citizen lying awake at night, Trump’s first truly presidential speech last week, despite still officially being President-elect, was devoid of any policy updates or commitments. Is the next US president all Twitter and no substance? Wall Street has stalled for the time being as it waits to find out.

The other interesting point is that I left the local market looking bullish but struggling to push through the technical level of 5600 for the ASX200. Chartists were suggesting a breach of 5600 would be followed by a swift move to 5800 and then maybe a push back to the post-GFC high of 6000. Well as soon as I stepped out the door, the push began, in thin Christmas holiday trade. The ASX200 peaked at 5800, largely on the promise of a stronger economy thanks to robust commodity prices, before dropping back towards 5700.

So the wash-up, since my last Report, is Wall Street unchanged and the local market a couple of hundred points higher. Looking at commodity prices, I note the bulks and oil are roughly where they were a month ago, copper and aluminium have improved slightly but lead, nickel and zinc have slipped, and gold has staged quite a substantial comeback, as the US dollar rally has waned. The Aussie is a couple of cents higher.

I note also the critical benchmark of the US ten-year bond yield has slipped back to 2.38% as of Friday having hit 2.50% in December on its way, it was then assumed, to 3%.

I suppose the best we can say at this point is that the world is supposedly set to change as of this Friday, but as to how it will change will dominate trading in 2017.

Friday

The ASX200 breached 5800 last Monday, dropped on Trump’s non-event speech, stalled as half the market hit the beach, and then dropped again on Friday. One might make the assumption that last Monday saw many a trader return from holidays to wonder just why we were at 5800, hence the bias last week was more to the downside than the up. Today will see more of the market return.

Friday’s 0.8% fall in the index was mostly about a 1.4% drop for the banks, accompanied by a 0.9% fall in materials. The banks have had a good run since Christmas so perhaps were due some selling, while a lift in Indonesia’s ban on raw nickel exports had nickel miners, particularly Western Areas ((WSA)) and Independence Group ((IGO)), copping a hammering. And trouble continues in infant formula land.

Barring anything unforeseen, one assumes the market will stay relatively quiet ahead of Friday night’s inauguration, with Friday’s Chinese data drop, including December quarter GDP, also in focus. Locally we have unemployment numbers due on Thursday, but no one pays much attention to those anymore.

Friday Night

All focus on Wall Street at present is of course on Trump, but there is also the small matter of the US December earnings results season, which has now kicked off. The post-Trump rally that has seen all major US indices hitting new all-time highs has been led by the financials sector, which has risen 20% since the election. The pressure was on for the three big banks reporting on Friday night.

JP Morgan (Dow) and Bank of America didn’t disappoint. Wells Fargo did, but then Wells is still smarting from the sales tactics scandal it has endured since September.

Despite the banks proving a net positive, the S&P500 only managed a 0.2% gain for the session to 2274. The Dow fell 5 points and remains over a hundred points shy of the 20,000 milestone. Last week was all about the tech-laden Nasdaq, which continues to hit new highs. It did so again on Friday night with a 0.5% gain.

Commodities

Nickel rebounded 2% in London in a session that saw all base metals rising 1-2%, aside from a 5% jump for lead.

Iron ore fell US30c to US$80.20.

Gold is steady at US$1197.50/oz.

West Texas crude fell US59c to US$52.48/bbl.

The US dollar index is off 0.1% at 101.22 and the Aussie is presently trading slightly lower at US$0.7483.

The Week Ahead

US markets are closed tonight for Martin Luther King Day.

Through the rest of the week, US data releases include the Empire State activity index tomorrow, the CPI, industrial production, housing sentiment and the Fed Beige Book on Wednesday, and the Philadelphia Fed index and housing starts on Thursday. Friday is Trump Day.

Janet Yellen will be speaking on both Wednesday and Thursday.

China will release monthly industrial production, retail sales and fixed asset investment numbers on Friday along with the December quarter GDP. Expectations are for 6.7%.

Locally, we’ll see housing finance numbers tomorrow, the Westpac consumer confidence survey on Wednesday, jobs numbers on Thursday and new home sales on Friday.

As far as individual corporate news is concerned, it’s a quiet week.

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