The Overnight Report: Downward Drift

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By Greg Peel

The Dow closed down -72 points or 0.4% while the S&P lost -0.4% to 2263 and the Nasdaq lost -0.3%.

Blood Flows

Had a cheese and Vegemite sandwich just the other day actually. In every M&A transaction, perhaps the most important element is synergy. Can’t find a better example of synergy than cheese and Vegemite.

It was the hot topic on the local market yesterday, at least from the popular perspective. Vegemite is back in Aussie hands thanks to Bega Cheese ((BGA)) acquiring the brand and other Kraft names. With Bega short on other growth options, the market decided this is a good one and pushed Bega shares up 15%.

But it was not the market-moving announcement of the day. CSL ((CSL)) has upgraded full-year profit growth guidance from 11% to 18-20% thanks to strong sales of its blood-related products. CSL is the seventh biggest Australian listed company and the gorilla in the healthcare sector, thus the subsequent 12.5% jump in CSL shares pushed the healthcare sector up 6.5% and was worth a good 18 index points.

Take that out and it was a mildly weaker session yesterday. The lower oil price had energy down -0.6% while a -0.7% fall in telcos was offset by a 0.6% gain for utilities. Otherwise, nothing much else moved.

Yesterday’s jobs lottery provided the usual mixed bag. The good news is 13,500 jobs were added in December, and the better news is 9,300 of those jobs were full-time. The bad news is the unemployment rate rose to 5.8% from 5.7%.

But we can ignore that. Given the ABS surveys a different sample set of businesses each month, movements of 0.1ppt in the headline rate are neither here nor there. What matters is the trend, and the current trend is one of stability around the 5.75% mark. And last month’s tick-up was not about falling participation – participation rose slightly.

Nothing here to trouble the RBA, nor spark it into action, although the Aussie traded higher on the numbers.

Cometh the Hour

The ECB held a policy meeting last night and predictably made no changes. Draghi’s longstanding mantra of doing whatever is necessary, including stepping up QE when talk now is of when it will be wound back, remains in place.

On Wall Street, the earnings season continues with, to date, a relatively positive trend albeit it’s early days. Results provide for some sharp individual stock moves but otherwise the focus remains on tonight’s inauguration, and caution has set in.

The major indices opened flat before beginning a quiet drift lower over the session. A large sell order hit the market in the afternoon at which point the Dow was down over a hundred points, but a modest late recovery followed. Volumes were low.

While Wall Street may have cautiously positioned itself ahead of what shocks the new president’s speech might contain, the expectation is that the whole thing might prove a bit of a fizzer. Trump is unlikely to randomly hurl hand grenades a la his campaign speeches, it is assumed, and more likely to deliver a measured address (written by someone sensible) in an attempt to, for once, actually seem presidential.

If the speech is devoid of any policy outlines, there could be some frustration in the market. But as all agree, significant policy changes such as tax reform and the repealing of Obamacare are going to be a 2017 story, not a January story. It’s more a case of just getting this inauguration out of the way, and then getting on with it.

The circus begins late morning in Washington and no doubt all of Wall Street will be fixated, and it will likely be a quiet session. But we’ll see.

Commodities

The nickel price continues to slide in the wake of the lifting of the Indonesian export ban. Local analysts have begun the process of stripping off major chunks of earnings expectation for Australia’s nickel miners. Nickel was down -2.5% in London last night and all other base metals were lower, but none by more than -1%.

Iron ore fell -US80c to US$80.40/t.

Having had a bit of a drop on Wednesday night, West Texas crude is up slightly at US$51.37/bbl.

Gold is steady at US$1205.90/oz with the US dollar index a tad lower at 101.17. The Aussie is up 0.5% at US$0.7553 with a little help from the jobs report.

Today

The SPI Overnight closed down -10 points or 0.2%.

Tonight’s inauguration is the focus of all attention but for the local market, today’s gaze will be firmly fixed on the monthly Chinese data dump of industrial production, retail sales and fixed asset numbers, accompanied by the December quarter GDP result. Predictions are Beijing will decide it should be 6.7%.

Australia will see new home sales data.

OceanaGold ((OGC)) and Santos ((STO)) will publish production reports today while Macquarie Atlas Roads ((MQA)) and Sydney Airport ((SYD)) will report traffic numbers.

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