The Overnight Report: Back In The Game

This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL

By Greg Peel

The Dow closed up 112 points or 0.6% while the S&P rose 0.7% to 2280 and the Nasdaq gained 0.9%.

Resourceful

Moves in commodity prices on Monday night were nothing special, yet after a stuttering start yesterday, the local market appeared to decide the pullback we’ve seen from the post-Christmas highs in the mining stocks has now rendered that sector value once more. The materials sector finished the day up 2.7%, and almost single-handedly drove the index’s 0.7% gain for the day.

There was good news to be considered – BlueScope Steel ((BSL)) upgraded guidance (a rare Confession Session positive), construction company Cimic ((CIM)) made a takeover bid for mining services company McMahon Holdings ((MAH)), and Rio Tinto ((RIO)) announced the sale, pending shareholder/regulatory approval, of the bulk of its remaining thermal coal assets to the Chinese.

The sale would represent a nice little win for Rio shareholders as the company proceeds with its plans to divest of its thermal coal assets. Imagine the difference in price were Rio to have considered selling a year ago.

All the big bulk mining names led the index higher yesterday, with steelmaker BlueScope’s 8% gain the winner on the day. But second on the list of top movers was sleep specialist ResMed ((RMD)), which enjoyed a 7% pop following the pre-open release of its December quarter earnings result.

The healthcare sector rose 1.4%. No other sectors much contributed to the day’s action.

It is interesting to note that while the Aussie is back up near US76c at present, when all hope was for a drop through 70c on the back of a Trump-driven greenback surge, no one seems to mind. The Aussie is not strong simply because other currencies are weak – the bane of Glenn Stevens’ RBA governorship – but rather because commodity prices are strong. That’s the way Australia likes it. Although it’s not good news for exporters of other products and services.

The Aussie will be in focus today when the December quarter CPI numbers are released. Economists are looking for 2.0% annual headline inflation, up from September’s 1.3%.

Pay the Piper

Suddenly it seems Wall Street is back in the game.

Since November, we’ve seen the Trump euphoria surge on the promise of what might be, the pre-inauguration cool-off as the market awaited what Trump might do, and up until yesterday, impatience that he wasn’t doing enough, and an apparently tepid response to his axing of the TPP. Last night, that all changed.

Last night Trump met with the CEOs of the big US automakers, having met the day before with manufacturing CEOs. The jury may still be out on Wall Street on Trump’s protectionist stance on trade, but feedback from the CEOs with regard his desire to return manufacturing to the US, and thus restore jobs, has been positive. Yet last night it appeared another matter was the trigger for Wall Street’s sudden return to bullishness.

Trump signed two executive orders last night – one expediting the construction of the Keystone XL oil pipeline from Canada and the other expediting the Dakota Access pipeline. Both pipelines have been in limbo for years under the Obama administration due to environmental concerns. Trump has decreed he will speed up the regulatory approval process.

The caveat is the pipelines can only be constructed using US steel.

While the US energy sector has been pushing for the pipelines to be built for a long time now, and thus energy stocks led Wall Street higher last night, these executive orders appear to be testament to the expectations of Trump Wall Street had post-election. These orders represent actually getting things done.

And so the S&P500 hit a new all-time high last night, as did the Nasdaq, while all talk is once again of Dow 20,000. The rally did fade a little at the death, hence the Dow still has some way to go from 19,912.

Underpinning the rally was a barrage of corporate earnings reports, released last night, which on a net basis were seen as positive.

Meanwhile, across the Pond, the UK stock market and the pound reacted poorly last night to the UK Supreme Court’s decision Brexit cannot be triggered without the approval of parliament. While this May seem a setback to May’s “hard Brexit” plans, the bottom line is (a) she has already vowed to allow parliament to vote on the government’s Brexit plans and (b), what politician is going to overturn the vote of his/her constituency back in June?

Commodities

Building pipelines is representative of the US infrastructure push promised by Trump in his campaign. While end-products will no doubt be sourced where possible from the US, the raw materials are not all at hand in the US. Last night all base metal prices rallied in London, including a 2.5% jump for copper.

In copper’s case, nonetheless, a strike in Chile is the additional driver.

Iron ore rose US$2.10 to US$82.80/t.

West Texas crude rose US30c to US$53.07.

The US dollar index is up 0.2% at 100.33. Hence gold is off -US$8.10 at US$1207.50/oz.

The Aussie is slightly higher this morning ahead of today’s CPI release, at US$0.7582.

Today

The SPI Overnight closed up 37 points or 0.7%.

The CPI numbers will be out at 11am.

Today also sees quarterly reports from BHP Billiton ((BHP)), Alumina Ltd ((AWC)), Independence Group ((IGO)) and Senex Energy ((SXY)).

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