The Overnight Report: Trump Slump Continues

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By Greg Peel

The Dow closed down -107 points or -0.5% while the S&P lost -0.2% to 2276 and the Nasdaq fell -0.1%.

Finding Support

Education company Navitas ((NVT)) opened the local result season yesterday with a weak offering, sending its shares down -6%, while IVF practitioner Virtus Health ((VRT)) became the latest Confession Session victim, issuing a profit warning that prompted an -18% rout. Fortescue Metals ((FMG)) tried to save the day with a solid production report but aside from having already had a good run, met another day of market-wide selling.

Despite the futures calling only a -5 point drop yesterday morning, yesterday saw another session very similar to Monday’s. The index opened lower, traded lower still, and found a bit of support in the afternoon. This time we bounced off 5600 in the ASX200, and it appears this may be the level traders have decided is the bottom of the pullback. Despite Wall Street being down again overnight, this morning the futures are indicating an optimistic 20 point rebound.

Selling was again fairly even across the sectors yesterday, other than energy underperforming with a -1.7% drop following a fall in the oil price, and utilities and healthcare outperforming by standing still.

With reporting season ramping up from this week, it is no doubt better to kick things off at 5600 than it is at 5800, allowing for more upside response to decent results. Assuming we get decent results.

NAB’s businesses confidence survey for December, released yesterday, showed a rebound in confidence and conditions from what had been a fairly dour few months. The current conditions index rose to +11.4 from +5.7 in November while confidence rose to +5.7 from +5.5. We can’t really give that one to Trump – he may have instilled confidence but he had no influence over actual business conditions during the month.

A return to better business conditions was also reflected in yesterday’s private sector credit data for December. Credit growth surprised to the upside at 0.7% for the month and 5.6% for the year. The main driver was business credit, which popped 1.1% for the month to also be up 5.6%. Lending to property investors is showing no sign of waning. Housing credit rose 0.5% to be up 6.3% for the year. That’s not much lower than 2015’s rate of 7.4%.

Dollar Dive

If it’s not the president himself throwing around hand grenades, it’s one of his advisors. Last night a leading Trump policy advisor took a swipe at Germany in suggesting the euro is “grossly undervalued” and an implicit Deutschemark which is providing Germany with an unfair trade advantage.

Is there a country left as yet untrashed by the Trump team? Australia must be in line for a bollocking soon.

The euro promptly shot up, although it did enjoy some actual support from the eurozone’s December quarter GDP result, released last night. At 0.5% growth for the quarter, the European economy performed better than the US economy in 2016, for the first time since 2008, according to news service Dow Jones. Both economies grew at just below 2% last year. The US dollar index has plunged -0.8% to 99.57.

While the dollar was a point of focus for Wall Street, last night was otherwise a simple repeat of Monday night’s session. On Monday night the Dow was down -220 points at its lows before recovering to close down -120, and last night the average fell -190 points before closing down -100.

There was no specific driver beyond a continuation of the blow-off from inauguration exuberance. Oil prices steadied, and Trump’s meeting with Big Pharma CEO’s did not result in any disaster for the sector.

It is also notable that last night the Dow was clear underperformer in falling -0.5%. The broad market S&P500 only fell -0.2% and the Nasdaq -0.1%.

The economic news of the day is that confidence also waned slightly in January, with the Conference Board’s monthly consumer confidence index falling to 111.8 from a 15-year high 113.3 in December.

Wall Street closed the month of January relatively flat. Traders have welcomed the consolidation, and there remains concern that while the market is impatient for policy change, Trump is spending every waking hour trying to do five different things at once. Last night he made a move on cyber-security. But tax reform? That’s still somewhere in the pipeline.

That’s the fiscal side. Remember the Fed? It was all the rage in 2016. The first Fed policy statement for the year is due tonight.

Commodities

The US dollar dive clearly had an impact on base metal traders in London, again in a thin market absent of Chinese participation. Lead missed out, falling -1%, but aluminium rose 1% and copper, nickel and zinc all jumped 2-3%.

Iron ore remains unchanged at US$82.40/t.

West Texas crude rose slightly to US$52.82/bbl after a couple of down-days.

The winner on the night was gold, which responded to the weaker greenback by rising US$15.80 to US$1211.30/oz.

The Aussie is up 0.4% at US$0.7580, with 76 continuing to provide stiff resistance. A breach of that level could spark a rally to 78.

Today

The SPI Overnight closed up 20 points or 0.4%. That seems optimistic in the face of the last couple of sessions. However we note (a) Wall Street has now twice threatened to really tank and not gone on with it, and (b) it is the first day of the new month.

We’ll also likely see a pop for local gold stocks today.

The first of the month means manufacturing PMIs from around the globe, while Beijing will stoically release both its manufacturing and services PMIs despite the holiday.

The US will see private sector jobs numbers along with the Fed statement release.

On the local stock front, GUD Holdings ((GUD)) will release its earnings report.

Rudi will tonight host his first Your Money, Your Call Equities broadcast for the calendar year on Sky Business (8-9.30pm). Tomorrow he'll travel to Macquarie Park and appear in the studio from 12.30-2.30pm.
 

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