The Overnight Report: Tense Times

This story features DOWNER EDI LIMITED, and other companies. For more info SHARE ANALYSIS: DOW

By Greg Peel

The Dow closed down -6 points while the S&P rose one point to 2280 and the Nasdaq fell -0.1%.

Super Surplus

It was a lacklustre day’s trade on the ASX yesterday, reflecting a US market stalled as it awaits news on Trump policies and a local earnings season just beginning, encouraging traders to hold fire until the numbers are known.

On that front, biggest winner on the day was engineering company Downer EDI ((DOW)) which has had a stellar run since switching focus from mining to infrastructure. An earnings beat had that stock up 13%.

Close behind was nickel miner Western Areas ((WSA)), which after having fallen last month on the lifting of the Indonesian export ban shot up 10% yesterday as the Philippines government released its list of mines that will be shut down for environmental reasons. They specifically include nickel mines, but also one of OceanaGold’s ((OGC)) assets. That stock fell -15%.

Elsewhere on the downside, the cost of the will they/won’t they merger saga with rival Tatts Group ((TTS)) weighed on Tabcorp’s ((TAH)) earnings result, sending that stock down -6%.

Beyond the individual stories, most sectors were flat yesterday. Utilities and telcos, which had enjoyed a sudden burst of renewed support on Wednesday, were the main losers.

Economic data took centre stage on a quiet day as the much anticipated December trade numbers hit the wires.

Economists had always expected a return to a strong trade surplus as the surge in commodity prices last year flowed through to export contract prices. But the consensus forecast of a $2.2bn surplus fell well short of the record $3.5bn result. Exports rose 5.4% while imports only rose 0.7%.

We don’t have to look too far to find the main contributors, Coal exports rose 13.7%, minerals (including iron ore) rose 9.7% and agriculture chimed in with 2.6%. Australian exporters have been enjoying not just higher prices, but increased demand despite those higher prices. Thank you China.

Economists expect surpluses to persist for a while yet, leading to increased tax revenues, a reduction in the current account deficit, and a boost to GDP. Which is why the Aussie dollar jumped on the release and is currently over a percent higher at US$0.7660.

The mining sector’s Lazarus routine may have come just in the nick of time. While mining wallowed these past couple of years, housing construction kept Australia out of recession. Yesterday’s December building approvals data showed residential approvals down -1.2% for the month and down -18% from the peak last June.

House approvals fell -1.6% while apartment approvals rose 0.9%. The apartment number is volatile, given the greater cost and building time required. When that number starts to tip over, it will be fat lady time.

Crikey

Australia had America’s attention last night. The Trump-Turnbull stoush may have been all the news services were talking about locally yesterday but it didn’t go unnoticed on Wall Street either.

Wall Street remains in stall mode as it balances up what it hopes it's going to like about the Trump Administration – lower taxes, deregulation and so forth – against what it is nervous about right now – border taxes and tariffs, immigration bans, and creating a deal of friction with America’s trading partners and trusted allies. Hot on the heels of the Mexican president cancelling a visit in protest, the Australian prime minister has the phone hung up on him.

In Trump’s first test of Middle Eastern diplomacy, he has put Iran “on notice” for a return to sanctions.

In the background, the US earnings season rolls on and the trend remains positive. But Wall Street is reluctant to focus on improved earnings right now as every day brings a new bombshell out of the White House, and another day passes without any news on the policy changes Wall Street is impatient to hear about.

Wall Street thus posted a flat session last night.

Commodities

The response on the LME to the news out of the Philippines was muted. Nickel rose 1.5%. Aluminium rose 0.5% and lead 1% while copper and zinc fell -1%.

Things may pick up in London as of tonight given the Chinese will be back on board. The same goes for iron ore, which remains unchanged at US$82.40/t.

The US dollar index is 0.2% higher at 99.85 but gold is up US$7.40 to US$1215.00/oz, quite possibly on geopolitical risk (Iran).

West Texas crude is a tad higher at US$53.59/bbl.

The Aussie has now breached the 76c mark and if the US dollar does not resume its rally – remaining stalled along with the US stock market at present — then technically the Aussie has broken to the upside.

Today

The SPI Overnight closed up 6 points.

It’s jobs night in the US tonight. Once a main event, the monthly non-farm payrolls release has become just another piece of economic data.

China’s return to the fray means we’ll see Caixin’s take on the manufacturing PMI today, while around the globe everyone else will release service sector PMIs.

On the local stock front, James Hardie Industries ((JHX)) will report earnings.

Rudi will link up with Sky Business via Skype at around 11.10am this morning to discuss the latest broker calls. He'll travel to Perth on the weekend to present to local investors on Tuesday.
 

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