The Overnight Report: Now It’s 20,500

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By Greg Peel

The Dow closed up 92 points or 0.5% while the S&P gained 0.4% to 2337 and the Nasdaq rose 0.3%.

Resistance

The local market surged on the open yesterday driven by the big miners, following iron ore’s jump into the nineties. Is that price for real? We thought a big jump up into the sixties last year looked a bit fantasy land. Whatever the case, it clearly seemed to traders to be a good opportunity to take profits – if not on an iron price basis, at least on the basis the ASX200 almost hit 5800.

The 5800 level has been the technical target for a while, and yesterday the index reached 5794 after a string of solid sessions, before finally meeting resistance. The rest of the session featured a drift back to the flat line and below.

In the wash-up, sector moves were relatively benign. The worst two performers were two of the better performers on Monday, being telcos (-1.0%) and consumer staples (-0.6%). Healthcare also fell -0.6%, highlighting what was not a particularly good day in the result season.

It was not that yesterday’s results were particularly bad, it’s just that they weren’t as great as some may have hoped, and/or guidance was an issue. All of Challenger ((CGF)), Cochlear ((COH)) and Treasury Wine Estates ((TWE)) featured among the losers, each having been well valued by the market. Amongst the smaller names, Nick Scali ((NCK)) was a winner with a 10% gain.

After a pretty sharp run-up from 5500 through 5700 and on to 5800, some consolidation at 5750 is neither unsurprising nor unhealthy. But the futures are showing up 27 points this morning on what might prove a technical breakout for Wall Street. It would appear there is plenty of demand on any pullback.

There is also a lot of confidence in the real world beyond the trading floor. NAB’s monthly business survey jumped again in January, with the conditions (now) index rising to 16.6 from 9.9 in December and 6.0 in November, and confidence (outlook) rising to 9.8 from 5.7 and 5.5. It’s a great time to be doing business, apparently.

Perhaps that reflects some sought of hope with regard the new administration at Washington, because as the new parliamentary session began in Australia, the response can only be “Abandon hope all ye who enter here”. And we thought Trump was a joke.

Marching Forward

The prime focus of attention for Wall Street last night was, for once, not Trump, but Janet Yellen. The Fed chair’s testimony before the Senate Banking Committee was closely watched.

The conclusion is Yellen sounded a little more hawkish than previously, but not a lot more. While she reiterated an expectation of three rates hikes this year, she is as yet unclear whether the first of these could come in March, May or June, while also reiterating that there is a danger of the FOMC moving too slowly. The Fed, like everyone else, needs to see some more clarity on the fiscal policy side before a decision can be made.

The markets have lifted the chance of a March rate hike to 18%. The US ten-year yield rose 4 basis points to 2.47%. The US dollar index is up 0.3% at 101.26.

Runaway inflation is what the Fed will risk if it falls behind the policy curve. Last night saw the US January producer price index post a 0.6% gain, its biggest since 2012.

Gosh, do you remember those heady days when any hint of a Fed rate rise sent Wall Street crashing? If the Fed is intent on raising (implying a strong economy) but not too hastily (gradual steps) then clearly Wall Street likes it. We have only just celebrated Dow 20,000. Last night the Dow hit 20,500.

The technical level to watch on the S&P500 was apparently 2335. Any close above would signal a new bullish phase. As to how you can “break-out” from an all-time high I’m not sure, but the S&P closed at 2337.

Commodities

West Texas crude is sitting somewhere between US$52/bbl and US$54/bbl. I might as well say that as while every day the price goes up or down, on whether OPEC production cuts is a greater positive or restarted US production is a greater negative, without actually going anywhere. It’s slight higher overnight at US$53.14/bbl.

A mixed session for base metals saw aluminium and lead up 1%, copper down -1% and nickel down -2%.

Iron ore fell -US80c to US$91.00/t.

Despite the 0.3% rise in the US dollar index, gold is US$3.10 higher at US$1229.30/oz.

The Aussie is steady at US$0.7651.

Today

The SPI Overnight closed up 27 points or 0.5%.

With Yellen tonight fronting the House, Wall Street can weigh up March probability following a dump of CPI, industrial production, retail sales and housing sentiment numbers.

Locally, Westpac will publish its consumer confidence survey.

Amidst controversy as to actually why Domino’s ((DMP)) can sell its pizza so cheaply (and there I was thinking it was just because they’re bloody awful), the company will report earnings today.

So too will Commonwealth Bank ((CBA)), CSL ((CSL)) and Wesfarmers ((WES)), among others as the season begins heating up.
 

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