The Overnight Report: More Of The Same

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By Greg Peel

The Dow closed up 107 points or 0.5% while the S&P gained 0.5% to 2349 and the Nasdaq rose 0.6%.

Result

The ASX200 claimed 5800 in spectacular fashion yesterday, having looked set for consolidation on Tuesday after a soggy session. But it was not a macro market achievement yesterday. It was micro writ large, as some of the biggest movers & shakers lit up the boards.

Of the top ten gainers in the ASX200 yesterday, all of Boral ((BLD)), Computershare ((CPU)), CSL ((CSL)) and Wesfarmers ((WES)) posted earnings. Among the biggest sector gains on the day were consumer staples (WES), healthcare (CSL) and info tech (CPU).

The standout sector were nevertheless the banks, which rose 1.7% thanks to a solid result from Commonwealth Bank ((CBA)). CBA floated all boats, such that the Big Banks alone accounted for around half of the day’s 54 point gain. CBA didn’t quite make it onto the Top Ten list, so National Bank ((NAB)) filled in.

Move outside those sectors, and it was a quieter session. The worst performer on the day was consumer discretionary, thanks to the ongoing train crash that was the once high-flying Domino’s Pizza ((DMP)). Having spent the past few years posting upside surprises, Domino’s posted a miss. The stock has already seen an exodus thanks to its wages controversy, so the miss was the final straw that set off a -14% fall.

Consumer discretionary fell -0.6% despite Westpac’s consumer confidence survey for February showing a 2.6% jump in the index to 99.6.

Domino’s “topped” the top ten losers board, and also among the ten were Primary Health Care ((PRY)), Seven West Media ((SWM)), IOOF Holdings ((IFL)) and A2 Milk ((A2M)), all of which posted earnings results as well.

Earnings season is hotting up.

In the background we have a US market making new highs every day. Clearly Wall Street is providing the sentiment to support buying in the local earnings season “winners”. China is also doing its bit in providing some decent data of late, helping to at least keep commodity prices elevated. As long as these factors remain in play, net positive earnings results could be the catalyst to take the ASX200 to a new 2017 high. Realistically, earnings season has only just begun.

Did I Say Tax?

Pavlov would have to take his hat off to Donald Trump, who can send Wall Street racing to its next all-time high just by mentioning the word “tax”. As yet we have no clue as to what Trump’s actual tax policy is going to look like, but we know from last week it will be “phenomenal”, and last night we learned the tax code would be simplified, and therefore be “good”.

Quite the orator, our Donald.

So once again we see the Dow hitting a new milestone, this time crossing 20,600. The Dow, S&P, Nasdaq and Russell are all marking new highs every day now, and the Nasdaq is near to breaking its longest ever winning streak, set in the 1999 tech bubble.

There is nevertheless a cloud to Trump’s tax reform silver lining, and that is the proposed Border Adjustment Tax. Last night saw retail industry CEOs dragged into the White House, who joined the chorus of all industries to date who have tried to convince the president the BAT is a stupid idea and will actually backfire. It is likely Wall Street is prepared to believe the BAT will either disappear, or at least be watered down to something less consequential.

To be fair, there were some strong US economic data releases out last night to help fuel the enthusiasm.

Retail sales rose 0.4% in January when 0.2% was forecast. The December result was revised up to a 1.0% gain from a previous 0.6%.

The headline CPI rose 0.6% in January when 0.3% was forecast, to mark the biggest gain in four years. The 2.5% gain over twelve months is the biggest in five years. Gasoline prices have been the main inflation driver of late, but stripping out food & energy the core rate rose 0.3% in January for a 2.3% twelve month gain.

Dust off that Fed chocolate wheel. March is back in the running.

The only downer was a slip in industrial production in January, but that was blamed on warm weather reducing demand for utilities. Otherwise, manufacturing posted a gain.

So all is going well for the US economy, and still we are yet to learn of what the Trump Administration really has up its sleeve. When does the disappointment arrive?

Not yet.

Commodities

Oil prices are little changed.

Another mixed night for base metals saw copper up 1%, aluminium and nickel up 1.5%, and lead and zinc down -1.5%.

Iron ore is unchanged at US$91.00/t.

Despite the strong US data, the US dollar index is down -0.1% at 101.13. Gold is slightly higher at US$1231.10.

The Aussie, on the other hand, has shot up 0.8% to US$0.7708, ahead of today’s jobs numbers.

Today

The ASX200 closed at 5809 yesterday. A wall of resistance or a break-up towards the 6000 level? The SPI Overnight closed down -3 points.

The local jobs numbers are out today and while forex traders may pay attention, the stock market long ago gave up. Attention will be far more centred on today’s earnings results.

Among these we see Telstra ((TLS)), South32 ((S32)), Origin Energy ((ORG)), Mirvac ((MGR)), Goodman Group ((GMG)) and Evolution Mining ((EVN)), to name a few.

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