The Overnight Report: Anticipation

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This story features QBE INSURANCE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: QBE
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 18 points or 0.1% while the S&P gained 0.1% to 2369 and the Nasdaq added 0.3%.

Hot Profits

The consolidation phase continued on the local market yesterday with an uneventful session being posted. Following on from Friday’s market-wide capitulation we were back to a pattern of mixed up and downs among the sectors, as was the case for most of earnings season.

QBE Insurance ((QBE)) was initially the winner on the day following its earnings release but the profit-takers soon moved in, dropping QBE out of the top ten winners list. Lend Lease ((LLC)) squeezed in at number ten with a 3.6% gain, while Gateway Lifestyle Group ((GTY)) hit the board with a 4% gain. Otherwise, positive reporters from a session or two ago filled out the top ten.

Japara Healthcare ((JHC)) was the loser among the day’s reporters, posting a -5.9% loss, while weak Friday reporter Retail Food Group ((RFG)) kicked on with another -6.7% fall to be the biggest loser on the day in the ASX200.

Today is effectively the last day of result season, being the last of the month, although there is the odd straggler reporting later in the week. The season has proven to be a positive one for the most part, but a beat to miss ratio of 1.3 to one is pretty standard stuff. More broker downgrades in response than upgrades is typical of a results season that has followed a market rally.

The market, and the world, will now be hanging out for Donald Trump’s address, early in the local session on Wednesday morning. Following on from that will be Australia’s GDP result.

Yesterday’s December quarter data releases showed company profits jumped 20.1% in the quarter when 8% was forecast, to be up 26.2% for the year. We don’t have to look too far to find out why – mining profits jumped almost 50% to be up 76.6% from the year. That said, non-mining profits rose a healthy 8.7% in the quarter, boosted by a 32% jump in construction profits.

None of which translated into wage growth. Having completed their investment phases, for the miners it’s all about just churning out those rocks, which can be achieved with few bodies. Elsewhere in the economy, everyone is working part-time. Wages growth was negative -0.5% in the quarter for an annual increase of a meagre 1.0%. This might be a prompt for the RBA to cut but given those part-time workers are up to their eyeballs in household debt, the RBA is too scared to move.

Even Dozen

Wall Street opened a bit weaker last night but yet again grafted higher through the session to post a positive close – the twelfth consecutive up-day for the Dow. In record terms, we’re still in 1987, buy January of 1987. If we hit the baker’s dozen I don’t know when in history we end up.

What I do know is that yours truly was a humble SPI futures trader back in 1987, and the stock market rally of the time – both locally and on Wall Street – was driven on pure exuberance. Every day was another winner. Every day the market hailed the Holmes-a-Courts, Bonds and Skases. Every night traders gathered at their watering holes to boast of their winnings. Until it all came a cropper in October.

The current rally on Wall Street is no reflection of 1987. Indeed, while as indices keep rising, the nervousness continues to build. Participation in the rally is muted. Excitement is non-existent. Last night Donald Trump declared he was set to announce massive spending cuts, and thrilling infrastructure investments. The Dow’s 12-day run is all about The Donald. When he speaks tonight, he had better deliver.

Meanwhile, speculation continues to build that the Fed may indeed raise rates at the March meeting. After a series of Fedheads have provided their opinion recently, the market has priced in a greater and greater chance, albeit still not as much as even money. Last night saw a solid result for US new durable goods orders in January, providing support for the rate hike theory, although the gain was mostly down to lumpy aircraft orders.

On Friday night the US ten-year yield fell -7 basis points in lockstep with falling European yields. Last night it jumped back 5 basis points to 2.37% on rate rise speculation.

Could an unexpected March rate rise from the Fed be the trigger for Wall Street to correct? First we have to hear what the President has to say.

Commodities

Iron ore is back in the swing, it rose US$2.40 to US$92.60/t.

Nickel continues its run up, gaining another 1.8% overnight, with other metal moves mixed and less significant.

Oil prices barely moved.

The same goes for currencies, with the US dollar index steady on 101.14 and the Aussie steady on US$0.7678.

Gold has come off a bit following its couple of strong sessions. It’s down -US$4.50 at US$1252.90/oz.

Today

The SPI Overnight closed up 8 points.

The local December quarter current account numbers are due out today. Keep an eye out for the terms of trade, which should be a cracker.

Monthly private sector credit numbers are also due.

The US will see the first revision of its December quarter GDP result tonight, but as it is pre-Trump administration, no one much cares.

Harvey Norman ((HVN)) is among the last group of earnings reporters today.

Rudi will link-up with Sky Business through Skype this morning, at around 11.15am, to discuss broker calls.

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