The Overnight Report: Healthy, Or Harbinger?

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

By Greg Peel

The Dow closed down -112 points or -0.5% while the S&P lost -0.6% to 2381 and the Nasdaq fell -0.7%.

Join the Circus

The Australian stock market decided Donald Trump provided no reason to buy on Wednesday but after every other market, and Wall Street in particular, decided otherwise overnight, yesterday it was a rush to get in. Those miners that have been sold off from their highs these past few sessions? They were hot property.

The materials sector stood out with a 3% gain on the day. Every other sector posted a gain of around one percent, suggesting index buying. The only loser on the day was telcos, which fell -1.4% on selling in Telstra ((TLS)). That stock is very much a victim of rising rates.

And the rate rise story continues to gain traction. Not locally, but in the US, where the interest rate swaps market is now suggesting in excess of a 90% chance of a March Fed rate hike.

The surge in the materials sector came despite yesterday’s trade data showing a fall in commodities exports in January. All up, exports fell -3% while imports rose 4%, taking January’s trade surplus down to $1.3bn in January from $3.3bn in December, when a rise to $3.8bn had been forecast.

It was a bit of a reality check following on from the solid December number, the better than forecast GDP, and general exuberance over a revitalised mining sector. At the end of the day, Australia has still booked three consecutive monthly surpluses but the big January “miss” caught many a forex cowboy long the Aussie. With a bit of help from a stronger greenback overnight, the Aussie is down -1.5% over 24 hours at US$0.7570.

Despite all the warnings, we’re still planning more apartments. Yesterday’s building approvals data for January featured a 6.6% jump in apartment approvals. With house approvals down -2.2%, overall approvals rose 1.8%. That’s down -12% year on year and down -16.5% from the peak last April.

There was no real excitement in the market yesterday. The ASX200 step-jumped on the open and traded flat for the rest of the session. The 1.3% leap took us back to 5776, suggesting a springboard for another attempt at 5800.

But alas, the Dow is down a hundred overnight.

Rally Snapped

Snap Inc debuted on the NYSE last night and shot up 50% from its listing price. Snap owns Snapchat, which is apparently something the kiddies like to use on their pocket telephones. The listing caused much excitement in an otherwise down-day for Wall Street.

Dow heavyweight Caterpillar copped some selling when news came through the IRS had raided its head office.

While there was much talk of it not being surprising, Wall Street should take a breather following Wednesday night’s surge, and the Trump rally in general, there were a couple of other influences at play.

There are calls for Trump’s Attorney General to resign for having Reds under the bed, the same issue that has already claimed one of his advisors. This pressure rather took the gloss off Trump’s declaration he would significantly boost defence spending – an announcement made in full regalia aboard the USS Gerald Ford. The only thing missing was a fallacious Mission Accomplished sign in the background.

Politics is still ruling the day, but as the information vacuum between Trump promises, Trump policy detail and actual legislation rolls on, attention now turns to monetary policy.

Yet another Fedhead came out last night and hinted a March rate rise could be on. As markets start to price in a hike as more of a done-deal than an outside chance, it would not be surprising to see the Trump rally ease off. Until economic data start proving that Trump is indeed a saviour, interest rate sensitive stocks and companies reliant on exports must start to come under pressure.

The US energy sector was also weighed down last night by the first significant move in the oil price in many sessions. WTI is down over -2% on the latest weekly data showing US crude inventories have hit a new record high, yet US production continues to grow.

Have we seen the peak, at least for now? It’s the biggest pullback Wall Street has seen all year. Last year a hundred point fall in the Dow was a common occurrence. The Dow closed right on the edge of 21,000.

Commodities

I told you gold always waits another day to respond to anything that moves other markets. It’s down -US$13.70 to US$1234.80/oz, aided by a 0.5% jump in the US dollar index to 102.

The greenback jumped on Fed rate hike expectations, and took its toll on base metal prices in London. All are down -1–2%.

Iron rose rose US30c to US$91.70/t.

West Texas crude is down -US$1.20 at US$52.63/bbl.

Today

The SPI Overnight closed down -26 points or -0.5%.

It’s service sector PMI day across the globe.

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