The Overnight Report: Oil Weighs

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

By Greg Peel

The Dow closed down -44 points or -0.2% while the S&P lost -0.3% to 2365 and the Nasdaq fell -0.3%.

Repositioning

There was a hint of it on Monday but yesterday confirmed investors have decided the post result season resource sector sell-off has run far enough. Supported by stronger prices for iron ore and base metals overnight, the miners led a strong opening for the ASX200. The 17 point opening call from the futures had looked ambitious but immediately the index was up 26 points.

The interesting point was the fact it was not just the miners, but the energy sector found support as well despite several sessions of falling oil prices. As it was, initial exuberance waned from the opening bell and the miners pulled back throughout the day while the banks saw some selling. After dipping -14 points into the red late session, the index closed flat.

Materials closed up 0.8% and energy 1.0%. Other sectors traded smaller ups and downs, which just goes to underscore the market cap clout of the banks, which finished down 0.2% to net out the overall market.

We might argue that the resource sectors were supported by positive Chinese data on the day, but in fact the slide back to square was already underway when the Chinese numbers were released. Industrial production grew 6.3% in January-February year on year compared to 6.0% in December and expectations of 6.2%. Fixed asset investment leapt 6.7% in the period, up from 3.2% in December.

The downer was retail sales, which grew by only 9.5%, down from 10.9% and below 10.5% expectation. This is the number Beijing wants to see grow as it transitions China from an export economy to a domestic consumption economy. However as always, we have to take the numbers around the Chinese New Year break with a grain of salt.

The downer on the day for the local market was the monthly NAB business confidence survey. It showed the business conditions index (now) plummeting to +9.3 in February from +16.2 in January and confidence (ahead) falling to +6.9 from +9.8.

These weak numbers likely had a hand in the stock market’s drift back during the day and also sent the Aussie lower. However in a wider context, the numbers aren’t that bad.

January’s numbers were out-of-the-box stuff. If we compare February’s numbers to December numbers we see conditions declining to +9.3 from +9.9 and confidence rising to +6.9 from +5.7. These are still strong results, suggesting confidence is buoyant. January likely reflected a bit of over-enthusiastic Trumpism.

Snowed Under

Speaking of The Donald, it is clear the road to the repeal of Obamacare and replacement with Trumpcare is going to be a long and winding one. The administration’s initial draft proposal has been largely howled down. No matter, they say, it’s early days.

But early days will no doubt turn into late days if this initial response is any indication. And we are reminded that the president wants to get healthcare out of the way before tackling tax reform – the key plank in the Trump platform. Wall Street had been hoping, rather ambitiously, for rapid movement on that front.

The release last night of OPEC’s monthly production report sent shivers through oil markets. While overall production was down, in line with the cartel’s agreed quotas, Saudi production rose.

Aside from the ever growing US rig count, the reason oil prices have taken a turn for the worse this past few sessions is suggestion from the Saudis that the production cuts may not be extended beyond their initial six month timeframe. And just to underscore that possibility, here we see the Saudis perhaps already back in ramp-up mode.

No, no, no, said the Saudis, in a hasty response to oil market fears last night. The numbers are misleading, due to storage movements and this and that and the other thing. Whatever the case, oil markets are on edge. There has been much surprise OPEC has stuck to quotas so far, given the cartel’s track record.

Weakness in the oil price had the energy sector down again on Wall Street last night. The healthcare sector is currently volatile as each day brings new developments for Trumpcare and the banks continue to drift back ahead of a Fed rate rise considered to be a given. It was a rare pre-Fed meeting down-day on Wall Street, which typically rises one day ahead of the FOMC statement.

It was a typically low volume pre-Fed session, but even lower than usual given the east coast blizzard that has shut down transport and kept many a market participant housebound. There must have been some bemusement over the weekend as New Yorkers shovelled snow after having put their watches forward for the beginning of summer rime.

Snow or not, the Fed will release its decision tonight and Janet Yellen will further explain it to the press.

Commodities

West Texas crude is down -US39c at US$47.98/bbl.

Workers at the Escondida copper mine decided to continue their strike last night but after an initial rally, the copper price has ended relatively flat. A 0.4% gain in the US dollar index to 101.78 weighed on all commodity prices. Aluminium fell -1% and lead -2% but for once nickel was relatively stable.

Iron ore rose US50c to US$88.40/t.

Gold is down -US$5.80 at US$1197.90/oz.

The Aussie is down -0.2% at US$0.7559.

Today

The SPI Overnight closed down -10 points or -0.2%.

Westpac will release its monthly consumer confidence survey today.

Two of the bigger healthcare stocks – CSL ((CSL)) and Cochlear ((COH)) – both go ex today.

All eyes on the Fed tonight.
 

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