The Overnight Report: Tensions Rise

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

By Greg Peel

The Dow closed down -6 points while the S&P fell -0.1% to 2353 and the Nasdaq dropped -0.2%.

Having a Go

Wall Street might be meandering aimlessly at present but the local market appears to have one individual goal in sight – the 6000 mark. It’s beginning to look like a self-fulfilling prophecy. But as yesterday’s market action attests, the ASX200 has to conquer 5950 first.

The index went straight up from the open and hit 5950.1 late morning, at which point profit-taking was triggered. A 38 point gain became a 16 point gain by the close.

Financials (+0.8) were the primary driver of strength yesterday. The big banks continue to reprice various mortgage rates but the stars of the last couple of days have been the wealth managers. Strong inflows are being enjoyed as markets rise and analysts suggest that rising equity prices will benefit the wealth managers, which are invested in equities. Who’d have thought?

Energy (+0.5%) continues to benefit from rising oil prices, which are currently rising due to geopolitical tensions. Big boy Woodside Petroleum ((WPL)) is at a two-year high.

The materials sector finally capitulated to lower metal prices — iron ore is down around -US$20 from the recent high — as the fuss around BHP Billiton ((BHP)) subsided. BHP revealed it had already told Elliot International the investor’s ideas had merit but would be too costly and risky to prove beneficial.

Economists were not fazed when NAB’s monthly index of business conditions showed a drop to 9.3 in February from an excited 12.6 in January. The January result echoed Trump euphoria, and 9 is still a very solid number. Well, in March the index shot up to 14.2 – its highest level since pre-GFC.

Strong results were recorded across the economy with the exception of retail, which is suffering from weak spending. Business confidence went the other way, down to 6.1 in March from 6.7 in February and 9.1 in January.

Budget coming up.

Can’t beat the dip-buyers

The US is rattling the sabres. The Secretary of State is in Moscow telling the Russians to stop supporting Assad. The other G7 nations have told Russia it should listen to the US, if further sanctions are to be avoided. The US has told North Korea if the Chinese are not going to do something about the rogue nation’s ongoing intransigence, it will do so. Alone. Putin has invoked memories of the Cuban Missile Crisis.

It’s getting decidedly chilly in the war room.

Investors have responded by shifting into safe haven assets – particularly gold, US Treasuries and the yen. The yen is a so-called “safe haven” in times of uncertainty because risky carry trades are unwound, requiring the repayment of yen loans. Gold is up twenty dollars, the US ten-year yield is down six basis points to a closing low for the year to date of 2.30%, and the US dollar index is down -0.3% on yen strength.

The Dow was down -145 points early in last night’s session as stocks markets, too, bowed to geopolitical tensions. But by lunchtime Wall Street had returned to the flat line. There was no trigger for the turnaround other than the army of investors who are currently taking any dip opportunity to get into the market, having been too slow in the initial Trump rally.

It is working both ways at present. Whenever Wall Street rallies, the sellers come in, citing overvaluation. Hence for the past several sessions we’ve seen plenty of intraday volatility and almost zero close-to-close movement.

Trump asserted last night he would scrap the Dodd-Frank regulations impairing the US banking industry which should have been good news for the banks, but they were a victim on the day due to falling interest rates. Notwithstanding, the banks don’t necessarily want Dodd-Frank scrapped altogether, just reassessed.

Trump was also going to scrap Obamacare.

US banks remain in focus at present given tomorrow night will see the first of the season’s earnings reports, with the big banks always at the top of the calendar. Wall Street is hanging in there at the moment to get a read on the economy via bank results, hoping to break out of the current market stasis.

Otherwise it’s a case of nervously watching global posturing.

Commodities

Gold is up US$19.60 at US$1274.00/oz, with the US dollar index down -0.3% at 100.70.

West Texas crude, also a beneficiary of geopolitical uncertainty, has ticked up another US25c to US$53.40/bbl.

Nickel fell -3.5% and zinc -2% on the LME last night as the other metals did little.

Iron ore fell -US50c to US$72.50/t.

The Aussie is still flat around the US0.75 mark.

Today

The SPI Overnight closed up 18 points or 0.3%. See opening paragraph.

China will report March inflation data today.

Westpac will release its monthly consumer confidence survey.

Rio Tinto ((RIO)) will hold its AGM, at which no doubt questions will be raised about dual listing.

Rudi will tonight host Your Money, Your Call Equities on the Sky Business channel, 8-9pm.
 

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