The Overnight Report: June Baked In

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            [8] => ((CTX))
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This story features TELSTRA GROUP LIMITED, and other companies.
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 up 8 points while the S&P fell -0.1% to 2388 and the Nasdaq lost -0.4%.

Buyers Vanish

Day after day on the local market the buyers have stepped in later in the session to turn what might have been a weak close into something a lot less dramatic. As recently as Tuesday we saw a recovery for the ASX200 from down over -30 points early afternoon to a flat close. But yesterday, those buyers were nowhere to be seen.

Or maybe they fell under a steamroller.

It was not, nevertheless, a Sell Australia day. Four of the ten sectors finished in the green, as did Telstra ((TLS)). The stocks to cop it were the banks, big miners and supermarkets.

Someone has decided the banks have become too overvalued and the herd followed yesterday, despite only one of five bank earnings updates due over this week-and-a-bit having been delivered to date. Financials fell -1.8% and represented the bulk of the index’s -1.0% plunge.

Gold miners have been under pressure of late and yesterday were joined by the big iron ore miners and base metal miners. Note that the prices of both gold and base metals have tanked overnight. Materials fell -1.5%.

Woolworths ((WOW)) had a solid Tuesday session thanks to its Coles-beating sales numbers, but all its gain and more was given back yesterday as the call was made to sell the supermarkets, possibly in response to the European invasion. Consumer staples fell -0.9%.

The telcos might have finished in the green given Telstra’s slight gain but as a separate issue, investors gave up on Vocus Communications ((VOC)) yesterday. One profit warning too many saw that stock down -27%. It will be a long time before Vocus is revisited. Telcos thus fell -0.8%.

We might guess that the big selling came from offshore, given the Aussie fell alongside the stock market yesterday. Throw in a 0.4% jump in the US dollar last night and it’s down -1.5% over 24 hours.

The surprise sector of the day, and this was the case yesterday as well, was energy. It rose 0.6% despite the declining oil price, suggesting perhaps a greater focus on rising domestic gas prices and the pushback from the industry against the government’s threat to restrict exports.

Otherwise, healthcare, industrials and info tech all finished in the green with consumer discretionary flat.

The ASX200 closed back under the 5900 mark and the futures are lower this morning, possibly suggesting yesterday will not prove just a blip.

Transitory

No one expected a rate hike from the Fed last night but given the weak US March quarter GDP result of a mere 0.7% growth, there was some expectation the FOMC might ease back on previous talk of being on track for at least two more hikes this year. There is also the matter of Trump’s tax reform ambitions being a potentially significant fiscal influence, but only if they come to pass.

As it was, the Fed has not changed its tune. Just as had been the case in both of the past two years, the statement described first quarter weakness as “transitory”. Underlying economic fundamentals otherwise remain solid. If there was any doubt that the next rate hike will come in June, the market dismissed that doubt last night.

There was also no update on the Fed’s ultimate plan to begin winding back its balance sheet. The expectation is that when the time comes, this process will be a typical Yellen “gradual” one.

Wall Street is not fazed by a June rate hike, as is evident in a lack of movement in the major indices last night. Two more rate hikes this year have been priced in. The more important influence du jour is fiscal policy, but that could be a long time coming.

In the meantime, earnings continue to draw attention and last night saw Apple (Dow) open lower, as expected from Tuesday night’s aftermarket trade, but regain most of that loss over the course of the day. The prevailing argument is that weaker than expected iPhone sales merely reflect the fact the new iPhone8 is due in September, and prospective buyers are holding out for some surprises from the ten-year anniversary model.

Last night’s aftermarket reporters included Facebook and Tesla. Both came up a little short, prompting -2.6% and -1.2% falls respectively.

Ahead of these reports, the Nasdaq dropped -0.4%, having dropped -0.5% the day before, despite the Dow being relatively flat in both cases. The Russel small cap index fell -0.7%, having fallen around -1% the day before. Both these indices had recently hit new all-time highs, several times, while the Dow and S&P continued to hover below.

The next point of interest for Wall Street is Friday’s jobs number. Last night’s ADP private sector report showed a benign 177,000 jobs added in April, down from March’s 255,000.

Commodities

The confirmation, if that’s what it is, of a Fed rate hike next month has the US dollar index up 0.4% at 93.38.

It was enough to cause gold to capitulate, down -US$19.20 at US$1237.70/oz.

Weakness in Chinese iron ore and steel prices has been blamed for weakness in copper last night, given the implications for construction. Copper tanked -3.6% on the LME. The Philippines parliament yesterday blocked the appointment of an Environment Secretary, whose job it would have been to close dirty nickel mines. Nickel fell -2.8%.

Aluminium fell -0.5%, lead -2.2% and zinc -3.0%. With gold down -1.5% and WTI down another -1% we can safely assume a lot of commodity fund selling was the feature of last night’s action.

West Texas crude is down -US53c at US$47.55/bbl.

Iron ore fell -US50c to US$67.50/t.

The Aussie is -1.5% lower at US$0.7423.

Today

With every commodity taking a hit last night, it doesn’t bode well for the local market today. That and yesterday’s close under 5900. Yet the SPI Overnight is only down -6 points this morning.

The SPI was down only -4 yesterday morning.

Perhaps National Bank ((NAB)) can save the day with its earnings report.

Australia’s March trade numbers are also due.

In a busy day on the local stock front, Qantas ((QAN)) will provide an update, Transurban ((TCL)) will host an investor day and there are several AGMs on the calendar, including those of Rio Tinto ((RIO)), Santos ((STO)) and Caltex ((CTX)).

Rudi will travel to Macquarie Park and join others in the Sky Business studio from noon till 2pm.
 

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