The Overnight Report: Situation Fluid

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This story features CSL LIMITED.
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 up 8 points while the S&P was flat at 2433 and the Nasdaq rose 0.4%.

Hanging in There

It appears the local market has called a line in the sand at the technical level of 5680 for the ASX200, closing at 5676 yesterday, up 9 points on the session, having plunged -38 points in the opening rotation. While investors may still be reeling from Tuesday’s out-of-the-blue rout, bargain hunting was clearly apparent yesterday among names that perhaps did not deserve to be carted earlier in the week.

One of those names is good old reliable CSL ((CSL)), which had a strong session to lead the healthcare to a best-on-ground 1.5% gain. The banks were again the stand-out in terms of market cap support, building momentum from Wednesday with a 0.7% rise. Utilities had been by far the worst performer on that Tuesday, so they managed 0.5%.

Energy stocks were clouted early in the session but rallied back. A -1.0% close for the sector was not too bad following a -5% fall in the oil price. Materials crawled back to flat, as did consumer staples, leaving telcos (-1.2%) and industrials (-0.9%) as the weak performers.

On Tuesday we saw a market-wide sell-off. Since then we’ve seen investors trying to sort out what they do actually like at this lower level and what they don’t.

Australia’s April trade data were released yesterday, and showed a much greater than expected collapse in the trade surplus. Exports plunged -8% as imports dropped -1%. But it was all about Debbie, with the exports number reflecting the loss of coal volumes due to damaged infrastructure. Economists are assuming a sharp rebound in the May numbers, reflecting coal exports coming back on line and playing catch-up.

An interesting element was the services balance, which typically hides in the shadow of rocks. This balance continues to improve and as the CBA economists note, is very close to crossing into surplus. A more stable Aussie dollar, recently trading in a fixed range above US70c, is supporting education and tourism, growth in which reflect the growing middle class in Asia.

Speaking of Asia, China also released its trade data yesterday, this time for May (because they’re really quick at this stuff).

The numbers surprised to the upside. Exports rose 8.7% year on year, up from 8.0% in April, and beating forecasts of 7.0%. Imports rose 14.8%, up from 11.9%, beating expectations of 8.5%. Given these results came in the face of falling commodity prices in the month, they go some way to easing concerns over China’s economy, its slowing housing market and its rising debt.

At least for now. But in the meantime, all eyes were on the other side of the world as the closing bell rang on the ASX.

Pounding

The pound plunged -1.5% in a heartbeat at 7am Sydney time this morning when the first UK election exit poll was released. It suggested the Tories will likely have narrowed their majority, as opposed to seriously boosting it, as was expected when Theresa May called the election, and the party could even lose its majority. The result, as they say, hangs in the balance.

We will all be following closely downunder today as the evening progresses in the UK and the actual numbers start to flow. Malcolm will be wearing his “Been There, Done That” T-shirt for the occasion.

Earlier in last night’s northern hemisphere session, the ECB left its cash rate on hold as expected. But there was a subtle change in the language of the accompanying monetary statement.

Previously Mario Draghi had said he expected rates to “remain at present levels or lower for an extended period of time”. Last night’s statement said “remain at present levels for an extended period of time, and well past the horizon [of the QE program]”. In other words, the “or lower” was dropped, and for the first time, there was a hint the QE program would not be extended further – taper time.

So it was about as hawkish as Mario “Whatever it takes” Draghi has been in a long while.

Yet Draghi was not the centre of attention. That privilege was reserved for former FBI director James Comey as he fronted the Congressional committee.

The bottom line in the whole circus is as to whether or not the President of the United States attempted to obstruct justice – an impeachable offence. While clearly trying hard to be a truthful as possible as he recalled the meeting, Comey recounted language from Trump that was, at best, inconclusive. Wall Street duly rallied, and all three major indices again hit all-time highs at midday.

Then they came back again. While this might suggest the Trump situation is unresolved, it also suggests Wall Street is not going to get too worried about it all. An impeachment would have to be approved by Congress, which is Republican controlled in both houses, and even if the process begun now, it is unlikely to have played out before Trump’s term expires.

In support of the Wall Street indifference argument, the VIX is still stuck at 10.

Commodities

While traders in London were no doubt following the election, more important to base metal markets were the Chinese trade numbers. Copper shot up 2%, lead 1.5% and zinc 1%.

Iron ore nevertheless fell -US10c to US$54.60/t.

West Texas crude sat on the sidelines.

Gold was the interesting mover, falling -US$9.20 to US$1277.60/oz on an ever so slightly hawkish ECB and an easing of impeachment risk.

The US dollar index is up 0.5%, with the fall in the pound providing upside.

For once the Aussie has come off, down -0.2% at US$0.7531.

Today

The SPI Overnight closed up 5 points. It closed just as that UK exit poll result hit the wires.

Australia’s April housing finance numbers are out today – a data point that has become increasingly more prominent.

China will release inflation data.

In the US, they’re still waiting right now to see whether a Dodd-Frank amendment bill will go to a vote in Congress tonight (US time).

Note that the ASX will be closed on Monday. A full wrap of interim market moves will be provided by The Monday Report (On Tuesday).

Rudi will connect with Sky Business via Skype at around 11.15am to discuss broker calls.
 

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