The Overnight Report: Trumped Again

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            [1] => ((AOG))
            [2] => ((CSL))
            [3] => ((REG))
            [4] => ((FMG))
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This story features METCASH LIMITED, and other companies.
For more info SHARE ANALYSIS: MTS
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -98 points or -0.5% while the S&P lost -0.8% to 2419 as the Nasdaq dropped -1.6%.

Mirror Image

On Monday the ASX200 rallied early, failed, and closed flat. Yesterday it fell early, recovered, and closed flat. Just about everything that had been up was down and vice versa.

It appears investors changed their mind about Metcash ((MTS)) yesterday and the supermarket space in general following broker reports suggesting the company has not turned any corners. Consumer staples fell back -0.8% and discretionary sympathised with a -0.7% fall.

Healthcare dropped -0.8% but this was not about Aveo Group ((AOG)), which actually managed a slight gain, but about profits finally being taken in CSL ((CSL)) after its blistering run. Residential aged care provider Regis Healthcare ((REG)) did nevertheless appear among the worst performers.

Yield stocks were out of favour once more with utilities falling -1.5% and telcos -0.5%.

So with all that selling, how come we finished down only -5 points?

Easy – the banks rose 0.3% and so did materials. In the case of materials, a slight rise in the iron ore price helped but Fortescue Metals ((FMG)) led the charge following broker upgrades, and the big boys followed.

Good call – iron ore is up 6.5% overnight.

The ups and downs of the week so far largely represent little more than shuffling around ahead of Friday’s year-end rather than any clear trend emerging, notwithstanding the odd individual stock story. The fact Wall Street has remained mostly flat has provided a useful backdrop. But that may just change today with a lot having transpired offshore last night.

The futures are down -12 this morning and the number to watch is still 5665 on the index.

Fully Sick

Another ransomware attack has swept the globe. It has not had any meaningful impact on markets but is disturbing nonetheless. Interestingly, Russia appears to be the worst hit.

Speaking at a European central bank forum last night, the ECB president suggested “All the signs now point to a strengthening and broadening recovery in the euro area”. Mario Draghi warned the ECB will nevertheless need to be prudent in gradually adjusting its monetary policy, with inflation still tepid and global uncertainties remaining. Prudent or not, Draghi’s comments were enough to send the euro and European bond yields surging on the assumption the first tapering of ECB QE is nigh.

The impact flowed across The Pond, sending the US dollar index down -0.9% to 96.50 and the US ten-year yield up 6 basis points to 2.20% on rate differentials.

Rising rates are good for US banks so that sector found renewed buying last night, while another rise in the oil price, despite an apparent build in US weekly inventories, provided ongoing support for the energy sector.

News from the tech sector was that EU regulators have hit Google (Alphabet) with an E2.42bn fine on antitrust grounds. Alphabet shares fell -2.5% while the company is considering an appeal. There is no suggestion other members of the FANG brigade will be next in line, but it appears the Google story was enough to trigger another round of Big Tech selling on Wall Street, as evidenced by the big fall in the Nasdaq.

Is this the big one? Or just another temporary blip?

Just as Wall Street was weighing up the various developments, out came the news that Trumpcare is once again dead in the water. It is of no great shock given a clutch of Republicans had rejected the bill and no more than two could dissent if it were to pass the House. They have not changed their stance, hence the vote will now be delayed.

The plan was to pass the bill before July 4 and the Congressional summer break. The Trump Administration will now need to wait until after summer to take another stab. For Wall Street this means the Trumponomics agenda has once again been pushed out in time. Don’t hold your breath on tax cuts.

Big Tech and healthcare have been driving Wall Street recently and last night both Big Tech and healthcare took a dive.

It was an interesting day for the IMF to choose to announce there were “larger than usual” risks to the US economy given policy uncertainty, as the Fund wound back its forecast for US economic growth.

If such uncertainty is causing angst for the US consumer it is not evident. The Conference Board’s monthly index of consumer confidence showed a slight gain last night when economists had assumed a fall.

All in all, a lot to suddenly absorb on Wall Street after a period of benign stasis. Notably, the VIX jumped 12%. But that only takes it to 11.

Commodities

A thumbs up for the European economy, a big fall in the US dollar as a result, and it’s off to the races for US dollar-denominated commodities.

On the LME, aluminium, copper and zinc rose 1%, lead 1.5% and nickel 2.5%.

Iron ore leapt US$3.60 to US$59.10/t.

One might feel safe in assuming a big fall in the greenback would translate into a big jump for gold but gold is only slightly higher at US$1246.70/oz. The currency impact is outweighed by the reason behind the currency impact, being European rates rising alongside US rates.

West Texas crude is up US23c at US$43.72/bbl.

One might also assume the Aussie would be much stronger on the greenback as well. The Aussie did trade above 76 but has since fallen back to be unchanged at US$0.7583, held steady on the cross rates of a stronger euro and pound.

Today

The SPI Overnight closed down -12 points. Do we follow Wall Street, which realistically fell on a healthcare bill which means little in Australia and a Big Tech sector we don’t have, or will stronger commodity prices save the day?

We won’t be saved by economic data or any scheduled corporate updates. There aren’t any.
 

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