The Overnight Report: And Back We Go

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            [6] => ((BXB))
            [7] => ((FMG))
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This story features INSURANCE AUSTRALIA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: IAG
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 143 points or 0.7% while the S&P gained 0.9% to 2440 and the Nasdaq rose 1.4%.

Material Move

We had the only two leads the local market seems to need yesterday – strong commodity prices and a rally for US banks overnight. Thus the materials sector gained 1.3% and financials 1.0%.

The gain for materials came even as gold stocks were sold off, including biggie Newcrest ((NCM)), given the gold price failed to respond to the weaker US dollar on the threat of ECB tightening. The greenback is down again overnight and this time the Aussie is up with again little movement in the gold price. We could see the same today.

The banks were not the only financials being bought yesterday. Insurers also had a good run following Insurance Australia Group’s ((IAG)) announced reserve release, which bumps up EPS. IAG hit an all-time high.

Also hitting an all-time high was REA Group ((REA)), following its big move into UK mortgage broking, but also supporting the consumer discretionary space yesterday (+0.8%) were the FTA-TV dinosaurs Nine ((NEC)) and Seven ((SWM)), which benefitted from the government’s announced reduction in licence fees. Big grin on Lachie’s face.

Big winner on the day was Sirtex Medical ((SRX)), which shot up 17% after announcing a major down-sizing.

There weren’t terribly many losers, and most were concentrated in the diverse industrials sector – the only sector to post a loss (-0.8%). Brambles ((BXB)) was one of the big names on the wrong side of yesterday’s market move.

So is this a case of  “Here we go again”? A couple of weeks ago the market shot up towards 5800 like a rocket and no one was quite sure why, only to come screaming back down again once the resistance level was reached. With the futures up 40 points this morning, 5800 looms once more.

At least this time we can point some actual fundamentals – stronger commodity prices, although these can be fleeting, US bank strength, although the connection there is a tenuous one, and a few positive stories for individual stocks.

Or are we merely witnessing fund manager window-dressing as year-end approaches tomorrow? If we close the year at 5800 that’s an 11% annual capital gain. That’s for the ASX200 of course. There’s been a lot of ups and downs within the index and without.

Oops

On Tuesday night ECB president Mario Draghi told a forum that the European economy was doing well and while inflation was still low, it wouldn’t be low forever, but there is still slack in the economy that requires accommodation, or words to that effect. The market took it as a sign the central bank was gearing up to begin tapering its QE program.

No, no, no, said ECB officials last night. You’re focusing on the wrong element of Draghi’s comments. The economy is positive but stimulus is still required. Don’t go thinking a taper is around the corner.

Too late, the genie was out of the bottle. While the euro and European bond yields did retreat somewhat last night after Tuesday night’s surge, they only dropped back modestly.

And the US ten-year yield actually rose another 2bps to 2.22%.

And speaking of “You got that wrong”, Tuesday night’s sell-off in US Big Tech names, culminating in a Nasdaq down -1.6%, could either have been the dip to buy again or the start of something bigger. Turns out it was the former. With no new news to particularly turn tech stocks around, last night the Nasdaq jumped 1.4% in another episode of blink-and-you’ll-miss-it.

But the big drivers on Wall Street last night were the banks. Having passed their Fed stress tests, all that was needed was for the central bank to approve the banks’ capital management plans. First one must prove one has plenty of capital to weather a storm, and then the Fed must agree to let some of that excess capital go back to shareholders.

Wall Street had been anticipating the news all day, pushing up bank share prices on the assumption dividend increases and/or share buybacks would be the order of the day. And sure enough, as soon as confirmation came through right at the end of the session, Citigroup led the charge in announcing a doubling of its dividend. Citigroup shares rose 1.5% in the session and are up another 2.5% in the aftermarket.

Wall Street appears set for another solid run tonight.

The energy sector also provided support last night as the oil price continued to graft its way back. Yet again we had the paradox of the American Petroleum Institute publishing one set of weekly inventory numbers and the Energy Information Agency posting a vastly different set.

Analysts had forecast a decline of 3.5m barrels. The API reported an increase of 800,000 barrels. Last night the EIA reported an increase of only 100,000 barrels. Whatever the dart boards are suggesting, WTI continues to graft back towards US$45/bbl, most likely on the assumption anything below that level will trigger US shale production cuts once more.

Commodities

West Texas crude is up US$1.16 at US$44.88/bbl.

The US dollar index is down another -0.5% at 96.04, which is again proving supportive for commodity prices.

Most notable is iron ore, which is up another US$2.40 or 4% to US$61.50/tonne having jumped 6% on Tuesday. Pity the annual Stockbroker Awards have just been run and won.  Shaw & Partners and Bell Potter both double-upgraded Fortescue ((FMG)) to Buy early this week.

Base metals were all marginally higher bar zinc, but no move exceeded 1%.

Gold is up US$2.10 at US$1248.80/oz but continues to derive no material benefit from the big drop in the greenback.

The Aussie, on the other hand, is up 0.7% at US$0.7637 on commodity prices strength which itself is impacted by the weaker greenback.

Today

The SPI Overnight closed up 40 points or 0.7%. If spot on, that would put the index at 5795.

There are nevertheless a couple of exogenous elements to consider today. Individual stocks options expire today. This usually doesn’t result the sort of volatility the futures and index option expiry can generate, but you never know. What we do know is that no less than 16 of the 400-odd stocks covered by FNArena database brokers go ex-dividend today, and they are all in the property/REIT or infrastructure sectors.

In other words, a lot of yield, representing a lot of index points of handicap.

New homes sales data is also due today.

The US will have another go at revising the March quarter GDP result, ahead of next month’s first estimate of the June quarter number.

Rudi will travel to Macquarie park twice today to make appearances on Sky Business from noon till 2pm and then again for an interview by Marty Switzer between 7-8pm.
 

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