The Overnight Report: And Now To Earnings

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This story features CSL LIMITED, and other companies.
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 20 points or 0.1% while the S&P gained 0.2% to 2447 and the Nasdaq rose 0.2%.

And Back We Go

Perhaps rather than read my local market report this morning you could just take my report from yesterday and read it in the mirror.

If we make the assumption Wednesday’s surprise sell-off can be put down to nervousness ahead of Janet Yellen’s testimonies to Congress then the fact Yellen said all the right things does somewhat justify why the ASX200 went straight back up again yesterday. But realistically, every time the index falls below 5680 we head straight back up towards 5800 and as long as the world doesn’t blow up overnight, it doesn’t seem to need a reason.

A year-to-date chart of the index looks very spikey but the trend line from around mid-May remains dead horizontal. If you really want to feel depressed, note that we first hit 5800 in January 2007. At the same time the S&P500 passed through 1400 and is now 75% higher.

On Wednesday the banks fell -1.1%. Yesterday they rose 0.9%. On Wednesday healthcare fell -2.1%, with CSL ((CSL)) providing most of the weakness. Yesterday healthcare rose 2.3%, helped by CSL’s 2.8% gain. On Wednesday every sector finished in the red. Yesterday every sector finished in the green, bar one – the sustainability of Telstra’s ((TLS)) dividend has again been questioned.

In isolation, we might be able to justify a 1.4% gain for both utilities and industrials (wherein airports and toll roads lie) and a 2.0% gain for consumer staples as a response to a more dovish Fed, suggesting the RBA will not need to rush to play catch-up with rates. If only they weren’t all down on Wednesday and we hadn’t been playing the bouncing ball game for two months.

So let’s just say we’ve now reset to await the next catalyst that will either take us back up or back down again. We’ll probably have to wait for our own earnings season. The first trickle of results begins later this month.

China posted some good numbers yesterday, which probably helped the ASX200 kick on in the afternoon from its initial pop. Chinese exports rose 11.3% year on year in June when 8.7% was expected, and imports rose 17.2% when 13.1% was expected.

Yes, China’s still there in the background, despite the likes of the Donalds Trump, Fed tightening, Brexit and soon-to-come ECB tightening hogging the spotlight for the moment. Yesterday’s strong numbers have helped push the Aussie ever higher, up another 0.7% to US$0.7730. At some point the strong currency is going to weigh on the local stock market, particularly given that a year or so ago, many an economist had forecasts beginning with a six.

Aussie strength is reflecting stronger commodity prices, which were also no doubt influential in the Bank of Canada’s decision this week to hike its rate for the first time since the GFC. By implication, given the greenback is not falling like a stone, the stronger Aussie is suggesting the RBA will eventually be forced to hike too.

That’ll be the day the music died.

Half Time

Janet Yellen said nothing new to the Senate committee last night to spark Wall Street’s attention – the market moving news came on Wednesday night. JP Morgan (Dow), Wells Fargo and Citigroup report earnings tonight, and US inflation, retail sales and industrial production numbers are due.

Last night was therefore a bit of a half-time break for Wall Street between monetary policy and market fundamentals.

Oil was higher again, by 1.5%, providing support. Big Tech was again in favour. Janet Yellen’s suggestion on Wednesday night that US rates do not need to rise much further continued to reverberate.

It was a bit of a yawn of a session for the day the Dow hit its 24^th new all-time high this year.

Yet another version of a new healthcare bill has been put forward, and yet again it seems destined to crash and burn. The problem is that the Democrats are simply going to turn down any changes to Obamacare by default, and the Republicans are split at the fringes. Go too far one way and one bunch of Republicans will vote no, but appease them and go too far the other way and another bunch will vote no.

A fundamental Trump campaign promise was the repeal of Obamacare. It has been suggested this latest policy offering neither repeals, nor even replaces Obamacare, but simply fiddles about at the edges.

Tax reform? That’s currently in a galaxy far, far away. The Administration is suggesting they will try to have something by the August break. But that seems increasingly unlikely. Janet Yellen has been criticised for not making note of the potential stimulatory impact of Trump’s policy agenda. Chances are she’ll run out her term as Fed chair (February) before anything actually eventuates.

Commodities

West Texas crude is up US69c at US$46.13/bbl.

Iron ore rose another US40c to US$65.70/t.

Aluminium rose 1.5% in London, copper fell -0.5%, lead -1.5%, zinc -1% and for once, nickel trod water.

As did gold, which is slightly lower at US$1217.30/oz with the US dollar index steady at 95.78.

Today

The SPI Overnight closed down -9 points.

All focus on Wall Street tonight and its reaction to bank earnings and economic data.

Rudi will connect with Sky Business via Skype to discuss broker calls at around 11.30am.
 

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