The Overnight Report: Taxing Times

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 196 points or 0.9% while the S&P rose 1.0% to 2452 and the Nasdaq gained 1.4%.

Heading for Hills

Okay I’m showing my age now, but market veterans such as myself will recall that back in the day of chalk boards, BHP ((BHP)) was known as “Hills”, in a reference to the broken one. It was Hills that dominated the local market’s attention yesterday, and London and New York markets overnight.

News media focused on the big turnaround for BHP that saw last year’s six billion loss swing to six billion profit, and on a big jump in dividend, but in fact the company fell short of expectations on both. Perhaps the greater point of focus for the market was the suggestion by management that the company’s US shale assets – the latest in a long history of failed mega-spending forays – are now “non-core”, meaning “up for sale”.

BHP shares rose 1.1% — not enough to make the top ten movers yesterday but enough to help the materials sector to an index-boosting 1.0% gain.

Among yesterday’s reporters on the leaders’ board we find media investor with a Caterpillar distribution business out the back – Seven Group ((SVW)) – taking gold with a 9% gain, while contractor Monadelphous ((MND)) chimed in with 5% and Sydney Airport ((SYD)), Oil Search ((OSH)) and IP services provider IPH ((IPH)) all banked 3%.

BlueScope Steel ((BSL)) bounced back 5% after a chorus of analysts called Monday’s selling overdone.

Reporters on the losers’ board were led by embattled construction software provider Aconex ((ACX)) which yet again disappointed and fell -10%, despite being one of the most shorted stocks on the market, while Corporate Travel Management ((CTD)) fell -5% and IVF company Virtus Health ((VRT)) lost -3%.

Analysts were less enthusiastic than the market over Monday’s result from APN Outdoor ((APO)), so it fell back -5%, while selling continued in Vocus Communication ((VOC)) to the tune of -5%.

Results from the likes of Seven Group ensured industrials won the day with a 1.3% gain while the only notable loser was consumer staples, down -1.0%, but that’s only because Wesfarmers ((WES)) went ex.

It was another session in which reporting season held sway, given no lead from Wall Street. Today will be different, while still being impacted by another big round of company results.

How to spark a rally

What could the White House do to try a divert attention away from CEO walkouts and advisor sackings that have rattled markets of late? Tell ‘em tax reform is getting closer.

Last night a report suggested Trump’s top aides and congressional leaders are making progress in shaping a tax reform package. Senate leader Paul Ryan made the suggestion tax reform will be a lot easier to get through Congress than healthcare reform, probably because everyone wants it.

Pass the rose-tinted glasses. Having been forced to bury the border adjustment tax plan and having failed to push through any healthcare reform bill the administration has lost two of the fundamental sources originally assumed would fund extensive corporate and personal tax cuts. Thus now, in order to see a number like 15%, policy-makers must resort to cutting a range of deductions.

To suggest these will all be accepted with a smile by Congress is to be a tad optimistic, one would assume.

Nonetheless, the news was worth a couple of hundred Dow points. One wonders why, given tax reform fundamentally underscored the whole Trump Rally in the first place. The more reasonable suggestion is that the news at least implied economic advisor Gary Cohn was not about to walk out, on the one hand, and on the other, fear has subsided now Kim Jong-un has postponed the nuking of Guam.

In other words, Wall Street has simply headed back to where it was – at all-time highs driven by solid earnings results. The Dow is closing back in on 22k and the S&P500, having bounced off the 100-day moving average, last night returned to the 50-day and stopped.

It was actually a quiet session on Wall Street. The indices step-jumped from the opening bell and went nowhere thereafter. Volume remains summer-low.

Commodities

Lead jumped 2% in London in what was otherwise a quieter session following strong gains across the base metal complex.

Iron ore rose US70c to US$78.80/t.

The new front month West Texas crude contract is little changed at US$47.60/bbl.

The US dollar received a boost from tax talk, and is up 0.4% on the index at 93.51. Gold is subsequently down -US$6.90 at US$1284.40/oz and the Aussie is down -0.4% at US$0.7910.

Today

The SPI Overnight closed up 32 points or 0.6%, which implies yet another move towards the top of the range.

Supporting that move will require good numbers from the likes of Coca-Cola Amatil ((CCL)), Insurance Australia Group ((IAG)) and Woolworths ((WOW)), who report today among a swathe of others, including Vocus.

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