The Overnight Report: One Day Wonder

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This story features BEACH ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: BPT
The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -11 points while the S&P was flat at 2496 and the Nasdaq rose 0.2%.

Another Failure

I suggested yesterday that the 14 point gain expected by the futures market ahead of the open could only be supported by the resource sectors as it looked otherwise optimistic against selling on Wall Street. As it was the ASX200 opened up around ten points and failed.

It had another go, rising to almost 5700 by 11am but it again failed, and thereafter the buyers gave up.

The energy sector did its best, jumping 1.9% on the 3% rise in the oil price, with all of the Big Three oil&gas companies finishing in the top ten best performers along with Beach Energy ((BPT)) and servicer Monadelphous ((MND)). But energy stood out like the proverbial pork chop.

The iron ore price had bounced, slightly, but this did not prevent further selling in the big mining names. Nor did the jump in the gold price inspire anything notable in that space. Materials finished down -0.4%. Ongoing talk of Commonwealth Bank ((CBA)) having lost its leadership position (and perhaps, its way) helped the banks down -0.4%, with CBA the biggest single negative contributor in the index.

The worst sector result was saved for consumer discretionary, after a bit of bargain hunting in recent sessions. It fell -1.3%, led by ongoing fallout from the weak (?) result from Premier Investments ((PMV)), a likely fall in sympathy for Harvey Norman ((HVN)) for just being a retailer, and a bad day for both the Sevens, West Media ((SWM)) and Group ((SVW)) following the reporter sacking scandal.

There was a timid attempt by the defensives of utilities and consumer staples to carry the can while info tech lost out on lower US bond yields impacting on Computershare ((CPU)).

A mixed bag behind sector moves and all with their own stories to tell. There appears no incentive to buy “the market” at this point. How long can it hold on?

Well, those ever optimistic futures traders have us up 16 this morning, despite Wall Street closing flat. Iron ore has scraped back some more ground but gold has fallen back to where it was and oil was quiet, so resources are not necessarily set to be the saviours today.

Option Two

Both the White House press secretary and the president insisted last night that a military option with regard sorting out North Korea is the second option, with diplomacy still the first. The president couldn’t help but reiterate that NK would be “destroyed” by option two but either way this insistence appeared to go some way to appeasing markets. Further sanctions were announced against NK banks and individuals.

Either way, Wall Street has become accustomed to these occasional bursts of fear, mostly regarding NK of late, which never ultimately amount to anything. Buyers see opportunity and typically by the next day it’s back to business as usual.

It wasn’t exactly a convincing reversal in US stocks, with the Dow giving up an initial 70 point gain to close down slightly. But the buyers did move in to pick up the FANG names at cheaper prices after their sell-down on Monday night.

The most notable move was in gold, which jumped thirteen dollars on Monday night and fell back sixteen dollars last night without any real change on the geopolitical front. We can probably put that down to Janet Yellen.

The conclusion of Yellen’s lengthy speech last night is that it would be imprudent not to raise rates even before inflation reaches 2% in case a tightening labour market sparks a sudden and irrevocable inflation explosion. This is a complete about-face from around a year ago when Yellen suggested it would be okay to run the US economy “hot” for a while, meaning hold off on the rate rises until inflation does show signs of picking up.

The about-face is tied in to the Fed’s admission that it has no idea why inflation has not risen to date. What it does mean is that Yellen has swung from dovish to hawkish, and that we can pretty much lock in that December rate hike.

It’s what Wall Street has been expecting but the speech probably cooled off the stock buying later in the day.

In fiscal news, no one paid much attention to the fact the latest attempt at a healthcare billed has again failed and will not even go to a vote. I’ve lost count of what number attempt we’re up to. The White House said it will now move on to tax reform, which is exactly what they said last time, and all we got was another healthcare bill and no apparent progress on the tax reform front.

Wall Street is staying tuned, and if nothing happens in the short term there’ll be enough to focus the market from early next month when September quarter earnings results start rolling in.

Commodities

On a combination of easing fears and Yellen, the US dollar index is up 0.4% at 93.00 and gold is down -US$16.70 at US$1293.60/oz.

A mixed session on the LME has aluminium and nickel down -1% and copper down -0.5% with zinc up 1% and lead up 0.5%.

Iron ore rose US60c to US$64.00/t.

West Texas crude is steady at US$52.09/bbl.

If the Fed raises and the RBA holds off due to excessive household debt, the Aussie should be lower. It’s down -0.6% at US$0.7886.

Today

The SPI Overnight closed up 16 points or 0.3%.

China will release industrial profits numbers today while durable goods data are due in the US.

One of the most anticipated AGMs of the year will be held today by Malcolm Turnbull’s favourite energy company, AGL Energy ((AGL)).

Myer ((MYR)) goes ex.

Rudi will host Your Money, Your Call tonight, 8-9pm, on Sky Business.

****

The Australian share market over the past thirty days…

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