Daily Market Reports | Sep 29 2017
This story features MACQUARIE GROUP LIMITED.
For more info SHARE ANALYSIS: MQG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS
By Greg Peel
The Dow closed up 40 points or 0.2% while the S&P gained 0.1% to 2510 and the Nasdaq was flat.
Rotation
I suggested yesterday that perhaps we might see some market-wide support evident in the local market on the back of the first look at a US tax reform package, but it wasn’t to be. Another disappointing session saw the ASX200 open up 20 points as the futures had suggested, but close up only 6. Over four days, the index has closed an average 15 points below the SPI Overnight closing level.
Instead of general buying, yesterday saw further rotation. The resources sectors led the market down, with materials and energy both falling -0.8%. For materials we can point directly at commodity prices, mostly gold, while energy’s fall appears to have been a rethink of Wednesday’s strong rally.
Or perhaps just a time to get off the resource bus and back on the bank bus, with financials up 0.4%. Utilities jumped 1.0% suggesting a move back into yield, albeit some of the bigger miners are some of the best yielders in the market right now. Healthcare also rose 1.0%, likely reflecting the weaker Aussie.
It is difficult to distinguish any particular pattern at present in a market suffering from low volumes and a lack of any clear direction.
One might ask the question as to whether US tax reform is a reason to buy. Certainly a strong US economy is good for the global economy, and thus a positive for Australia, as long as we don’t lose all our big companies to the world’s newest tax haven. Macquarie Group ((MQG)) has raised that thorny issue, noting not only what will be a distinctive tax rate differential but also the bank levy it has been slapped by the government on top.
The pressure is now on our government to reconsider its tax policy position — a government that is the latest in a long line of governments desperately trying to get the country back into surplus. Trump wants to take the corporate rate down to 20% from 35%. In Australia we recently saw a drop to 28.5% from 30%, as long as the company’s not too big.
Woohoo!
I wouldn’t hold your breath.
Today is quarter end. Such days are typically “anything can happen” days as fund managers juggle their positions and window dressing potential comes into play. The ever-optimistic futures market is showing up 14 this morning, which if the above noted average plays out again means a close of down -1, unless those windows are brightly dressed.
Difficult Sell
The US economy grew by a revised 3.1% in the June quarter, up from the prior revision of 3.0%. This was as expected and failed to excite. The September quarter will be hurricane impacted, but subsequent quarters will reflect the rebuild.
But at present it’s all about tax.
The S&P500 hit another new record high last night. Again, there wasn’t much excitement. Aside from these records being incrementally broken every other day, Wall Street is unsure what to make of the tax reform story that it has waited so long to hear.
The Dow isn’t quite back at a record, and if it wasn’t for an analyst upgrade and subsequent share price rally for McDonalds last night, the average would have been only slightly higher. The Dow Transports hit a new record nonetheless, as did the Russell 2000 small cap index – the latter reflecting the greatest beneficiaries of a lower corporate tax rate.
We can divide Trump’s tax reform package into two elements – corporate and personal. The general feeling is that the corporate part should not face too much of a Congressional stumbling block, although there might be some Democrat pushback against the extent of the cut.
The inevitable stumbling block will be the proposed personal reforms. There is still no agreement on whether the package does or doesn’t benefit Middle America over Rich America. A lack of detail does not help the debate. Until it is clear, one way or the other, who the winners and losers are, then we’d have to assume this bill is headed down the same path as healthcare.
And the two elements cannot be separated, so until agreement can be reached on the personal front, there will be no corporate tax cut.
That’s why many believe an end result will be a long time coming. That in itself is a reason not to get carried away buying stocks, but also no reason to go mad and sell everything.
The long road ahead will likely feature more of the same as 2017 up to now – incremental strength but seriously low volatility, all things otherwise being equal.
Commodities
Things are looking a little brighter for some parts of the commodity spectrum this morning, with gold and base metal prices stronger and iron ore only down slightly. Oil has nonetheless dipped.
Copper, nickel and zinc are all up around 1% in London.
Iron ore fell -US10c to US$62.70/t.
After jumping yesterday on an initial reaction to tax reform, the US dollar index is down -0.4% at 93.10, helping gold up US$4.30 to US$1286.70/oz.
West Texas crude is down -US43c at US$51.61/bbl.
The Aussie is steady at US$0.7854.
Today
The SPI Overnight closed up 14 points or 0.3%.
Australia will see private sector credit data today.
Caixin will release its take on China’s September manufacturing PMI today and Beijing will release the official manufacturing and service PMIs tomorrow. Note that China now goes into a week-long holiday period.
Japan will provide an extensive data dump today.
The US will see personal spending & income numbers, along with the Fed’s preferred PCE measure of inflation by which it will likely be mystified.
Monday is a public holiday in NSW, the ACT and South Australia. The ASX will be open but typically trading is very light, and we’re also in the middle of school holidays in NSW and elsewhere. FNArena will be open as normal but service will be abbreviated.
Note that on Sunday night we move onto summer time, meaning that as of Tuesday morning the NYSE will close at 7am Sydney time, until early November. The SPI Overnight will continue to close at 7am Sydney time over that period.
Rudi will connect with Sky Business via Skype at around 11.15am to discuss broker calls.
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The Australian share market over the past thirty days…
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