The Overnight Report: Driving Higher

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            [3] => ((TNE))
            [4] => ((GXY))
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This story features QBE INSURANCE GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: QBE
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 84 points or 0.4% while the S&P rose 0.2% to 2534 and the Nasdaq gained 0.2%.

Disappointing

While we always needed to take Monday’s sharp rally in the local market with somewhat of a grain of salt due to very low volumes, given half the country was on holiday, yesterday’s weak close was not what was expected from the open. Monday now appears a complete blip as yesterday saw a return to the recent theme of misplaced morning optimism.

The futures suggested up 19 points before the bell and the ASX200 closed down -27 to be back at 5700 again. Just as had been happening all last week.

Energy led the index down with -1.1% fall. That was to be expected after an overnight tip-over in the oil price. Otherwise, the session featured a series of individual bad news stories that were not anticipated at the open.

QBE Insurance ((QBE)) announced that thanks to the hurricanes in the US and earthquake in Mexico it was shaping up to be the biggest year ever for claims losses. The financials sector fell -0.7%.

Yarra trams announced it would not be renewing its advertising contracts with APN Outdoor ((APO)), which had the trams, and HT&E’s ((HT1)) Adshel, which had the tram shelters, preferring to combine the contract into one. While both companies picked up a deal with Melbourne’s trains, having lost the trams, HT&E was the biggest loser in falling -12.2% while APN fell -6.6%. Consumer discretionary fell -0.7%.

Business solutions company Technology One ((TNE)) issued a profit warning. Its shares fell -10.4% and the IT sector fell -1.0%.

Was there any good news? Well, there was speculation lithium miner Galaxy Resources ((GXY)) had signed a supply deal with Panasonic, supplier of batteries to Tesla. Its shares took off before easing back to be up 5.8% at the close, with no confirmation forthcoming.

And there was this:

“Over recent months there have been more consistent signs that non-mining business investment is picking up. A consolidation of this trend would be a welcome development. Business conditions as reported in surveys are at a high level and capacity utilisation has risen. A large pipeline of infrastructure investment is also supporting the outlook. Against this, slow growth in real wages and high levels of household debt are likely to constrain growth in household spending.”

Another relatively upbeat assessment of the Australian economy from the RBA but again, the hovering clouds of low wage growth vis-à-vis high household debt and the current strength in the currency will likely assure no rate rise in the foreseeable future.

The futures are up 15 points this morning. They were up an average of 15 points every day last week and every day proved misguided, as was the case yesterday. Only Monday’s holiday rally has ensured the index has gone nowhere, again.

Wall Street was once again stronger last night but as recent local trading proves, there is no correlation. What is driving Wall Street are quite simply industries Australia does not have.

Another Day…

Like a car industry, for example. It was perhaps fitting that a day after the last locally manufactured Toyota rolled off the production line in Australia – indeed the last car period – US vehicle sales data for September completely blew away all forecasts.

Forecasts were already elevated due to the expected boost car sales would enjoy due to Harvey and Irma, but now analysts are wondering whether they simply underestimated that number or did the data also reflect more buoyant, non-hurricane related purchases?

Either way, shares in Ford (Dow) and GM took off.

Ford helped the Dow to another outperformance of the other indices but all four, Russell included, again posted record highs.

Never has a rally been so unloved. Just about every commentator views the never ending rally with a deal of trepidation, while at the same time suggesting it is most likely to continue. And there remains an expectation that were tax reform to be passed, Wall Street would enjoy another leg up.

Or would it?

Warren Buffett threw an interesting spanner into the works last night when he noted in an interview that while he does have stock positions he would like to unload right now, to fund new ones he’s putting on, he is not going to do so until he knows what the story is with tax reform. Potentially, he may only need to pay 20% capital gains tax on his sales rather than the current 35%.

Which begs the question, how many Buffets are there out there? Given Wall Street has done nothing but go up since Trump was elected on a tax reform agenda, has the excitement of tax reform not yet been priced in? Could we in fact see a long awaited correction triggered by exactly that which everyone has been praying for, due to pent up sell orders held over to exploit a lower tax rate?

Or will 2017 simply be the first year in a long time that the fourth quarter does not shine and the Santa rally goes quite the other way when the Fed both begins tapering its balance sheet and hikes its cash rate once more?

That is a prediction that’s currently gaining some traction.

Commodities

China might be on holidays this week but that has not stopped speculation mounting that Beijing’s crackdown on high pollution base metal mining will be a serious one. Currently some 60% of the country’s lead-zinc mines, for example, are temporarily shut down pending inspection.

Last night in London saw aluminium and zinc gain 1%, nickel 1.5% and lead 2.5%, with copper having a rest.

Iron ore is unchanged at US$61.50/t.

The US dollar index also had a breather last night. It’s steady at 93.56 and gold is steady at US$1270.40/oz.

West Texas crude is down -US17c at US$50.37/bbl.

The Aussie is up 0.1% at US$0.7836.

Today

The SPI Overnight closed up 15 points or 0.3%.

It’s service sector PMI day across the globe today.

The private sector jobs report for September will be released in the US and Janet Yellen will speak.

****

The Australian share market over the past thirty days…

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