The Overnight Report: Taking On The Beast

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            [3] => ((RRL))
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This story features NORTHERN STAR RESOURCES LIMITED, and other companies.
For more info SHARE ANALYSIS: NST
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 69 points or 0.3% while the S&P rose 0.2% to 2550 and the Nasdaq gained 0.1%.

New Range

A couple of months ago we were asking the question of whether the ASX200 can ever break through 5800, having failed to so on multiple occasions. Now that number is clearly 5750, as yesterday’s trading cemented. At the bottom of the range, 5650 is the new 5680.

Trading began yesterday with at least one wood duck computer heading in completely the wrong direction, sending the index down -20 points in the first eight minutes. Twelve minutes later it had recovered that loss, plus some, and all the other computers fell about laughing, pointing at the guy who believed the overnight futures’ indication.

Just before midday we hit 5750 and then it was game over. Up 21 points fizzled through the afternoon to down -6 by the close.

Despite the small net move, only two sectors finished in the green to counter red elsewhere. Materials crawled to a 0.1% gain thanks to some good news for gold miners, while consumer discretionary kicked on 0.6% following Monday’s rally for the sector.

The WA government has failed to pass a planned increase for the state’s gold mining royalty. The plan was to lift the royalty from 2.5% to 3.75% for gold sold over A$1200/oz (currently trading just over A$1900/oz) and remove the volume-based royalty-free threshold. It was a positive for WA-based miners such as Northern Star ((NST)), St Barbara ((SBM)), Saracen ((SAR)) and Regis Resources ((RRL)).

Energy was otherwise the worst performer on the day, falling -0.9%. Moves were less significant in other sectors.

Conditions for doing business in Australia at present remain at decade highs, according to NAB’s business survey for September. NAB’s conditions index ticked up to 14.3 from 14.1 in August. Confidence in the future is less buoyant but improving, with the confidence index rising to 7.4 from 5.4.

The strongest conditions continue to be felt in the construction sector. This sector is enjoying a sweet spot at present as the tail-end of the housing construction overhang in the major cities meets the ramp-up in government-funded infrastructure projects. Such conditions bode well for ongoing strength in employment.

The net outlook for construction is the strongest it’s been in years, suggest ANZ’s economists, providing the offset to the decline in mining investment. But that decline is now reaching its nadir – just a couple more big LNG projects to move out of the investment phase, like we need them – and the outlook for mining is also starting to improve.

It all sounds very rosy. Someone please tell the stock market.

Anything you can do…

In 2016, US supermarket giant Wal-Mart opened 230 new stores in the US. Last night the company announced that in 2019, it plans to open fewer than 25. It will shift its store opening focus to Mexico and China but domestically, Wal-Mart is targeting 1000 new online pick-up locations in the US next year.

It was at the same annual presentation this time two years ago that Wal-Mart first unveiled its e-commerce plans to a sceptical market. Since that time the share price has risen 27%. The company is forecasting 40% growth in online revenues next year. Only recently did Amazon acquire Wholefoods.

Why should we care in Australia? Because all we hear from the local retail sector is the sound of rattling knees. Wal-Mart is, fair enough, a rather sizeable operation but it is proving that the dragon can indeed be slayed, or at least tamed.

Wal-Mart’s 5% gain last night was the primary driver of the Dow’s 47^th new record high for the year, with a bit of help from the energy sector.

No one ever expected OPEC to stick to the production cut targets set last year. It never had before. Yet last night Saudi Arabia announced it will further cut its own production. OPEC also called on US shale producers to join the game.

One doubts Big Oil is going to listen to the likes of Saudi Arabia, but the US rig count is declining nonetheless. Otherwise, a 3% pop for the WTI price last night largely represented projections of just how much Gulf crude production will have been lost as a result of the storm formerly known as Hurricane Nate, which still has 60% of production offline.

Beyond these specific drivers, Wall Street awaits tonight’s release of the minutes of the September Fed meeting and Thursday night’s earnings result from flag bearer JP Morgan (Dow).

Commodities

West Texas crude is up US$1.43 at US$50.95/bbl.

Nickel rose 0.5% in London last night, despite having leapt 4% the night before. Copper, lead and zinc all posted gains of 1-2% while aluminium slipped -0.5%.

Metal prices were supported by a -0.5% drop in the US dollar index to 93.24, driven by a spike in the euro, which was driven by the Catalan leader’s announcement that independence is “suspended”. No one quite knows what that means, but in terms of Spanish and EU stability, it has been taken as a positive.

Gold nevertheless ignored the dollar and is up US$4.20 at US$1288.20/oz.

Alas, the dollar provided no relief for the iron ore price, which has tumbled -US$2.50 to US$59.10/t.

The Aussie is up 0.3% at US$0.7780.

Today

The SPI Overnight closed up 15 points. It seems 15 is the futures traders’ favourite number at present. That result would require strength in energy to overcome weakness in materials, one presumes.

Westpac will release its monthly consumer confidence survey today.

The minutes of the Fed meeting are out tonight.

BlueScope Steel ((BSL)) will hold it AGM today.

****

The Australian share market over the past thirty days…

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