The Overnight Report: Adrenalin Shot

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This story features ST. BARBARA LIMITED, and other companies.
For more info SHARE ANALYSIS: SBM
The company is included in ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 167 points or 0.7% while the S&P gained less than 0.2% to 3569 and the Nasdaq rose less than 0.2%.

Consolidation

It was a meandering session for the ASX200 yesterday with no sense of direction evident. The index fell initially to 5885 reflecting a weaker session on Wall Street but thereafter tried a couple of times to push back through 5900, reaching as high as 5908. An afternoon drift put us right on the 5900 line by the close.

I had suggested the market might want to consolidate around the 5900 mark having conquered 5800 in spectacular style, and that’s exactly what the first two trading sessions of this week have witnessed.

I also suggested individual stock names would come into focus to replace the macro move that got us here, and that, too, has been the case. As was the case on Monday, half the sectors were up and half down.

Gold miners were the stars yesterday despite there being little movement in the gold price. It’s been all about production and costs achieved in the September quarter rather than the day-to-day of USD gold, and here Saracen ((SAR)), St Barbara ((SBM)) and Northern Star ((NST)) have delivered.

On the flipside, analyst up/downgrades are making their mark in an uncertain market and yesterday we saw a downgrade for tissue maker Asaleo ((AHY)), due to rising pulp prices, knock that stock down over -8%. An apology from Vocus’ ((VOC)) chairman for a poor performance of late saw that stock fall another -4%.

Utilities were a loser on Monday but won the session yesterday with a 1.2% gain, backed up by materials on 0.6%. On the downside, consumer staples (-0.6%) continued to slide.

After looking a bit wobbly on Monday night, Wall Street fought back last night on some strong earnings reports. The local futures are up 15 this morning. As to whether this is enough to release the index from its consolidation phase remains to be seen.

There are more AGMs and production reports out today and this morning we’ll also see the September quarter inflation numbers.

Earnings Support

It was suggested late in the session on Wall Street last night that the new front runner in the race for Fed chair was John Taylor, Stanford economist and known hawk. Wall Street would prefer another Yellenesque dove, or even Yellen herself, and worries that a hawk may upset the apple cart by raising rates too quickly.

Wall Street did not really have time to digest the news before the close but US short term rates and the US dollar index did tick up at the death. Watch this space.

Another space to watch, and cringe about, is the war of words between Trump and disgruntled Republican representatives. While Senator Corker has ripped into Trump and Senator Flake has cited Trump as the reason he won’t recontest the mid-terms, given neither will be around after next year means their accusations, however accurate, probably won’t amount to much.

They certainly have not bothered Wall Street, which might otherwise have run scared on the possibility of Trump being ousted by his own party and tax reform going with him. Wall Street shrugged off the war of words last night, having become rather inured of such Twitter tantrums, and concentrated instead on the real world of earnings.

The earnings season to date has been one for the old dinosaurs – the longstanding Dow names that have been left behind in the record rally as Wall Street focused on Big Tech, the banks and energy companies. Not only have the old guards lagged, it appears they have also been shorted to fund buying in Amazon and friends, if last night’s price moves are anything to go buy.

Both general manufacturer 3M and heavy machinery manufacturer Caterpillar posted solid earnings beats last night, and jumped 6% and 5% respectively. These are not stocks that typically see such moves, hence Wall Street concluded there must have been a few shorts out there. Last week IBM did the same thing.

The anachronistic price average that is the Dow rose 167 points, and 150 of those, give or take, were 3M and Caterpillar alone.

This reality meant that while Wall Street had an overall positive session, it was only a mild one and volume was nothing spectacular. McDonalds was another Dow name to beat earnings but its share price response was more measured, while outside of the Dow, General Motors posted a solid beat and its shares rose 3%.

While traders were prepared to take the index discrepancy in its stride, commentators were still able to highlight the fact that if big old multinationals like Cat and 3M are performing well, it is a reflection of a healthy global economy.

Tomorrow night the ECB holds a policy meeting. If Draghi finally gives in and hikes, there may be some nervousness on the global economy front.

Commodities

It appears that iron ore had a look at prices in the fifties and didn’t like what it saw, so it has staged a recovery. Iron ore rose US$1.40 to US$61.70/t.

Another mostly positive session on the LME saw 1% plus gains for aluminium, nickel and zinc.

The US dollar rose 0.1% to 93.95 and gold fell -US$5.20 to US$1276.50/oz, with the late mail on John Taylor having an impact.

West Texas crude is up US55c to US$52.46/bbl. The suggestion is the Saudis will continue to talk up the price of oil by talking production down, ahead of the planned public offering of a slice of Aramco next year. US shale producers might have something to say about that.

The Aussie is down -0.4% at US$0.7779 as economists revise their last minute forecast for today’s CPI number.

Today

The SPI Overnight closed up 15 points or 0.3%.

That CPI report is out this morning.

The UK releases its September quarter GDP result tonight.

On the local stock front, Independence Group ((IGO)) releases its production report while Stockland ((SGP)) and Whitehaven Coal ((WHC)) are among those companies holding AGMs.

****

The Australian share market over the past thirty days…

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