The Overnight Report: Hold That Plane

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This story features AUCYBER LIMITED, and other companies.
For more info SHARE ANALYSIS: CYB

By Greg Peel

The Dow closed down -64 points or -0.3% while the S&P fell -0.1% to 2597 and the Nasdaq rose 0.1%.

Beyond 6000

Yesterday’s action on the ASX looked very similar to Tuesday’s trade, with the index opening higher from the bell, stumbling, and then kicking on to a solid close. While not every sector finished in the green yesterday, only two (defensives) missed out.

With the market in an index-buying mood at present, another push to 6000 is on. With Wall Street closed tonight and as good as closed on Friday, we may need to wait until next week for the incentive.

Energy (+1.1%) and materials (+0.8%) were always set to lead the index higher yesterday following strong commodity price moves overnight. The banks (+0.2%) sat it out, given CYBG’s ((CYB)) strong result on Tuesday had that stock up another 6.2%.

Utilities (-0.6%) was the laggard after Tuesday’s bounce and telcos slipped -0.2%.

The interesting moves came from consumer staples (+1.1%) and consumer discretionary (+0.2%) given the announcement Amazon is set for a “test launch” today. Not satisfied with disrupting the retail world, now Amazon wants to take on Kim Jong-un. One presumes the Amazon announcement was met with a “buy the fact” trade given the consumer sectors have suffered since they learned Amazon was set to launch before Christmas – earlier than previously expected.

The busy week in the AGM season continues to bring results season-like responses in individual stocks.

Train crash of the day was travel agent Webjet ((WEB)), which fell -11.6% on weak guidance. Qube Holdings ((QUB)) was another to disappoint at its AGM, falling -3.4%. Star of the day was lithium miner (and other things) Minerals Resources ((MIN)), which popped 12.6%. This move also floated the boat of battery peer Syrah Resources ((SYR)), which rose 8.3% (most heavily shorted stock on the market).

A2 Milk’s ((A2M)) AGM was earlier in the week but that stock kicked on another 6.3%, while having reported poor results earlier in the week Fisher & Paykel Healthcare ((FPH)) and ALS ltd ((ALQ)) continued their slides, down -5.3% and -3.2% respectively.

Australian September quarter construction work done numbers were out yesterday. This data set has become reminiscent of monthly durables goods orders numbers in the US. Each month’s result can be impacted by big-ticket aircraft orders, or not, leading to lumpy distortions. Hence each month economists extract aircraft orders to determine the more indicative underlying trend.

Economists had expected yesterday’s construction numbers to be slightly softer, down -2.3%, following a strong June quarter of 9.8% growth. Instead the result was +15.7%. The reason being, LNG platforms were imported during the period (more than in June), for the Ichthys and Prelude projects. Not sure why importing an LNG platform counts as construction, but I suppose someone locally has to install the buggers. Ichthys and Prelude are both foreign-owned.

Strip out LNG and both housing and non-residential construction fell modestly in the quarter, supporting economist expectations. Engineering construction remained strong led by government infrastructure spending, particularly in NSW and Victoria. Underlying engineering was actually weak in NT (Ichthys) and WA (Prelude).

ANZ economists expect private sector construction to make little contribution to September quarter GDP growth.

Minutes to Midnight

The December Fed meeting is now only three weeks away. Last night the minutes of the November Fed meeting were released.

The take-away from those minutes is that the FOMC is beginning to believe that perhaps low inflation is not “transitory” at all, but indeed structural. The assumption all year has been that a strengthening labour market will naturally translate into higher wages and thus inflation, because that’s how it always worked in the twentieth century.

But US core PCE inflation is lower now than it was at the beginning of the year, as is the unemployment rate. It’s a pity the matter of George Jetson’s wage never arose back in the day, as maybe Yellen & Co would be better able to understand what life in the twenty-first century is actually like. Okay, we’re not (yet) all in flying cars, but the Jetsons did have a robot housekeeper. Therein lies one clue.

Another clue is called The Internet.

The bottom line is that while a December rate rise is still considered a given, concern among FOMC ranks suggests further rises in 2018 are now less of a safe bet. If inflation is structurally low, then rate rises are unnecessary. However, low rates are fuelling surging asset prices (See: constant records on Wall Street) and thus to leave rates low would be to risk a bubble. This has the Fed in a quandary.

Speaking of US durable goods orders, they fell -1.2% in October when economists had expected a 0.7% gain. But take out those lumpy aircrafts, and orders rose 0.4%.

Last night the weekly US crude inventory numbers weren’t quite as bullish as was expected on Tuesday night, but WTI jumped another 2% anyway. The suggestion is that with the OPEC meeting coming up next week, short-side oil players did not want to carry their positions across what is effectively a four-day long weekend.

Indeed, last night’s session across all markets was impacted by low volumes and thin trading as slowly trading rooms began to empty and planes, trains and automobiles were put into action. The US dollar index dropped -0.8% on Fed hesitance, which will have helped the oil price along with gold and other commodities.

In the wash up, the Dow slipped a bit after Tuesday night’s rally but the S&P and Nasdaq did not move much. US markets are closed tonight and a half-day Friday on the NYSE will feature very low volumes.

Commodities

The US dollar index is down -0.8% at 93.24. Gold is up US$11.50 at US$1291.50/oz.

West Texas crude is up US$1.05 at US$57.98/bbl.

Aluminium and zinc were both up 1% in London, with copper adding another 0.5%.

Aussie traders took the deceptively strong local construction numbers in their stride hence a 0.4% rise to US$0.7610 is all about the weaker greenback.

Today

The SPI Overnight closed up 4 points.

Japan is closed today, as well as the US tonight.

There are no earnings results on the local stock calendar today, but plenty of AGMs.

Within today’s lengthy list are Beach Energy ((BPT)), Primary Health Care ((PRY)), South32 ((S32)), Saracen Minerals ((SAR)), Woolworths ((WOW)) and Western Areas ((WSA)).

Rudi will travel to News Corp headquarters in Surry Hills to appear on Sky Business from noon-2pm.

****

The Australian share market over the past thirty days…

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