The Overnight Report: Profit-Taking

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            [3] => ((TLS))
            [4] => ((AGL))
            [5] => ((TPM))
            [6] => ((TTS))
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This story features G8 EDUCATION LIMITED, and other companies.
For more info SHARE ANALYSIS: GEM
The company is included in ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -109 points or -0.5% while the S&P lost -0.4% to 2629 and the Nasdaq fell -0.2%.

Strange Days Indeed

Yesterday morning I suggested that the -30 point close on the SPI Overnight “seems harsh”, which is the best I could come up with given I could see no reason why the ASX200 would be that weak.

Well at 10.18pm, the index was down -37 points. At 11.40am, it was exactly back where it started. What was that all about? There followed a slight drift-off to the close.

The consumer discretionary sector was weak on Monday thanks to G8 Education’s ((GEM)) -23% rout. Brokers suggested yesterday this was overdone and the stock bounced 5.3%. Amazon launched yesterday to little fanfare and the sky did not fall in. JB Hi-Fi ((JBH)) subsequently leapt 6.8% and Harvey Norman ((HVN)) 6.3%. Consumer discretionary closed up 1.1%.

The move was underpinned by the October retail sales data, which are becoming increasingly more critical as we head into Christmas. After a string of worryingly weak months, October sales jumped 0.5% when 0.3% was expected.

Consumer discretionary was nevertheless overshadowed by telcos, which jumped 2.6% on the back of Telstra’s ((TLS)) 3% gain. The big telco sold off on the news of the NBN’s HFC connection stuff-up but analysts have since pointed out the impact is at worst neutral for Telstra, and at best a positive if the government writes off its equity in the NBN.

Materials fell -0.5% yesterday despite another big move up for iron ore. Yesterday’s September quarter current account data showed that on a balance of stronger iron ore, coal and metals exports but lower prices for those exports, the contribution to GDP in the quarter of exports net of imports will be a big fat zero. Economists had expected a repeat of the June quarters +0.3ppt contribution.

Elsewhere, the banks continued to slip away, down another -0.5%. Utilities was the only other sector to finish in the green, with a 0.8% gain. AGL Energy ((AGL)) has bounced 6% since bottoming out last month.

The RBA met yesterday. Nothing to see there.

An interesting snippet, courtesy of my good mate Clarence Beeks, highlights the disparity between the economies of Sydney and Melbourne compared to the rest. The RBA cash rate is 1.5%, but analysts suggest were each city a separate entity, Sydney’s cash rate should be 3.5%, Melbourne 2.25%, and Brisbane, Adelaide and Perth 0.25%.

No wonder the RBA can only stay put.

The futures are down -26 points this morning, but this time with some justification. Wall Street is down more decisively, and copper and nickel have taken a bath.

Sell Ahead of the Fact?

There was nothing new to report on the US tax front last night, other than Democrat supporters storming Capitol Hill to vent their anger at what they see as a bill for the rich (when one actually emerges). Having been sold down on Monday night, Big Tech stocks rebounded early in last night’s session.

But not for long. The rebound fizzled out as the other indices drifted south. The big winner from tax reform – the Russell small cap – fell another 1.0% after a similar fall on Monday night.

Recent selling on Wall Street appears to be nothing more than taking money off the table after a stellar run all year. Against all expectation, a tax reform bill appears to be getting close, assuming the two houses can find common ground (which if they can’t, is a big risk in itself). If a bill is passed, how much more upside could Wall Street possibly have on tax alone?

There has been a lot of speculation a successful tax bill might be met with a “sell the fact” response from traders. The last few sessions suggest many traders are not even waiting for the fact. It’s not dramatic, just a bit of squaring up for a happy Christmas regardless of what happens next. December is also the month US investors begin “tax selling” – dumping losing stocks to use that loss as a tax offset against winners.

There’s probably still a couple of weeks to go before agreement is reached in Congress, if it is to be reached at all in 2017. On Friday we see the last US jobs report of the year, which will swing the focus back on monetary policy. Next week is the December Fed meeting, at which a rate hike is expected.

Commodities

Progress towards a tax bill has managed to lift the US dollar out of its rut, for now. The dollar index is up another 0.1% at 93.32. Copper has been a bit of a star of late on the commodities front, but last night’s LME data showed a jump in inventories.

It was enough to trigger a stampede, sending copper down -4%. More volatile nickel fell -5% in sympathy, and zinc lost -2%. Aluminium and lead watched on.

Iron ore fell -US50c to US$70.80/t.

Gold is down -US$9.50 at US$1266.30/oz.

West Texas crude is up US20c at US$57.65/bbl.

The Aussie is up 0.1% at US$0.7610, thanks to a reduction in the current account deficit.

Today

The SPI Overnight closed down -26 points or -0.5%.

Australia’s September quarter GDP result is out today, with 3.1% annual expected.

US private sector jobs numbers are out tonight.

TPG Telecom ((TPM)) holds its AGM today and Tatts ((TTS)) goes ex.

****

The Australian share market over the past thirty days…

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