The Overnight Report: Netflicked

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            [0] => ((DHG))
            [1] => ((STO))
            [2] => ((API))
        )

    [1] => Array
        (
            [0] => DHG
            [1] => STO
            [2] => API
        )

)

This story features SANTOS LIMITED.
For more info SHARE ANALYSIS: STO
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed down -3 points while the S&P rose 0.2% to 2839 and the Nasdaq gained 0.7%.

Sentiment Swing

After Monday’s session on the Australian market it looked for all the world like a period of consolidation below what was the 6000 support level for the ASX200 was imminent, following five down-sessions and seeming capitulation with regard the country’s biggest bank. Then yesterday, sentiment swung.

Wall Street posted a buoyant close to its Monday night session on news the US government will most likely reopen again, albeit only for a couple of weeks unless a compromise can be reached, yet Wall Street did not sell off when the government was actually closed. This provided at least some tenuously related impetuous for the local market to reclaim 6000 from the opening bell.

Asian markets, particularly Japan, then started to run after the Bank of Japan kept its negative interest rate policy in place. It was not a shock, but there was some fear the time is nearing that the BoJ will be forced to start tightening policy in line with stronger global growth. The Nikkei jumped 1.2%.

The IMF announced it had raised its global growth forecast. Good news, except that the IMF is typically a good six months behind the curve.

Whatever the specific driver, it was a Buy Australia day yesterday, with a gain for every sector suggesting index buying rather than sector selection or rotation. Telcos (+0.01%) only just managed to join in, but when we consider energy gained 1.7% without a move in the oil price, materials gained 0.6% with iron ore down -3%, and the banks gained 0.8% after having fallen by that amount on Monday, sector-specific factors were clearly not in play.

There was no selling anywhere to fund fund buying elsewhere. Healthcare has been a solid performer during recent weakness, and it was up another 1.1%, aided by a strong earnings result from ResMed (+8%). Consumer staples have also bucked the weak trend, but they were still up 0.4%. It’s as if all the holiday-makers who one assumes came back to work on Monday actually waited till Tuesday.

Apparently the departure of the Domain Group ((DHG)) CEO does not signal the end of the world as we know it after all, as that stock rebounded 9% following Monday’s -17% fall.

The index is now safely back over 6000 and with Wall Street only mildly positive overnight, the futures are suggesting a further 17 point gain. Happy days are here again, apparently.

Earnings Support

I noted in yesterday’s report that Netflix shares had risen close to 20% year to date, rose 7% on the day before the company’s aftermarket result release and were up 3% thereafter as I was writing. Well, Netflix jumped 10% last night. Is it all just a House of Cards?

Stockbrokers typically end a year by posting their predictions for the index – in the US case the S&P500 – for the following year. Late in 2017 BofA Merrill Lynch forecast a 2800 close in 2018 for the S&P. Early in December the index was around 2650. Last night, three weeks into the year, Merrills raised that target to 3000, citing tax reform benefits.

Dow stocks were front and centre in last night’s round of earnings results. Insurance giant Travelers beat forecasts and rose 5%, Proctor & Gamble beat forecasts and fell -3%, Johnson & Johnson posted increased sales but is a loser form the tax laws, hence it fell -4%, while General Electric had its best session in over two years in rising 4% ahead of its result.

At the turn of the century, GE was trading close to US$60. Now it’s at US$16. Given the Dow is a price average and, by comparison, Goldman Sachs, for example, trades at US$270, the original Dow component may as well not even be there.

There’s still a long way to go for US earnings season. Irrespective of the earnings US companies were able to generate in the December quarter, focus is on what impact tax cuts will have from the March quarter, and what companies plan to do with the money. While we have already seen talk of investment, and hiring new staff, inevitably we are also hearing of planned share buybacks and immediate dividend increases.

And there’ll be more to come.

Commodities

Iron ore was down another -US$2.20 to US$73.70/t. Are we beginning to see the arrival of Chinese New Year related volatility? China shuts down from February 15.

A surge in LME copper inventories sent that metal down -2% in London. The other base metals posted small moves.

Gold continues to rise as the US dollar index continues to fall. The former is up US$5.70 at US$1339.80/oz and the latter is down -0.3% at 90.14. The Aussie is steady around US80c.

Oil traders are expecting a fall in US inventories to be noted in this week’s data. Hence West Texas crude is up US$1.07 at US$64.64/bbl. Brent has cracked 70.

Out of interest, US natural gas futures were up 9% last night having been up 20% since before Christmas.

Today

The SPI Overnight closed up 17 points or 0.3%.

Santos ((STO)) delivers its quarterly report today. Australian Pharma ((API)) holds its AGM, having been the worst performer on the market yesterday (-6%).

****

The Australian share market over the past thirty days…

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