The Overnight Report: Rate Rise

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            [3] => ((AWE))
            [4] => ((MIN))
            [5] => ((ASB))
            [6] => ((BPT))
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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Good Luck Mate

The Commonwealth Bank ((CBA)) board searched the world for someone to revive the faltering empire, but there were no takers. The board thus appointed internally. Good luck Matt Comyn.

CBA rose 0.7% on the news but it was a local session featuring market-wide buying, with only the industrials sector standing still as all others closed in the green. The banks were up 0.6% and an opportunity arose, it appears, to pick up Telstra ((TLS)) cheaply after a weak start to the year. Telcos were the best performers with a 1.6% gain.

Healthcare (+1.2%) just keeps on keeping on despite the stronger currency with punters deciding the flu epidemic in Europe is good news for CSL ((CSL)).

Energy explorer/producer AWE Ltd ((AWE)) is not in the ASX200 but keeps making headlines as suitors continue to knock on its door. Mitsui has now popped up with a 95c cash bid, gazumping Mineral Resources’ ((MIN)) earlier cash/scrip bid, which gazumped a Chinese group’s earlier cash bid. The board had already recommended the MinRes offer to shareholders but AWE shares jumped another 16.5% yesterday. The share price has doubled since October.

In economic news, Australia’s all-important housing market is clearly beginning to cool. Prices nationally fell -0.4% last week having fallen -0.3% the week before. There were only 22 auctions in Sydney over the weekend compared to 55 one year ago, and 82% of those houses sold compared to 65% a year ago, which presumably implies less stratospheric pricing.

But it’s okay. Within ten years Australia will be a major arms exporter. Apparently we’re good at making ships and things, which seems in sharp contradiction to the past few years of naval tenders, but anyway. We know Austal’s ((ASB)) good at it. And apparently we make impressive monster trucks.

Yesterday’s index-wide gain took the ASX200 to 6075 from 6050. We won’t be looking at 6100 today though, it seems. Wall Street has seen some profit-taking, oil, iron ore and gold are all down and the futures are showing down -23 this morning.

Have a Rest

The US ten-year bond yield rose 4 basis points last night. Unremarkable, one might think, except that that takes the yield to 2.70% to mark its highest level since April 2014. Last September the ten-year was threatening to drop below 2.00%.

All and sundry had expected US yields to move up back when the Fed started tapering QE, and then again when the Fed began raising rates, but with Europe and Japan hanging onto negative cash rates, it just didn’t happen. It is happening now, however, ever since US tax reform was passed and debate heated up as to whether the Fed will hike three times or four this year.

And debate is also raging over just how long the ECB and BoJ can maintain easy policy in the face of global economic growth.

The Fed meets this week, with Janet Yellen bidding her farewell. Markets will be looking for clues as to the extent of the Fed’s hawkishness. Donald Trump delivers the annual State of the Union address tonight. Anything could happen.

The US dollar index caught a bid last night as bonds were sold, bouncing 0.3% to 89.34.

All of the above proved reason enough for Wall Street to take a breather last night and lock in some profits after a very strong opening month. There was an attempt to recover mid-session from early falls but the sellers lined up at the close, as month-end approaches.

An interesting conundrum regarding rising US bond yields was presented with the release of December personal income & spending data. Consumer spending rose 0.4% in the month, slightly below 0.5% expectation but capping off the strongest year since 2011. But the personal consumption & expenditure (PCE) measure of inflation rose only 0.1% and fell to 1.7% annual from 1.8% in November.

The Fed’s preferred inflation gauge, the core PCE, rose by 0.2% but annually remained flat at 1.5%. This is the number for which the Fed has a target of 2.0% which, at present, seems like a pipedream. Why would the Fed need to raise rates?

Incomes rose 0.4% in December for 3.1% annually, but that’s only 1.2% after inflation and the lowest level since 2010. The savings rate fell to 2.4% to mark the lowest level since 2005. Fed rate rises may well be damaging.

Unless the US economy justifies the moves, and that will come down to the boost from tax reform and, yet to be ratified, infrastructure spending.

Commodities

A jump in the US oil rig count last week has brought the WTI price back to earth a bit, as did the dollar bounce last night, which also hit gold.

Falling stockpiles helped push zinc to a ten-year high while demand expectations continue to support nickel.

The Aussie is hanging in there despite the dollar bounce, down only slightly at US$0.8097.

Today

The SPI Overnight closed down -23 points or -0.4%.

The State of the Union address will be closely watched in the US tonight.

The eurozone will release its first estimate of December quarter GDP.

Locally we’ll see NAB’s business confidence survey for December.

It’s a big day in the local resources sector as the quarterly reporting season wraps up. Reports are due today from Beach Energy ((BPT)) and miners Evolution ((EVN)), Fortescue ((FMG)), Newcrest ((NCM)), Perseus ((PRU)), Sandfire ((SFR)) and Syrah ((SYR)).

And today marks the beginning of what will be the February earnings result season. We kick off with Credit Corp ((CCP)), CYBG ((CYB)) and Navitas ((NVT)).

The Australian share market over the past thirty days…

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