The Overnight Report: Headless Chooks

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            [5] => ((A2M))
            [6] => ((BAL))
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            [9] => ((SOL))
            [10] => ((CAR))
            [11] => ((FLT))
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            [6] => BAL
            [7] => BKW
            [8] => SIG
            [9] => SOL
            [10] => CAR
            [11] => FLT
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This story features RIO TINTO LIMITED, and other companies.
For more info SHARE ANALYSIS: RIO
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Rotation

In another session which suggests the humans should just stand the hell back for the first hour or more, the ASX200 opened up 27 points in the first minutes before being immediately sold down, all the way back by 11.45am, before rebounding again up to lunch time. Then it had a snooze.

A close of up 13 points suggests not a lot happened, and it didn’t, by day’s end. There were some notable moves in sectors nonetheless.

After falling for over a week, the banks finally found some valuation support and rose 0.6%. Energy unsurprisingly led the market with a 1.2% gain on the stronger oil price while materials rose 0.5% despite lower iron ore and metals prices.

For materials, the story of the day was Glencore’s bid for Rio Tinto’s ((RIO)) Queensland coal assets at a price greater than analyst valuations. The news did little for Rio, which closed flat as a tack on the counter-drag of the lower iron ore price, but it did send Whitehaven Coal ((WHC)) shares up an ASX200-leading 8.8%.

Whitehaven’s coal assets are nearby Rio’s in Queensland, and the company is not in iron ore.

Weed killer Nufarm ((NUF)) reported its earnings result and enjoyed a 5.4% gain to take the silver on the day and further boost the materials sector.

Traders funded their purchases of these cyclical stocks – resources obviously, and I think by now we can call banks “cyclical” – evident in a -0.5% fall for healthcare, -0.7% for telcos and -0.9% for utilities.

Elsewhere moves were less consequential, as the local market prepared for last night’s Fed meeting.

Stepping outside the ASX200, Myer ((MYR)) posted a shocker with its earnings result, which included a large and inevitable goodwill write-down and a dividend suspension, but no one was actually that shocked. The result was only worth another -3.5% for a stock that is now down -88% from its 2010 high.

On the flipside, if you’re not into milk, you’re not in with the in-crowd. Synlait Milk’s ((SM1)) result was worth a 14.5% pop to put it right up there with peers a2 Milk ((A2M)) and Bellamy’s ((BAL)) as success stories of the age. Social media, Big Data, cloud computing, and milk. One of these things is not like the others.

Does China not have cows?

At sixes and sevens over threes and fours

Wall Street decided to push the Dow up over a hundred points ahead of last night’s Fed rate decision, suggesting the market was expecting a dovish rather than hawkish statement. On the statement release, the Dow shot up another hundred points.

In short, the statement suggested only three rate hikes in 2018 – two more after last night’s 25 basis point hike to 1.50-1.75% — rather than four. But wait…

The so-called “dot plots” – FOMC member projections into the years ahead – suggested three more rate hikes in 2019 as well, to above what is being currently considered the “neutral” rate. Sell!

The Dow plunged two hundred points.

But when pushed at the press conference, new Fed chair Jerome Powell suggested, in not so many words, that dot plots are a largely useless exercise in crystal ball gazing and should be ignored as such. What matters is the now, not the then, as who knows what might happen in the meantime? The now is one rate hike.

The Dow rallied back a hundred points, meaning with half an hour to go it was up a hundred-odd for the session. Then the sellers moved in at the death. A close of down -44 suggests no real change in Wall Street’s expectations for Fed policy.

But a lot of sore necks.

Similarly, the US ten-year bond yield flew around, shooting up to 2.93% (the prior high) before falling back again to be up 3 basis points at 2.91%.

The US dollar index, which had risen strongly on Tuesday night, tanked on the initial statement release, but unlike the other asset classes, just kept going. Forex traders must have been set long, as the index is down -0.9%.

I have said it ad infinitum throughout the years: the “smart money” on Wall Street always stays out of the mayhem that follows an afternoon Fed release to let the algos go wild in their attempts at interpretation, preferring to think about the implications overnight before making a measured investment decision the next day.

So let’s see what transpires tonight.

Commodities

A twenty dollar pop in the gold price seems counterintuitive on a day the Fed hikes its cash rate, but that tumbling greenback is to blame. We note that outside of monetary policy considerations, Donald Trump is in deep you know what with his party for congratulating Putin on his election “victory” when expressly advised not to do so.

A wobbly administration, trade war fears and the promise of a huge US deficit to pay for the tax cuts is overwhelming any implications of a quarter-point hike, it seems.

Iron ore finally found a floor last night.

Base metal prices were supported by the weak greenback, except for nickel.

The weekly chocolate wheel of US crude inventories came up with a surprise decline last night. Add in the strong dollar, and WTI jumped another 3%.

For the first time in 14 years, the US cash rate is greater than that of Australia’s. Yet the Aussie is up 1.2% at US$0.7768. Dr Lowe has been banging his head against a brick wall all morning.

Today

The SPI Overnight closed down -7 points, despite rallies in oil, gold and iron ore.

The RBNZ has met this morning and left its rate unchanged. The Bank of England meets tonight.

Locally we’ll see February jobs numbers today.

The result mini-season continues today with Brickworks ((BKW)), Sigma Healthcare ((SIG)) and WH Soul Pattinson ((SOL)) on the block, while today’s ex-divs include Carsales ((CAR)) and Flight Centre ((FLT)).

Rudi will appear on Sky News Business from noon till 2pm.

The Australian share market over the past thirty days…

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