The Overnight Report: Oil Responds

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            [3] => ((PDL))
            [4] => ((XRO))
            [5] => ((NUF))
            [6] => ((SGP))
            [7] => ((CTX))
            [8] => ((GMA))
            [9] => ((SHE))
            [10] => ((AMP))
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            [2] => WTC
            [3] => PDL
            [4] => XRO
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            [6] => SGP
            [7] => CTX
            [8] => GMA
            [9] => SHE
            [10] => AMP
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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

Tentative

With Wall Street flat overnight, the local market was left to ponder the budget yesterday with the ASX200 sitting just below 6100 resistance. Clearly there was some uncertainty, given the index jumped to its high late morning before dropping straight back down again by lunchtime. A choppy rally then ensued, back to the high, above 6100.

The materials sector (+0.8%) was an obvious winner given the money the government will plough into infrastructure, while within industrials (+0.8%) sit the companies that will do the building.

Energy led the day with a 1.3% gain, but this we can ascribe to the Iran situation. The oil price dipped on Tuesday night but investors backed an ultimately stronger oil price, and have been proven right overnight.

The banks also did their own thing, falling -0.5% on a weak quarterly update from Commonwealth Bank ((CBA)), providing the drag that might otherwise have seen the index break resistance more meaningfully.

One sector which we might have expected to have a good session – consumer discretionary – thanks to tax cuts for LAMIEs (I think I just made that up) failed to live up to expectation. It didn’t help that pet/vet chain Greencross ((GXL)) posted an unrelated profit warning and crashed -22%.

Otherwise, sector gains were fairly uniform other than utilities, which lost -0.4%.

Speaking of individual stocks, logistics software company WiseTech Global ((WTC)) just won’t get off the ASX200 leaders’ board and has now rallied 27.5% this month.

In general, a stock market can only assume any form of tax cut is a good thing but, of course, we now have the to endure the tedious, and now all too familiar, process of the government having to suck up to the cross bench while attempting to browbeat the opposition into submission.

Nothing is ever an immediate given when it comes to budgets – just ask Joe.

The 3% jump in the oil price overnight will no doubt see the energy sector stronger again today, and the futures are up 21 points this morning as Wall Street breaks out.

Break-Out

They say three’s a charm and since Wall Street’s February swoon, the S&P500 has tested, and held, the 200-day moving average three times. Each time the index bounced off the 200MA it made a lower high, thus holding the third time was technically critical.

It did, and as a result the S&P last night hit a higher high and thus broke up through its downtrend. Technically, it is now back in uptrend mode.

Leading the charge last night was the US energy sector, given a 3% plus pop in oil prices. While clearly Trump’s withdrawal from the Iran deal was the impetus, the fact weekly US crude data released last night showed an unexpected dip added extra fuel.

Encouraging Wall Street in general last night was an easing of fears over wholesale inflation. There has been concern for the past month that input costs to industries have been on the rise, not just energy, and that this inflation would not be able to be passed onto consumers. Or if it were, the Fed would have to move more swiftly.

Last night the US producer price index for April showed a mere 0.1% gain, short of 0.3% forecasts. The annual PPI dropped to 2.6% from 3.0% in March.

Despite this low read, the US ten-year bond yield rose 3 basis points to 3.0%. Three basis points is no big deal, but 3% represents the line of worry. Yet Wall Street seemingly took the move in its stride, preferring to believe that rising yields are simply reflective of a strengthening economy.

Not only did yields rise but the yield curve steepened, and that’s bread and butter for the banks. The US financials sector was the second best performer on the day.

It is suggested there were those in the market choosing to stand aside on Tuesday night as Trump made his announcement, lest the indices tumbled as a result. Despite Trump announcing a “hard” exit they didn’t, so last night those investors jumped back in.

The three factors that had worried Wall Street recently – peak earnings, inflation and a slowing global economy – have now begun to look less of a potential issue.

The earnings season, now almost over, has indeed produced a stand-out net result with a little help from tax cuts, but guidance for subsequent quarters has been lifted as a whole.

Last night’s PPI result has eased inflation concerns, as did last week’s PCE number. The CPI is out tonight, so the jury may still be out for the moment.

Europe’s growth rate is clearly slowing, but not to the extent the ECB is particularly concerned. The US economy, on the other hand, appears to be in rude health, following promising recent numbers on GDP, the PMIs and jobs data.

Is Wall Street ready for another leg up? Well, we still don’t know just what will transpire regarding Iran, and just what will come from the European signatories rejecting Trump’s withdrawal. And we must not forget that trade negotiations with China are ongoing, and to date have made no progress whatsoever.

Commodities

Copper bounced back having fallen -1% on Tuesday night but otherwise base metals slept through proceedings last night.

Iron ore is having its ups and downs but is largely net steady at the moment.

Gold continues to go nowhere.

The Aussie is up 0.2% at US$0.7464 with oil the standout mover.

Today

The SPI Overnight closed up 21 points or 0.3%. That implies 6129 for the ASX200, with the post-GFC closing high at 6135.

The RBNZ held a policy meeting this morning and the Bank of England meets tonight.

China releases inflation data today.

The US CPI is out tonight.

On the local stock front, the company formerly known as BT Investment Management, now Pendal Group ((PDL)) and Xero ((XRO)) release earnings results, Nufarm ((NUF)) and Stockland ((SGP)) host investor days, and today’s AGM holders include Caltex ((CTX)), Genworth Mortgage Insurance ((GMA)), Sino Gas & Energy ((SHE)) and (pass me my bullet-proof vest) AMP ((AMP)).

Rudi will appear on Sky News Business today, noon-2pm.

The Australian share market over the past thirty days…

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