The Overnight Report: All Is Forgiven

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            [1] => ((CBA))
            [2] => ((ANZ))
            [3] => ((WES))
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            [1] => CBA
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            [3] => WES
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This story features TELSTRA GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: TLS
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Above Trend

Australia’s GDP grew by 1.0% in the March quarter to a 3.1% annual rate, eclipsing late mail forecasts, upgraded following this week’s strong company profits and trade data, of 0.9%/2.9%.

Strength in exports was the swing factor following a dip in the December quarter, with the LNG export ramp-up beginning to make its mark. Public infrastructure spending and non-mining investment in plant and equipment are supporting growth, while on the opposite side of the ledger, household spending is slowing as headwinds strengthen.

It was the strongest growth number since the peak of the mining investment boom in 2012. At 3.1%, growth is in line with RBA forecasts – hence no fear of a panic rate rise – and above what is considered to be a trend growth rate of 2.6%.

The release provided a little bit of a kicker late morning when the ASX200 had dipped from its opening gains. But at the end of the day, the index hit 6025 at 10.45pm on Wall Street and commodity price strength, pre-release, and that’s where it closed.

After a round of profit-taking, the resource sectors returned to be the major drivers on the day. Energy rose 2.4% and materials 1.6%. Next best was healthcare, up 1.2% despite the Aussie popping once more on the GDP result.

It’s looking more and more like Telstra ((TLS)) may have found a floor, but never say never, as telcos again did not fall yesterday. In the recent scheme of things, that’s a positive session.

Alas we cannot say the same for the banks. As every other sector posted solid gains, the banks fell -0.8%. It had briefly appeared the banks may have also found a floor, boosted by Commonwealth Bank’s ((CBA)) lower than feared Austrac fine, but with the possibility of criminal charges against ANZ Bank ((ANZ)) and its underwriting partners dominating the headlines, confidence has again been lost.

Wall Street has provided another positive lead overnight and the local futures are up 30 points this morning despite some mixed moves in commodity prices, but if the ASX200 is ever going to hit a new high it will need the banks to stop falling.

Maybe they might find some support today from the US banking sector’s overnight move.

A Different Bank Story

There’s no Royal Commission going on in the US, meaning US banks are beholden only to moves in US interest rates. Last week the US financials sector was sold down on the brief Italy scare, which sent the US ten-year yield from near 3% all the way back down to 2.75%.

As of last night’s 6 basis point increase to 2.98%, we’re back where we started.

The move up came as a result of big moves up in European rates overnight, as the ECB signalled it would be discussing a timetable for the end of QE at its meeting next week, having decided the eurozone economy is strong enough.

Having been the underperformers for several sessions, the banks took off again last night. Tech has been the big driver as European issues and trade war fears held back other sectors, so last night the FANGs stood still as the banks and big industrials moved back onto centre stage. The Nasdaq nevertheless still hit a new high, but the Dow outperformed the major indices.

The big US industrials such as Boeing and Caterpillar have recently been flying around as one minute a trade war is on and the next minute it is off. Currently it appears to be on, and no agreement has been reached with China, but constant suggestions that Trump is simply playing games is providing comfort. The White House is calling it “trade reform”, insisting that if everybody evened up the playing field on tariffs, the world would be a happier place, not just America.

The Russell small cap index also hit another new high last night, and the Dow reclaimed the 25,000 level. Despite all that’s going on in the world, everything’s looking rosy on Wall Street at the moment.

Next week could be interesting.

Following the weekend’s G7 meeting, in which trade will be the hot topic, the North Korean summit is on Tuesday, the Fed rate decision comes on Wednesday, the ECB meets on Thursday and the Bank of Japan on Friday.

Tuesday also brings an important vote in the UK parliament with regard Brexit that could potentially bring about Theresa May’s demise.

Move forward another week and we have the OPEC meeting.

Wall Street is sitting pretty, but volatility awaits.

Commodities

The supply squeeze for copper continues while nickel eased off last night. Iron ore continues its rebound.

As the oil market awaits that OPEC decision, it’s back to bouncing around on weekly US inventory numbers. A “surprise” (they all are) inventory build had WTI down last night, taking the spread to Brent up to almost US$11/bbl.

The US dollar index is down -0.3% but the bulk of the Aussie’s 0.6% gain to US$0.7666 is due to the GDP result.

Today

The SPI Overnight closed up 30 points or 0.5%.

Australia’s April trade numbers are out today, to indicate whether Q1 strength is continuing in Q2.

Wesfarmers ((WES)) hosts an analysts meeting.

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

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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