The Overnight Report: Circuses In Town

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This story features AGL ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: AGL
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Clean-up in Aisle 4

Another year, another spill. What a circus. What a joke.

Just when it looked like earnings season may provide the catalyst to take the ASX200 to new levels, Canberra steps in. Uncertainty reigns.

The two most notable falls among sectors yesterday were energy (-1.8%) and financials (-1.3%).

In the case of energy, the risk is the NEG is dead and buried. Turnbull may have won the vote but not by enough. The suggestion is Dutton will regroup and this time be prepared. No less than nine cabinet ministers have offered their resignations, in so doing revealing their colours. Whether or not energy companies and O&G companies liked the NEG, at least they knew they could work with it.

So as has been the case for the past decade, Australia will be without an energy policy. If Dutton becomes PM, any new policy will ignore emissions reduction. For the energy sector, it’s all about uncertainty. Companies cannot invest in a policy vacuum.

And given AGL Energy ((AGL)) is a utility, that sector fell -0.8%.

In the case of financials, Dutton is considered unelectable outside of Queensland. Bill Shorten will today be checking the colour charts in case he decides to repaint The Lodge. The risk is under a Labor government there will yet be more changes to superannuation policy, including interference with dividend imputation cash-backs. And the risk is Labor would come down even harder on the banks post RC.

The materials sector fell -1.3%, spurred on by disappointing result releases from BHP ((BHP)) and Amcor ((AMC)). In reality every sector was hit by the uncertainty stick, but positive earnings results on the day saved some.

Consumer discretionary rose 0.1% against the trend, supported by an 8.2% pop for Super Retail ((SUL)), post result. With its result, Healthscope ((HSO)) announced a planned sale and lease-back of their properties and that was worth 2.8%. The healthcare sector rose 0.4%.

Industrials netted itself out to a flat session and IT fell only -0.1%, probably because it remains the hot sector at present.

Outside of the ASX200 there were some interesting result-related moves. Perennial disappointer FlexiGroup ((FXL)) jumped 27%. Helloworld Travel ((HLO)) gained 10%.

It will be a case of days not weeks before Dutton has another go, the pundits suggest. They believe Turnbull is a dead man walking.

And just to add more pain, the White House is in an upheaval tonight as well.

Raging Bull

Just as Wall Street was closing, news broke that Trump’s campaign manager had been found guilty of fraud and other indiscretions, and that Trump’s lawyer had pleaded guilty. Analysts suggest that at the upcoming mid-term elections, there is little chance the Republicans will lose the Senate but a good chance they’ll lose the House. If so, it is likely impeachment will be on the agenda.

As I write, both the Dow and S&P500 futures are down -0.3%, post Wall Street close. Not a big move, but a negative one nevertheless.

It rather deflates the mood when after another session of steadily rising higher for no particular reason, the bull market that began in March, 2009, equalled the record for the longest in history. The S&P traded at a new all-time high, intraday, before slipping back towards the close to be -0.3% shy of the closing high.

The Nasdaq is -0.9% below and the Dow Industrials -3%, while last night the Dow Transports hit a new record for the first time since January, and the Russell hit a new record intraday.

The US earnings season is pretty much done and dusted, although a late-reporter in home builder Toll Brothers jumped 14% last night on its result. There were no data releases of note last night. Tonight sees meetings begin between the US and Chinese trade delegations, and they are lifting confidence.

There was greater focus last night on the currency. The US dollar index fell -0.5% after the president reiterated, on Monday night, his earlier remarks that he is “not thrilled” about Fed rate rises and suggesting he’d like to see the central bank get behind his attempts to boost the US economy. The remarks raise the question of the assurance of Fed independence. If it were up to the far right among Republicans, they would be setting interest rates.

Just imagine if Australian politicians set rates. Every election would bring a credit bonanza.

So it remains to be seen just how much of an impact the court decisions on Trump’s former aides have on Wall Street tonight. In Manafort’s case an appeal is likely, so it will be a long game. It is oft recalled that it took six years to finally impeach Nixon.

Commodities

The commodity complex began last night’s session with a boost from the weaker greenback. It worked for most base metals, gold and the oils. The oils have also been supported lately by the looming imposition of stricter sanctions on Iran.

Not joining the party were iron ore and nickel, which are both used in steel production. Suggestions are steel prices have now peaked.

The Aussie has been torn between a dysfunctional government and the weaker greenback. It’s up 0.2% at US$0.7363.

Today

The SPI Overnight closed down -19 points or -0.3%.

The local data release highlight today is that of June quarter construction work done. The GDP result is a fortnight away.

The minutes of the last Fed meeting will be released tonight.

On the local stock front, today and tomorrow are the biggest, by far, in the results season calendar.

I’m not going to bother with singling anyone out.

The Australian share market over the past thirty days…

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