The Overnight Report: Running Out Of Steam

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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

Confidence Builds

On Wednesday the Australian market opened with a flourish following Wall Street's accelerated rebound, but immediately fizzled. Investors were not yet convinced coronavirus would prove but a blip in the data, it seemed. Yesterday opened in a similar fashion, and similarly fizzled through the morning. But in the afternoon, buyers became more emboldened.

News that China will halve tariff rates on US$75bn of exports to the US on February 14, as per the phase one agreement, provided a boost. While Beijing has held this up as "promoting healthy trade relations", clearly the Chinese economy now needs all the help it can get.

By the close, the energy sector had led the charge (+1.6%) on anticipated production cuts from OPEC-Plus. On Wednesday Commonwealth Bank ((CBA)) was on the nose as the world's "most expensive bank", according to UBS, but by yesterday, no one cared. Financials gained 1.4%.

Materials (+1.2%) have enjoyed a rebound on Chinese stimulus despite a fluctuating iron ore price. Yesterday's trade data, which showed exports held up in December against higher imports, also provided support.

The standout sector remains healthcare (+1.3%). It is the one sector to have consistently rallied against the trend during the virus scare, yet continues to rally even as virus impact fears ease.

Let's face it the virus itself hasn't eased.

Lucky for CBA it wasn't sold again yesterday, for CSL ((CSL)) may have closed as the country's biggest company.

Among the defensives, consumer staples, telcos and industrials all chipped in with 0.8% gains but utilities (-0.2%) were the only loser on the day. Consumer discretionary managed 0.7% in the wake of December retail sales data.

Retails sales fell -0.5% in the biggest spending month of any year. Forecasts were for -0.2%. Retailers only have themselves to blame.

While the bushfires would have impacted on spending in December, and will really make their mark in the January numbers, the reality is the trend to embrace another American holiday as a pathetic cash-grab has dragged spending into November from December. The November numbers were surprisingly good, so economists saw this coming. It would not be much of an issue if it weren't for the fact Black Friday is all about discounts before Christmas.

That said, December quarter sales netted a 0.5% gain after being flat in all three quarters beforehand. IT (+0.3%) was a surprising laggard in yesterday's rally.

Network builder Service Stream ((SSM)) proved a drag, falling -9.1% on its earnings result. Loser on the day also included all the battery-related miners that had soared on Wednesday, after Tesla fell back -17%.

On the upside, fund managers won the day. Pinnacle Investments ((PNI)) reported earnings and jumped 11.2%. Janus Henderson ((JHG)) produced a delayed 7.1% gain after (some) analysts cheered Tuesday's earnings result.

Elders ((ELD)) rose 6.1%. Why? Look out the window.

Fatigue Creeping In

On any other day, news that China will halve tariffs would have had Wall Street surging. But Wall Street has already surged almost 900 Dow points in two sessions, so last night traders found it difficult to be overly excited. The US indices chopped around all session without gaining any great momentum.

Trump was acquitted. Blow me down.

It was a positive session but not one of any consequence, other than yet more new highs. Earnings results continued to flow without any major standouts. Boeing (+3%) propped up the Dow, after announcing recertification test flights of the Max will begin in a few weeks.

The Nasdaq again outperformed despite Tesla having the day off (+2%).

The IPO market was back in the spotlight last night as mattress company Casper hit the boards. While the stock rallied on the day, its listing price was half that of the most recent round of capital raising in the private market. Shades of WeWork.

Wall Street has come to realise that just because a business began online, it is not by default a tech company. WeWork, which is just another version of Australia's Servcorp ((SRV)), spectacularly crashed in perceived value before its IPO was pulled. Disruptor tech companies with strong growth potential attract high PEs, even if they are yet to make a profit. Companies that do no more than lease office space, or sell mattresses, are not tech companies. And not attractive if they haven't yet made a profit from an old world business.

Commodities

Base metal prices also ran out of steam last night while iron ore now seems to have adjusted down to the low eighties for the time being. Cyclone Damien is approaching the Pilbara.

Gold found some renewed buying despite the US ten-year yield closing flat.

The oil market awaits news of just what level of productions cuts OPEC-Plus will decide upon.

The Aussie's -0.2% fall to US$0.6734 matches the greenback's gain.

Today

The SPI Overnight closed up 12 points or 0.2%.

China will release January trade numbers today. Grain of salt, I'd suggest.

The RBA will release a quarterly Statement on Monetary Policy and the governor will provide a testimony to parliament.

US jobs numbers out tonight.

News Corp ((NWS)) and REA Group ((REA)) have reported earnings overnight.

The Australian share market over the past thirty days

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