Tag Archives: The Overnight Report

article 3 months old

The Overnight Report: Over To Janet

By Greg Peel

The Dow closed up 22 points or 0.1% while the S&P lost 0.2% to 2015 as the Nasdaq fell 0.5%.

Just a Head Fake?

“Members judged that there were reasonable prospects for continued growth in the economy and that it was appropriate to leave the cash rate unchanged at an accommodative setting.”

So said the minutes of the March RBA meeting, released yesterday. With that, the local market tumbled.

As to whether we can blame the minutes is nevertheless questionable. At two weeks old, they might as well have been two years old given what has transpired in the interim, including the surprisingly strong local GDP result, the rebound in commodity prices and, subsequently, the Aussie dollar, and shock and awe from the ECB. Two weeks ago Glenn Stevens’ policy statement was near word for word a repeat of his February statement. But things have now changed.

So it would have been naïve to be have been disappointed that there was no hint of an RBA rate cut in the minutes. And given the banks fell 1.4% yesterday to provide the greatest impact on the ASX200, and banks don’t like lower rates, it seems more a case of a sudden burst of uncertainty in the local market.

There has been much talk of late of the commodity price rebounds, particularly in oil and iron ore, being unsustainable blips. Oil has simply seen a short-covering snap-back. Iron ore has simply jumped on hurried Chinese restocking that will shortly end. With falls in the prices of both overnight, it was no shock that yesterday saw the energy sector down 3.6% and materials down 2.4% following their recent sharp recoveries.

But the selling was market-wide, with only the telcos holding their ground. I suggested yesterday that the local market had reached a point of indecision, as there appeared to be nothing in the near term to justify ongoing upside. And when markets can’t find a reason to go up, you can always count on them going down instead, until a new pathway is established.

Regarding commodity prices, Goldman Sachs has recently articulated that which I have been implying in this Report for a while, in that the only catalyst for higher oil prices is lower oil prices. Things won’t get better unless they get worse first, and stay that way for a while. Oversupply in all commodities must lead to capitulation and closures among miners/drillers. That requires a prolonged period of pain at lower prices. Only when supply is actually abandoned, and not simply put on hold, can prices rise once more.

Meanwhile there was no surprise yesterday when the Bank of Japan held its cash rate steady at minus 0.1%, while nevertheless tempering its view on Japan’s economy. There was some surprise that the BoJ statement this month omitted the line suggesting further cuts if necessary that had been present in previous statements. It would appear the central bank is not prepared to go more negative.

Low Volume

The oil rally appears now to have fizzled out as hopes fade – if there really were any in the first place – of production freezes from OPEC and non-OPEC producers. WTI fell 2.3% overnight and initially took Wall Street with it, with the Dow falling by a hundred points at its low.

Also driving weakness was a disappointing US February retail sales result. Not only did February sales fall 0.1%, January’s tepid 0.2% gain was revised down to a whopping 0.4% fall.

(And we always joke about Chinese data.)

Retail sales represent around 25% of all US consumer spending, and these numbers are setting the scene for another disappointing March quarter GDP number this year, despite the lack of weather impact this time around. But elsewhere the US housing sentiment index held steady at a slightly optimistic 58, and the Empire State activity index has flipped over to plus 0.6 in March from minus 16.6 in February, so not all is doom and gloom.

How does a data-dependent Fed see the US economy? Well that we will find out tonight. With the combination of Fed statement, revised forecasts and Janet Yellen press conference all having the potential to move the markets sharply tonight, traders decided to square up positions last night and took the indices back towards flat. Volumes, however, were anaemic, suggesting most of the world is on the sidelines.

Commodities

West Texas crude is down US84c at US$36.45/bbl and Brent is down US82c at US$38.77/bbl.

The iron ore retreat has gathered pace. Spot iron ore down US$3.80 to US$51.70/t. We’ve now taken out that ridiculous jump last week.

LME traders chose to prepare for the Fed meeting with some selling of their own. Copper was little changed but nickel fell 1%, aluminium 1.5%, zinc 2% and lead 3%.

Gold is steady at US$1233.10/oz.

The US dollar index is steady at 96.63 but as commodity prices retreat, so does the Aussie. It’s down 0.7% at US$0.7458.

Today

The SPI Overnight closed down 6 points.

Fed meeting tonight. Enough said.

Sigma Pharmaceuticals ((SIP)) will deliver its earnings result today.
 

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All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Central Bank Watch

By Greg Peel

The Dow closed up 15 points or 0.1% while the S&P fell 0.1% to 2019 and the Nasdaq was flat.

Out of Gas

The local market tried to get excited about ECB-inspired rallies in the northern hemisphere on Friday night in driving up the ASX200 by close to 50 points in the morning. The index stuck its head above 5200 but there the momentum faded.

With Victoria enjoying a long weekend yesterday, volumes were always going to be lower, and with today’s Bank of Japan policy meeting and Wednesday night’s Fed statement looming it appeared to be a good opportunity to square up.

Energy followed oil up with a 1.4% gain, the banks found some more support and rallied 0.6%, and telcos posted a solid 2.0% gain. Thereafter, sectors exchanged small ups and downs.

Having rallied back strongly from 4800 to 5200 on the back of commodity price rebounds and a realisation the banks were not about to go to the wall, the local market has run out of reasons to push forward and on to 5400. The iron ore price is now falling back, the oil price has largely stabilised and the gloss seems to have come off gold. Indeed, Aussie dollar gold has taken a bit of a tumble on strength in the currency.

The next move in either direction will likely be central bank driven. The Bank of Japan may feel the need to counter the ECB today although typically when everyone expects the BoJ to act it doesn’t, and vice versa. While no one expects a rate hike from the Fed the world will be closely scrutinising FOMC forecasting for clues as to whether and when there might be another rate hike.

Caution

The story is the same in the US where the S&P500 is now only 100 points shy of its all-time high despite the turmoil of early 2016. There are also a lot of US data releases due as the week progresses but none of note last night, ensuring a quiet session as Wall Street waits to see what, if anything, the BoJ might do today.

I suggested yesterday that the strong correlation between US stock indices and the oil price has begun to fade as the oil price finds some stability near the US$40/bbl mark. Last night WTI fell 3% but the stock markets weren’t interested.

At least we’re now seeing more moves of 3% or less for oil when 6% plus had become the norm in the past couple of months. And despite the volatility, we’re not really going anywhere at the moment.

Last night’s fall in oil stemmed from Iran declaring that it would not consider freezing its production until a target rate of 4 million barrels per day has been achieved. The rate is currently around 2 million. OPEC members have suggested they would agree to production freezes as long as it’s one in, all in. If Iran’s not in, then no freeze. Not that it makes much difference to global supply if the likes of Saudi Arabia freezes production at record levels.

The oil price did not plummet on Iran’s defiance, as it may have done a month or so ago, because data suggest other OPEC members actually are cutting production to stem financial losses and that US production may well be now on a downturn.

With commodity price rebounds now accounted for, what can drive Wall Street all the way back to all-time highs? It won’t be the economy, because that’s a tit for tat consideration – good numbers raise Fed rate hike expectations and bad numbers ease Fed rate hike expectations. It will probably have to come down to earnings, which were weak in the December quarter.

Interestingly, this year’s March quarter, earnings from which will be reported next month, was the first in two years without a major weather impact in the US. There was “Snowzilla”, but it was an isolated incident compared to the snowbound slowdowns of the March quarters of 2015 and 2014. In other words, year on year earnings “comparables” should look pretty good this time.

Commodities

West Texas crude is down US$1.21 at US$37.29/bbl and Brent is down US77c at US$39.59/bbl.

LME traders had the first opportunity last night to respond to the weekend’s data out of China and indeed these evoked some weakness, but with the Fed meeting coming up there was no rush to over-sell. Aluminium, nickel and zinc each lost a percent while copper stood still.

Iron ore fell another US60c to US$55.50/t.

After a solid run-up for gold recently, it appears traders are not too keen to run the gauntlet of central bank meetings this week without locking in some profits. Following Friday night’s fall, gold is down another US$17.00 at US$1234.70/oz.

The US dollar helped, rising 0.4% on its index to 96.59. That also promoted a 0.7% fall in the Aussie to US$0.7507 but I did flag yesterday that the Aussie’s short-covering rally would likely run out of steam.

Now it just depends on what the Fed comes up with.

Today

The SPI Overnight closed up 4 points.

The RBA will release the minutes of its last policy meeting, held two weeks ago, today, but I would suggest rallies in commodity prices and the Aussie and action by the ECB in the interim render those minutes a bit behind the times, notwithstanding what else happens this week.

The Bank of Japan meets today.

Wall Street will cop a dump of retail sales, inventories, wholesale inflation and housing sentiment numbers tonight along with the Empire State activity index.

Rudi will link up with Sky Business today through Skype to discuss broker calls at around 11.15am.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Monday Report

By Greg Peel

Determination

The Australian market appeared similarly confused as to how to interpret Mario Draghi remarks on Thursday night following the ECB’s surprisingly extensive stimulus package announcement. European markets had sold down heavily but while Wall Street also tumbled on the open, the buyers soon returned with gusto.

Buyers also reappeared on Bridge Street at midday on Friday to send the ASX200 up to a positive close from a 32 point drop. The biggest move among sectors was a 0.9% gain for consumer staples. We might assume last week’s strength in the Aussie will ease some of the food deflation pressure the supermarkets have been suffering of late.

The Aussie has become somewhat of a concern, rising yet another 1.6% to Saturday morning at US$0.7562. Will the RBA be forced into action? Rebounds in commodity prices have driven short-covering in the Aussie and central bank easing all over the globe is making our 2% cash rate ever the more attractive to foreign investors.

The saviour could be the Fed, were it to raise its own cash rate this week. But that’s not going to happen. The Aussie will likely find resistance once the shorts have all been cleared out but to fall back to 70c would require an indication from the Fed that rate hikes are still very much expected in 2016.

In the meantime, the local market seems fairly determined it is going to push up to previous resistance levels and, if all goes well, perhaps make another shot at 5400.

Rethink

The German stock market jumped 3.5% on Friday night. On Thursday night the DAX initially rallied 2.5% on the ECB’s bigger than expected stimulus package, but then crashed to be down 2.5% following Mario Draghi’s press conference in which the ECB president declared he “did not anticipate the need for further rate cuts”.

European markets interpreted this statement to imply the ECB has now thrown everything at it, and that’s all there is. But another interpretation, and no doubt what Mario Draghi was trying to say, is that such an extensive stimulus package should be enough to support the eurozone economy. It does not mean the ECB has no further “whatever it takes” capacity.

Wall Street initially fell along with Europe on Thursday night before rallying back to be flat on the session. European investors had a night to think about it, and decided on Friday night their initial interpretation might have been a bit short-sighted and unnecessarily panic-driven. So the DAX jumped 3.5%. We might therefore conclude with some rough maths that the fresh ECB stimulus was worth a net 1.5% rally in Germany.

France chimed in with a 3.3% rally on Friday night and London rose 1.7%. Wall Street shot up from the open and largely held that gain throughout the session. The Dow closed up 218 points or 1.3%, the S&P gained 1.6% to 2022, and the Nasdaq rose 1.9%.

Oil Talk

The headlines suggest Wall Street rallied because oil did, because that’s been the correlation throughout 2016 to date. I believe, however, that the correlation is beginning to fade somewhat now oil appears to be consolidating around the high thirties for WTI. West Texas rose US67c on Friday night, which is not typically worth 200 Dow points even if it is off a low base.  Wall Street was more likely embracing ECB QE.

Oil found renewed strength on Friday night because the International Energy Agency suggested oil prices may now have seen a bottom. Iran’s return to the market has been less dramatic than Iran implied it would be, and despite all the spurious chatter about meetings, it does actually appear supply from producers outside OPEC has begun to fall. Within OPEC, all of Nigeria, Iraq and the UAE saw reduced production in February.

A chastened Goldman Sachs also agreed on Friday night oil might have seen the bottom. Goldman sent oil tumbling earlier in the week by suggesting the rebound was all about short-covering and was unfounded on supply-demand realities, but on Friday night forecast a range of US$25-45/bbl for the June quarter, up from a previous US$20-40/bbl. The investment bank has now qualified its earlier call be suggesting simply that oil will take time to recover from the lows given the extent of inventory rundown required, so don’t expect any major rally from here.

Commodities

West Texas crude rose US67c to US$38/bbl on Friday night and Brent rose US28c to US$40.36/bbl.

Aluminium was flat on the LME but the other base metals posted modest gains as traders awaited Saturday’s Chinese data dump. Copper rose 1% and zinc 1.5%.

The pullback from iron ore’s single-day near 20% jump last week continues, with the metal falling US$1.30 on Friday night to US$56.10/t.

Despite the US dollar index remaining flat at 96.21, gold has fallen back US$16.10 to US$1251.70/oz, retracing Thursday night’s ECB-inspired jump.

The SPI Overnight closed up 42 points or 0.8% on Saturday morning.

Slow Start

Data released by Beijing on Saturday showed industrial production up 5.4% year on year for the January-February period, down from 5.9% in December and missing forecasts of 5.6%. Retail sales rose 10.1%, down from 11.1% and missing 10.8% forecasts. Fixed asset investment rose 10.2% year to date, down from 11.1% but exceeding forecasts of 9.5%.

Beijing combines data for January and February rather than the usual monthly numbers because of the New Year interruption. That interruption can often to lead to misleading results in trend terms, but there are no real surprises in this data dump from a trend perspective. Subsequent months will nevertheless reveal whether China’s own stimulus measures are having an effect, such that Beijing’s 6.5-7.0% GDP target for 2016 can be achieved.

The Week Ahead

The Bank of Japan will no doubt be frustrated but hardly surprised by the ECB’s stimulus step-up last week. The BoJ meets tomorrow but no one is expecting any further plunge into the negative for Japanese rates, especially given the Fed will release its quarterly policy statement on Wednesday night.

No one is expecting the Fed to hike this month but the focus will be on the so-called quarterly “dots”, which represent forecasting from each of the FOMC members and thus provides an indication of net dovishness/hawkishness. At this stage the Fed futures market has a June rate hike at 43% chance. Janet Yellen will hold a press conference post release.

The Bank of England also holds a policy meeting this week, on Thursday night, but no one seems to care. Of more interest is the growing wave of Brexit support now Mad Boris has thrown his weight behind the campaign.

The RBA will release the minutes of its March policy meeting today. With all that’s transpired in the past two weeks, including the Aussie shooting up to 75 from 70, these minutes are a bit stale.

US data releases this week include retail sales and inventories, housing sentiment, the PPI and Empire State activity index tomorrow night, industrial production, CPI and housing starts on Wednesday, and leading indicators and the Philadelphia Fed activity index on Thursday.

Friday it’s fortnightly consumer sentiment and the quarterly quadruple witching expiry of equity derivatives.

The highlight of Australia’s economic data week will be the jobs numbers on Thursday.

On Friday the quarterly changes to the S&P/ASX indices will become effective.

Note that the US went on to summer time on the weekend, so as of tomorrow the NYSE will close at 7am Sydney time.

Rudi will appear on Sky Business through Skype-link on Tuesday, 11.15am, and in the studio as guest on Thursday from 12.30 till 2.30pm, and again through Skype-link on Friday, 11.15am.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

The Overnight Report: Confusion Reigns

By Greg Peel

The Dow closed down 5 points while the S&P was flat at 1989 and the Nasdaq fell 0.3%.

Nothing to See

China’s CPI jumped to 2.3% year on year in February, up from 1.8% in January. It was the biggest monthly jump since mid-2014, but nothing to get excited about.

It was all about a 7.6% jump in food prices, driven by a combination of the Lunar New Year holiday week of feasting, and cold weather. Fuel prices also saw a rebound in the month. Beijing neither seasonally adjusts its data nor provides a core CPI reading (ex food & energy), so realistically we need to wait to see what transpires over the next couple of months.

The Chinese data were never really going to have much effect on the local bourse yesterday as all and sundry awaited last night’s ECB meeting. The ASX200 made a few attempts to rally 20-odd points but failed each time, before settling relatively square. Sectors traded off small ups and downs, with a 1.5% drop in healthcare the only move of note.

Say What?

At last night’s ECB policy meeting, Mario Draghi pulled out his bazooka and waved it about for all to see. Any doubts about being overly cautious were quickly dismissed as the ECB rattled off a full shopping list of fresh stimulus measures.

The central bank has cut its key lending rate to zero from 0.05%, cut its deposit rate to minus 0.4% from minus 0.3%, expanded the size of its monthly bond purchases (QE) to E80bn from a previous E60bn, and expanded the breath of bond purchases to include investment grade European corporate debt. It was everything and more – certainly more than markets were expecting.

Consequently, the euro tanked 1%, as is the intention of the stimulus. The German stock market jumped 2.5%, and took all other European stock markets along with it. The ECB statement was released just in time for the open in New York, and the Dow shot up over a hundred points.

Then Mario Draghi held a press conference, at which he read a prepared statement. In that statement Draghi declared that he did not anticipate any need to cut rates further.

Come again?

Does that mean: (a) this new and comprehensive stimulus package will do the trick; or (b) that’s it folks – if this doesn’t work, there’s nothing else?

In Europe, panic set in. The interpretation was (b). The euro spun around and rallied back 3%, to be up 2% on the session – one of the currency’s biggest turnarounds ever posted. Having been up 2.5%, the German stock market closed down 2.3%. France closed down 1.7% and London 1.8%. It was only early in New York, and the Dow fell from up one hundred to down two hundred points by lunchtime.

But hang on. Did Draghi really mean (b)? Surely not. Surely he meant (a). Indeed, he even qualified his “no further need to cut” suggestion by adding words to the effect of “unless things change in the meantime”. The debate on Wall Street was furious. But by the closing bell it was clear the ultimate assumption was (a). Following all the rocking and rolling, the Dow closed flat.

So where did it all leave us? Well, Wall Street may have returned to base camp but the euro is still up there. The US dollar index is down 1.0% at 96.16 and the Aussie dollar has fallen 2% against the euro and half a percent against the greenback to US$0.7445.

Gold is up US$15.00 at US$1267.80/oz, which is what one would expect from boosted central bank stimulus, even if gold is down against the euro.

Attention now turns to next week’s Fed meeting. Will the Fed feed global central bank divergence and make a hawkish statement with regard its cash rate? Or is Japan in negative and the ECB now hurling in the kitchen sink enough to keep the Fed at bay irrespective of US economic forecasts?

Oh, and the Bank of Japan meets on the day before the Fed statement release.

Commodities

The thing about central bank stimulus is that it’s a double-edged sword. A bigger than expected stimulus package can either be seen as wonderful news, as it should help boost the economy, or terrible news, because it means the economy must be in much worse shape than assumed. Throw in last night’s currency histrionics, and one can understand why commodity markets were a bit all over the shop as well.

West Texas crude is down US32c at US$37.83/bbl and Brent is down US73c at US$40.08/bbl.

Base metal prices are all down half to one percent.

European stimulus is a world away from the spot iron ore market, but iron ore is down US$2.20 at US$57.40/t. It’s a big move, but unlikely to evoke too much angst given nobody really believed in the spike up to over 60 earlier this week anyway.

Today

The SPI Overnight closed down 6 points.

Tomorrow, China will release February industrial production, retail sales and fixed asset numbers.

On Sunday, the US goes on to summer time, meaning that come Tuesday morning, the NYSE will close at 7am Sydney time.

Rudi will link with Sky Business via Skype and discuss broker calls at 11.15am today.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Waiting For Mario

By Greg Peel

The Dow closed up 36 points or 0.2% while the S&P gained 0.5% to 1989 and the Nasdaq rose 0.6%.

Resilience

There was every reason to expect a sharp pullback on Bridge Street yesterday given reversals in commodity fortunes overnight (other than for iron ore) and indeed the ASX200 dropped 27 points form the open, matching the futures’ prediction.

But that’s where the pullback ended.

By the end of the day energy was down 2.7% and materials 0.7% but on a steady climb-back throughout the session, every other sector finished in the green. Leading the charge were the banks, up 1.6%, following some brief profit-taking from traders earlier in the week.

By the closing bell, utilities was the only sector of note not to post a gain of in excess of 1%. It was a market-wide buying spree, ex resources. Healthcare (+1.6%) was back in vogue, having previously provided the funds for a switch into resources, and even telcos (+1.2%) had a solid session.

This market currently looks determined to go up.

Consumer sentiment is not quite as solid as it was nonetheless. Yesterday’s Westpac survey for March showed a drop in the index to 99.1 from 101.3. It’s only a modest pullback, Westpac suggests, but numbers below 100 imply pessimism. It’s nevertheless notable that the Turnbull boost of last year is still holding its ground despite the dip.

Perhaps housing is something consumers can start worrying about. Yesterday’s January housing finance data were indicative of a slowing market.

The number of loans to owner-occupiers fell 3.9% in January but is still up 7.3% year on year, while the value of loans to owner-occupiers fell 4.3% but is still up 16%. The big move is in the value of loans to investors, which while only down 1.6% in January, is down 14.8% year on year, reflecting APRA’s tightening of bank lending capacity.

Imagine if negative gearing were removed. Mind you, economists admit January data can always be a bit misleading given everyone’s on the beach.

What’s Mario got in store?

It’s usually the day before a Fed meeting when Wall Street goes quiet, but that will happen next week. This week Wall Street, and the world, is focused on the ECB meeting tonight. There are great expectations.

If recent history is any guide, there will therefore be disappointment. Mario Draghi has, since his appointment as ECB president, pledged to do “whatever it takes”. Last year that meant the introduction of eurozone QE, which was increased in December, and a negative central bank deposit rate. Yet still the eurozone is at risk of deflation.

Thus the market is expecting Mario to bring out the big bazooka tonight, whatever that may be. Mario, on the other hand, tends to be a little more cautious with regard the weaponry he brandishes. So the scene is set tonight, and ahead of that meeting, markets are also being cautious.

Which is why another 5% surge in the oil price failed to spark much enthusiasm on Wall Street last night.

If Goldman Sachs is short oil, which we can assume from the investment bank’s “overbought” call on Tuesday night that saw oil prices drop back, last night wasn’t a winner. Interestingly, oil rallied despite another big increase in US weekly crude inventories, above expectation. And disappointingly, weekly production ticked up a tad once more after two weeks of encouraging falls.

But last night the market decided that increasing inventories – to maintain the highest levels since 1930 – are sufficient to force production cuts. Not just in the US, but across the globe. There is much anticipation that a long talked about OPEC/non-OPEC production freeze will finally eventuate following the March 20 meeting in Moscow.

I’ll just pause for a moment while this pig passes overhead.

The good news from amongst the US data, however, was that gasoline saw a drop in inventories three times that which was forecast. Heating oil inventories also declined. The US Energy Information Agency has implied from the data that US motor gasoline demand has risen 7% over four weeks.

So that is something the oil market can hang its hat on. Demand is rising. We just need supply to fall.

Commodities

West Texas crude is up US$1.91 or 5.3% to a new 2016 high of US$38.15/bbl. Ditto Brent, up US$1.36 or 3.5% at US$40.81/bbl.

After some solid China-related selling on Tuesday night, last night LME traders squared up again ahead of tonight’s ECB meeting. Nickel rebounded 3%, and even zinc managed a 1.5% rally. The other metals all saw rallies of roughly a percent.

It is inevitable that iron ore should see some pullback following its ridiculous price jump on Monday night. It’s down US$3.70 to US$59.60/t. Have we seen the blow-off top as the last Chinese steelmakers race to restock?

Currency markets were quiet last night and the US dollar index is steady at 97.13. A little bit of caution in the gold market sees that metal down US$7.30 at US$1252.80/oz.

There’s no holding back the Aussie nonetheless. It’s up 0.7% at US$0.7484.

Today

The SPI Overnight closed up 11 points or 0.2%.

The RBNZ has this morning cut its cash rate by 25 bips to 2.25%.

What will the ECB do tonight? Before we get there, Beijing will release Chinese inflation data today.

In another round of ex-divs on the local bourse today, BHP Billiton ((BHP)) will deliver its meagre offering, while Cochlear ((COH)), Brambles ((BXB)) and QBE Insurance ((QBE)) are other big names on today’s list.

Rudi will appear twice on Sky Business today. First from 12.30-2.30pm and later again on Switzer TV, between 7-8pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

article 3 months old

The Overnight Report: False Dawn

By Greg Peel

The Dow closed down 109 points or 0.6% while the S&P lost 1.1% to 1979 as the Nasdaq fell 1.3%.

Worst Since 2009

Yesterday’s Chinese trade data showed a 25.4% year on year fall in exports in February when economists had expected 12.5%. Imports fell 13.8% when 10.0% was forecast. The fall in exports is the steepest since 2009.

Suffice to say, the news was not well received in the Australian stock market. If nothing else, the bad news provided good enough reason for traders to take profits on resource sectors positions they’ve done rather well out of these past few sessions. Energy fell 1.1% and materials 0.8%, while the banks, which have also been rallying strongly, joined in with a 1.0% fall.

Of course, as is the case every year, we can point to the Lunar New Year disruption when it comes to the Chinese numbers. Beijing does not smooth its data to account for the one week break, which this year happened to be early in the solar calendar. But that is not to suggest the numbers would have looked at all healthy if so adjusted.

It is of no great surprise the ASX200 saw a pullback yesterday after having powered back from around 4800 to pass through 5000 yet again, and almost to 5200. The news did not get much better overnight.

Meanwhile, if there is anything troubling the Australian business community at present you’d never know it. Yesterday’s NAB business confidence survey for February showed a jump in the confidence index to 3.4 from 2.5 in January and a surge in the conditions index to 8.3 from 5.4.

Commodities

Last night both Goldman Sachs and Citi issued reports suggesting the market is kidding itself if it believes there is a balance returning to oil and metal markets. The short-covering rallies witnessed on oil markets and on the LME will prove but a false dawn, they suggest, as was the case last year.

While there have been some positive signs of a reduction in US crude output, tonight’s weekly inventory numbers are forecast to show another big jump in stockpiles. Meanwhile, more OPEC chatter flowed last night, with Kuwait’s oil minister declaring Kuwait would only freeze production if Iran did. Iran’s not going to, so that’s that.

West Texas crude is down US$1.69 or 4.5% at US$36.24/bbl and Brent is down US$1.33 or 3.4% at US$39.45/bbl.

Base metal prices had already appeared to be overcooked heading into yesterday’s Chinese data and last night’s investment bank analysis. Aluminium, copper and lead fell 2%, last night, zinc fell 3%, tin 5% and nickel 8%.

So what’s going on in iron ore? It’s up another US70c at US$63.30/t.

The US dollar index is up 0.1% at 97.19 and gold is down US$5.90 at US$1260.10/oz.

The Aussie has retreated on the Chinese data. It’s down 0.5% at US$74.36.

Resistance

The Australian market had a good run of it lately so profit-taking was no surprise yesterday. The Dow and S&P500 recently hit psychological levels of 17,000 and 2000 respectively so they, too, were due some consolidation.

A fall in the oil price is always a good excuse for Wall Street to follow suit, and so it did last night. The combination of weak Chinese data and the Goldman and Citi reports had US traders similarly bailing out of the energy and materials sectors and back into defensives, and also back into bonds. The US ten-year yield fell 7 basis points to 1.83.

It’s a week largely devoid of US economic data releases so Fed-talk has been off the table this week, allowing markets to concentrate on the commodities story. But tonight the ECB will hold a policy meeting and the expectation is Mario Draghi will announce some further extension to stimulus.

So the market has also readied itself in case of disappointment.

Today

The SPI Overnight down 26 points or 0.5%.

Westpac will release its monthly consumer confidence survey today and local housing finance numbers are due.

There is another solid block of stocks going ex-div today.


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(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Commodity Chasers

By Greg Peel

The Dow closed up 67 points or 0.4% while the S&P rose 0.1% to 2001 and the Nasdaq fell 0.2%.

Big Three

Another day, another 1% rally for the ASX200. But it’s all in three sectors. Those most oversold this year are now those most sought after.

Improving prices for oil, iron ore, copper and other metals saw the local energy sector up 2.2% and materials up 3.1%, including an astonishing 24% jump for Fortescue Metals ((FMG)) as the iron ore futures price began to surge. A rebound in commodity prices implies more confidence in the Australian economy, and yesterday the banks rose another 1.2%.

Today will be interesting. Iron ore is up 19% for reasons unknown.

Consumer staples is another sector that has seen hard times, and it was up 0.5% yesterday, but clearly in order to rotate positioning into the star sectors du jour, investors are creaming off everything else. All other sectors finished slightly in the red yesterday, including the defensives of healthcare, telcos and utilities.

Of course, there has to be a flipside, and for the Australian market that is the Aussie dollar. It’s up another 0.6% at US$0.7471, driven by commodity price strength.

Meanwhile, Australia’s construction sector continues to contract at pace. The construction PMI fell to 46.1 in February from 46.3 in January to mark the fastest pace of contraction in twelve months. In the sub-sectors, single housing construction has slowed but apartment construction is still firing along. Commercial construction expanded but engineering (call it mining construction) contracted for the 20th straight month.

The good news is the pace of engineering contraction slowed. Economists are expecting the apartment bubble to soon burst, and the housing market in general to ease off in 2016. These are the non-mining drivers the Australian economy needs to offset the mining decline. But if the slowdown in mining investment is beginning to see an end in sight, then the non-mining sectors may not have to work so hard.

Mining is one sector in which worker lay-offs have been substantial. Yesterday’s ANZ job ads series showed a 1.2% fall in February. ANZ’s economists note the strong pace of job ad growth evident in 2015 – which is a reliable indicator of employment – has eased off this past six months. That said, ANZ is not among those expecting Australia’s unemployment rate to climb back through 6% this year.

Oil Switch

Last night the UAE energy minister suggested current oil prices are now forcing OPEC members to freeze production. Not to reduce production, but not to increase it further in a desperate attempt to generate cash. Only so much oil can be produced at a commercial loss.

While we’ve learnt to take anything an OPEC spokesman says with a grain of salt, the UAE minister is not spinning the now hackneyed line of “We’re all going to meet and agree to production cuts/freezes”. He’s simply saying “It’s happening anyway”.

Until this last rebound in the oil price, each previous rebound has been sparked by production cut talk from OPEC and Russia, which the market finally came to realise was just a ploy. But this latest rally has more to do with evidence of falling US production, which actually gets to the heart of the matter. If OPEC is actually freezing production levels as well, because it has no choice, then all the better.

Last night oil prices jumped over 5%. WTI settled at its highest level in 2016 and Brent hit US$40/bbl for the first time since Christmas.

Which should translate into a big rally for the US stock markets, given the near 99% correlation to the oil price witnessed over the past two months. But the Dow is up only 0.4% points, and the S&P 0.1% because the Nasdaq is down 0.2%.

Like Australia, the US market is responding to what appears to be a rebound in commodity prices that suggests bottoms are now in place. And like those in Australia, US investors are selling out of other profitable sectors to fund the switch back into energy and materials. The high flyers in the US have been the FANG stocks (although that should now be FANA) – Facebook, Amazon, Netflix and Google (now called Alphabet). All these four saw significant selling last night.

Having rallied from its nadir at the bottom of the oil price, Wall Street is now back in what traders are suggesting is short-term overbought territory. The twin “big figures” of 17,000 in the Dow and 2000 in the S&P are providing a level at which to take a breather.

Commodities

West Texas crude is up US$1.94 or 5.4% at US$37.93/bbl. Brent is up US$2.06 or 5.3% at US$40.78/bbl.

Nickel and tin continued their rallies on the LME last night, with 1.5% and 2% gains respectively. Aluminium edged up another 0.7% as copper took a breather, while zinc just can’t seem to win any friends and fell 2%.

Iron ore is up 19%. No that’s not a typo. A US$10.20 gain puts spot at US$62.60/t.

The US dollar index is down 0.2% at 97.09 while gold remains relatively steady at US$1266.00/oz.

Today

The SPI Overnight closed up 36 points or 0.6%.

The NAB survey of local business confidence in February is due today.

China will release February trade numbers.

Several local stocks go ex-div today, including Oil Search ((OSH)).

Rudi will connect with Sky Business through Skype around 11.15am today to talk about broker ratings.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Monday Report

By Greg Peel

Risk On

As expected, it was a relatively quiet day on the local bourse on Friday ahead of the US jobs report and following a strong recovery week. However sector moves were not all that quiet.

The banks only posted a 0.2% gain following a very strong run over the week, but apparent recovery in oil and iron ore prices, along with strength in base metals prices, saw the energy sector up another 0.4% and materials 1.4%. Investors appear to be undertaking a “risk-on” sector switch, drawing on the defensive sectors of healthcare (-1.2%) and utilities (-1.2%) for funds.

Normally telcos would be included in that group but Telstra has been trading more like a cyclical of late. Having taken quite a hit recently, the telcos were up 1.1% on Friday and similarly consumer staples posted a 0.7% gain. The downer was consumer discretionary, which lost 1.0% due to a disappointing January retail sales result.

Retail sales grew 0.3% in January, short of 0.4% expectation. This follows the strong December quarter GDP result for the consumer spending component, and at 4.0% annual growth, spending looks reasonable compared to last year’s 3.5% and the decade average 4.5%. Bear in mind that 4.5% includes a couple of pre-GFC years of growth around the 6% mark.

Still, the market didn’t like Friday’s result. Aside from an unsurprising trend of the non-mining states spending more than the mining states, the other takeaway of note is that we are spending a lot more on services than we are on goods.

Something for Everyone

The US added 240,000 jobs in February, beating 190,000 expectations and continuing a trend of surprising strength in the US labour market. This might be a concern for those fearing the Fed may yet look to hike again in March, but there is always more to a US jobs report than just the headline number.

The unemployment rate remained steady at 4.9%, implying the participation rate fell. But most importantly, after a very strong burst of wages growth in January which heightened Fed rate rise fears at the time, wages fell back 0.1%. Annualised wage growth is running at a below-trend 2.2% -- healthy enough considering lingering recession fears, but not enough to force the Fed into action next week.

June remains the current target date for the next Fed move.

Wall Street initially dipped on the jobs report release on Friday night but quickly resumed its rally once more. Simultaneously, the Dow crossed over the 17,000 mark and the S&P500 crossed over the 2000 mark. These numbers offer resistance merely on a “round number” psychological basis, and as such the sellers moved in. But a late rally at the death ensured another assault.

The Dow closed up 62 points or 0.4% at 17,006, the S&P gained 0.3% to close on 2000, and the Nasdaq rose 0.2%.

Proving further support, and risk-on confidence for Wall Street, was yet another rise in oil prices. A 4% gain for WTI meant the second consecutive weekly 6% gain for the global benchmark. Friday’s strength was driven by another drop in the weekly US rig count, suggesting next week’s weekly crude data may show a third week of falling production.

Commodities

West Texas crude rose US$1.37 to US$35.99/bbl and Brent rose US$1.62 to US$38.72/bbl.

Australia’s May budget is beginning to look a lot healthier. It will be interesting to see whether Scott Morrison does the right thing, and warns that a smaller deficit must be treated with caution given forecasters are not convinced the recent rally in the iron ore price will last, or plays the idiot politician, and gloats.

Iron ore was up another US70c to US$52.40/t on Friday.

The “risk-on” trade is now well and truly on show in base metal markets. When prices were heading towards their lows, commodity funds were bailing out rapidly. Now that the supply-demand balance across many a commodity is looking a little healthier – including global production cuts for base metals, particularly in China – the commodity funds are piling back in again, lest they be left behind.

Copper, nickel and tin all rose 3% on Friday night. Aluminium managed 0.7% and zinc was a wood duck.

Gold was relatively steady at US$1262.30/oz with the US dollar index down 0.2% at 97.36.

There’s no stopping the Aussie at present, which may be reaching a short-covering crescendo. It was up 1% on Saturday morning at US$0.7427.

The SPI Overnight closed up 36 points or 0.7% on Saturday morning.

The Week Ahead

The US goes into a bit of a data vacuum this week so the focus this week will be on the ECB, which holds a policy meeting on Thursday night. December’s extension to ECB QE has made little impression on the eurozone economy, which has also had to fight a pullback in the US dollar (ie stronger euro) as Fed rate rise expectations have been tempered.

The market is expecting something from Mario Draghi this week, but it’s not quite sure what.

China will be in the frame this week. Economists were disappointed with the Chinese government’s performance at the weekend’s national conference, at which it appeared Beijing’s focus is now back on reviving growth rather than addressing debt and further reforms. That should mean further stimulus from the PBoC, but Beijing has lowered its 2016 GDP growth target to 6.5-7.0% from 2015’s 7.0%.

The 2015 result was 6.9%. Perhaps by switching to a range rather than a single figure, Beijing is making it easier for its number crunchers to orchestrate an expected result.

This week China will release trade numbers tomorrow, inflation numbers on Thursday, and results for retail sales, industrial production and fixed asset investment on Saturday.

Australia will see ANZ job ads today, NAB business confidence tomorrow and Westpac consumer confidence on Wednesday. We’ll also see the construction PMI today and housing finance numbers on Wednesday.

As the ASX200 appears set to push further away from the gravitational pull of 5000 as the week begins, from tomorrow it will be fighting a large number of ex-divs throughout the week. These include BHP Billiton’s ((BHP)) dividend on Thursday, what there is of it.

Rudi will appear on Sky Business via Skype-link on Tuesday, 11.15am, to discuss broker calls. Next he'll appear twice on Thursday, from 12.20-2..30pm and between 7-8pm for the Switzer Report. On Friday he'll repeat the Skype-link performance at 11.15am.
 

For further global economic release dates and local company events please refer to the FNArena Calendar.

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article 3 months old

The Overnight Report: Bring On Jobs

By Greg Peel

The Dow closed up 44 points or 0.3% while the S&P rose 0.4% to 1993 and the Nasdaq gained 0.1%.

More of the same

The major drivers of Wednesday’s big rally on Bridge Street were the banks, then daylight, then the resource sectors. Having pushed through 5000 for the umpteenth time, the green light is now on for the market to at least take a shot at 5200, if not the 5400 level chartists are flagging.

Yesterday simply saw more of the same. The banks led the charge again with a 1.8% gain, materials backed up with a 2.0% gain, with a little help from a stronger iron ore price (note the banks are now relatively a much bigger cap weight), and energy chimed in with 1.2% as, increasingly, it looks like the oil price might have stabilised.

There was little to speak of happening in other sectors. The banks and resources led us down, so it stands to reason they should lead us back up again.

Oil price stability, if that’s what we’re seeing, is important for LNG exporting. The iron ore price is holding above US$50/t on Chinese restocking but that must soon reach a conclusion. It is important to recognise the lag time between export prices pre-determined for cargoes delivered and spot pricing in relevant markets. Ditto the impact of the falling Aussie. This lag was apparent in yesterday’s January trade data.

Wednesday’s strong December quarter GDP result featured a surge in consumer spending to more than offset weakness in commodities exports. The bad news was a decline in volumes of exports as well as declining prices. Yesterday’s January trade data nevertheless showed a 1.2% increase in exports following the three months of declines over the December quarter. Exports are still reflecting the worst of commodity prices, but the weaker Aussie is starting to have an impact on AUD pricing.

The weaker Aussie is now also having the opposite effect on imports, which fell 1.1% in January. Foreign goods are becoming more expensive. The December quarter GDP was driven by consumer spending. If this now backs off in 2016, due to rising prices, and a predicted slowing in the housing boom, is there enough in non-mining to overcome weakness in mining going forward?

What we can place some hope in is that things do not look like they can get much worse for mining (and energy is included in the “mining” tag here). A rebound in commodity prices would be nice, but even stability of prices would be comforting such that, alongside the benefits of the weaker currency, mining at least stops dragging on the GDP.

The lower Aussie is also having an impact on Australia’s service sector, it would seem. The services PMI flipped back into expansion at 51.8 in February, up from January’s 48.4. Australians are shifting back to domestic services from overseas services (eg travel) due to the price.

The only problem, in the shorter term, is that the Aussie’s currently on a bit of a tear. Following Wednesday’s big jump, the Aussie is up another 0.9% at US$0.7356 thanks to a narrower trade deficit and strength in the services sector. There is no doubt an element of short-covering involved, given everyone was expecting the Aussie to be at 65 by now.

Around the Grounds

China’s service sector continues to expand, but the pace of that expansion continues to slow. Caixin’s independent China services PMI came in at 51.2, down from 52.4, and largely mirroring Beijing’s official number released on Tuesday.

China’s manufacturing sector continues to contract and keeps the world up at night, but the Chinese government is sleeping easy because contraction is the intention. Not so services, which is meant to take the baton. If investors want to worry about China’s economy, they should fret about the slowing pace of service sector growth and ignore manufacturing.

Japan’s services PMI rose to 52.4 from 51.5. The eurozone saw a fall to a 13-month low of 53.3, down from 53.6. The UK saw a fall to a near three-year low at 52.7, down from 55.6.

The US saw a fall to 53.4 from 53.5.

Waiting for Jobs

Wall Street took the services PMI as a good result, given economists had forecast worse. The oil market simply saw a weaker number, and sold off. The sell-off was probably due to some trigger happy day-traders, as oil came right back again to finish the session little changed, probably driven by those who see an improving trend (ie falling production).

The Dow was down 76 points on weak oil and rallied back to a stronger close, with oil. But volumes were low and volatility minimal as Wall Street awaits tonight’s all important non-farm payrolls report, the last jobs number ahead of the March Fed rate meeting.

That aside, last night’s January factory orders release showed a pleasing gain of 1.6% following two months of declines.

Commodities

LME traders noted indications of global base metal production cuts in sending prices higher for yet another session. Aluminium bucked the trend with a 1% fall, but copper, lead and tin were up 1%, zinc 2% and nickel 3%. Price rises were aided by a weaker US dollar, which fell 0.7% on its index to 97.55.

The dollar fell because of the weak US service sector PMI, despite similar weakness in the PMIs of Europe and the UK. The US service sector is far, far bigger than the US manufacturing sector.

If the US data continue to weaken then perhaps the Fed will adopt a more dovish tone at the March meeting. The greenback fall suggests this, and gold is up US$25.50 to US$1264.70/oz.

Iron ore rose US10c to US$51.70/t.

West Texas crude is steady at US$34.62/bbl and Brent is up a tad at US$37.10/bbl.

Today

The SPI Overnight closed up 5 points.

It would make sense that Bridge Street will also have a quieter session today, given two days of strong rallies, it’s Friday, and US jobs numbers are out tonight.

We will nevertheless see local January retail sales numbers today.

Medibank Private ((MPL)) is among a handful of stocks going ex-div today, and S&P/ASX will announce quarterly changes to index constituents, which will come in effect in two weeks’ time.

Rudi will appear twice on Sky Business today. First via Skype-link around 11.15am to discuss broker ratings and later, from 7-8pm, as guest on Mark Todd's Your Money, Your Call Fixed Interest.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

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article 3 months old

The Overnight Report: Hanging In There

By Greg Peel

The Dow closed up 34 points or 0.2% while the S&P gained 0.2% to 1981 and the Nasdaq was flat.

Slowdown? What Slowdown?

Relax said the night man, we are programmed to receive. And whaddya know? We’re back at 5000 again.

The local market was already off to a flier from the opening bell yesterday, courtesy of the big rally on Wall Street. The 5000 level for the ASX200 hove into view. But the kicker came with the mid-morning release of the December quarter GDP result.

Quarter on quarter growth of 0.6% clearly beat forecasts of 0.4%. The September quarter result was also revised upward, leaving 3.0% growth for 2015 when 2.7% had been predicted.

Non-mining growth overcame the drag from resource sector contraction, led out by the housing market but specifically surprising on consumer spending. The good news is that the decline in resource sector spending is reaching its nadir, and it appears we may be seeing a bottoming out of commodity prices.

On the bad news side, the question is one of just how much longer support from the housing market can last. Housing has started 2016 with another flurry, but many an analyst is expecting a cooling as the year progresses, following such a bubbly run. Looking at this season’s earnings reports from relevant retail outlets, a lot of consumer spending has been housing-related. If the housing market softens presumably this area of spending will too.

And given a lack of any notable wage growth, consumer spending has been driven by a reduction in household savings. Consumers have recently begun to emerge from behind the couch where they’ve been hiding since 2008, and pulled out their wallets once more. But unless wages pick up, there is a limit to how far into the savings built up since the GFC consumers are prepared to dip.

Strength in employment suggests wages must eventually grow, but can employment remain strong? Retrenchments continue in the resource sectors and are soon to hit peak levels in retail (Dick Smith, Masters), for example. Strength in employment over the past twelve months has surprised everyone from economists to the RBA, and there are those who suggest it’s just a misleading head-fake up to now.

As is suggested by the move in the Aussie dollar over the past 24 hours, an RBA rate cut now looks like a distant hope. Having already spiked up on Tuesday when the RBA offered no fresh hint of a rate cut – and sensibly so it would now seem – the Aussie is up another 1.6% at US$0.7293. Rate cuts are bad for banks, and hey, if the March quarter GDP looks just a strong, we’ll be talking rate hike once more.

The banks were up 3.0% yesterday. There’s the bulk of your hundred points in the index right there. Energy was up 3.8% despite little movement in oil prices overnight, but like the banks, the energy names are among the most beaten-down. A jump in the iron ore price helped materials to a 1.9% gain, and having now gone ex-div, even the telco was back in favour.

It appears investors dipped into utilities to fund their cyclical purchases, while mixed individual stock moves kept the diverse industrials sector at bay. Ex-divs would have had an impact.

Is it happening?

After rallying 350 Dow points on Tuesday night with no real impetus from the oil price, it was not surprising Wall Street opened lower last night. But it was a case of the oil story re-emerging once more.

US weekly crude inventories rose by more than expected last week, it was revealed. Down went WTI, by as much as 2%, and down went the Dow, by a hundred points.

But wait!

The same data release showed US weekly US crude production fell again, as it did last week. The supply is still building ahead of short term demand but if production continues to fall, so, eventually, will excess inventories. WTI spun around and rallied, to be up just slightly on the session.

It looks like we might finally be seeing the impact of low oil prices on the marginal US oil industry. But it is a balancing act. If prices keep rising because production keeps falling, then higher prices may well bring production back on line. Realistically, oil needs to stay around US$30/bbl for as long as possible to ensure US$50/bbl can ever be seen again.

Meanwhile, last night’s ADP private sector jobs report showed 214,000 new jobs added when economists had forecast 185,000. But January’s number was revised down to 193,000 from 205,000, so there was some trade-off.

The Fed’s Beige Book noted activity continued to expand in most districts over January-February but conditions “varied considerably” across those districts. These are not words the Fed has used in recent times. The points of drag are nevertheless obvious – oil production states are hurting and those with a concentration of manufacturing are finding the stronger US dollar a headwind.

Perhaps Janet Yellen should get on the phone to Glenn Stevens for advice about monetary policy management in a “two-speed” economy, or a “multi-speed” economy, as Australia’s has oft been referred to in recent years. Divergent pockets of economic strength and weakness will make the Fed’s one-rate-for-all policy decision even more complex.

Commodities

West Texas crude is up US23c at US$34.63/bbl and Brent is up US10c at US$36.91/bbl.

Base metals, one LME trader remarked last night, are having “a nice little mini-bull run”. Prices kicked on last night after Tuesday night’s gains, with all metals bar nickel rising roughly 1-2%. Nickel managed 0.5%.

Iron ore is on a tear, it would seem. It’s up US$1.20 to US$51.60/t.

The US dollar index has fallen back 0.2% to 98.19, so gold is up US$4.30 at US$1239.20/oz.

Today

The SPI Overnight closed up 25 points or 0.5%. Have we now entered yet another period of attempting to pull away from 5000 to the upside?

It’s service sector PMI day across the globe, including Caixin’s Chinese number.

Australia will also see January trade numbers.

There are only a couple of ex-divs today.

Rudi will appear on Sky Business today, first time under the new programming, and he'll stay from 12.30 till 2.30pm.
 

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available in the FNArena Cockpit.  Click here. (Subscribers can access prices in the Cockpit.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's - see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com