By Greg Peel

The Dow closed down -72 points or 0.4% while the S&P lost -0.4% to 2263 and the Nasdaq lost -0.3%.

Blood Flows

Had a cheese and Vegemite sandwich just the other day actually. In every M&A transaction, perhaps the most important element is synergy. Can’t find a better example of synergy than cheese and Vegemite.

It was the hot topic on the local market yesterday, at least from the popular perspective. Vegemite is back in Aussie hands thanks to Bega Cheese ((BGA)) acquiring the brand and other Kraft names. With Bega short on other growth options, the market decided this is a good one and pushed Bega shares up 15%.

But it was not the market-moving announcement of the day. CSL ((CSL)) has upgraded full-year profit growth guidance from 11% to 18-20% thanks to strong sales of its blood-related products. CSL is the seventh biggest Australian listed company and the gorilla in the healthcare sector, thus the subsequent 12.5% jump in CSL shares pushed the healthcare sector up 6.5% and was worth a good 18 index points.

Take that out and it was a mildly weaker session yesterday. The lower oil price had energy down -0.6% while a -0.7% fall in telcos was offset by a 0.6% gain for utilities. Otherwise, nothing much else moved.

Yesterday’s jobs lottery provided the usual mixed bag. The good news is 13,500 jobs were added in December, and the better news is 9,300 of those jobs were full-time. The bad news is the unemployment rate rose to 5.8% from 5.7%.

But we can ignore that. Given the ABS surveys a different sample set of businesses each month, movements of 0.1ppt in the headline rate are neither here nor there. What matters is the trend, and the current trend is one of stability around the 5.75% mark. And last month’s tick-up was not about falling participation – participation rose slightly.

Nothing here to trouble the RBA, nor spark it into action, although the Aussie traded higher on the numbers.

Cometh the Hour

The ECB held a policy meeting last night and predictably made no changes. Draghi’s longstanding mantra of doing whatever is necessary, including stepping up QE when talk now is of when it will be wound back, remains in place.

On Wall Street, the earnings season continues with, to date, a relatively positive trend albeit it’s early days. Results provide for some sharp individual stock moves but otherwise the focus remains on tonight’s inauguration, and caution has set in.

The major indices opened flat before beginning a quiet drift lower over the session. A large sell order hit the market in the afternoon at which point the Dow was down over a hundred points, but a modest late recovery followed. Volumes were low.

While Wall Street may have cautiously positioned itself ahead of what shocks the new president’s speech might contain, the expectation is that the whole thing might prove a bit of a fizzer. Trump is unlikely to randomly hurl hand grenades a la his campaign speeches, it is assumed, and more likely to deliver a measured address (written by someone sensible) in an attempt to, for once, actually seem presidential.

If the speech is devoid of any policy outlines, there could be some frustration in the market. But as all agree, significant policy changes such as tax reform and the repealing of Obamacare are going to be a 2017 story, not a January story. It’s more a case of just getting this inauguration out of the way, and then getting on with it.

The circus begins late morning in Washington and no doubt all of Wall Street will be fixated, and it will likely be a quiet session. But we’ll see.

Commodities

The nickel price continues to slide in the wake of the lifting of the Indonesian export ban. Local analysts have begun the process of stripping off major chunks of earnings expectation for Australia’s nickel miners. Nickel was down -2.5% in London last night and all other base metals were lower, but none by more than -1%.

Iron ore fell -US80c to US$80.40/t.

Having had a bit of a drop on Wednesday night, West Texas crude is up slightly at US$51.37/bbl.

Gold is steady at US$1205.90/oz with the US dollar index a tad lower at 101.17. The Aussie is up 0.5% at US$0.7553 with a little help from the jobs report.

Today

The SPI Overnight closed down -10 points or 0.2%.

Tonight’s inauguration is the focus of all attention but for the local market, today’s gaze will be firmly fixed on the monthly Chinese data dump of industrial production, retail sales and fixed asset numbers, accompanied by the December quarter GDP result. Predictions are Beijing will decide it should be 6.7%.

Australia will see new home sales data.

OceanaGold ((OGC)) and Santos ((STO)) will publish production reports today while Macquarie Atlas Roads ((MQA)) and Sydney Airport ((SYD)) will report traffic numbers.

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By Greg Peel

The Dow fell -24 points or 0.1% while the S&P rose 0.1% to 2270 and the Nasdaq gained 0.2%.

Consolidation

The ASX200 opened -42 points lower yesterday, and marked the low for the session. There followed a modest but steady graft back to a close of down -20 points.

I suggested yesterday that having jumped from 5000 to 5500 on initial Trump election euphoria, and then again to 5800 on commodity price strength in thin summer holiday trade, the index was likely now settling back to a new mid-ground level ahead of Trump’s inauguration that represents a level of caution as to just what Trump policies will now actually became reality.

Yesterday saw the banks losing further ground (-0.9%) along with healthcare (-0.9%), mimicking moves overnight on Wall Street. On the flipside, energy jumped 1.1% despite little change in the oil price. The suggestion here is that it is in Santos’ ((STO)) interest to push the price up ahead of next week when the benchmark price for the company’s discounted share purchase plan will be set. Santos rose 2%.

Yesterday also saw the consumer discretionary sector (-0.6%) responding poorly to the monthly Westpac consumer confidence survey, despite a 6% jump for Treasury Wine Estates ((TWE)) following Morgan Stanley’s rating and target price upgrade.

Confidence dropped in November and again in December following the negative GDP result. Data since the result release have confirmed assurances at the time the next GDP result would be much better, particularly as stronger commodity prices flowed through to the numbers. On that basis, a better confidence reading was expected for January.

A rise of only 0.1% for the index was thus a disappointment.

And Back to the Fed

Trump, Trump, Trump…that’s all we’ve heard since late last year. For all of 2016 however, what we heard was Fed, Fed, Fed. And there is no reason why 2017 is shaping up to be any different.

Oh joy.

Last night’s US data releases showed the headline CPI rising 0.3% in December to mark a 2.1% increase for 2016 – the fastest rate since 2011. Industrial production rose 0.8% -- the largest monthly gain in two years.

As a result, US bond yields, which have been waning this month following the initial Trump spike, rebounded. The benchmark ten-year yield is up 6 basis points at 2.39%.

As Wall Street headed into the last hour of trade this morning, the text of the speech Janet Yellen was set to give over that time hit the wires. In the speech, Yellen suggested the US economy was now close to reaching the Fed’s dual goals of maximum employment and price stability (healthy inflation).

All last year the Fed was at pains to suggest the tightening cycle begun in December 2015 will be very gradual, and indeed we’ve only seen two rate hikes all up. But no one saw Trump coming. To that end, it is of no surprise Yellen said this morning she cannot say when the next hike will be. But what she did say is that there is a risk in being too slow to move.

Between inflation data, the bond yield rebound and Yellen’s comments, US banks staged a bit of a comeback last night. Goldman Sachs (Dow) also posted a strong earnings result but in so doing triggered a “sell the fact” after a strong post-election rally. Healthcare stocks were again under pressure, with the fate of Obamacare unknown and no word on what policy might replace it. Energy stocks fell on a lower oil price.

One disappointment for Wall Street this month has been the realisation US Christmas sales were tepid at best, and below expectation. Last night Target joined the chorus in issuing a December quarter profit warning for that reason. Shares in Target and peer US retailers suffered as a result.

Meanwhile, the world continues to await Trump’s inauguration.

Commodities

It should come as no surprise to anyone that US oil companies are planning to step up their production and development in the onshore shale basins now the oil price has recovered somewhat and stabilised and the cost of production has fallen lower still. But it was last night that the Nymex decided to respond.

West Texas crude initially fell 3% before recovering to be down US$1.27 or -2.4% this morning, following a report from OPEC that members are showing initial signs of compliance with the new production restrictions.

Just as the US CPI number pushed bonds higher, so too did the US dollar follow. It’s up 0.9% at 101.25 on its index. But the impact was not felt in London, where Aluminium and zinc both rose 2% and the other base metals posted small gains.

Iron ore fell -US50c to US$81.20/t.

The greenback rally has gold off -US$10.80 at US$1204.50/oz and the Aussie off -0.6% at US$0.7515.

Today

The SPI Overnight was mildly weaker this morning heading into Yellen’s speech has since turned around to close up 8 points.

Today brings the local monthly jobs lottery and tonight the focus will be on the ECB policy meeting.

South32 ((S32)) and Woodside Petroleum ((WPL)) release production reports today.
 

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By Greg Peel

The Dow closed down 58 points or 0.3% while the S&P lost 0.3% to 2267 and the Nasdaq fell 0.6%.

Back from Holidays

I suggested earlier in the week, as I returned from my own annual leave, that there may be many a market participant who has similarly returned to see the ASX200 at 5800, up from 5500 before Christmas, and wonder why, exactly.

The Dow failed to breach 20,000 in the meantime as Wall Street stalled. Sure, commodity prices were holding up there, and still are, so perhaps there was some justification to play catch-up in resource stocks. But commodity prices (ex-gold) did not rally over the period. And the Aussie did rally, acting as a headwind.

There appeared to be some element of simply returning to the Big Caps that had such a tough 2016, but to that end it almost seemed like a delayed catch-up rally to match Wall Street’s initial Trump euphoria. Wall Street commentators were warning of a blow-off in the euphoria once reality set in, being actual policies and the time it actually takes to implement them.

The ASX200 has now seen three sessions of 40-50 point drops over the past week, including -49 points yesterday. One might argue there was some squaring up ahead of Theresa May’s Brexit speech, and squaring up ahead of Trump’s inauguration speech. But the general selling began from the opening bell, and no sector was spared. This smacks of investors simply selling a market they consider to have become overvalued.

Materials (-0.5%) is a case in point. The iron ore price was up 4% on the open and Rio Tinto ((RIO)) posted a satisfactory production report. It might have been a tad disappointing on the realised iron ore price but did it justify selling, other than on the basis of having already run too far?

The banks (-1.0%) were also beneficiaries of Trump euphoria, but they, too, are coming in for valuation scrutiny. The local banks followed up the US banks, which were leaders in the Trump rally, and now the US banks are on the wane as US interest rates retreat and a general feeling of unease permeates pre-inauguration.

The bottom line is the local market is appearing to be resetting, perhaps establishing a middle ground between what Trump has promised and what Trump may well fail to deliver.

Compromise

Brexit will be “hard” – not a term Theresa May endorses, but one that cannot be shaken. The plan is to sever trade ties with the EU completely, thus restoring control over immigration. But it will be a “phasing out” process, so not to immediately and dangerously jolt the UK economy. And parliament will get to vote on the final details.

Is it a good result? The FTSE100 fell -1.5% and the pound rebounded a whopping 3%. But then the UK stock market has had a good run since the Brexit vote and the pound has collapsed, so the clarity finally provided re the actual Brexit plan has basically triggered profit-taking. The plan is not quite as “hard” as forex markets feared, and not as “soft” as the stock market would have liked.

Dollar Dilemma

President Xi Jinping was in Davos last night playing Mr Nice Guy, talking up globalisation and talking down trade wars. He insisted that there is no plan to force the renminbi lower (indeed, currently the government is trying to prop the renminbi up). It was an interesting response, commentators suggest, to what Mr Trump had to say over the US long weekend.

Trump again accused China, in an interview, of “keeping the yuan weaker”. Note that for the purpose, the renminbi and yuan are the same thing. “Our companies can’t compete with them now because our currency is too strong,” said Mr Trump, “and it’s killing us”.

But hang on. The US dollar has rallied strongly post-election on Trump’s campaign promises for a stronger US economy. Before any policy is actually announced or implemented, the President-elect is bemoaning the greenback’s strength. What does this mean for the actual policies that may emerge?

This is what Wall Street, and the world, is currently worried about. Or at the least, what is prompting a retreat from the initial euphoria. The 35% border tax? Looks like that one’s going to be too hard, Trump’s transition team has admitted. What else is too hard?

The US dollar index has been drifting lower this month and last night fell -1.2% on its index to 100.39, thanks to both Trump’s comment and the surging pound. The US ten-year yield, which had hit 2.60% and looked for all the world like it would hit 3% by now, has also been drifting lower. Last night it dropped another -5 basis points to 2.33%.

The US banks led the market up post-election, and now they are leading the pullback. Last night’s weakness on Wall Street was to a large extent attributable to the banks which, despite solid earnings reports, are now looking at a less promising interest rate scenario.

Three more sessions to inauguration.

Commodities

The drop in the greenback has given gold another kicker. It’s up US$12.70 at US$1215.30/oz. The Aussie has matched the dollar index’s -1.2% drop with a 1.2% gain to US$0.7562.

Copper fell -2% in London and nickel and zinc each fell -1% while aluminium and lead were stronger.

After jumping on Monday 4%, iron ore fell -2% or US$1.80 yesterday to US$81.70/t.

West Texas crude was a tad higher on Monday night and a tad lower last night, at US$52.48/bbl.

Today

The SPI Overnight closed down -9 points.

We’ll be hearing from Janet Yellen tonight, just to add to the fun, but she’s no doubt just as much in the dark as everyone else.

The US will also see industrial production and housing sentiment numbers.

Locally, Westpac will release its monthly consumer confidence survey.

Paladin Energy ((PDN)) and St Barbara ((SBM)) will release production reports and Aurizon ((AZJ)) will report on quarterly rail volumes.

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By Greg Peel

Wall Street was closed last night for Martin Luther King Day.

Stocks with Rocks

As we may recall, it was this time last year investors could not dump their resource stocks fast enough on the local market as the prices of oil, iron ore and coal went into freefall and base metals headed south in sympathy. This January looks very different.

The turnaround came in the bulks as China tightened up the supply side with restrictions and boosted the demand side with infrastructure stimulus. In oil, OPEC/non-OPEC production cuts appear to be holding. In base metals, a mix of Chinese demand and on/off export bans from the likes of Indonesia and the Philippines have determined price movements. In the background, lithium, graphite and anything else to do with batteries have been in vogue.

Around August many a market commentator was calling the bottom in the market for commodity prices. They were proven correct, but no one foresaw the extraordinary rallies that followed. It was only late last year that resource sector analysts began to concede that they were wrong to believe the sharp rebounds in the prices of iron ore and coal in particular were no more than speculative blips.

Hence the ASX200 has rallied back from the brink under 5000 to hit 5800 last week. Resource sector stocks have been the driving force. The banks have also made a comeback, despite ongoing uncertainty around potential capital raisings. Australia’s Big Caps – pariahs for the bulk of 2016 – are back in favour. Meanwhile, 2016 was a shocker for many companies in the high growth, and thus high PE, cohort. Small caps have moved sideways of late on a mix of ongoing solid stories balanced by many a disaster.

Yesterday’s trade on the ASX was again mostly about rocks, albeit a 42 point opening gain for the ASX200 reverted to around a 27 point gain by midday. Then the market went to sleep.

The materials sector provided the bulk of the gain in rising 1.3%. Consumer staples provided 0.5% support after Woolworths hired a Pom to revive its ailing supermarkets. Utilities managed a 1% gain on a 5% jump for in-play DUET ((DUE)).

Chances are the market will drift back again today, with the futures suggesting an 8 point drop despite no lead from Wall Street and a 4% jump in the iron ore price. It’s not a week to take big risks. Locally we have the resource sector quarterly reporting season ramping up, in which the miners will need to justify share price rallies with solid production and sales numbers. Next month, earnings reporting season begins.

Earnings reporting season is underway in the US to offer near-term direction for Wall Street, with the slight caveat being Trump’s inauguration on Friday night, what may or may not be revealed policy-wise in his speech, and what madness he may tweet before and after.

And tonight the world will supposedly learn just how Brexit is going to work.

Between a Soft and a Hard Place

Immigration appears to be the determining factor for Brexit. Britons have voted (by a slim majority) to shut the borders and this can only be achieved by exiting what was once known, back when Jim Hacker was PM, as the Common Market. Such an exit from the EU would be considered a “hard” Brexit, and PM Theresa May has said “Brexit means Brexit”.

On the other hand, she has dismissed the labels “hard” and “soft” as being irrelevant. This would imply she is aiming for some sort of middle ground – a bit like a “free trade agreement” in reverse; the word “free” being a major misnomer in any complex global trade agreement.

May has refused to provide any hints up to now. All will be revealed tonight, apparently, in her speech. The UK is holding its breath but forex traders are not prepared to take the risk. “Hard” will not be good for the pound, so last night the pound fell 1% to return to the depths of the initial plunge last year post-vote.

Commodities

The US dollar index is subsequently up 0.4% at 101.59 and the Aussie is down -0.3% at US$0.7474.

Iron ore has jumped US$3.30 to US$83.50/t.

Confusion around the impact of Indonesia’s qualified lifting of its nickel export ban had that metal down -4% in London last night. The other base metals were all around -1% lower.

Oil prices are little changed, with West Texas crude sitting at US$52.66/bbl.

Gold is US$5.10 higher at US$1202.60/oz, despite the stronger greenback. The dollar-gold relationship becomes superfluous every time Trump speaks of dismantling NATO.

Today

The SPI Overnight closed down -8 points.

Wall Street will reopen tonight with a slew of corporate earnings reports after Theresa May has outlined her Brexit plan.

Locally we’ll see housing finance data today.

Rio Tinto ((RIO)), one of the stars of the recent rally, will publish its December quarter production and sales report today.

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Greg Peel is on holidays. In the final week before the Christmas break, FNArena offers an alternative Overnight Report, produced by Vested Equities.

Global Markets Update

- US markets. US markets edged lower overnight on light trading volumes – both Dow Jones and S&P500 were lower by -0.2%. Real estate shares dropped -1.3% for the biggest loss, while financial stocks weighed on the index with a -0.2% decline. In US economic data, sales of existing homes increased more than forecast, indicating that the economy is picking up steam.

- Long-dated US treasury yields fell overnight, with the 2-Yr yield down 2bps to 1.19% and 10-Yr yield down 1bps to 2.51%.

- European markets. European shares eased after reaching the highest level in almost a year, as banks and financial services companies dragged indexes lower. Spanish banks fell after a ruling in the European Union’s top court that may result in them handing back billions of euros to mortgage clients. The Stoxx Europe 600 Index dropped -0.3%, while the German Dax and the UK FTSE were mostly flat. In London, BHP Billiton ((BHP)) shares were down -0.1%, while Rio Tinto ((RIO)) was up +0.6%.

- Asian markets. Asian shares pared earlier gains on Wednesday, dragged down by declines in Japanese stocks as the yen strengthened against the US dollar. Nikkei was down -0.3%, Shanghai Composite rebounded +1.1% and KOSPI was down -0.2%.

- WTI oil price is currently down -1.4% at US$52.55/bbl. Iron ore is -0.5% lower at US$79.19 per tonne. Spot gold down -0.1% to US$1,131 per ounce. Thermal coal is down -0.1% to US$86.90/tonne.

ASX Market Update

- ASX performance. The ASX 200 closed +0.4% higher on Wednesday, the highest level since October 2015, with most sectors registering a positive gain besides industrials (-0.6%) and consumer staples (-0.1%).

- The a2 Milk Co ((A2M)) shares gained +6.2% after the company provided an update stating “the business continues to trade very strongly, in particular, year on year growth in its infant formula business”. Sydney Airports ((SYD)) shares dropped -5.2%, amid uncertainty on the second airport. Bellamy’s ((BAL)) extended its trading halt for another 3 weeks.

- Australian dollar is currently lower by -0.2% to 0.7248 versus the USD.

- Today’s trading. In Australia, no major economic news is out.

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Greg Peel is on holidays. In the final week before the Christmas break, FNArena offers an alternative Overnight Report, produced by Vested Equities.

Global Markets Update

- US markets. US closed higher overnight – Dow Jones up +0.5% and S&P500 up +0.4%. Caterpillar Inc. and Nike Inc. led advances in the bluechip space, while bank shares resumed a rally, adding 1.1%. In US economic data, the Philadelphia Fed service index increased to 20.9 (from 10.6) in December.

- Long-dated US treasury yields were mostly unchanged from yesterday, with the 2-Yr yield down 2bps to 1.21% and 10-Yr yield unchanged at 2.55%.

- European markets. European markets moved higher overnight, with investors shrugging off the terror attack in Berlin. The Stoxx Europe 600 Index was up +0.5% to close at the highest level in 2016, as analysts remain upbeat about profit growth for next year, expecting earnings to grow by 12.5%. The German Dax was up +0.3% and the UK FTSE up +0.4%. In London, BHP Billiton (BHP) shares were up +0.9% and Rio Tinto (RIO) was up +1.4%.

- Asian markets. Asian markets were mostly higher, with the Nikkei up +0.5%, Shanghai Composite down -0.5%, KOSPI up +0.2%. Bank of Japan kept its monetary policy steady - upgrading its assessment of the economy and keeping its asset purchase programs unchanged.

- WTI oil price is currently up +0.5% at US$53.55/bbl. Iron ore is -2.0% lower at US$79.62 per tonne. Spot gold down -0.5% to US$1,132 per ounce. Thermal coal is up +3.6% to US$87.45/tonne.

ASX Market Update

- ASX performance. The ASX 200 closed +0.5% higher on Tuesday, driven by consumer discretionary (+1.2%), utilities (+1.3%) and consumer staples (+1.1%) stocks. Energy (-0.4%) and diversified financials (-0.4%) were the main laggards.

- Syrah Resources (SYR) shares lost most of the gains registered in the previous day’s trading, dropping by -6.3%. Seven West Media (SWM) shares rebounded by +6.0%, after falling -8.0% on Monday on media reports that its CEO Tim Worner had ‘inappropriate relationship’ with an employee.

- Australian dollar is currently +0.2% to 0.7259 versus the USD.

- Today’s trading. In Australia, no major economic news is out.

Rudi will host Your Money, Your Call Equities tonight on Sky Business, 7.30-9pm.

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Disclaimer
This document is provided by Vested Equities Pty Ltd (ABN 54 601 621 390; AFSL 478987) (“Vested”).
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall for m the basis of any contract or commitment. This document should not be  regarded by  recipients as a substitute for the exercise of their own  judgment and  recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Vested nor its associates make a ny recommendation or warranty concerning the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and Vested is not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Vested and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Vested does, and seeks to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Vested, its associates, officers, directors, employ ees and agents.  Except for any liability which cannot be excluded, Vested, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Vested is not liable to recipients in any matters whatsoever otherwise recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Vested does not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Vested.

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

Greg Peel is on holidays. In the final week before the Christmas break, FNArena offers an alternative Overnight Report, produced by Vested Equities.

Global Markets Update

- US markets. US closed higher overnight – Dow Jones up +0.2% and S&P500 +0.1%. Healthcare and industrial stocks gained in early trading as energy stocks declined. After officials at the Federal Reserve commented that they expect a three quarter-point rate increase throughout next year (up from two in September), traders are pricing in a ~73% chance of an increase in June 2017.

- Long-dated US treasury yields were lower with the 2-Yr yield down 3bps to 1.23% and 10-Yr yield down ~4bps to 2.55%.

- European markets. European markets were mixed as investors took profits in financials, whilst real estate, utilities and technology companies advanced. The broad Pan-European STOXX 600 index was flat, the German Dax up +0.2% and the UK FTSE up +0.1%. In London, BHP Billiton (BHP) shares fell -1.7% and Rio Tinto (RIO) was down -1.3%.

- Asian markets. Asian markets were slightly down, with the Nikkei flat, Shanghai Composite down -0.2%, KOSPI down -0.2%.

- WTI oil price is currently flat at US$51.90/bbl. Iron ore is -0.3% lower at US$81.22 per tonne. Spot gold was up +0.4% to US$1,139 per ounce.

- Thermal coal decreased -0.4% to US$84.40/tonne.

ASX Market Update

- ASX performance. The ASX 200 closed higher on Monday driven by small gains in multiple sectors, especially Insurers, offset by Consumer Discretionary. Treasurer Scott Morrison announced a drop in this financial year’s projected deficit to $36.5 from $37.1 billion, but the total deficit over the next three years to increase to $10.4 billion.

- Syrah Resources (SYR) shares rebounded +6.4% after a period of underperformance since former MD Tolga Kumova stepped down and on concerns the Company’s ability to translate a deposit into a marketable product. Seven West Media (SWM) shares retracted -8.0% on media reports that its CEO Tim Worner had ‘inappropriate relationship’ with an employee. Sirtex Medical (SRX) shares were down -4.0% on news that it’s investigating share trading by their CEO. Fortescue (FMG) shares were down -4.8% on market expectations that iron ore is expected to fall.

- Australian dollar continues to retract, -0.8% lower to 0.7248 versus the USD.

- Today’s trading. In Australia, the RBA board minutes are released.

www.vested.com.au

Disclaimer
This document is provided by Vested Equities Pty Ltd (ABN 54 601 621 390; AFSL 478987) (“Vested”).
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall for m the basis of any contract or commitment. This document should not be  regarded by  recipients as a substitute for the exercise of their own  judgment and  recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Vested nor its associates make a ny recommendation or warranty concerning the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and Vested is not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Vested and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Vested does, and seeks to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Vested, its associates, officers, directors, employ ees and agents.  Except for any liability which cannot be excluded, Vested, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Vested is not liable to recipients in any matters whatsoever otherwise recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Vested does not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Vested.

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

Greg Peel is on holidays. In the final week before the Christmas break, FNArena offers an alternative Overnight Report, produced by Vested Equities.

Global Markets Update

- US markets. US largely closed flat on Friday – Dow Jones flat and S&P500 -0.2%. US housing starts were down -18.7% in November versus an expected lower decline of -12.8% and US building permits decreased -4.1% in November versus an expected increase of +3.3%.

- Long-dated US treasury yields were unchanged on Friday with the 2-Yr yield at 1.26% and 10-Yr yield at 2.60%.

- European markets. European markets were higher, driven by energy stocks, and M&A news in healthcare with Actelion (ATLN), up +5.8% on news that Sanofi (SAN) will look to take over the Company. The broad Pan-European STOXX 600 index was up +0.3%, the German Dax up +0.3% and the UK FTSE up +0.2%. In London, BHP Billiton ((BHP)) shares fell -4.6% and Rio Tinto ((RIO)) was up +0.1%.

- Asian markets. Asian markets were higher on Friday, with the Nikkei slightly up +0.7%, Shanghai Composite up +0.2%, KOSPI up +0.3.

- WTI oil price is currently up +2.0% at US$51.90/bbl. Iron ore is flat at US$81.49 per tonne. Spot gold was up +0.6% to US$1,135 per ounce. Thermal coal decreased -2.6% to US$86.50/tonne.

ASX Market Update

- ASX performance. The ASX 200 closed lower -0.1% on Friday driven by losses from Metals & Mining, down -1.2% and Telcos, down -0.8% offset by Consumer Discretionary, up +0.7%.

- Australian dollar is currently lower by -0.8% to 0.7300 versus the USD.

- Orocobre ((ORO)) shares gained +9.1%, on positive scoping studies confirming 17.5ktpa lithium carbonate expansion. Orora ((ORE)) shares gained +5.7% after announcing it will buy Register Print for $44m. Incitec Pivot ((IPL)) gained +4.4% after holding its AGM where the Company highlighted it was cautiously optimistic for 2017 and made positive comments on improved ammonia pricing in 2017. Mayne Pharma ((MYX)) shares were down -8.8% as it was named in a suit filed by 20 US states alleging the drug maker conspired to fix prices for generic medicines.

- Gold miners in Resolute Mining ((RSG)), Evolution ((EVN)), St Barbara ((SBM)), and Saracen Mineral ((SAR)) continue to decline as the US Fed Reserve continue to signal steeper rate increases throughout 2017.

- Today's trading. In Australia, MYEFO Budget Deficit 2016-17 is released.

www.vested.com.au

Disclaimer
This document is provided by Vested Equities Pty Ltd (ABN 54 601 621 390; AFSL 478987) (“Vested”).
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall for m the basis of any contract or commitment. This document should not be  regarded by  recipients as a substitute for the exercise of their own  judgment and  recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Vested nor its associates make a ny recommendation or warranty concerning the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and Vested is not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Vested and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Vested does, and seeks to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Vested, its associates, officers, directors, employ ees and agents.  Except for any liability which cannot be excluded, Vested, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Vested is not liable to recipients in any matters whatsoever otherwise recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Vested does not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Vested.

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

By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.45 to 2262 and the Nasdaq rose 0.4%.

Fed Factor

All year a debate has raged in the market as to whether or not Santos ((STO)), the most heavily indebted of the big Australian LNG players, would be forced to raise capital. As costs were cut and the oil price recovered, consensus leant towards no it wouldn’t, and yesterday it did.

The $1.5bn announced raising had Santos shares down 10% on a day when the US dollar shot up, sending the oil price shooting down, and as fund managers reduced positions in the other big oil & gas names to fund their Santos rights, the energy sector fell 3.4% to be the biggest loser on the day.

Elsewhere in the market, sector moves reflected the surprise that was a three-hike call from the Fed for 2017 when the market had expected two. Aside from its impact on the energy sector, the subsequent jump in the US dollar saw the materials sector fall 1.6%, while the impact of higher rates had the yield stocks tumbling once more. Telcos fell 1.7% and utilities 1.3%.

Financials, on the other hand, stood still, ultimately being beneficiaries of higher rates. Healthcare also watched from the sidelines given US exposure and the benefit of a lower Aussie, and info tech was another spectator given Computershare ((CPU)) is another winner from higher US rates.

Not helping matters yesterday was the expiry of December quarter SPI futures and options and ASX200 options, which is likely why around mid-afternoon the index seemed determined to fall all the way back to the crowded 5500 strike price. Down almost 70 points at that stage, a late recovery ensured a less devastating close.

The irony is, of course, that this time last year the Fed said four hikes in 2016 and we got one. The Fed’s now saying three hikes in 2017 when the market thought two and so there’s a bit of a panic.

The same theme continued overnight on Wall Street, with one exception. The knee-jerk of a hundred point drop in the Dow post Fed statement release has been replaced by a tentative rally.

King Dollar

Having leapt on Wednesday night, last night the US dollar index surged another 1.3% to 103.18. The US ten-year bond yield jumped another 5 basis points to 2.58%.

These are the negatives facing Wall Street as investors weigh up the positive implications of three projected rate hikes – a stronger US economy. The strong greenback weighs on the many large US multinationals, while higher rates increase funding costs and increase default risk.

Yet gone are the days when Wall Street would run screaming in panic at the mere hint of a rate rise or, earlier, a taper of QE. Higher interest rates just have to be lived with if they reflect a stronger economy. The surge in the greenback, which began post-election, has shifted attention back to domestically focused and currency ambivalent US small and mid-caps which have returned to favour after a long period in the wilderness. Among the large caps, there are winners and losers. A significant winner is the banks, and last night saw renewed buying in the US financial space, helping the US indices rebound from Wednesday night’s initial drop.

It was otherwise a fairly muted post-Fed session last night. The indices opened higher and drifted back a bit to the close. After twelve months of debating when, exactly, the Fed would finally announce its second hike, there is no doubt a sense of relief, and of ennui.

Bring on 2017! We can spend all year debating exactly when the next rate hike will be.

Commodities

The stronger US dollar has ensured gold has continued to tumble, down another US$15.30 to US$1129.60/oz.

Base metals have not been paying too much attention to the impact of the dollar of late, given demand-supply balances have overridden the currency drag. Zinc gave back around 2% of the previous night’s rally but otherwise price moves were mixed and, in recent context, relatively small.

Iron ore rose US$1.40 to US$80.90/t.

Oil had a solid drop on Wednesday night last consolidated around the 50 level for West Texas crude. It’s little changed at US$50.92/bbl.

The Aussie is enjoying the greenback surge – it’s down another 0.8% at US$0.7358.

Today

The new March SPI Overnight contract closed up 10 points or 0.2%.

Tonight is the quadruple witching derivatives expiry in the US, which could provide some added volatility.

There’s a late flurry of AGMs for the local market today, including those of ANZ Bank ((ANZ)) and National Bank ((NAB)).

Merry Christmas

And that’s it from me.

I’m off on my annual leave as of today and will return, with a new-look Overnight Report, in January. Merry Christmas and Happy New Year to all, and happy trading.

Rudi will connect with Sky Business this morning, through Skype, to discuss broker calls. Probably around 11.05am.
 

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