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Overnight: Timing Issue

The Dow closed up 7 points while the S&P lost -0.1% to 2347 and the Nasdaq fell -0.1%.

The Way We Were

We recall that once upon a time, the people of Australia owned what we now call “Telstra”. John Howard elected to sell off Telstra, owned by the people of Australia, to the people of Australia, and anyone else, or at least those who could afford it, while at the same time telling Telstra what it was allowed to charge, lest any of the people of Australia be disadvantaged.

In more recent years, the people of Australia have foot the bill so the NBN can buy the infrastructure owned by Telstra, and previously by the people of Australia, to complement the new “fast” broadband network, which the people of Australia will own. Until, at least, another government decides to sell off the NBN to the people of Australia.

Once the people of Australia have stopped making payments to the company they once owned for the infrastructure they once owned then Telstra is on its own – just another competing telco. What’s the outlook for this new Telstra? Not good it would seem.

Slow growth in data and mobiles in the first half led Telstra ((TLS)) to miss earnings forecasts. Full year guidance was maintained but management is pointing to the bottom of the range. Telstra shares fell -6.6%. The company did not earn as much as it paid out in dividends. The difference will be covered by NBN payments, until they run out in 2020.

That fall was worth 12 points in the ASX200. Telstra’s woes flowed into weakness in the whole sector, which fell -6.4%, as TPG ((TPM)) and Vocus ((VOC)) were also hit. Telstra’s result release immediately killed off an initial attempt to push beyond 5800 in the index yesterday morning. The index opened 24 points higher on Wall Street’s lead, then plunged -44 points to midday.

It was left to previous result reporters to save the day, and it appeared the market rotated out of one of the biggest caps and into other very big caps. Healthcare was the winning sector with a 2.3% gain, as investors continued to plough into CSL ((CSL)) and Cochlear ((COH)), which had both previously reported well. Ditto the banks (+0.7%), following CommBank’s ((CBA)) result. And throw in the big miners, as materials rose 0.8%.

Moves in other sectors were of less significance in index terms. Buying in the “other” big caps through the afternoon ensured the index made it back into the green by the death, and far enough back to ensure another close above 5800.

The monthly jobs lottery was drawn late morning, and it was not a pretty result. On paper, a 13,500 increase in jobs in January against a 10,000 consensus forecast was a “beat”, until one notes it required a 58,300 increase in part-time jobs to offset a -44,800 loss in full-time jobs.

The numbers show a continuation of the theme of 2016. The government can use a drop in the unemployment rate to 5.7% from 5.8% to its advantage and the fact 103,300 new jobs have been added in the past twelve months, but that consists of a gain of 159,400 part-time jobs against a loss of -59,100 full-time jobs.

Wage growth is thus anaemic. Productivity even more so. Those assuming the next RBA rate move will be up, take note.

Okay, maybe a month…

The last two-three hundred Dow points in the Trump rally come down to excitement that the president’s phenomenal tax reform package will be announced in two-three weeks, as suggested a week ago. But last night Trump announced that for “statutory and budgetary reasons”, Obamacare reform must come first.

The Trump team hopes to have healthcare sorted by mid-March. The tax reform package is being worked on at the same time and will be “great” etc. But its greatness won’t be revealed until at least then.

This news had the Dow tumbling -83 points, having yet again opened higher last night. It looked for all the world like the record-breaking streak might finally have come to an end. But by the closing bell, the Dow snuck back into the green, and to yet another record high.

The reason Wall Street can’t go down is simple – everyone is expecting it to. Beyond those expecting that a very normal and healthy pullback must ultimately eventuate after such a strong run are those simply hoping a pullback will occur. They are the investors and fund managers who were slow to move, are missing out, and as each day passes, they’re becoming more and more frustrated.

Then it becomes a staring competition. If the US market does start to tip over, at what point do the underweight investors jump in to take advantage? We can picture Eddie Murphy saying to Dan Aykroyd: Now? Not yet. Now? Not yet. Now! As soon as one goes, they’ll all go.

And that means the market won’t pullback, because they’ll all be a bit too anxious and trigger happy.

Until it really does pull back. Obamacare reform and tax reform all in a month? Disappointment looms.

But not in Philadelphia, it would seem, where factory owners are suddenly very excited about their prospects under Trump. The Philly Fed index was expected to fall to 20 this month from 23.6 in January but instead it leapt to 43.3 – its biggest one-month jump in seven years and highest level in 33.

These Fed region indices can be highly volatile.


There may be plenty of investors who are still underweight the right US equities, but in currency markets, everyone’s long greenbacks to the gills. Between Trump’s fiscal stimulus and the Fed’s rate hike plans, what else could one be? So when Trump effectively delayed his tax reform agenda last night, the dollar index dropped 0.7% to 100.45.

Gold was the beneficiary. It’s up US$8.80 at US$1239.90/oz.

For other metals the currency is more background noise than driver at present. In another mixed session on the LME, aluminium, copper and zinc all fell -1% and lead -3% while nickel rose 1%.

Iron ore fell -US$1.50 to US$89.50/t.

West Texas crude was up a bit.

The Aussie is down -0.2% at US$0.7690.


The SPI Overnight closed down one point.

It was a sizeable day in the local result season yesterday and today only gets bigger. Santos ((STO)), Whitehaven Coal ((WHC)) and the ASX ((ASX)) are among the biggies today while Japara Healthcare ((JHC)) will be one to watch.

ANZ Bank ((ANZ)) will provide a quarterly update.

Rudi will get on Skype to discuss broker calls on Sky Business this morning, probably around 11.10am. Later on, he'll join NAB's Mark Todd and another guest to discuss the world of finance in one hour of Your Money, Your Call, 7-8pm.

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