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Overnight: One Year

The Dow closed up 6 points while the S&P rose 0.1% to 2594 and the Nasdaq gained 0.3%.

All the way with CBA

It looked for all the world like we were set for a pullback on the local market yesterday, maybe -20 points or so as the futures suggested before the bell. Tuesday’s run to the magic 6000 level showed signs of a euphoria trade in a carnival atmosphere, commodity prices had pulled back overnight, and a lot of participants were simply absent on Tuesday afternoon.

That’s how it began, with the ASX200 falling -18 points from the opening bell, but then along came Commonwealth Bank’s ((CBA)) quarterly result.

The score card among the Big Four had to date been disappointing, mostly due weak trading profits thanks to a lacklustre market. In other metrics analysts gave the banks more of a thumbs up, before considering new announcements on spending. Sentiment would have been to the negative side ahead of CBA’s result, and hence the biggest bank surprised.

CBA’s beat came down mostly to lower than expected bad & doubtful debts. While strong “asset quality” is comforting, analysts continue to fear that from historical lows, there is only one way BDDs can go.

But they’ve been saying that for a long time.

Having clung onto the 6000 for the rest of the morning, the ASX200 then found renewed strength following the release of China’s trade data.

China’s exports rose 6.9% year on year in October, down from 8.1% in September and below 7.2% expectation. Imports rose 17.2%, down from 18.7% but beating 16.0% expectation.

Imports of iron ore dropped in volume terms in October from a record in the previous month, and were at the lowest level since early 2016. The volume of crude oil imports was the lowest since October last year.

Good or bad for Australia? Well, weaker iron ore volumes might be a concern but when you’re coming off record highs there’s no need for panic. The materials sector did end up being the worst performer on the day (-1.0%) but most commodity prices had already fallen overnight, and Tuesday saw the sector run very strongly. Ditto energy, which fell back -0.6% yesterday.

The biggest gainer was financials (+0.6%), thanks to CBA appearing as fourth best performing ASX stock in the session (+2.6%).

Elsewhere the telcos stood out with a -0.4% fall, having been the only sector not to join in the fun and games on Tuesday. Hapless Telstra ((TLS)) will now make refunds to some 42,000 customers who have not enjoyed anything like the NBN speeds promised. My editor knew nothing of this yesterday as the NBN connection in his area had dropped out.

It is still out this morning.

The net result was another incremental gain to mark another new post-GFC closing record, if anyone wants to be excited. With Wall Street doing not much overnight the local futures are up 12 this morning. This suggests a further push into what seems like blue sky, and is for anyone who hasn’t been in the market for a full decade, but isn’t really. On a technical basis however, there’s really nothing between 6000 and the actual 2007 record of 6800+.

All About Me

Last night was the first anniversary of the election of Donald Trump. In that period, the Dow has risen 28%. Trump told journalists travelling with him on his jaunt around Asia it’s all because of him.

Consensus suggests that the initial rally, between election and inauguration, was indeed driven by Trump and his policy promises. Thereafter, it’s more to do with strong US corporate earnings, aided by low interest rates, which were already low, and low unemployment, which was already low. The biggest chunk of the gain for the S&P500 has come down to a mere five stocks – FAANG – which is all about the inexorable growth of technology and nothing to do with who’s president.

Healthcare reform has been a failure, and the jury is still out on tax reform. Commentators will grant Trump credit for various deregulation measures nonetheless, that have not seen much of the spotlight. But 28% is not the best performance in history for a new (as opposed to second term) president.

FDR scored 45%, coming out of the Depression. Truman did better, following the death of FDR. LBJ did better, following the assassination of JFK. DJT is in the pack.

Meanwhile, last night’s lack of movement in major US indices came down to a balance of sector specifics and a wait-and-see period ahead of progress on the tax package.

Merger mania continues to have its ups and downs, with the media sector firmly in focus. One thing Trump has done is relaxed media ownership laws, a la Turnbull. But now the AT&T-Time Warner merger, negotiations for which began more than a year ago, is in doubt, as rumours have it the regulator won’t let AT&T buy CNN from Time Warner.  

Commentators suggest this smacks of politics, given Trump has a beef with CNN.

The oil price came off a bit last night. Weaker Chinese demand was noted in the data above.

US banks continue to come under pressure, not just from tax package concerns but also a flattening yield curve. With the Fed expected to raise next month, US short term bond yields have been rising. Long term bonds have tried to rise but continue to fall back on the differential to European and Japanese bond yields, which are still heavily under the influence of QE.

Banks like to borrow cheaply in the short term and lend at higher rates for the long term. A flat yield curve eliminates margins. Were the Fed to become a lot more hawkish while Draghi procrastinates and Kuroda stands firm, the risk is an inverted US yield curve, which portends recession.

On the other hand, Apple hit yet another new record high last night.


With the US dollar index all but steady at 94.85, aluminium’s -1% fall was the only base metal movement in London to exceed 1%. The other metals were modestly higher.

Gold is up US$4.20 at US$1280.50/oz.

West Texas crude is down -US50c at US$56.75/bbl.

The Aussie is up 0.4% at US$0.7680.


The SPI Overnight closed up 12 points or 0.2%.

Local housing finance data are due today, as are Chinese inflation numbers.

Xero ((XRO)) provides its earnings result while quarterly numbers are due from James Hardie ((JHX)) and Janus Henderson ((JHG)) today and News Corp ((NWS)) tonight.

Goodman Group ((GMG)) will provide a quarterly update and Santos ((STO)) hosts an investor day.

Today’s list of AGMs includes those of Charter Hall ((CHC)) and Flight Centre ((FLT)).

Rudi will travel to Sydney's Holt Street to appear on Sky Business from noon till 2pm.

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