Overnight: Buyers Forever Prepared
The Dow closed down -30 points or -0.1% while the S&P lost -0.2% to 2578 and the Nasdaq fell -0.3%.
For years the shares in Australia’s largest oil & gas company by a margin, Woodside Petroleum ((WPL)), have traded up and down on the oil price, development of the company’s LNG capacity and more recently, a solid dividend, but for a long time there has always been a dark cloud hanging over the stock.
Analyst recommendations have always included a caveat with regard “What does Shell plan to do with its 13.28% stake?” It might choose to exit the position. And so it was yesterday morning, that institutions found themselves facing a $3.5bn placement, representing Shell’s entire stake.
The placement evoked a dilemma. With Shell off the register, Woodside is back in sunny skies. As a Top 20 ASX stock by market cap, Woodside is a must-have in most institutional portfolios. There was no choice but to take a share of the placement. But how to fund it?
Sell everything! Or more correctly, reduce other long positions, most specifically in the energy space, to make way. The ASX200 dropped like a stone from the open yesterday. Support at 6000? Get out of my way.
The index hit its bottom for the session late morning. Then out came China’s October data dump.
Chinese industrial production rose 6.2% year on year in October, down from 6.6% in September and missing 6.3% forecasts. Retail sales grew 10.0%, down from 10.3% and missing 10.4% forecasts. Fixed asset investment grew 7.3% year to date, down from 7.5% and missing 7.4% forecasts.
The miss on all numbers, albeit modestly, could have been a trigger for further selling but by then the local market had seen enough damage. A bit of a wobble, and then a slight recovery to close down -53 points having fallen by as much as -64.
Energy stood out with a -2.1% fall. But to rejig portfolios, institutions could not achieve sufficient market cap offset in the smaller energy names, so it was also necessary to trim other large cap stocks. Hence the financials fell -0.8% (9 of the top 20 are financials, 11 including REITs), healthcare fell -1.4% (CSL), telcos fell -0.8% (Telstra). Utilities fell -1.4% because oil & gas names AGL Energy ((AGL)) and Origin Energy ((ORG)) are in that sector as downstream sellers as well as upstream producers.
Just when you thought it could not get any worse, Amazon suggested it was “very, very, very close” to kick-off in Australia. Previously retailers had not assumed the biggest threat to their existence would be up and running before Christmas. Now that looks highly likely. Consumer discretionary fell -0.7%.
There was one bright spot – following a positive AGM shares in Computershare ((CPU)) jumped almost 5% against the tide. The stock dominates the IT sector by market cap, so that sector posted a lone gain for the session of 1.4%.
So, whereto from here?
The Shell placement is a one-off event, exogenous to the prevailing macro trend. From a technical perspective, crashing through 6000 was a fundamental response. Indeed, yesterday the market steamrollered over the news NAB’s business conditions and confidence indices, which are highly regarded by many, including the RBA, as an economic indicator, soared to historically high levels in the October survey.
So there’d be an excuse to suggest that with the dust settled, today might bring a recovery in the index. But alas, while yesterday’s Chinese data had little impact on an otherwise preoccupied local market yesterday, elsewhere in the world there was a much weaker response overnight.
The futures are down -25 points this morning.
All About Tax
Amidst ongoing nervousness over the structure and timing of Trump’s tax reform hopes, the Dow was down -168 points in early trade last night. A -1.8% drop in the WTI price didn’t help.
There is much anticipation of an extension to OPEC-Russia productions cuts to be announced at the OPEC meeting at the end of this month. But last night oil traders responded to the weaker Chinese data, and to a 2017-18 demand forecast downgrade from the International Energy Agency, alongside in a warning on the supply side of a US shale boom.
The US energy sector led Wall Street down, with assistance from the materials sector. Base metal prices were carted in London.
Having plunged -8% on Monday night, shares in General Electric fell another -5.5% last night. Shares in the Dow original traded close to US$60 in 2000, and last night fell below US$18.
Yet for the second session in a row, Wall Street turned an early triple-digit Dow loss into a far milder final result. The major indices all bottomed in the first half hour of trade. As has been the case for basically years now, anytime Wall Street looks set for a pullback the buyers are there waiting to jump.
One interesting comment from a US trader last night was the suggestion investors are still in a mindset that anything exceeding a hundred Dow points is still a big move, and hence more than a hundred on the downside is as good as a correction. This belief ignores the fact that with the Dow now over 23,000, a hundred points is a mere 0.4%.
The question is as to how long this can keep going on for. And that will depend on tax, and on the Fed.
Aluminium fell -1% on the LME last night, copper, lead and zinc -2% and nickel -6%.
This is despite a -0.7% drop in the US dollar index to 93.85, as strong economic data out of Germany led to a euro revival.
Gold has managed only to rise US$3.60 to US$1281.20/oz.
West Texas crude is down -US$1.01 to US$55.71/bbl.
Despite the weaker greenback, the Aussie is steady at US$0.7631.
The SPI Overnight closed down -25 points or -0.3%.
Australia will see the September quarter wage price index today. Not so long ago this was a bit of a data non-event. Today it is one of the most closely watched indicators vis a vis RBA policy.
Westpac will release its monthly consumer confidence survey.
The US will see CPI and retail sales numbers tonight.
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