Overnight: Wait A Minute
|SPI Overnight (Mar)||5916.00||+ 2.00||0.03%|
|S&P ASX 200||5943.70||+ 2.80||0.05%|
|S&P500||2701.33||– 14.93||– 0.55%|
|Nasdaq Comp||7218.23||– 16.08||– 0.22%|
|DJIA||24797.78||– 166.97||– 0.67%|
|S&P500 VIX||20.02||– 0.58||– 2.82%|
|US 10-year yield||2.94||+ 0.05||1.73%|
|USD Index||90.08||+ 0.37||0.41%|
|DAX30||12470.49||– 17.41||– 0.14%|
The Dow was down -250 overnight and looking wobbly, the SPI futures were suggesting down -30 and the stage was set for nervousness to return to the local market yesterday morning. The only saviour might be earnings results.
And they were.
The ASX200 fell only -20 points from the opening bell before rebounding sharply as earnings reports rolled out, ultimately bungling its way to a flat close. But the flat close belies the fact there were some big sector divergences.
Far and away the standout sector on the day was consumer staples, up a whopping 3.4% in a session in which the index closed up 0.05%.
When I saw a2 Milk ((A2M)) was up 30%, I assumed someone had made a takeover bid. But no, a2 simply jumped on its earnings result and an announced strategic relationship with Fonterra. Wesfarmers ((WES)) posted its worst result in a very long time, and jumped 3%. Even Coca-Cola Amatil managed a 1.6% gain following its report.
To counter the big move up in consumer staples we need a big move down elsewhere to balance out. That was provided by materials, which fell -2.3%. The culprit here was BHP ((BHP)), which fell -4.7% despite a surprise 38% dividend increase. Brokers highlighted one-off problems as the main reason for an earnings miss.
Other ASX200 winners on the day, post reporting, were Seven Group Holdings ((SVW)), up 11.6%, Cleanaway Waste Management ((CWY)), up 8.6%, and WorleyParsons ((WOR)), up 7.0%. Corporate Travel Management ((CTD)), rose 13.8% despite actually reporting on Tuesday.
To achieve the balance we needed some losers.
Logistics SaaS company WiseTech Global ((WTC)) – a 2017 high flyer – fell -23%. Insurance broker Steadfast Group ((SDF)) fell -7%. Kiwi building materials company Fletcher Building ((FBU)) fell -5.4%. Thereafter, Vocus Communications ((VOC)) continued its post-result slide, down another -6.2%.
And coming in a number five worst performer, a rare appearance by BHP.
Consumer discretionary was another sector to perform well yesterday, up 1.2%. Underlying this move was the December quarter wage price index release.
Wages grew by 0.6% in the quarter when 0.5% was forecast. No big deal? It was the first time the index beat expectations in five years. Annual growth nevertheless remained unchanged at 1.9%, and the surprise was provided by public sector wages, with private sector wages remaining stuck on 0.5% growth.
Yet, still a move in the right direction, and economists expect private sector wages will catch up, which is good news for retailers.
But not anything that would prompt the RBA to budge.
All in the Timing
The minutes of the last Fed meeting, released last night, suggested the US economy had picked up pace since the previous meeting in December. The strengthening “increased the likelihood that a gradual upward trajectory of the federal-funds rate would be appropriate.” The FOMC altered its message to point to “further gradual increases,” emphasizing its desire to resume rates increases in 2018.
“Gradual”. That word sent the computers into a buying frenzy, sending the Dow up 300 points. Wall Street was worried recent signs of inflation would prompt the FOMC into becoming more aggressive with rate rises. But the minutes noted inflation remained subdued. The US ten-year yield and the US dollar index both retreated.
But hang on…
The meeting was held on January 31, several days before the release of the January jobs data that indicated a jump in wage inflation, sparking Wall Street’s sharp correction. And before the US government revealed its monster budget deficit plans, in order to cover the tax cuts.
Up went the US ten-year yield, 5 basis points to 2.94%. Up went the US dollar index, by 0.4%, and down went the Dow, by over -450 points, accelerating at the death to close on its lows.
From a technical perspective, this turnaround is highly negative in the context of the bounce off the prior low. Commentators believing that low must once again be tested are beginning to feel vindicated.
Are US bond yields rising because of inflation fears, and the implication of faster Fed rate rises? Or are they rising because the world is concerned about lending money to a government borrowing more than ever before to fund the policy promises of a dubious president?
That is the current debate.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1323.60||– 5.10||– 0.38%|
|Silver (oz)||16.48||+ 0.06||0.37%|
|Copper (lb)||3.19||+ 0.00||0.01%|
|Aluminium (lb)||1.01||+ 0.01||0.50%|
|Lead (lb)||1.16||– 0.02||– 1.67%|
|Nickel (lb)||6.26||+ 0.10||1.70%|
|Zinc (lb)||1.62||– 0.00||– 0.27%|
|West Texas Crude (Apr)||61.20||– 0.59||– 0.95%|
|Brent Crude (Apr)||64.98||– 0.11||– 0.17%|
|Iron Ore (t)||78.25||0.00||0.00%|
Another quietish session in London ahead of China’s return tonight, with the LME closing before the US dollar turned around.
Some impact was felt in gold and oil prices.
The Aussie has dropped -0.8% to US$0.7813 despite the slightly stronger wage price index.
The SPI Overnight closed virtually unchanged.
The Australian share market over the past thirty days…
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