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Overnight: Door Is Open

World Overnight
SPI Overnight (Mar) 6001.00 – 35.00 – 0.58%
S&P ASX 200 6056.90 + 14.70 0.24%
S&P500 2744.28 – 35.32 – 1.27%
Nasdaq Comp 7330.35 – 91.11 – 1.23%
DJIA 25410.03 – 299.24 – 1.16%
S&P500 VIX 18.59 + 2.79 17.66%
US 10-year yield 2.91 + 0.05 1.71%
USD Index 90.36 + 0.48 0.53%
FTSE100 7282.45 – 7.13 – 0.10%
DAX30 12490.73 – 36.31 – 0.29%


At lunchtime yesterday the ASX200 appeared determined to post its third consecutive session gain of 40 points on a push back towards the prior high, supported by strength on Wall Street. But by the close the gains had been halved. Investors started to take a bit off the table.

The intra-day peak of around 6080 represented close to a 5% rally off the bottom marked earlier in the month, being the solid floor of support at 5800. That’s a nice gain in three weeks in anyone’s books. But given the risk that the new Fed chair might say something Wall Street didn’t like in his testimony last night, it made sense to square up and lock in some of the gains.

Sector leaders were again the banks (+0.4%) and healthcare (+0.8%) yesterday, with telcos (-0.9%) remaining out of favour, while elsewhere there were notable impacts from some big names, that pay big dividends, going ex.

Mild falls in energy and industrials must be seen in the context of WorleyParsons ((WOR)) and Amcor ((AMC)) going ex respectively, while real estate was similarly dragged down by Lend Lease ((LLC)). While materials rose 0.3% with some help from a stronger iron ore price, Alumina ltd’s ((AWC)) dividend impacted.

Alumina ltd made it onto the top five ASX200 losers board on the day, as did Asaleo Care ((AHY)), another stock going ex-dividend.

The tail end of results season was still inspiring some big moves yesterday.

Market gardener Costa Group ((CGC)) won the session with a 10% gain. Satellite operator SpeedCast International ((SDA)) disappointed and fell -6.8% to be the biggest loser. We can put SpeedCast into our suite of New World companies that have all been running fairly hard in recent times.

Caltex ((CTX)) also reported and rose 4.1% and Iluka Resources’ ((ILU)) result was good for a 3.6% gain. The standout achiever in terms of post-result re-rating has to be media dinosaur Nine Entertainment ((NEC)), which aside from flying on the actual day of its release, just keeps appearing in the top five with further solid gains.

Who said FTATV was dead? Nine is up 36% since reporting.

Biotech Nanosonics ((NAN)) won a reprieve yesterday after being de-rated post-result, rising 4.7% on less downbeat assessments from analysts.

On the flipside, all agree the intellectual property market is a tough one and IPH ltd’s ((IPH)) further -6% fall yesterday puts that stock down -33% since reporting.

Today is the last day of reporting season, praise the Lord, and there remain some big names to stagger over the line. The difference between today and the past few sessions is that Wall Street has taken a turn for the worse.

Rate Fear Returns

We’ve seen continuing strength in the labour market. We’ve seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We’ve also seen continued strength around the globe, and we’ve seen fiscal policy become more stimulative,” said Fed chair Jerome Powell to the House Financial Committee last night.

It was enough for commentators to agree the door had been opened for four rate hikes in 2018, rather than the three most assumed. It seems a trivial difference, but three is considered reasonable normalisation in the face of a strong economy while four is considered dangerously over-aggressive.

Wall Street had opened a little higher once more before Powell began to speak, and then it sharply high-tailed it in the other direction. Selling begat selling and the indices closed on their lows.

Of specific note was a sharp reset of the US ten-year bond yield of 5 basis points to 2.91%. Not to mention a 0.5% jump for the US dollar.

But let’s put it into context.

Earlier this month when the wage inflation implications of the January jobs report sparked a step-jump in the ten-year yield, Wall Street corrected by -10%. The yield then was 2.85%. Last night when the yield jumped to 2.91%, the Dow fell -300 points, having risen over 700 points in the prior two sessions.

On the way back up from the bottom to recover most of those correction losses, the yield has been as high as 2.95%.

Is it just the computers again, programmed to respond, rapidly, to particular trigger words? For Wall Street seems to simply shoot first and ask questions later. Two days ago it seemed no one was that fussed about the possibility of four rate hikes, given it would imply a growing economy and further earnings growth.

Powell specifically noted “fiscal policy has become more stimulative”. The US economy was doing fine on its own in 2017 and earnings grew by double-digits in all four quarters. The tax cuts were announced at the end of the year. Are they not the trade-off for four hikes instead of three (noting that 2017 gave us three)?

Some may be looking at last night’s session on Wall Street thinking this is it – this is when we go back and retest the lows. I’d be surprised if Jay Powell’s testimony alone is sufficient to do that.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1317.90 – 15.20 – 1.14%
Silver (oz) 16.38 – 0.23 – 1.38%
Copper (lb) 3.17 – 0.04 – 1.38%
Aluminium (lb) 0.99 + 0.01 0.66%
Lead (lb) 1.17 + 0.00 0.12%
Nickel (lb) 6.30 – 0.00 – 0.06%
Zinc (lb) 1.61 – 0.02 – 1.10%
West Texas Crude (Apr) 62.90 – 1.02 – 1.60%
Brent Crude (Apr) 66.52 – 0.98 – 1.45%
Iron Ore (t) 79.55 – 0.40 – 0.50%

The US dollar index is up 0.5% at 90.36 thanks to Mr Powell, impacting on commodity prices.

We can blame him for one to one and a half percent falls for the likes of gold, copper and oil.

The good news is the Aussie is down -0.8% at US$0.7793, which you might say is the stronger greenback and weaker commodity prices even though weaker commodity prices are a function of the stronger greenback.


The SPI Overnight closed down -35 points or -0.5%.

The last day of micro focus for the local market brings earnings reports from Adelaide Brighton ((ABC)), Bega Cheese ((BGA)), Harvey Norman ((HVN)), Macquarie Atlas Roads ((MQA)), Ramsay Health Care ((RHC)) and Virgin Australia ((VAH)), among others.

Macro focus returns with the release of December quarter private sector capex and capex intentions numbers. Monthly private sector credit is also due.

Beijing will release official numbers for China’s February manufacturing and services PMIs.

Once again be wary of stocks going ex-div. On the calendar today, among others, are Navitas ((NVT)), Orora ((ORA)), Perpetual ((PPT)), Super Retail ((SUL)) and the biggie – Telstra ((TLS)).

Although not as big as it used to be.

The Australian share market over the past thirty days…

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