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Overnight: A Word, Mr President

World Overnight
SPI Overnight (Mar) 5948.00 + 64.00 1.09%
S&P ASX 200 5895.00 – 33.90 – 0.57%
S&P500 2720.94 + 29.69 1.10%
Nasdaq Comp 7330.70 + 72.84 1.00%
DJIA 24874.76 + 336.70 1.37%
S&P500 VIX 18.73 – 0.86 – 4.39%
US 10-year yield 2.88 + 0.02 0.84%
USD Index 90.09 + 0.13 0.14%
FTSE100 7115.98 + 46.08 0.65%
DAX30 12090.87 + 177.16 1.49%

By Greg Peel

Tariff Turmoil

Is Australia exempt from US tariffs? Apparently Donald Trump himself indicated as much a while back. But last night Trump remained insistent that the tariffs on steel and aluminium imports will go ahead, and they will apply to Canada and Mexico, from whom the US imports the largest percentage of steel.

It’s hard to see, therefore, that Australia might score a special exemption. But as yet, there is no clarification. Not for steel and aluminium, and not for whatever might be next in Trump’s cross hairs. Nor is it clear what the global fallout might be. It’s not the sort of climate that encourages enthusiastic stock market investment.

The local market opened lower yesterday despite a turnaround on Friday night on Wall Street and despite the futures suggesting a positive start. The buyers tried to fight back in the morning, but by afternoon they appeared to capitulate. A fall of -33 ensured the ASX200 closed below support at 5900. It seemed like 5800 might soon be next.

But the futures are up 64 points this morning.

Not all sectors finished in the red yesterday. Telcos and healthcare both enjoyed a recovery to some extent from Friday’s losses. But the banks, which had outperformed on Friday, led the market down with a -0.7% fall. It was not about tariffs, it was about another Commonwealth Bank ((CBA)) breach declared by ASIC.

Materials, the sector directly linked to the tariff issue, fell -1.1%, while utilities dropped -2.3% on another day of weakness for AGL and a raft of ex-dividends.

There was little surprise when embattled food chain franchiser Retail Food Group ((RFG)) plunged -36.5% after coming out of its trading halt, during which it reported a significant trading loss, impairments, and the planned closure of 200 stores.

There was much surprise, however, that despite a complete lack of news, Myer ((MYR)) jumped 15% on heavy volume. Was it major shareholder Premier Investments ((PMV)) moving in? No news from them, nor from Myer itself. The stock is heavily shorted, so such a spike is not a shock, but what’s going on? No doubt a speeding ticket from the ASX is in the mail.

Lynas Corp ((LYC)) snuck in with a very late earnings report yesterday, and rose 4.8%. Such volatility is a day to day phenomenon for the rare earth miner, nonetheless. But with results season now over, the news from the ABS yesterday is that the December quarter was a cracker.

Australian company profits rose 19% in the December quarter from the September quarter (that’s everyone, not just listed stocks). It’s the second largest quarter on quarter gain ever recorded. Wages rose 1%.

Yesterday’s building approvals data showed a 17% jump when 5% was forecast. Housing market revived? Don’t count your chickens. It’s all to do with lumpy apartment block approvals, which jumped 35%, having fallen -47% in December, following a 60% rise in November.

The value of total approvals fell -1.4% in trend terms to mark a fourth consecutive monthly fall.

Wall Street has surged overnight. So it’s back to business today.

It was just a bad dream

'We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” a spokeswoman for house speaker Paul Ryan said last night in a statement. On that note, Wall Street spun around.

Friday night’s trading had seen US stock indices stage a significant turnaround from the depths, as the fierce debate proceeded regarding the pros and cons of tariffs, the benefits they might derive or the disaster that may befall. Uncertainty continued to reign as the Dow fell -150 points from the open last night.

That’s when news broke of Ryan’s attempt to change the president’s mind. The president, in return, indicated he was sticking to his guns and yes, the tariffs will apply to Canada and Mexico.

Well…unless the NAFTA talks, currently underway, result in an agreement that is pleasing to the president.

Is it all just a ploy on the famed deal-maker’s part?

The White House is split over tariffs. Congress is split over tariffs. Free trade-supporting Republicans are flabbergasted. Even the Democrats are bemused. And it all comes back to one focal point – China.

Chinese steel makes up only 3% of all US steel imports, as Beijing has been quick to point out. But Beijing subsidises excess Chinese steelmaking capacity, effectively exporting steel at a loss. US imports from China may only be marginal, but it is at the margin that China makes its impact. With the alternative of cheap Chinese steel, steel exporters in other countries have to compete on price.

So why tax everyone? As for the potential for a resultant global trade war, Trump thinks trade wars are good. Last night he suggested that were, say, the EU to retaliate on a tit-for-tat basis, imported Europeans cars would cop a tariff. Most German cars imported in to the US are built in Mexico.

It all seems like a major disaster waiting to happen, yet having opened down -150 points, the Dow closed up 330 points. It is not a case of Wall Street beginning to believe tariffs are a good thing, it’s that Wall Street believes the plan, as Trump has insisted upon, won’t go ahead in its current form.

The details are expected to be decided upon sometime this week.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1319.00 – 3.00 – 0.23%
Silver (oz) 16.40 – 0.09 – 0.55%
Copper (lb) 3.12 + 0.01 0.25%
Aluminium (lb) 0.97 – 0.00 – 0.50%
Lead (lb) 1.10 – 0.01 – 0.87%
Nickel (lb) 6.07 – 0.02 – 0.36%
Zinc (lb) 1.50 – 0.03 – 1.88%
West Texas Crude (Apr) 62.63 + 1.25 2.04%
Brent Crude (May) 65.62 + 1.16 1.80%
Iron Ore (t) 75.70 -1.95 -2.51%

Last night’s oil market news was a report of a sharp decline in stockpiles held at Cushing, Oklahoma, the delivery point for settlement of WTI futures contracts. There was also news a pipeline in Libya is offline.

Zinc inventories are reportedly building up to record levels at the LME.


The SPI Overnight closed up 64 points or 1.1%.

Locally we’ll see January retail sales numbers out today, along with December quarter current account data, including the terms of trade.

The RBA will meet today.

It’s another busy day for ex-dividends, with Downer EDI ((DOW)), Nine Entertainment ((NEC)) and Oil Search ((OSH)) in the mix along with healthcare’s Ramsay ((RHC)) and Sonic ((SHL)), and plenty of others.

Rudi will connect with Sky News Business at around 11.15am via Skype to talk broker calls and the share market.

The Australian share market over the past thirty days…

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