Overnight: Twenty-One Today


The Dow closed up 303 points or 1.5% while the S&P gained 1.4% to 2395 and the Nasdaq rose 1.4%.

Wood Ducks?

A quick run-down of major stock index moves over the past 24 hours: Japan up 1.4%; Germany 2.0%; France 2.1%; UK 1.6% (to a new high) and the US 1.5% (to a new high).

Australia? Down -0.1%. Yet Australia (and Japan) had the opportunity to trade on Trump’s address to Congress in real time. Even accounting for Telstra ((TLS)) going ex-div yesterday, what did the Australian market fail to see until this morning (the futures are up 52 points) that the rest of the world didn’t?

Well probably, nothing new. While Trump’s address was praised as being more measured and “presidential” than many had feared, it was simply a more measured and presidential run-down of everything he ranted and raved about in his campaign speeches. Big, big tax cuts? Yes, we know. Roll back regulations? Yes, we know. Spend up big on infrastructure? Yes, we know.

Trump did put a dollar figure on his infrastructure policy, but then “a trillion dollars” is the sort of big round number one pulls out of one’s…one pulls out of the air. And to be fair to local traders who sat and watched the address yesterday afternoon, fingers poised on buy/sell buttons, there was little reaction in US overnight futures markets either. Dow futures trade through the US overnight a la our SPI.

All the reaction has come from those who took some time to think about it. Or perhaps it came from those who had so far missed the Trump bandwagon and were waiting for a pullback to get on, hoping the address might provide an opportunity.

But back to Australia.

One might have thought a 1.1% jump in GDP growth in the December quarter when 0.8% was forecast, and September had seen a -0.5% drop, would be well-received. The ASX200 did recover some earlier losses on the announcement, but lost momentum again in the afternoon.

While the figure itself is a surprise, as is 2.4% annual growth and a whopping 6.1% in nominal terms, the biggest surprise is how we got there. Everyone was expecting a huge turnaround in contribution from commodity exports, and we know the housing market simply refuses to lay down, but a big jump in consumer spending? That seems totally at odds with many a retailers decrying of “tough” conditions in last month’s result season.

And completely at odds with non-existent wage growth. Household debt at record levels and now the savings are being raided. If Philip Lowe is too scared to cut interest rates any further, pretty soon he’s going to be terrified about putting them up.

Manufacturing? Australia’s PMI shot up a rather incredible 8.1 points in February to 59.3 to a 15-year high. Incredible? Or simply lacking credibility?

China’s official manufacturing PMI ticked up to 51.6 from 51.3 having only recently returned to expansion. The good news here is that we haven’t seen a Lunar New Year distortion of frenzied activity beforehand and a cliff thereafter.

There was no reporting season to hold the local market’s attention yesterday. It was the first of the new month. We had strong local data and positive data out of China, and we had Trump. And we all sat there like wood ducks.

Book in March

Overnight Wall Street decided they did indeed like Trump’s speech, and responded accordingly. The Dow jumped up a couple of hundred points from the open and added another hundred as the slow movers scrambled. Mind you, many a veteran trader was left shaking their head.

The sceptics are concerned that the further Wall Street rises on what is ostensibly exactly the same news out of the Trump camp as pre-election, the harder it will fall when the first piece of legislation is stalled in Congress, and the Trump team has to start back-tracking and negotiating. This month alone, the debt ceiling has to be reset. We recall that a few years ago, Obama’s failure to agree a debt ceiling with Congress meant the US government shut down.

The interesting point is that the US stock indices have done nothing but hit new highs in 2017, but the US ten-year bond yield is unchanged (it was up 10 basis points to 2.46% last night) and the US dollar index is also much the same (up 0.6% to 101.68).

Aside from Trump spouting fiscal stimulus, Fedhead after Fedhead has come out these past few days to suggest March is very much “live” for the FOMC. The result is the market has jumped from pricing in a less than 50% chance of March rate hike only a few days ago, to over 80% last night.

Isn’t that a bad thing? Isn’t that a rally killer? Well it used to be, when the market thought the US economy was still too sick to handle tighter policy. Buy now the market sees an economy well on the mend and indeed most believe rates should already be higher by now. A rate rise towards normal from historically low levels is a positive, as it suggests a strong economy. It’s only when rates rise above normal that the brakes are being applied.

So now what? Well, exactly. Another new milestone, being Dow 21,000, and the fastest ever 1,000 point gain at that. Mind you, you’d expect that as the percentages get smaller. If Trump actually does manage to deliver on any of the policies he has touted to the extent he has suggested, is there any further upside?


Gold always takes an extra day to respond to anything. The US dollar index is up 0.6% but gold is only down slightly at US$1248.50/oz.

On the basis of what were generally solid manufacturing PMI numbers across the globe, including China and the US, all base metal prices are higher in London by varying degrees.

Iron ore is down -US10c at US$91.40.

Oil prices remain steady.

By rights the Aussie should be lower on greenback strength, but throw in the GDP result and its up 0.1% at US$0.7681.


The SPI Overnight closed up 52 points or 0.9%. If you can’t beat ‘em…

The local trade numbers are out today for January. This is the new Main Event on the Australian economic calendar.

Woolworths ((WOW)) and Woodside Petroleum ((WPL)) are amongst a slew of companies going ex today.

Rudi will appear on Sky Business today, 12.30-2.30pm.