Overnight: May Not

Wall Street showed little response to another defeated Brexit deal while Boeing again dragged on the Dow in an otherwise modestly positive session. Dow down -96.

World Overnight
SPI Overnight (Mar) 6164.00 – 9.00 – 0.15%
S&P ASX 200 6174.80 – 5.40 – 0.09%
S&P500 2791.52 + 8.22 0.30%
Nasdaq Comp 7591.03 + 32.97 0.44%
DJIA 25554.66 – 96.22 – 0.38%
S&P500 VIX 13.77 – 0.56 – 3.91%
US 10-year yield 2.61 – 0.04 – 1.44%
USD Index 96.94 – 0.26 – 0.27%
FTSE100 7151.15 + 20.53 0.29%
DAX30 11524.17 – 19.31 – 0.17%

By Greg Peel

No Joy

Following weakness on Friday and Monday, the local market seemed set for a relief rally yesterday morning as Wall Street rebounded from a five-day losing streak. Indeed, the ASX200 opened up 42 points in the first fifteen minutes.

And that was that. By midday the index had halved that gain and just when it looked like that might be the close for the day, a sell-off at the death ensured a weak close.

The question to be asked is whether a bit of a snap-back on Wall Street, led by tech stocks, was enough to justify a similar response downunder. It appears not. There was some talk of expectations Beijing was about to announce further stimulus, which helped to support the resource sectors, but there was no news on that front.

There was news out of China on the trade front, with the state newsagency suggesting the US and China have, via telephone, set the next steps in “working arrangements”, whatever that means.

There were otherwise economic data releases to ponder.

Housing loans fell by -2.1% in January. It was not as steep a fall as that witnessed in December but overall loans are still down -20.1% year on year. Investor loans are down -28.6% as might be expected but there’s no relief from owner-occupiers, loans to whom are down -17.1%.

Having rebounded in January, business conditions again weakened in February according to NAB’s survey. The conditions index fell to 4.4 from 6.6 in January and 2.6 in December. Confidence fell to 2.0 from respectively 3.6 and 2.7.

Capacity utilisation increased its downward trend, which is a leading indicator of rising unemployment.

It was the banks hardest hit by late selling in yesterday’s session, on the announcement from the Treasurer that the government would not ban trailing commissions for mortgage brokers as the Hayne Report had recommended. The banks stood to reap the gains and the mortgage broking industry looked broken were commissions to have been banned, with a reduction in competition cited as reason not to proceed.

Financials closed down -0.4%, offsetting a 0.4% gain for materials and 0.7% for energy. Consumer discretionary (-0.7%) posted the weakest performance, with no one stock standing out.

The standout move among ASX200 stocks yesterday was that of Appen ((APX)), following its announced acquisition plus fresh capital raising. It fell -9.1%.

For the intellectuals, the standout move outside the index was that of Xenith IP ((XIP)), which rose 15% on a confirmed takeover bid from rival IPH ltd ((IPH)).

We head into today’s session with Wall Street modestly stronger, net of Boeing, and in the knowledge that Theresa May’s latest, and presumably last, Brexit deal has again been heavily defeated in parliament. Our futures are mildly weaker.

No Response

News of the Brexit deal defeat hit Wall Street in the last half hour but there was little in the way of a response. What happens in the UK is seen, at least for now, as not having any major impact on the US economy.

It’s in stark contrast to the 2016 Brexit vote which sent stock markets around the globe tumbling. The UK parliament will tonight vote on whether to support a “no deal” Brexit, which by all accounts will lead to economic calamity and social upheaval, or whether to extend the deadline for exit.

It is difficult to see a solution when both major parties are split in their ranks amongst leavers and stayers. Jeremy Corbyn wants an election, but that would achieve nothing, one presumes. Another vote of confidence may be taken which May would likely win anyway, or May might now stand down – God knows the poor woman could use a rest – and the whole process can start again.

It’s no wonder stock markets are not responding. Responding to what?

Shares in Boeing sank another -6% last night after a similar move on Monday as countries around the globe ground 737 Max 8s and ban them from their airspaces. Beyond Boeing, Wall Street posted another rally last night, albeit far more modestly than Monday night.

The US February CPI came in with a 0.2% gain as forecast, following three months of 0%. The core rate rose 0.1%. Headline inflation is now running at 1.5% and core inflation at 2.1%, the difference being oil prices.

There was nothing in the numbers to much move the dial, yet the US ten-year yield fell -4 basis points to 2.60% to be back where it was over a year ago. It is not as much a reflection of concerns over the US economy as it is an unavoidable reflection of slowing global growth.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1301.50 + 8.40 0.65%
Silver (oz) 15.41 + 0.12 0.78%
Copper (lb) 2.96 + 0.04 1.44%
Aluminium (lb) 0.84 + 0.01 1.05%
Lead (lb) 0.94 + 0.00 0.41%
Nickel (lb) 5.95 + 0.07 1.20%
Zinc (lb) 1.30 + 0.05 3.81%
West Texas Crude 56.92 + 0.07 0.12%
Brent Crude 66.69 – 0.01 – 0.01%
Iron Ore (t) futures 85.05 + 2.05 2.47%

Base metal prices rose last night on signs Chinese demand may be holding up better than feared. Copper inventories were revealed to be at their lowest level since 2008 and zinc the lowest since 2007.

Just when it looks like iron ore is about to slide, it bounces back.

The US dollar index is down -0.3% as the pound failed to much respond to a Brexit vote that was already anticipated. Gold nevertheless regained US$1300 after the result was announced.

The Aussie is up 0.2% at US$0.7082.

Today

The SPI Overnight closed down -9 points.

Westpac will release its consumer confidence survey today.

Data for January durable goods orders are due in the US.

CSL ((CSL)) goes ex today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ ANZ BANKING GROUP Downgrade to Neutral from Outperform Credit Suisse
APX APPEN Upgrade to Buy from Neutral Citi
IPH IPH Upgrade to Outperform from Neutral Macquarie
SGR STAR ENTERTAINMENT Upgrade to Outperform from Neutral Credit Suisse
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

View more articles by Greg Peel →