Overnight: It’s Not 2018

By Greg Peel

Thanks for Coming I

For the second day in a row, the ASX200 closed flat. The difference yesterday was that the index opened flat as well, before proceeding to go nowhere.

However while Tuesday’s close had almost all sectors individually closing flat, there was actually a lot more movement among sectors yesterday.

Utilities rose 1.0%, healthcare 0.9% and consumer staples 0.6%. Yet again, defensives are driving the market. Energy chipped in with 0.8% on a higher oil price.

But just to emphasise the market cap distortion within the index of the two biggest sectors, financials fell -0.3% and materials fell -0.3% and together wiped out the net gains in every other sector.

Westpac ((WBC)) has been hit with a class action regarding the AUSTRAC issue. National Australia Bank ((NAB)) held its AGM just as ASIC made fresh allegations of 10,000-plus breaches of the law which would carry a maximum penalty of $10bn. Both stocks fell -0.6%.

In isolation the falls should have been a lot worse, but for the fact none of the above surprises anyone. The banks have known this was coming since the RC wrapped up, and have squirreled away billions on their balance sheets for remediation. Yet, it doesn’t do much for sentiment.

Within the materials sector, OZ Minerals ((OZL)) fell -5.4% to be the worst performer in the index after Goldman Sachs downgraded the stock to Sell, citing Carrapateena ramp-up risk and a stretched valuation.

Outside the index, tin miner Metals X ((MLX)) downgraded production guidance and plunged -28.6%.

Virgin Money UK ((VUK)) came in second worst in the index with a -3.9% fall as UK election euphoria continues to ease, while the slow movers are still exiting Smartcorp Group ((SIQ)) after its profit warning on Monday. It fell another -3.8%.

Index gainers were mostly the usual (volatile) suspects. WiseTech Global ((WTC)) was among them, rising 3.8% as it continues to shrug off accusations from its short-side predator.

With Wall Street again doing little last night, it seems we could be in for more of the same today. However we do have two significant events today.

First, the November jobs numbers. October’s weak result was met with buying on the assumption the RBA will have to cut again. Given a February rate cut is now baked in by the market, another weak result may not necessarily move the dial.

But a good result might, in the other direction.

Second, it’s derivative expiry day. I note that the futures are down -12 points this morning despite a flat Wall Street, but given this is the last day of their life (December contract expires), we need not read anything into it. The ASX option expiry has the greatest potential to spark non-fundamental volatility, unless we do see another day of little index movement.

Thanks for Coming II

What a difference a year makes. This time last year, Wall Street was in freefall. Last night Wall Street stumbled along slightly higher, before a last minute drift-off. The S&P500 managed a new intra-day high before slipping while the Nasdaq marked a fifth straight all-time high.

That fruit thing was again a focus of attention but not a focus of market consideration. It should all be over sometime today our time, before the US Senate rejects it at a later date.

But there is now a growing focus on next year’s election. At this early stage, the polls are close, despite there being no clear Democrat candidate. Biden is ahead among a wide field.

Biden would be considered by Wall Street as a least-worst candidate, being a moderate compared to the far left Warrens and Sanders. Bloomberg would be better still, but he’s only just getting going. There is little disagreement a Democrat victory would be bad news for Wall Street, and ever more so if a left-leaning candidate got up. But there’s a whole year to price in the rolling polls.

The primaries begin in February, and “Super Tuesday” is in early March. Commentators suggest this little period could be quite volatile for markets.

Meanwhile, it was once considered a bellwether for the health of the US economy, but as to whether FedEx can still be considered as such is up for debate. The stock fell -10% last night after posting earnings. Once upon a time this would have put the frighteners through Wall Street, but that was before someone else started same-day delivery.

But is Amazon to blame for FedEx’s demise? Long-time rival UPS is doing fine.

Commodities

China’s refined copper output rose by 19.6% year-on-year in November to a record monthly high of 909,000t, data revealed yesterday. The LME responded accordingly.

Iron ore continues a slow drift backwards.

The weekly US crude inventory lottery came in as a lower than expected decline, but prices held up anyway.

The Aussie is a tad higher at US$0.6852 after Tuesday’s solid fall post RBA minutes.

Today

The SPI Overnight closed down -12 points or -0.3%.

Jobs and expiries locally today, while the Bank of Japan holds a policy meeting and the Bank of England holds its first policy meeting with some sort of clue about where things are headed for the first time since mid-2016.

The Australian share market over the past thirty days…