Overnight: Holiday Light
The Dow closed down -12 points while the S&P lost -0.2% to 2544 and the Nasdaq fell -0.2%.
It was off to the races again for the Australian market yesterday following Friday’s 50 point jump for the ASX200, despite Wall Street closing flat. The past two sessions’ moves are reminiscent of the sort of activity we saw between May and the August result season, in which the index continually bounced like a rubber ball between 5680 and 5800.
This time the bounce came off 5650 and I suggested yesterday that the new top of the range appears to be 5750. Yesterday the index topped out at 5759 before closing at 5745.
Buying was not quite as uniform as Monday across sectors but not that far off, with emphasis on those sectors that have been less favoured of late. Telcos rose 1.5% to win the day, consumer discretionary rose 1.2% and the banks chimed in with 0.8%.
Energy (-0.1%) was always going to struggle against a -3% drop in the oil price on Friday night but a very slightly negative close for materials came after that sector had initially rallied, then turned around mid-session. The turnaround was sparked by data from China.
Caixin’s independent read on China’s services PMI came in at 50.6 – the lowest reading since December 2015 and one of the weakest since the survey began in 2005. Amalgamating that number with Caixin’s earlier manufacturing PMI provided for a composite PMI of 51.4 – the lowest since June.
One might consider the connection between iron ore and China’s service sector to be a tenuous one but any stumbles in the Chinese economy sends shivers down a miner’s spine.
Beyond the macro concerns it was a day for micro attention, with two companies receiving takeover bids.
Almond producer Select Harvest ((SHV)) has had an up and down couple of years, mostly because the Californian almond harvest has had a down and up couple of years. Yesterday Select Harvest announced it had rejected a takeover bid from an Abu Dhabi investment company. The stock shot up 25%, aided by the fact that as of last week, it was the seventh most shorted on the ASX at 13.7%.
Hotel and resort operator Mantra Group ((MTR)) has not as yet rejected a bid from global hotel giant Accor, rather allowing Accor access for due diligence to see if a deal can be reached. Mantra shares jumped 16%.
Stock markets like takeovers. They get investors excited.
So how are we looking today? Wall Street is again as good as flat but the SPI futures are down -15 points this morning. They spent all last week being up around that amount and we finished down in every case bar Friday. But now we have come off the top again, which, if recent history is any guide, means we’re on our way back down.
Columbus Day is a public holiday in the US but one of two half-hearted ones in which banks and the bond market close and the stock market remains open, the other being Armistice Day. Traders on the NYSE nevertheless wonder why the stock market is open given the day is typically a very quiet one.
Last night was no exception. With volume very much on the light side, no one was much concerned that the major indices lost a little bit of ground. There is much to consider at present.
It looks like the push for Catalonian independence may fizzle given the strength of unity support among Catalans. But now Turkey is in the frame as Washington moves to halt non-immigrant visa services on concerns over “the security of US mission and personnel”, which is something to do with Turkey’s activities in Syria. Ankara has responded in kind.
Given Wall Street appears to have stopped worrying about whether Kim Jon-un is about to lob another one, the Turkey issue is not going to rock the boat, but it is concerning given both are NATO allies.
Tax reform is clearly front of mind for Wall Street and here there are problems that threaten to make the road the long and arduous one many in the market have already assumed. Aside from ructions between the players in Washington, there is a gross disparity between what Treasury suggests tax reform will achieve and what analysts estimate.
It comes down to the increase in budget deficit implied by the loss of receipts at the lower rate. The Treasury Secretary’s projections have the boost to economic growth as a result of tax reform being so substantial as to not only wipe out that shortfall, but exceed it to allow a further pay-down of government debt.
Goldman Sachs’ estimates have the economic benefits accounting for only 20% of the shortfall. Either way, the Devil is yet to get involved because the plan to date still lacks detail.
Wall Street continues to assume the Fed will hike in December and that’s okay, but attention now centres around who will be calling the shots come next year. Trump will soon choose his new Fed chair and Yellen is not the shortest odds to go around again. The two favoured candidates are split between hawkish and dovish leanings, so the choice may be a significant one for markets.
Later this week the first earnings results will begin to flow, with the banks in the frame at the outset. JP Morgan (Dow), Wells Fargo and Citigroup all lead the season out.
Assuming nothing from left field in the meantime, and given Wall Street’s current stall after its record-breaking run, it is possible the market will remain relatively quiet until those first earnings reports hit the wires. There are no major data releases until later in the week either.
West Texas crude has regained a little bit of ground in rising US30c to US$49.52/bbl.
I noted yesterday that base metals were back in volatile mode and last night nickel jumped 4%, supported by strong Chinese steel prices and despite the weaker Chinese data. Aluminium rose 1% and lead fell -1%, while copper and zinc sat it out.
Iron ore fell -US10c to US$61.60/t.
The US dollar index fell only -0.1% to 93.68 but gold rose another US$7.90 to US$1284.00/oz, as it picks up a bit of geopolitical premium once more.
The Aussie is down -0.1% at US$0.7756.
The SPI Overnight closed down -15 points or -0.3%.
NAB’s monthly business confidence survey is out today.
Rudi will connect with Sky Business through Skype to talk broker calls at around 11.15am.
The Australian share market over the past thirty days…
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