Overnight: Carved Out
|SPI Overnight (Mar)||5919.00||+ 22.00||0.37%|
|S&P ASX 200||5902.00||– 60.40||– 1.01%|
|S&P500||2726.80||– 1.32||– 0.05%|
|Nasdaq Comp||7396.65||+ 24.64||0.33%|
|DJIA||24801.36||– 82.76||– 0.33%|
|S&P500 VIX||17.76||– 0.60||– 3.27%|
|US 10-year yield||2.88||+ 0.01||0.21%|
|USD Index||89.62||– 0.01||– 0.01%|
By Greg Peel
One Man Band
On Tuesday the local market surged higher in an across-the-board rally, reflecting the possibility that the Trump Administration was prepared to water down its tariff policy, with a little bit of Korean relief thrown in. Yesterday the market gave that all back, across the board, because one bloke resigned.
The resignation of Trump’s senior economic advisor Gary Cohn was flagged the day Trump pre-announced his tariffs on steel and aluminium. Cohn had advised the president against imposing tariffs, so clearly his position had become untenable. When Wall Street plunged on the day of the announcement, it was suggested the fall on the day was exacerbated by fears Gary Cohn may resign.
Well he has. Cohn is highly respected on Wall Street, and thus was seen as a market ally, and a buffer inside the Trump circus tent. His resignation hit the wires after Tuesday night’s close on Wall Street and before the open on the Australian market. Local traders knew Wall Street would respond negatively, and indeed the US futures began to fall immediately.
So back down we came. Everything that went up on Tuesday came back down yesterday, and once again the moves among sectors were relatively uniform, notwithstanding the ongoing round of ex-divs which can make some falls look steeper than they otherwise are.
Yesterday saw the release of Australia’s December quarter GDP numbers. The economy grew by 0.4% in the quarter to an annual rate of 2.4% growth. The media called this a “miss” against expectations, but that’s not quite true.
It is true that a week ago consensus was for a 0.6% rise and 2.6% annual, but that was before the trade numbers were released on Tuesday. Those numbers were indeed a “miss”, and had economists scrambling to lower their GDP forecasts, including some to 0.4% and 2.4%. So the GDP itself was not really a surprise.
And in fact, the market bounced on the news. At 11.30am, the time of the release, the ASX200 was down around -60 points. The index immediately recovered some 20 points before the afternoon saw a characteristic drift-off. Some late buying ensured the 5900 level held.
The “weak” GDP is not particularly worrying anyone, given the weakness can be put down to one simple thing – the weather. After enjoying a bumper harvest in the previous period thanks a lot of rain at the crucial time beforehand, grain farmers found their fortunes swing completely the other way when many suffered drought conditions ahead of the latest crop.
Softer rural exports offset familiar strength in the likes of iron ore exports, and given commodity prices for the most part have risen in the interim, a stronger result is anticipated for the March quarter, weather permitting.
Never mind, the futures are up 22 points this morning.
Just how important is one man for the multi-trillion dollar US stock market? That was the question being asked over lunch on Wall Street as the Dow approached a -350 point loss. Yes, losing Gary Cohn’s presence inside the White House inner circle is a negative, but (a) his resignation did not surprise and (b), we don’t yet know who’ll replace him. It could be someone else Wall Street respects.
It was with that in mind that Wall Street began to steadily graft its way back to a less dramatic drop last night, heading into the last hour down around -170 Dow points.
It was at that point the White House press secretary announced from the podium that the president would sign his steel and aluminium tariffs into effect by week’s end. However, there will be a two week gap before implementation to tweak the details, which could include “carve-outs” for Canada, Mexico, and “others”, as a matter of national security.
It would be no stretch to assume Australia is an “other”.
The “national security” call is an interesting one. The implication is that were America to go to actual war with someone…oh I don’t know, China?…then it could still rely on Canada, for example, to help out with steel supplies. It would be a bit foolish to have to pay 25% more than necessary for that steel.
By playing the national security card, the whole “is this just a ploy to get the right result from NAFTA?” assumption falls down. Trump’s tariffs may start a trade war, but otherwise war and trade are two different things. Trump likes to think of himself as king of the stock market, and becomes upset when the stock market goes the wrong way. It has been suggested that it is for this reason he is now prepared to compromise.
Ironically, the law under which Trump can impose any tariffs in the first place is one in which protecting domestic industry, domestic supply and domestic jobs, is seen as a matter of national security.
In economic news, the US trade deficit added -5% in January to a near ten-year high.
In the Fed’s Beige Book, released last night, there was no change to perceptions of “modest” economic growth and “moderate” inflation, going some way to dampen four-hike fears, at least for the time being.
Now we await Friday’s jobs numbers.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1323.40||– 10.70||– 0.80%|
|Silver (oz)||16.41||– 0.32||– 1.91%|
|Copper (lb)||3.13||– 0.02||– 0.76%|
|Aluminium (lb)||0.95||– 0.02||– 2.53%|
|Lead (lb)||1.08||– 0.03||– 2.64%|
|Nickel (lb)||6.14||– 0.04||– 0.68%|
|Zinc (lb)||1.48||– 0.02||– 1.29%|
|West Texas Crude (Apr)||61.24||– 1.26||– 2.02%|
|Brent Crude (May)||64.44||– 1.27||– 1.93%|
|Iron Ore (t)||75.20||+ 0.20||0.27%|
The US dollar index is little moved yet it was not a good night for commodity prices.
In the case of oil, it was the usual story of US weekly data, in this case a greater than expected lift in production.
The LME closed before the “carve-out” announcement was made, thus base metal price weakness likely reflects lingering trade war fears. The EU said last night it is currently discussing which American products it would hit with tariffs if Trump’s plan went ahead.
The Aussie is steady at US$0.7819.
The SPI Overnight closed up 22 points or 0.4%.
Both Australia and China release trade data today, January for Australian and February for China. Gosh they’re quick.
The ECB holds a policy meeting tonight.
Rudi will travel to News Ltd's headquarters in Surry Hills to appear on Sky News Business from noon till 2pm.
The Australian share market over the past thirty days…
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