Overnight: Comeback

By Greg Peel

Large Caps Slammed

The ASX200 was trying desperately to hang in there for the first hour and a half of yesterday’s trade but when 5800 was once more breached, the flood gates opened. On sector moves it was clear the sellers, or perhaps one big seller, did not muck around but simply hit the biggest stocks.

Energy closed down -2.6% but that was a bit of a gimme on a -7% oil price fall overnight. The banks fell -2.0%, healthcare -2.3%, materials -2.0% and consumer staples – which on Tuesday played a defensive role – fell -2.2%.

By contrast, consumer discretionary fell only -0.8% and IT fell -0.5%, despite being classic risk-off targets, and utilities fell -0.8%. None of these sectors have representatives in the ASX top 20.

Telcos actually rose 0.2%, given these days Telstra just always seems to go the other way, even though it should have been among the large caps.

There was a fair bit of data out around the time the ASX200 started dropping fast, but nothing within the numbers suggests a specific trigger.

Australian wages rose by 0.6% in the September quarter, as expected. Annual growth rose to 2.3% from 2.1% in June which is the highest level in three years, but still pretty slow by historical standards and nothing which would prompt the RBA into action.

Surprisingly, in the face of falling house prices and a lot of Chicken Little popular media hype about the grim outlook, consumer confidence has risen this month, to 104.3 from 101.5 last month on Westpac’s index. The neutral line is 100.

Chinese industrial production rose 5.9% year on year in October when 5.7% was forecast and fixed asset investment rose 5.7% year to date against 5.5% expectation. The downer was retail sales, which rose only 8.6% when 9.1% was expected, but either US tariff fears are taking their toll or Chinese consumers were holding off last month for this month’s big shopping festivals.

Nothing there to really tip a market. Which suggests yesterday’s trigger was more technical than fundamental. Last month when the index breached 5800 we went straight down to the next support level at 5650.

We pulled up yesterday at 5732, posting another ton to the downside, which also seems to be a milestone that engenders some technical significance on a psychologically basis.

The good news, perhaps, is that Wall Street made a comeback from its lows last night, oil prices finally broke their historical losing streak, and the futures are up this morning, albeit only by a tenuous 5 points.

Solid Bounce

It’s only been just over a week, but already the Democrats are exploiting their newfound House majority power in Congress. The Representative for California is set to become the new chair of the powerful House Financial Services Committee, and she is no fan of Trump’s.

“Make no mistake,” said Maxine Waters last night, “Come January in this committee, the days of this committee weakening regulations and putting our economy again at risk of another financial crisis will come to an end.”

While US banks have underperformed for most of 2018 due to a flat yield curve, they were stars of 2017 post-election when the Trump administration started rolling back strict Dodd-Frank banking regulations put in place in the wake of the GFC. While Waters is not threatening to now attempt to re-regulate – the Republicans still control the Senate – it appears US banks can no longer look forward to any further regulatory easing.

Financials led Wall Street down in the morning and the Dow was down -350 points by 2pm.

Before the bell it was revealed US headline CPI inflation rose 0.3% in October, its biggest rise since January. The annual rate rose to 2.5% from 2.3%. While this is the sort of result that would scare Wall Street into thinking the Fed will become even more aggressive, a lot of the jump was to do with petrol prices.

The core rate, ex food & energy, fell to 2.1% annual from 2.2%, so no need to worry. And clearly petrol prices will soon fall back again.

What was otherwise concerning Wall Street was there was no sign of Theresa May.

May was expected to waltz into the cabinet room, get a thumbs up and a hearty cheer, and waltz back out again to tell the world a Brexit plan has finally been agreed upon. With no such appearance a full five hours after she waltzed in, things were looking a bit grim. The pound began to fall.

Finally, five and a half hours later, May appeared. It was hard work, but the cabinet has agreed to the deal, she declared, before striding straight back into Number Ten without as much as a thank you. She might have been relieved but she didn’t look happy.

At around 2pm, the Dow had fallen below 25,000 and the S&P below 2700. These numbers have no more significance beyond the fact they’re round, yet it was a case of if they hold, a rebound is on the cards, but it they don’t, the October lows are back in the sights.

They held, with some help from May, and in late trade the Dow was almost back to square before a bit of late selling. The pound rallied.

May is not out of the woods – the deal still has to be passed by the UK parliament and agreed to by 27 EU members, and for this we’re talking weeks not days. More worryingly is the time it took to pass the deal through cabinet, which suggests a possible vote of no confidence in May that would put Brexit right back at the starting blocks.

Commodities

The rally in the pound helped the US dollar index down -0.4%, sparking a ten dollar jump in gold.

Having fallen for a record twelve sessions in a row, oil prices finally found some support.

Metals price moves are nothing of note.

The Aussie is up 0.5% at US$7246.

Today

The SPI Overnight closed up 5 points.

US retail sales numbers are due tonight, which is another important “Fed watch” data set.

Locally we’ll see October jobs numbers.

Graincorp ((GNC)) reports earnings today and MYOB ((MYO)) hosts an investor day.

There is a long list of companies holding AGMs today. Among them we find bigger names such as Wesfarmers ((WES)) and ResMed ((RMD)), and another interesting meeting will be that of Navitas ((NVT)) given corporate approaches.

For the rest, please refer to the FNArena calendar.

The Australian share market over the past thirty days…