Overnight: Yes You May

By Greg Peel

Intervention

It was an unusual day on the local market yesterday in the current context. The ASX200 opened a little higher, and then rallied consistently to the close, with just a slight dip at the death. It’s the sort of session we used to enjoy back in the days before computers got involved.

We had a positive lead from Wall Street, albeit following a volatile session, but confidence appeared to build on news President Trump has declared he will intervene in the Huawei arrest situation if it is to prove a barrier to trade resolution, despite the US Department of Justice maintaining the arrest and trade talks are completely unrelated.

Unrelated? China has arrested a former Canadian diplomat for reasons unknown and has boycotted Justin Bieber’s music. Although the latter case may just be a matter of taste.

Trump has form. We recall that despite admitting the Saudi Crown Prince probably did have something to do with the murder of Jamal Khashoggi he did not want to retaliate for fear of upsetting a big arms deal with the kingdom.

The signs for an easing of trade tensions are thus improving, hence yesterday’s burst of confidence on the local market. To a great extent it was a reversal of the “sell everything” session on Monday, which did look somewhat overdone. The difference, however, is that Monday saw heavy volume and yesterday did not, suggesting a case of sellers standing aside rather than buyers piling in.

The banks were a major contributor with a 2.0% gain yesterday, having fallen -3% on that Monday. Strength came despite Westpac’s ((WBC)) board copping a “first strike” rejection by shareholders of remuneration packages. Bit of a no brainer really, one might say. Pay bonuses, after what the RC revealed?

The only sector not to rally yesterday was telcos (-0.5%) after the ACCC announced it had launched an investigation into access for third party providers into Telstra’s ((TLS)) copper wire.

Otherwise, energy (+2.0%) bounced back yesterday, supported by a better oil price, dragging utilities (+1.5%) along with it. Materials (+1.1%) reflected trade hopes and healthcare (+1.1%) continued its fightback after being thumped on Monday.

IT (+2.6%), as usual, followed the Nasdaq.

We have seen another rally on Wall Street overnight but this is also to an extent a response to Trump intervention talk, hence out futures are only up 6 at the moment but…

As I write, Wall Street has closed just as it was announced Theresa May has won her party room confidence vote by 200/117. The good news for May is another vote cannot be taken within twelve months. The bad news is 117 against is a larger number than feared.

The upshot is May’s Brexit deal is still highly unlikely to pass through the Commons. So May remains, but so does complete uncertainty. It is also not beyond the bounds May resigns, given one third of her party is against her.

Our futures closed down -13.

Another Glimmer

Aside from Trump’s potential intervention to save the trade negotiations, China has also said it is prepared to back off on its “Made in China 2025” plans, such that it would lower targets set for high-tech inputs to be sourced domestically and provide greater access for foreign companies into the Chinese market.

This news comes after yesterday’s news China will drop auto import tariffs to 15% from 40%.

The fact that Meng Wanzhou made bail in a Canadian court also provided an element of relief last night.

And a US CPI read for November of no change, albeit as expected, further feeds in to easing Fed fear.

The Dow was nonetheless up a full 450 points by early afternoon before fading to a much smaller gain, with a particular dip right at the death, which must be connected to the May vote result. Wall Street would have been much happier with a resounding victory. Better the devil you know.

The early afternoon fade has been attributed to probable hedging ahead of the May vote, and also news US federal prosecutors have given immunity to the publisher of the National Enquirer, which paid US$150,000 to a Playboy bunny to not reveal before the election her affair with the president.

Bit of a bunny plague it seems.

This is all we need when trade talks seem to be moving in the right direction.

With Wall Street now closed, attention will turn to the US futures market in its overnight session as to just what response is expected tomorrow from the developments in the UK. In reality the situation is no different now than it was a week ago, but markets are skittish at present.

Commodities

The London Metals Exchange was well and truly closed before Wall Street faded and the vote was cast.

The oils have dipped back again and appear to be in a state of limbo at present.

Finally the Aussie has reverted to type – it’s up 0.2% at US$0.7223 with the US dollar index down -0.4%.

Today

The SPI Overnight closed down -13 points.

The ECB holds a policy meeting tonight. Probably at a pub with a dart board.

Elders ((ELD)) and Suncorp ((SUN)) hold AGMs today while Metcash ((MTS)) and EclipX ((ECX)) go ex.

The Australian share market over the past thirty days…