Overnight: Having A Dream

By Greg Peel

Not Too Bad

Following another strong session on Wall Street on Friday night, driven by increased hope on the trade front, the ASX200 opened up 30 points yesterday morning. It was not quite the 43 points the overnight futures had suggested.

And indeed the index did not hold there for long. After a week in which the market went straight up, profit-taking was always going to be on the cards, and the excuse to do so was provided by the pending release of China’s December quarter GDP result. Maybe, given tariffs, it might be a shocker.

It wasn’t. But the index was only up a handful of points when the numbers were released.

China’s GDP grew by 6.4% year on year in the December quarter, as forecast, representing the slowest pace since March 2009. Growth of 6.6% for the year 2018 was in line with the government’s “around 6.5%” prediction.

Chinese industrial production surprisingly rose 5.7% in the month of December, year on year, when the forecast was for a slowing to 5.3% from 5.4% in November. Retail sales rose 8.2% as expected, up from 8.1%.

Fixed asset investment rose 5.9% in 2018, missing 6.0% expectations and representing the slowest pace since 1996.

All up it was a case of “could have been worse”, with industrial production quite the surprise, hence the ASX200 managed to close with a modest gain. Clearly tariffs are having an impact on the Chinese economy – an impact yet to be fully reflected in the numbers – but Beijing is doing its bit to prop up the economy as it continues to play chicken with Washington.

The Chinese stock market rose 0.6% on the day.

Note that Chinese New Year falls in the first week of February this year and the country will be closed for that week. Given Beijing does not seasonally adjust its economic data, we’ll see the usual distortions in the next three months of data as activity picks up before the holiday, then dies, then recovers.

Among the ASX200 sectors, consumer discretionary won the day with a 1.2% gain thanks to a 3.2% rise for Aristocrat Leisure ((ALL)). Staples chimed in with 0.6% while energy’s 0.5% seemed a bit weak on a 3% jump in the oil price on Friday night, but then it’s been a strong run back from the brink.

Gold came off the boil on Friday night helping the materials sector down -0.2% yesterday. Help was also provided by Sims Metal Management ((SGM)), which issued yet another guidance downgrade, blaming tariffs and the Turkish currency. Sims fell -16%.

IT was the worst performer in losing -0.7%, but that’s because Afterpay Touch ((APT)) fell -5% having risen 12% on Friday. I hope Afterpay investors wear seatbelts.

With Wall Street closed for MLKJ Day overnight, there’s not much to go on this morning. Hence the local futures are “unch”.

Tilting at Windmills

President Trump has overnight offered the Democrats a new deal aimed at ending the government shutdown, as government employees prepare to miss a second monthly pay check. Apparently US pawn shops are doing a roaring trade as employees try to make ends meet.

Trump still insists on US$5.7bn for his Wall, plus another US$300m odd for other border security measures. As a trade-off, he is now offering concessions for DACA – deferred action childhood arrivals, being those illegal immigrants who were brought into the country as children, aka “the dreamers” – and for those on temporary protection visas.

The Democrats, apparently, won’t have a bar of it. And not all Republicans are on board either.

“How much do you think we might get for Granma?”

Theresa May is busy formulating Brexit Plan B. Plan B supposedly includes certain concessions the dismissed Plan A did not contain, even though the EU has said it will not consider any concessions. The stumbling block remains the Irish border. May will not concede to a second referendum.

What would be interesting would be a poll asking Brits “If you knew two years ago what you know now regarding Brexit, would you have voted differently?”

I don’t think anyone knows.

Commodities

Copper was down -0.6% in London which likely reflects a weak Chinese fixed asset investment number, but otherwise it was all quiet on the Western Front.

The Aussie is down a tad at US$0.7159 with the US dollar index trading, but unchanged.

Today

The SPI Overnight closed unchanged.

The focus today locally will be on the resources sectors, with production reports due from BHP Group ((BHP)), Lynas Corp ((LYC)), Oil Search ((OSH)) and Perseus Mining ((PRU)).

The Australian share market over the past thirty days…