Overnight: Unfazed

By Greg Peel

Micro Matters

With Wall Street flat overnight, the local market turned its attention to local matters yesterday. It was a choppy session featuring modest volume and a positive close.

On the economic front, Australia added 21,600 jobs in December, and blow me down if that wasn’t around about what economists were expecting. They did not expect the unemployment rate to fall to 5.0% from 5.1%, but participation decreased. Great fodder for a dead-in-the-water government, but a lot of the additional jobs were part-time Christmas hirings.

A trend through late 2018 and into 2019 has been the popularity of Australian gold stocks, driven by the combination of a rising US dollar gold price and a falling Aussie. But analysts had begun to warn valuations were getting a bit carried away, and this has proven to be the case during the December quarter production report season. There’s been the odd production miss, but the underlying theme has been higher than expected costs.

Golds stocks have thus taken a turn, and were responsible for the materials sector closing down -0.2% yesterday to be the only sector in the red. Three of the top five ASX200 losers on the day were gold miners.

The energy sector, on the other hand, has been beset by volatile oil prices in recent times, and thus shied away from. Thus a glowing production report delivered by Santos ((STO)) yesterday had that stock up 3.9% and the energy sector up 2.1% to win the day by a margin.

When the major banks were hiking their mortgage rates last year to offset rising funding costs, National Bank ((NAB)) abstained. But yesterday NAB caved and joined the rate rise party. The move didn’t do a great deal for the share price (+0.3%), with a 0.5% gain for the financials sector mostly driven by Macquarie Group ((MQG)).

Most sectors were up around the 0.5% mark yesterday with the exception of materials and energy, and the consumer sectors, which given recent strength decided to sit yesterday out.

Overnight we again see a flattish Wall Street despite weak data from the rest of the world. The mood locally remains cautiously buoyant, with the futures this morning up a cheery 20 points.

Miles and Miles

No, not The Byrds, but US Commerce Secretary Wilbur Ross last night suggesting that the US and China were “miles and miles” away from any meaningful trade deal. The funny thing was, Wall Street didn’t seem to care.

If Ross is right then there’s not much we can look forward to to come out of next week’s trade meeting, one might assume, nor any prospect of heading off Trump’s planned tariff increase to 25% from 10% on March 1 for US$200bn of Chinese imports, which is set to be triggered if no deal is agreed upon.

Wall Street watchers are still trying to figure out whether the market has priced in a deal or not, whether no deal being agreed upon next week is a calamity or not and whether any positive news next week will send markets higher, or not. I suppose, given US stocks have retraced around half their losses from the 2018 high, we’re on the centre line, waiting to figure out which way to break.

How’s the global economy going in the meantime?

A flash estimate last night put Japan’s manufacturing PMI at 50.0 – dead stall – in January, down from 52.3 in December, after the longest growth streak in a decade. The eurozone equivalent is estimated at 50.5, a 50-month low.

No surprise ECB president Mario Draghi last night suggested risks surrounding the European economy have shifted to the downside, with “geopolitical factors” to blame. The central bank left its negative cash rate on hold. The timing of ending QE in December now looks unfortunate, but the ECB will reinvest maturing bonds and keep its rate at -0.4% through 2019 and beyond if necessary.

Meanwhile, US earnings season continues to be net positive. And a flash estimate of US January manufacturing PMI suggested an increase to 54.9 from 53.8. Weekly new jobless claims fell to below 200,000 last week for the first time in fifty years.

It must be lonely at the top. The US dollar index has jumped 0.5%.

Commodities

The dollar should be a weight on commodity prices, but there was no evidence of that last night.

Commodity markets have quietened down along with equity markets.

The Aussie is down -0.5% to US$0.7092 to mirror the greenback.

Today

The SPI Overnight closed up 20 points or 0.3%.

I am assuming we won’t see data for December US durable goods orders and retail sales tonight due to the shutdown.

ResMed ((RMD)) reports quarterly earnings today while Iluka Resources ((ILU)) and Pilbara Minerals ((PLS)) issue production reports.

The Australian share market over the past thirty days…