Overnight: Into The Sunset

By Greg Peel

Bonanza

I noted on Wednesday morning that while the big local rally on Tuesday was all about the banks going gangbusters, what was more interesting was that every sector bar one rose on the day, and it fell only slightly. This implied bank buying was not funded by sector rotation – simply moving money around in the market – rather new money was coming into the market.

The long awaited delivery of the Hayne report lifted a cloud that had been hanging over the Australian stock market in general, not just the banks. But just when we thought that was incentive enough, along came Dr Lowe.

Throughout last year economists one by one withdrew their expectations for RBA rate hikes in 2019 as global growth slowed and Australian consumers faced falling house prices. The RBA itself remained resolute, persistently upbeat about the economy, and insistent that while 1.5% was the right place for the cash rate presently, the next move would likely be up.

Economists were largely bemused. It was thus not a shock on Wednesday when Dr Lowe finally capitulated, suggesting the central bank’s stance will now be neutral. This means the cash rate is just as likely to next go down as up, and economists are currently betting on the former ahead of the latter.

It was another green light to Buy Australia. And yesterday, they did. While a handful of individual earnings results played their part, the 1.1% rally for the ASX200 was a market-wide phenomenon. Only utilities bucked the trend in falling -1.4%, but this time it was indeed all about AGL Energy ((AGL)), which posted a decent result but disappointed with its outlook, citing political buffers.

Otherwise, it was green on screen. The biggest influence were again the banks, rising 1.8% after Wednesday’s brief profit-taking session as the slower movers moved in. Also notable was that after two soggy sessions, healthcare jumped 1.7% as the mood swung back for CSL.

Six sectors posted gains of 1% or more. Besides utilities, the other three managed at least 0.5%. The index briefly reached 6100 – more than 600 points above the December low. Upward correction?

Alas, things aren’t looking quite so rosy this morning. Global slowdown concerns continue to fester, and it looks like US-China trade talks have hit a speed bump. The futures are down -40 points this morning, suggesting a bit of give-back.

On the individual stock front, IDP Education ((IEL)) stole the session, rising 21% on its earnings result. British bank CYBG ((CYB)) jumped 18% on an update. Brexit be damned.

On the other side of the ledger, AGL Energy’s release was worth -4.8%. Downer EDI’s ((DOW)) result disappointed and it fell -4.6%.

Outside of the index, bargain hunters moved into mortgage broker Australian Finance Group ((AFG)), sending it up 15%. Bargain hunters moved out of athletic software company Catapult ((CAT)) on the announced resignation of the CEO, which was worth -23%.

We can’t go up 1% every day, and it’s a Friday.

No Meeting

Wall Street was buoyed recently when President Xi suggested he would meet directly with President Trump to finalise a trade deal ahead of the March 1 tariff increase deadline. Last night Trump indicated that meeting was not going to happen.

Chief economic advisor Larry Kudlow noted a “tremendous amount of ground” had been covered in negotiations but there is still “a long way to go”. Enforcement will be the key, Kudlow suggested.

This was not good news for a Wall Street that has been rallying back from the depths on not only a more dovish Fed, but trade deal hopes. And it comes at a time all the world is retreating.

Last night the ECB cut its eurozone 2019 economic growth outlook to 1.3% from the 1.9% forecast in November. German industrial production fell -0.4% in December to be down -3.9% year on year – the fasted pace of decline since 2009.

Earlier this week the UK cut its growth forecast, the Reserve Bank of India cut its cash rate, the PBoC reduced its bank reserve requirement ratio and the RBA moved to a neutral stance. The week before, the Fed as good as moved to neutral as well, suggesting it would be “patient”.

Is there a theme here?

When Wall Street opened last night Europe was half way through a sell-off. The German market fell -2.7%, France -1.8% and UK -1.1%. The Dow was down close to -400 points when Europe closed.

Often Wall Street sentiment swings at that point, with Europe out of the way, but still the Dow closed down -220. Global growth and trade. And the two are tightly correlated.

Such concerns are now taking the gloss off the US earnings season. We find ourselves at that interesting point we so often did in the period after the GFC. Policy easing by central banks is positive for markets, but the reason central banks are easing policy is not.

In other news, last night Twitter announced it would change the metrics it was prepared to disclose in quarterly earnings reports. Twitter shares fell -10%. The move comes hot on the heels of Facebook announcing the same thing. Oh look there’s a crack. Pass me the wallpaper.

Commodities

Vale has been ordered to halt activities at one of its biggest mines. Iron ore is up 4%. While it’s hard to see how the ASX200 might fall -41 points with iron ore up 4%, a lot of the move would have been priced in yesterday.

And the Chinese aren’t even in the market. Base metals prices last night looked more reflective of that fact.

Slowing global growth implies lower demand for oil, but last night’s -2.4% drop in WTI also reflects news a major oil field in Libya may soon restart production.

The US dollar is up a bit and the Aussie is down another -0.2% at US$0.7103.

Today

The SPI Overnight closed down -41 points or -0.7%. Party’s over.

The RBA will publish its quarterly Statement on Monetary Policy today.

National Bank ((NAB)) is scheduled to deliver a quarterly update today. Who’s going to do it?

REA Group ((REA)) and its major shareholder News Corp ((NWS)) will publish earnings results.

The Australian share market over the past thirty days…