Overnight: And Pause

After a couple of sessions of strong rallies, as US yields stabilise, Wall Street took a breather last night. Dow down -79.

By Greg Peel

Momentum

The local market posted a strong rally on Monday in the wake of positive data, Wall Street had a strong session on Monday night due to, among other things, the same positive Chinese data, and the local futures suggested up 35 points yesterday morning. Either this was an expectation that the break up through 6200 for the ASX200 would draw further technical and momentum buying, or the Chinese data were being double-counted.

By the time the ASX200 had climbed over 50 points at lunchtime yesterday, it appeared the double-counting argument was off the mark. The index had opened up over 30 points as the futures suggested, and then just kept going.

The momentum algos then copped a bit of a slap on the face at lunchtime when it appeared a big sell order hit the market, halving the gains to the close.

Despite the reality check, it was still very much a “risk on” session. While the materials sector took a breather after leading the market for the last week or so, it were the cyclical sectors that enjoyed the spoils while the defensives were used as ATMs.

Strong gains for the banks (+0.5%), healthcare (+0.9%), industrials (+0.7%), consumer discretionary (+1.1%) and IT (+2.0%) suggested positive sentiment and another shot at the previous high. Telcos (-0.3%) and utilities (-0.1%) were drawn upon while consumer staples (+0.1%) settled back after Monday’s pop for Woolworths ((WOW)).

Among individual stock moves, only Syrah Resources ((SYR)) stood out, rising 8.9% to top the ASX200 leaders’ board. The graphite miner is the most shorted stock on the market and issues its earnings report today, so draw your own conclusions.

Outside of the index, online lottery ticket re-seller Jumbo Interactive ((JIN)) jumped 13% after Morgan Stanley initiated coverage with an Overweight rating.

Yesterday’s RBA statement was not a lot different to that delivered in March, other than to suggest a little more caution both internationally and domestically. The central bank is continuing to “monitor developments”, meaning a rate cut will indeed come if the situation dictates.

The stock market saw a mild pop on the release yesterday before giving that back by the close.

Yesterday’s building approvals data came as somewhat of a surprise. Having fallen sharply in November-December, as current market conditions might suggest, a small rebound in January did not seem out of place. But a 19% jump in February suggests there’s life in the old dog yet. Apartment blocks are the lumpy element of course, and the breakdown shows a 62% gain in apartment approvals while house approvals fell -3.7%. Approval does not guarantee actual construction – the developer might yet pull the pin – and given the volatility of these numbers one can’t conclude the worst is now over.

Approvals remain down -21.7% year on year.

The budget? Didn’t see any real negatives in there, market-wise, indeed middle income and small business tax cuts and an increase in the immediate write-off threshold for small businesses can only be positives. Thought the Fryster put in a good performance, but if he’d said “without raising taxes” one more time I was going to shoot him.

The fact the futures are up another 30 points this morning, despite a flat session on Wall Street, suggests a tick of approval. That is, if this budget ever actually sees the light of day.

Breather

After two strong sessions back to back, Wall Street took a breather last night. The S&P closed flat and the Nasdaq posted a modest gain.

The reason the Dow was down -79 was all to do with one stock.

Recent Dow entrant Walgreens Boots plunged -13% on its earnings report. Nothing to do with footwear – Walgreens is what we’d call a chemist chain, as any Pom would know.

The main topic of discussion on the Street last night was Trump’s intention to close the border with Mexico in order to stem the tide of immigrants (100,000 per month) while he still fights to get his Wall. There are a couple of problems – cross-border supply chains, Mexicans who work legally in the US each day, and tourists, for example, so it’s not yet a done-deal given the economic ramifications.

On the subject of the economy, US durable goods orders fell -1.6% in February and within that figure the core element of business investment fell -0.1% to mark a third decline in four months.

Auto sales for March also disappointed.

Talk was also of developments across The Pond, or lack thereof. Having halved the number of options put to parliament as to how to progress from eight to four, still no option was able to snare a majority vote. The two front-runners are to split but retain a customs union (perhaps they could call it the Common Market) and to hold another referendum, which realistically are diametrically opposed outcomes.

Theresa is heading back to Brussels to ask for yet another extension. One presumes patience in Brussels is already very thin, albeit either option would suit the EU, unless of course a second referendum provided a repeat result, and then the whole process would have to start again.

Commodities

Any excitement over Chinese data appears to have been short-lived in London. The copper price dropped on news a strike in Peru has been resolved but weakness was widespread despite only a slight lift in the US dollar.

Not so iron ore though.

If the local stock market posted little reaction to the RBA statement yesterday it was a different story for the Aussie, which started dropping at 2.30pm and is down -0.6% this morning at US$0.7070. Someone expects a rate cut.

Today

The SPI Overnight closed up 30 points or 0.5%.

Australia will see retail sales and trade data today and across the globe it’s service sector PMI day.

The US highlight will be the private sector jobs report.

Syrah Resources releases an earnings report today while ARB Corp ((ARB)) and Sigma Healthcare ((SIG)) go ex-div.

The Australian share market over the past thirty days…