Overnight: Another Increment

The S&P ticked slightly higher again last night, for the sixth session running, while Boeing distorted the Dow’s close of up 166.

By Greg Peel

Big Breather

When I suggested yesterday the ASX200 was probably due a breather, as implied by the futures not projecting up 30-odd points for the fourth day in a row, I wasn’t quite assuming a -50 point drop. But given the rather exuberant run-up to yesterday, it’s no great surprise, nor any great concern.

A look at the intraday chart indicates momentum to the downside that eased as the session progressed. Selling was market-wide, with all sectors bar IT closing in the red to varying degrees. IT had not been a leader in this recent rally, rather that was left to the likes of materials, healthcare and the banks, which all saw profit-taking yesterday.

Energy (-1.9%) was the hardest hit despite oil prices not doing much more than rise lately (Brent briefly snuck back above US$70/bb) and despite that sector not joining in with the run materials has had, largely driven by iron ore.

Consumer discretionary (-0.5%) held up comparatively well when we note Harvey Norman ((HVN)) went ex-dividend.

Among individual stocks, the short-covering scramble in Syrah Resources ((SYR)) picked up pace, with that stock adding a 13% gain to two previous 8% gains, while EclipX Group ((ECX)) continues to play Lazarus (+7.8%).

On the flipside, private equity firm TPG Capital announced yesterday it was looking for a buyer for 50 million shares of Inghams Group ((ING)), which if sold would take the firm’s stake down to 19%. Note that Inghams and Syrah are currently vying to be the most shorted stock on the ASX.

It has to be said that the sharp run-up to yesterday for the local market did seem rather over-enthusiastic. Fundamentally, the drivers have been US-China trade optimism, signs of stability for a stimulus-driven Chinese economy, a more dovish RBA and a business-friendly federal budget, for what it’s worth. And the iron ore price.

But the market has also been driven by technical algos responding to the break through 6200 for the ASX200, momentum algos then picking up the baton, and a previous high coming into sight to provide temptation. The market just needed a Bex and quiet lie down.

The budget battle is now on, with Shorten’s Whitlam-esque proposal delivered last night surely very tempting to many, but not so much to those who will miss the negative gearing and franking credit cash-backs savings that will pay for it.

It will likely not be a case today of getting a market getting back on its feet and resuming the rally, despite another incrementally positive session on Wall Street. The futures are down -9 points this morning.

Grafting

The S&P500 closed higher for its sixth session in a row last night, but it’s been a slow grind of baby steps. The S&P’s 0.1% gain was more indicative of Wall Street sentiment, with a 166 point rally for the Dow inflated by a 3% rise for Boeing.

That jump was sparked by the CEO of Boeing taking a flight on a 737 Max 8. The plane hasn’t been seen since (no just kidding).

Wall Street continues to pin its hopes on a selective assessment of trade talk progress, last night salivating at the suggestion Donald Trump could set a date for his planned meeting with his Chinese counterpart any moment now, after meeting with the Chinese premier. Yet there still appears to be one major sticking point.

The Chinese want all tariffs removed if they agree to US demands. The US insists it will leave tariffs in place, removing them only when there is evidence Beijing is actually sticking to its commitments. It is assumed President Xi will not meet with President Trump in Florida until a deal is fully agreed upon, lest he risk a “Hanoi moment” of Trump storming out of the room.

Methinks there might be some parallels between trade talks and Brexit, when it comes to finding common ground.

On the subject of Brexit, a group of German economic research institutes last night slashed their 2019 eurozone growth forecast to 0.8% from a prior 1.9%. The prior forecast was based on an assumption a “hard” Brexit would be avoided. Now it looks a lot more possible, and it won’t just be the UK that suffers.

Back in the US, new applications for unemployment benefits fell to 202,000 last week, the lowest number since 1969, and I presume that means in absolute terms, which as a percentage of prevailing population is no doubt a lot more impressive. Yet only 20,000 new jobs were created in February.

That number was such a surprise that tonight’s number for March jobs, which currently has a consensus estimate of around 180,000, will not be as critical as a revision, if any, to the February number. There are always revisions.

Commodities

Looks like nickel took one look at US$6/lb and got frightened.

Otherwise, not much going on in commodity land last night.

Nor in currency land, with the Aussie steady at US$0.7116.

Today

The SPI Overnight closed down -9 points. It might be a quiet Friday as investors reassess.

Today sees the local construction PMI while German data are becoming more closely watched, and tonight brings industrial production numbers, along with eurozone retail sales.

Jobs night in the US.

Note that as summer time ends in Australia this weekend, from Tuesday morning the NYSE will close at 6am Sydney time. The SPI Overnight will continue to trade to 7am.

The Australian share market over the past thirty days…