Overnight: Treading Water

By Greg Peel

Back from the Brink

The futures had suggested a soft start and indeed the ASX200 traded down to 6200 yesterday by 11am. Would it hold? No.

Bank of Queensland ((BOQ)) posted a weak earnings result yesterday that reverberated through the bank sector. The index fell through 6200 and triggered profit-taking in the big-name sectors that have been the most recent drivers – materials and healthcare. At 12.30pm, the index reached 6184.

And then it bounced. When the dust settled at 4pm the index had clawed its way back to 6202. On a daily basis, no breach. And with Wall Street once again flat overnight, our futures are showing up 21 points this morning. Funny old market.

Financials closed down -0.7%, materials -0.9% and healthcare -1.0%. The comeback required a counter from defensives – telcos rose 0.3% and utilities 0.4%. All other sectors watched from the sidelines. The banking sector also took into account a mortgage rate cut from Westpac ((WBC)), as all the little ducks begin to line up.

It’s still mortgage re-pricing, just in the wrong direction.

But overall it seems investors are not yet prepared to wave the white flag. There remains hope on US-China trade and US earnings season. There remains expectation for an RBA rate cut sooner rather than later and for a Coalition victory, given close polling at this stage. It’s not about politics, it’s about policy, specifically that related to property investment and thus middle class wealth.

We have five weeks to endure.

On the subject of endurance, Brexit has been extended out to October 31.

So far, 6200 is holding.

There was nothing overly remarkable at the individual stock level yesterday, other than Bank of Queensland’s chart-topping -4.9% drop. Elsewhere on the winners & losers boards, we note Sims Metal Management’s ((SGM)) new strategy continues to get the thumbs down (-4.6%) and Seven West Media’s ((SWM)) sale of Yahoo!7 the thumbs up (+2.9%).

Just out of the top five winners, a 2.7% gain for Crown Resorts ((CWN)) suggests traders are calling the stock “in play”.

That 12.30pm bounce yesterday came around the time China released March inflation figures. The CPI jumped to 2.3% year on year from 1.5% in February, while the PPI rose to 0.4% from 0.1%.

Looks like an economy suddenly running hot, but that’s not the case. An outbreak of swine fever has sent pork prices soaring in China, so the implications of the data are more sour than sweet. Beijing does not provide core inflation readings (ex food & energy).

Ready, Set…

Wall Street opened doing nothing last night, and closed doing nothing. The intraday range was small and volume low, as it has been all week. Tonight earnings season kicks off.

Not that the session didn’t have its moments.

The US March PPI came in with a rather hot 0.6% when 0.3% was expected. But at the core, ex-energy, wholesale inflation was flat. The result was enough to boost the US dollar nevertheless, but more was to come.

In the wake of the ECB’s policy meeting on Wednesday night, Mario Draghi last night said the central bank is ready to use all its instruments to support the eurozone economy if needed, but the flagship policies of the past decade (rate cuts, QE) are unlikely to be included.

Draghi said it was “too early” to decide on what to do with negative rates, or on criteria for a new round of bank loans. A decision will be made at the next ECB meeting in June.

On that note, the euro dropped. Add in a weaker pound on the Brexit extension, and the US dollar index is up 0.3%. Wall Street also dipped on ECB talk, but managed to graft back again.

Late in the session the Dow also enjoyed a boost when the Boeing CEO announced a “fix” for the Max 8 software problem is already being tested by airlines.

Bring on JP Morgan and Wells Fargo, who report earnings tonight.

Commodities

The US dollar index pushed back over the 97 mark, which seems to be its line in the sand at present, and gold responded by capitulating.

Base metal prices also came under pressure. Iron ore wasn’t bovvered.

Oil prices fell after the International Energy Agency’s monthly report suggested a global economic slowdown could impact crude demand. Yes. Mastermind subject: stating the bleeding obvious.

The good news downunder is the Aussie has dropped back -0.6% to US$0.7123, presumably as the short-covering had run its course.

Today

The SPI Overnight closed up 21 points or 0.3%, which is likely a nod to the ASX200 holding 6200.

China will release March trade numbers today.

US earnings tonight.

Locally, the RBA will release a Financial Stability Review.

OZ Minerals ((OZL)) will release a production report.

The Australian share market over the past thirty days…