Overnight: Breather

By Greg Peel

Wednesday

The SPI futures had closed up 14 points ahead of the open on Wednesday morning, spurred on by a new all-time closing high for the S&P500, suggesting there was more momentum left following the 60 point rally on Tuesday. More momentum?  Within half an hour the ASX200 was up 45 points.

Finally some selling emerged, indicating not everyone was taking a holiday, and the index was up a mere 34 points at 11am. At 11.30 the CPI numbers were released.

Zip.

Headline inflation showed a 0% increase in the March quarter when 0.2% was expected. Annual inflation fell to 1.3% from 1.8% in the December quarter. The RBA’s trimmed mean showed a more positive gain of 0.4%, but annual core inflation fell to 1.6% from 1.8% when the central bank has been assuming a strong labour market will eventually lead inflation back above 2%.

If that is to happen, something has to be done. ANZ Bank’s economists, for one, believe the RBA now has no choice but to cut the cash rate to 1.25% at its next meeting on May 7. Damn the election. Another cut is expected to follow in August.

ANZ does not believe a cash rate of 1.0% is really going to have much impact, given lending standards have been significantly tightened since the RC, but the RBA only has the one tool. Unless it looks to go “non-conventional”.

And didn’t the stock market love it. Fifteen minutes after the release the index was up 70 points. It drifted back a little toward the close as those who were actually on deck for the day headed off for another break. But at 6382, the ASX200 closed at a new post-GFC high.

6851 here we come. That was the intra-day high in October 2007. The S&P500 has doubled in the same timeframe. Maybe Dr Lowe might consider QE?

The banks (+1.3%) are winners on a lower cash rate, unless you’re in the US, where they’re losers when the cash rate falls. The banks are already in a fresh mortgage discount war, so a chance to reprice will be a relief.

The Aussie tanked on the CPI numbers, which likely provided the impetus for healthcare (+2.4%) to spin around after a period of weakness.

It was a positive session for bond proxies, on an assumption of lower rates, with the likes of REITs, utilities, toll road and airport operators having solid sessions.

Lower rates are encouraging for consumer discretionary (+0.8%) but you get better dividends from staples (+1.3%). Telcos (+0.2%) should have been another winner on that basis, but were again left behind after a strong week the week before.

The resources sectors were the losers, both on some lower commodity prices and the fact they’ve already run hard in 2019. Materials (-0.4%) providing some funding for renewed buying in healthcare, perhaps, while energy was flat after surging on Tuesday.

The only big share price move of particular note on an otherwise solid day was that of Bellamy’s ((BAL)), up 15% after receiving approval from the Chinese regulators for one of its infant formula products.

Wednesday Night

Note: table above reflects Thursday night’s movements.

After hitting new all-time highs on Tuesday night, and marking one month since the Christmas Eve bottom from which the S&P500 has since rallied 25%, Wall Street took a breather on Wednesday night.

Each of the three major indices fell -0.2%. The Dow fell -59 points, the S&P slipped under Tuesday night’s high to 2927, and the Nasdaq fell back after hitting a new all-time intraday high during the session.

Earnings were still very much the focus, and still the trend remains positive. With just over 20% of the S&P reporting to date, 80% have beaten earnings compared to 65% in the December quarter, confirming analyst downgrades to forecasts were too hefty in the lead-up.

While the losers (earnings miss) are seemingly thin on the ground, the winners (beat) are not all necessarily enjoying positive share price responses. Many have run up very hard and are meeting “sell the fact” traders. Caterpillar (Dow), for example, beat on earnings and fell -3%.

AT&T (Dow) did miss on revenues, and fell -4%. Boeing (Dow) managed a small rally on less than feared earnings decline following the 737 Max issue.

There were no significant economic data releases on the day, so attention then turned to companies reporting after the closing bell.

Microsoft (Dow) beat and initially rallied 2% in the aftermarket, despite hitting a new all-time high on Tuesday night. Facebook has had a tough time of it of late, but a beat provided for a 5% pop.

Visa (Dow) beat but its shares fell -1.5% having run up 22% to the result, while similarly PayPal beat and fell -2.5% after a prior 30% gain.

Tesla missed and fell -2%.

Another likely drag on Wall Street last night was the US dollar, which continued its upward trajectory on its least-worst theme in the global slowdown scenario. The dollar index jumped 0.5% to crack the 98 level for the first time in almost two years.

Commodities Wednesday Night

The stronger greenback weighed on metals prices, sending base metals all down -0.2-0.5%. The exception was copper, which rose 1.2% on “US-China trade hopes”, according to Reuters, but why that doesn’t apply to the others I’m not sure.

WTI’s fall was helped by the weekly US crude inventory data. Inventories have hit an 18-month high.

The Aussie dropped twice – once on the weak CPI and again on the stronger greenback – to be down a net -1.2% at US$0.7013.

The SPI Overnight closed down -1 point.

Thursday Night

Note: See price movements in the table above.

The big surprise on Wall Street on Thursday night was a guidance slash from industrial company 3M (Dow) which sent the share price down -13% to mark the stock’s worst session since 1987. The Dow plunged over -200 points on that news before paring back those losses but 3M’s contribution on the day remained -182 points.

Hence the disparity between movements in the Dow and S&P – the latter closing flat.

Countering 3M in the Dow was a kick-on for Microsoft, which closed up 3.3% and went very close to becoming the next US trillion dollar company. Facebook also went on with it, rising 5.8%.

And Tesla went on with it, falling -4.3%.

To continue the earnings theme, there were several big names reporting after the bell.

Amazon beat on earnings but met on the more closely watched revenue line, and is up 1.5% which I think might take that stock back over the trillion once more. Intel (Dow) disappointed after a strong run-up for chip stocks since December. It’s down -7%. Ford (Dow) hit it out of the park and is up 8%.

United Parcel Service is considered a useful economic barometer along with rival FedEx. Its result, during the session, led to an -8% plunge.

That’s one bit of economic “data”, but another last night was weekly new jobless claims, which jumped to 230,000 from 193,000 the week before when 201,000 was forecast. Mind you, this series has been marking fifty-year lows in 2019.

Durable goods orders jumped 2.7% in March when 0.5% was forecast. Take out lumpy transport orders and that number is 0.4%, but still ahead of expectation.

So US data continue to send mixed signals.

Not so mixed was South Korea’s March quarter GDP, released yesterday, which showed a -0.3% contraction. That’s South Korea’s worst quarter in over a decade.

And even we got a mention among Wall Street despatches last night, with regard the CPI shocker and assumptions the RBA is set to cut. These additional pieces in the slowing global economy puzzle are being blamed for the US dollar rising to a two-year high.

Judging by the ups and downs in after-the-bell results, tonight’s session on Wall Street will begin with a “mixed” tone, notwithstanding the morning’s fresh earnings numbers. But of greater focus tonight will be the first estimate of US March quarter GDP.

Forecasts are now set around the 2.4-2.8% growth mark for a number that was tipped to be as low as 0.2% early in the quarter.

Commodities Thursday Night

Copper fell back again last night, on “worries over the global economic outlook”, apparently. More sellers than buyers?

Note that the iron ore price move on the table above is net of two sessions.

Oil price weakness was put down to profit-taking.

The Aussie remains at US$0.7012, with the US dollar index up only slightly last night.

Today

The SPI Overnight closed down -5 points for a net -6 points since Wednesday.

The highlight tonight will be the US GDP.

More inflation news is due locally with the March quarter PPI, along with import/export prices.

Note that Amcor ((AMC)) goes ex-div today.