Overnight: Halfway Mark

By Greg Peel

Consolidation

There was a certain level of inevitability in yesterday’s pullback for the ASX200 but -26 points is nothing substantial after the index had run up 120-odd points in two holiday-thin days – the Wednesday session being specifically all about the prospect of an RBA rate cut.

With the holiday period over, traders looked at some of last week’s better performers and decided to trim positions, namely in bond proxies and yield-payers.

Hence we saw financials down -0.6%, ahead of the first of the big bank earnings reports tomorrow. Telcos have had a solid run of late, so they fell -0.5%. REITs also sold off, while utilities (-0.8%) saw the biggest sector fall on the day.

Materials closed flat after investors had already begun switching out of the miners last week to fund purchases in laggard sectors. The big miners rebounded, offsetting falls amongst some of the smaller names.

With oil prices down -3.5% overnight, a -0.7% fall for energy was quite timid, but profits had already been taken in this sector as well.

Healthcare saw a comeback last week but still kicked on 0.4% yesterday, while IT, which has been a bit quiet of late, won the day with a 0.6% gain.

There were no standout moves among individual stocks within the index. Outside the index, point-of-sale payment services company Zip Co ((Z1P)) jumped 16% after providing a quarterly update. Crowd funding platform Freelancer ((FLN)) also provided an update, and jumped 21%.

Yesterday likely saw some squaring up ahead of month-end, suggesting today may see more of the same, unless the window-dressers get excited. But with Wall Street again only incrementally positive, our futures closed down -1 point.

Consumer Fights Back

It’s been a while since the US December retail sales result shocked Wall Street, and spending numbers in the interim had not shown any real reversal, until last night. It’s also been a while since the government shutdown but still departments are in the process of catching up on data compilation and release.

Last night’s numbers showed that consumer spending rose 0.3% in January, 0.1% in February, and then a much better than expected 0.9% in March. Personal incomes fell -0.1% in January and rose 0.2% in February and 0.1% in March.

It looks like US consumers suddenly reached for the credit cards last month, but incomes are up 3.8% year on year while spending – the primary driver of the US economy – is up 2.9%.

Yet core PCE inflation, as was revealed on Friday night, fell to 1.6% in March from 1.7% in February to its lowest level since September 2017.

So these are “Goldilocks” numbers. Americans are spending, and driving the economy (3.2% GDP growth in the March quarter when 2.5% was forecast), while inflation is not just subdued but easing, ensuring the Fed at least stays on the fence, if not cuts rates later in the year.

So the data are good, and earnings season rolls on. Last week took the S&P500 reporting tally to 46%. This week sees another big chunk. The bias continues to be to the positive side (77% earnings beats) albeit from previously knocked down forecasts, and still Wall Street creeps incrementally higher.

The S&P and Nasdaq hit new highs again last night. The S&P took out its previous all-time intraday high, meaning it is now truly in blue sky.

Things may come a cropper somewhat tonight, given Google’s (Alphabet) after the bell earnings report which featured a big miss on revenues. The stock is down -7% in the aftermarket. That’s a big move for a mega-cap and sure to impact on the S&P tonight, but will it trigger more widespread selling in tech?

The -7% fall takes Google shares only back to the beginning of April.

US-China trade talks are set to resume in Washington this week. Earnings season rolls on, but these talks could trump all else if there is some news beyond “progress is being made”.

In the meantime, President Trump’s North American trade deal, known in Washington as the USMCA and by everyone else as NAFTA 2.0, is being blocked by the Democrat majority in the House. This suggests there won’t be a final agreement before next year’s election in November.

Trump needs a China deal.

Commodities

The WTI price bounced back a bit after Friday night’s tumble but the Brent price didn’t, as uncertainty reigns as to whether the Saudis/Russia will decide to increase production at their June meeting in order to stop losing market share to US producers (not because Trump demands it), or let prices run on lost Iran/Venezuela barrels in order to balance their budgets.

Saudi Arabia supposedly needs an oil price of US$85/bbl (Brent) to achieve that.

Gold’s little moment in the sun has proved rather short-lived.

As has the greenback’s foray above 98. Another dip takes the dollar index back into the 97s and the Aussie back up to US$0.7052.

Today

The SPI Overnight closed down -1 point.

Australia sees private sector credit data today.

China will release its April PMIs.

The eurozone first estimate of March quarter GDP is out tonight.

Japan has now entered the ten-day Golden Week holiday.

On the local stock market, production reports are due today from Alacer Gold ((AQG)), Beach Energy ((BPT)), Cooper Energy ((COE)), Infigen Energy ((IFN)) and Independence Group ((IGO)).

Mirvac ((MGR)) and Stockland ((SGP)) provide quarterly updates while Asaleo Care ((AHY)) holds its AGM.