Overnight: Back To Waiting

By Greg Peel

Good Lunch

Wall Street’s pullback on Monday night had our futures signalling down -43 points for the ASX200 yesterday and so it came to pass, but it was not an opening plunge. The index chopped its way south all morning.

Around 1pm someone ordered a second bottle of red and hit the Buy button, and by 3pm it looked like a full recovery might be on the cards, only to see a fade in the last hour. The buying started somewhere in between the release of the current account numbers and the release of the RBA statement.

The current account deficit narrowed in the December quarter, largely due to stronger commodity prices. Export volumes disappointed, but between prices, and a big boost in government spending, it appears GDP contraction has been averted. Yesterday’s numbers were enough to offset weakness in all of construction, capex, company profits, inventories and wages.

Economists’ forecasts for today’s GDP result thus remain unchanged, although disparate. ANZ Bank is forecasting 0.2% growth for the quarter, for example, while JP Morgan says 0.4%.

I pondered yesterday whether the RBA statement might be an an interesting one, given Dr Lowe had changed his tune in a speech he gave just after the previous statement was released. It wasn’t. Just more of the same.

Dr Lowe speaks again today.

Meanwhile over in Beijing, Premier Li Keqiang lowered the government’s growth forecast to 6-0-6.5% for 2019, down from 2018’s “around 6.5%” forecast which was, believe it or not, spot on. The premier indicated an intention to stabilise growth at a lower level rather than increase stimulus. That said, Li outlined plans to support the economy, including an increase in deficit spending, new tax cuts, lowering fees for businesses, and a 30% boost in bank lending to small and private companies.

Of course, it will all come down to what happens with tariffs.

Among the local sectors yesterday, consumer staples stood out with a 0.9% rise against the tide thanks to another strong session for Metcash ((MTS)), up 4.9%. Analysts have given the grocer’s updated strategy announced on Monday the thumbs up.

Energy, telcos and utilities all managed to close slightly in the green while materials (-0.6%) and the banks (-0.3%) offered most of the drag. The top ASX200 losers on the day were a collection of lithium, graphite and nickel miners, also known as battery stocks.

The index closed just under 6200 yesterday and appears set to hold that level today, with commodity prices largely positive and the futures showing up a timid 9 points. The GDP result may nevertheless have a say in the matter.

The Aussie has stopped dead.

Doldrums Again?

On Monday night Wall Street rallied from the open and then fell into a hole. Last night US indices fell into a hole from the open and then rallied back all session to a flattish close. Dow Jones (the media service, not the index) summed up the situation this morning in suggesting “investors search for catalysts beyond US-China trade talks”.

Because there aren’t any in the near term that suggest Wall Street should be heading in one direction or the other. At least in terms of knowns. We have a couple of weeks to wait for a trade outcome and whatever happens on the Brexit front won’t happen until at least the end of the month.

US Secretary of State Mike Pompeo is currently out travelling the prairies, ensuring farmers the government is trying to secure a good deal out of China. But “it has to be right” and the president is still “willing to walk away” if it isn’t.

Is Pompeo preparing farmers for disappointment?

The debate continues to rage between those who believe a positive outcome on trade will spark a new leg of the rally which, incidentally, began ten years ago on Saturday, or whether a positive outcome is priced in and a sell-the-fact response will be forthcoming. The Dow is only some 3% below last year’s all-time high and the S&P continues to bang around resistance.

Monday night’s swoon looked like it might be the beginning of a more substantial consolidation on Wall Street – a pullback to a more neutral level from which to assess the trade outcome. But no, still the buyers are out there and the mood remains upbeat.

This suggests we’re just going to lope along again without conviction until something – anything – happens.

Commodities

Barring lead, all positive.

The Aussie is poised ahead of today’s GDP result at US$0.7086.

Today

The SPI Overnight closed up 9 points.

GDP today and the RBA governor speaks.

The US will see private sector jobs for February, delayed trade data for December and the Fed Beige Book.

Myer ((MYR)) releases its earnings result today.

Today’s long list of ex-dividend stocks includes Brambles ((BXB)), FlexiGroup ((FXL)), Perpetual ((PPT)), Qube ((QUB)) and Ramsay Health Care ((RHC)).

The Australian share market over the past thirty days…