Overnight: Still Climbing

It took an afternoon comeback, but the S&P has managed to sneak to an eight-day rally. Boeing kept the Dow down -83.

By Greg Peel

And Back In

The clue came late in Friday’s trade when having fallen sharply on Thursday and again on Friday through to mid-afternoon, the ASX200 found some late buying. While up to that point it had been a case of stand aside while the computers jump over each other, once traders had decided enough was enough the scene was set for yesterday’s rally.

The suggestion is investors had decided to take profits and move to the sidelines ahead of Friday’s jobs number in the US, and when that came in as a “beat”, the coast was clear to resume buying. I don’t believe the US jobs number is nearly as influential as it was a few years ago. It certainly isn’t on Wall Street.

I’d suggest that when the index broke 6200 last week it went for a technical run that became overdone, and when momentum ran out, a hole opened up to the downside. Take out the extremes of the ups and downs and the ASX200 is about -20 points lower than it was last Tuesday. If anyone suggests HFT reduces market volatility, they’re crazy.

Yesterday saw sectors that were sold down on Friday bounce straight back. Healthcare (+1.5%), consumer discretionary (+1.3%), industrials (+0.7%) and utilities (+0.7%) are clear cases in point. I’d like to know what the difference was from one day to the next. The resource sectors are currently less connected to overall market movement, with materials (+1.6%) being driven by the iron ore price and energy (+1.5%) by the oil price.

After a period of excessive volatility, telcos, or at least one telco in particular, appear now to have settled down to be the dull old defensives they should be. Telcos were not sold down with the market on Thursday and Friday so did not join in yesterday (-0.2%).

The only odd sector out yesterday was the banks (-0.3%), but upside for that sector fades as soon as yields start looking less attractive once more.

At the individual stock level, winner on the day was goldminer Resolute Mining ((RSG)) which jumped 7.7% after releasing its production report. On the downside was Domain Group ((DHG)) following a downgrade to Underperform by Macquarie.

Real estate listings were on the decline in the first quarter, and given April this year brings a late Easter along with school holidays and Anzac Day, the broker does not see any immediate improvement ahead.

Yesterday’s economic data suggested an interesting shift in the structure of job seeking.

ANZ’s job ads series fell -1.7% in March to be down -6.0%. Yet as ANZ’s economists point out, in complete contrast job vacancies number are running at record highs. This suggests to the economists businesses are now moving to advertise positions on their own websites, which the series does not collate, rather than through the traditional broad advertising channels, which the series does.

Hence ANZ does not see any reason to be concerned about the labour market.

Eight Days a Week

It was a close-run thing, but the S&P500 managed just to sneak into the green on the death last night, having recovered from an opening -12 point loss at a time the Dow was down -180. The broad index has now rallied for eight consecutive sessions.

That said, the average daily gain over that period has been 0.4% — steady, but not exuberant.

The Dow would also have closed in the green last night if not for Boeing. The -83 point fall in the Dow was net of -119 points contribution from Boeing’s -4.4% fall. Analysts are now suggesting 737 Max planes will be grounded for longer than first assumed, and Boeing is already cutting back its production run.

There has been no word on trade, earnings season is about to kick off, and Brexit remains very much up in the air. Yet still Wall Street keeps crawling towards previous highs as if there’s nothing to be afraid of. Net S&P500 earnings are currently forecast to fall -4% year on year, which would represent the first quarterly decline since 2016.

But as they say in this game, the S&P is “cycling difficult comps”. 2018 was always going to be the standout year as Trump’s tax cuts kicked in, inflating quarterly earnings increases to over 20%. 2019 was always going to be the year that would surprise if year on year earnings did not show a decline, given the tax cuts were a one-off event. It just comes down to degree.

That degree will be beholden, in many sectors, to the impact of tariffs.

Trump giveth and Trump taketh away.

The rhetoric with regard trade deal timing would suggest we’ll be through the bulk of the US earnings season before any resolution is reached. If the EU grants the UK another extension – possibly months – then that sideshow will just go on and on but cease to be front page news elsewhere.

Here’s an idea: get the Normans to invade.

Commodities

Base metals again slumbered as iron ore stole the show.

A -0.4% drop in the US dollar index, likely reflecting a weak US factory orders number for February, provided some newfound interest in gold.

OPEC production cuts, US sanctions on Iran and Venezuela, the potential for civil war in Libya, and now Trump branding the Iranian Revolutionary Guard a terrorist group – all add up to ongoing oil price strength.

As a footnote to US earnings expectations, note WTI was down -13% year on year in the March quarter.

The Aussie is up 0.2% at US$0.7122 on greenback weakness.

Today

The SPI Overnight closed up 10 points.

Local housing finance numbers are due today in a quiet 24 hours for world data.

Nothing to highlight on today’s local stock calendar.

The Australian share market over the past thirty days…