Overnight: No Joy Yet From Earnings

By Greg Peel

Slow Pivot

Early this year the Fed famously “pivoted” its monetary policy, moving from a December meeting which saw the third rate hike of the year and the promise of more to come, and a balance sheet run-off “on autopilot”, to a January meeting which brought the suggestion the cash rate was now “neutral”, there will be no further hikes in the foreseeable future, and the run-off would shortly be halted.

It was a sharp and sudden turnaround resulting, most believe, from the Fed being spooked by the stock market tumble in December.

The RBA, too, was maintaining a hawkish stance in the second half of 2018, not moving the cash rate but persistently suggesting the next move would “likely be up”. By early 2019 the board began to waver, and moved to a more neutral stance. The minutes of the March meeting noted “the probabilities around these scenarios [hike/cut] were more evenly balanced than they had been over the preceding year”.

In the minutes of the April meeting, released yesterday, that statement was replaced by “members agreed that the likelihood of a scenario where the cash rate would need to be increased in the near term was low”.

It’s hardly what one might deem a “pivot”, and indeed the RBA qualified by noting “members recognised that it was not possible to fine-tune outcomes and that holding monetary policy steady would enable the Bank to be a source of stability and confidence,” which implies a cut is not yet on the horizon. But clearly the RBA is quietly tilting towards a more dovish stance.

Which was good news for the stock market. On the release of the minutes the ASX200 shot up to its highs of the day at lunchtime before settling back only slightly in the afternoon.

Bad news is good news.

The banks most reflected this sentiment in rising another 0.8% in a period which has already seen buying return to the sector. A cash rate cut would provide the opportunity for the banks not to pass all of it on into mortgages. Never mind why the rate might need to be cut in the first place.

The consumer sectors liked it, given implicit extra money in pockets. Staples posted yet another 1.0% gain and discretionary was not far behind on 0.9%.

It should also be also be good news for bond proxy stocks, but telcos (-0.8%) looked like the funding vehicle for bank buying while utilities (+0.3%) failed to get excited.

Unrelated moves included energy, down -0.8% on oil price weakness, and healthcare, which rose 1.3% after a run of losses as the profit-taking dried up in CSL and a new product launch from Cochlear ((COH)) had that stock up 7.9%.

The Aussie also dropped on the RBA minutes, from 71.7 to 71.4, where it remained until offshore trade kicked in and drove it straight back up again.

Yesterday’s move edged the index ever closer to another attempt at the 6300 mark but alas, despite another flat session on Wall Street our futures are showing down -17 this morning.

Plateau

Netflix reported after the bell on Wall Street this morning and, having run up 3% in the session beforehand, dropped -6% on disappointing guidance. But that were the computers. When the humans had a chance to properly read all the numbers, Netflix rallied back to be down only -1%.

IBM (Dow) also reported after the bell and is currently down -2.5%.

Yet the morning’s releases were more positive in general.

Bank of America’s result was seen as so-so, leading to a flat share price. Citigroup saw the same response on Friday night but on closer inspection rose 3% last night. Johnson & Johnson’s (Dow) result last night was good for 1%, and other stocks saw reasonable responses.

This led Wall Street to a stronger opening and during the session all talk was of an out of court settlement over a royalty dispute that has been running for years between Qualcomm, the plaintiff, and Apple, the defence. Suffice to say Qualcomm shares rose 23% and Apple closed flat so you can pick the winner there.

It looked like Wall Street was heading for a solid close when right at the death a big sell order apparently hit the market, taking the S&P back to flat. Not everyone is convinced there’s more left in this market, trade resolution or otherwise.

Healthcare was one sector being particularly trashed last night, despite having underperformed the market all year. The issue is one of the Democrats pushing for a universal Medicare system, a la Australia, at the expense of health insurers and paid for with higher taxes.

Of course the Democrats still have to win the election but investors are nervous nevertheless.

In economic news, US industrial production disappointed in falling -0.1% in March, yet the housing market sentiment index has risen to a six-month high. US data continue to be no better than “mixed”.

Despite the Nasdaq regaining the 8000 mark last night for the first time in six months, Wall Street continues to largely plateau ahead of any new exogenous trigger, such as trade. Earnings season is so far beating expectation but it’s very, very early days.

Commodities

The zinc price fell last night after a reported build in LME inventories. Otherwise the base metal space was again quiet.

Iron ore fell but seems happy in the 90s for the time being.

Another sudden drop for gold was likely triggered by the US dollar index once again crossing the 97 mark.

The Aussie is steady, after a wild 24 hours, at US$0.7175.

Today

The SPI Overnight closed down -17 points or -0.3%.

It’s China Day today. Beijing will release its March quarter GDP decision along with monthly industrial production, retail sales and fixed asset investment numbers.

The US will see trade data and the Fed Beige Book.

Locally, BHP Group ((BHP)), Santos ((STO)) and Orocobre ((ORE)) release production reports, Challenger ((CGF)) provides a quarterly update and G8 Education ((GEM)) holds its AGM.

The Australian share market over the past thirty days…