Overnight: Adrift

By Greg Peel

Ho Ho Hum

The momentum algos were keen to push on with it yesterday morning, taking the ASX200 up around 20 points in the opening minutes, but that was the end of that. After skyrocketing a hundred points on Monday, fatigue set in.

But it was not a case of any rush to take profits, more a case of not seeing cause to keep pushing higher. The summer break is looming large, and as far as books close for the quarter is concerned, there’s only a waste-of-time Friday after Boxing Day plus a couple of sessions to New Year’s Eve. If there is to be a battle between profit-taking and window dressing, it will occur in a vacuum.

Which might suggest some pressure as this final full week winds down, and we do have to get through the derivatives expiry tomorrow. The futures are down -16 points this morning.

There was very little movement among sectors yesterday, and moves were mixed. Utilities fell back -0.9% after surging over 3% on Monday, to post the biggest loss, while telcos managed the biggest gain with a mere 0.2%.

In individual stock news, APRA has rubbed salt into Westpac’s ((WBC)) wounds by hitting the bank with an additional $500m capital requirement, on top of all the other capital requirements the banks are facing, for being a danger to itself and others. Just as well Westpac got its raising away. The stock fell -0.9%.

APRA has hit National Bank ((NAB)) with a “massive” lawsuit regarding fees for no service, but we knew this was coming and the bank has plenty stashed away in anticipation. NAB shares fell only -0.2%.

Lynas Corp ((LYC)) fell -6.2% when the Malaysian government refused to approve an increase in rare earths processing at the LAMP. That’s okay – the focus will soon be on processing for US military, it is assumed. Boo ya.

Virgin Money UK ((VUK)) saw some profit-taking (-6.3%) while blind-sided analysts expressed their disappointment in Smartgroup Corp ((SIQ)) after Monday’s downgrade and that stock fell another -7.1%.

There was nothing particularly exciting to the upside.

Economists are already convinced the RBA will cut in February, and yesterday’s minutes did nothing to change that view. Board members “agreed that it would be important to reassess the economic outlook” at the February meeting. Data on GDP, retail sales and jobs have only been weak in the interim, and a turnaround between now and early February is not anticipated.

One area that is improving nonetheless is housing, although that can be a source of concern for the central bank in its own right. New owner-occupier loans grew 2.2% in November to be up 5.7% year on year – the strongest growth in two years. Investor loans grew 1.4% but are still down -9.7% year on year.

Data releases are about all we have now from here to the new year, barring anything unforeseen, with the big ticket macro items now put away. The corporate calendar is now all but blank.

But you never know.

And speaking of data…

There’s something going on regarding the US president at the moment – something to do with fruit – but Wall Street’s not remotely interested.

Wall Street is more interested in US economic data releases, which have now taken centre stage since trade deal news has gone into a hiatus. Good news can only be good, because we know it would take something extraordinary for the Fed to even contemplate a rate rise at this point.

New home starts rose 3.2% in the US in November, blowing away forecasts, and are up 13.6% year on year. Building approvals rose 1.4% to an 11.1% annual rate – the highest in twelve and a half years.

(Keep an eye on Australian building materials companies with US exposure today.)

Industrial production rose 1.1% — the largest monthly increase in two years, although economists did expect a little more given the end of the long-running strike at General Motors.

In other news, the US House last night approved a spending package for a lazy US$1.4trn, thus averting a possible government shutdown. Who’s up for a bit of MMT?

Government shutdowns have a noticeable impact on US GDP, as one might expect, but apparently not as great an impact as Boeing’s decision to suspend production of its 737 Max given the delay in the recertification process. While at this stage Boeing does not intend to lay off workers, and will continue to order parts from its suppliers, lest they be significantly impacted, forecasts on the impact of the suspension on US first quarter GDP range from -0.5 to -0.8 percentage points.

Note that forecasts have GDP growth at 2% or under for the quarter, so it’s no small bickies.

Boeing shares had already responded to the suspension news on Monday night so the stock held its ground last night, thus not impeding a small gain for the Dow.

Otherwise, like Australia, Wall Street is now drifting to Christmas.

Commodities

Still not much going on in commodity land.

Oil prices remain buoyant in the wake of the trade deal, and last night on expectation of positive weekly US inventory data (drawdown), although rarely are forecasts even close.

The big mover on the table is the Aussie – down -0.6% on the back of yesterday’s minutes to US$0.6848.

Today

The SPI Overnight closed down -16 points or -0.2%.

National Bank ((NAB)) holds its AGM today.

The Australian share market over the past thirty days…