LPL Financial Research has analysed what a shutdown would mean for stocks. “Although shutdowns get a lot of media hype, the reality is that stocks tend to take them in stride. In fact, the S&P 500 has gained during each of the five previous shutdowns,” explains LPL senior market strategist Ryan Detrick. The company says shutdowns rarely push stocks significantly lower and have corresponded with a flat median return in the previous 20 shutdowns going back more than 40 years.
In Europe, Oliver Allen and Melanie Debono from Capital Economics say the ECB is almost certain to confirm that it will end its net asset purchases this month, but will keep its options open about the future path of policy. “The weakness of recent data may well lead it to concede that the risks to growth have shifted to the downside. We think it will therefore reiterate that interest rates will be on hold ‘through the summer’ and remain non-committal about the timing and pace of any policy tightening after that.”
Today’s Agenda
Local data: Consumer inflation expectations December
Overseas data: Euro zone CPI November final; ECB monetary policy meeting; US import price index November; Japan Nikkei manufacturing PMI November; China industrial production November
Market Highlights
SPI futures down 2 points to 5653 at 8.00am AEDT
AUD +0.3% to 72.24 US cents at 5.50am AEDT
On Wall St at 4.00pm in New York: Dow +0.6% S&P 500 +0.9% Nasdaq +1%
In Europe: Stoxx 50 +1.7% FTSE +1.1% CAC +2.2% DAX +1.4%
Gold at 1.50pm in New York +0.1% to $US1244.49 an ounce
Brent crude at 1.50pm in New York +1.5% to $US61.08 a barrel
Iron ore +1.2% to $US66.73 a tonne
LME aluminium flat to $US1939 a tonne
LME copper -0.5% at $US6140 a tonne
10-year yield: US 2.90% Australia 2.44% Germany 0.28%
From Today’s Financial Review
Chanticleer: APRA shows its teeth on superannuation: For the second time in a week the Australian Prudential Regulation Authority has given observers reason to think it can be a tough regulator with the release of a package of new and enhanced requirements for superannuation funds.
Amazon prepares to launch discount subscription service: Amazon is poised to take a bigger bite of Australia’s $3 billion online food and grocery market next year by launching a discounted subscription service.
Morrison backs big Australia: Scott Morrison has indicated he will resist any significant cut to Australia’s intake of permanent migrants, saying he envisages the level staying close to 160,000.
United States
US stocks joined a global rally in morning trading as the outlook for trade took a positive turn and confidence grew that Theresa May would survive her leadership vote. Tech stocks lifted the Nasdaq 100 more than 2 per cent following gains in Europe and Asia.
Among technology companies, Microsoft rallied 2.3 per cent to $US111.13 and Apple added 1.4 per cent to $US170.99. Amazon gained 3.1 per cent to $US1,694 and Netflix jumped 5.3 per cent to $US279.45 as internet and media companies joined in the gains.
“There maybe some near-term optimism because of the trade headlines but we’ll see where it goes,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida. “We have seen a lot of intraday movement lately and we might see the same today and that’s a sign the market is looking at what the appropriate level should be.”
Among industrials, Caterpillar climbed 3.6 per cent to $US127.62 and Boeing rose 2.5 per cent to $US329.99. Equipment rental company United Rentals surged 7.8 per cent to $US109.76 after it gave strong forecasts for 2019 and said it will start buying back more stock this month.
Tencent Music Entertainment, the largest music streaming service in China, climbed in its first day of trading. The company’s IPO of 82 million shares priced at $US13 a share. Slightly more than half are being sold by the company and the rest are being sold by shareholders. At midday the stock rose 7.8 per cent to $US14.01.
Europe
European shares also rallied on Trump’s upbeat comments about a trade deal with China and optimism grew that Italy could reach a compromise with the European Commission over its disputed 2019 budget.
A report rekindling talk about a possible merger involving Deutsche Bank helped the euro zone stock benchmark to rise by 1.8 percent, its biggest one-day gain since April. The index is down 11.5 per cent year-to-date, having touched its lowest level in 2 years earlier this month, dragged lower by signs that global economic growth is slowing and worries over political stability in Europe.
Deutsche Bank shares jumped after a report that the German government might help make it easier to merge with competitor Commerzbank. Euro zone banks gained 2.9 per cent with Deutsche Bank rising 5.8 per cent and Commerzbank up 5.6 per cent.
Italian banks added 3 per cent, led by Intesa Sanpaolo, the country’s top retail lender, as Prime Minister Giuseppe Conte flew to Brussels for talks on the draft budget. Cabinet undersecretary Giancarlo Giorgetti said Italy hoped it could reach a deal by agreeing to a deficit of between 2.0-2.2 per cent of gross domestic product from 2.4 per cent.
Pernod Ricard rose 5.9 percent to a fresh record high after news that activist investor Elliott Management had built up a stake in the family-backed French drinks company in a bid to boost profit margins and improve returns for investors. “There is potential for Pernod Ricard to be more efficient. However current management have been squeezing the cost base for several years and in our view need no encouragement to continue,” Bernstein analyst Trevor Stirling said.
Among the few losers were shares of Zara owner Inditex, which fell 4.5 per cent after sales and profit growth missed market expectations. Shares in the world’s biggest jewellery maker, Copenhagen-based Pandora, plunged 12 per cent after brokerage Carnegie warned clients to brace for bad news in the fourth quarter, and for a “tough” 2019. It has lost nearly $US7 billion in market value this year.
The race to the bottom of the FTSE 350 Index intensified with hoodie-maker Superdry plummeted by about a third after reporting a slump in first-half profit. Struggling tour operator Thomas Cook’s shares jumped as much as 19 per cent after a huge recent slump, though are still down 77 per cent in 2018.
Asia
Hong Kong stocks rose on Wednesday as market participants forecast a slower pace of interest rate hikes in the US and possible policy stimulus in China. At the close of trade, the Hang Seng index was up 1.6 per cent at 26,186.71, while the Hang Seng China Enterprises index rose 1.7 per cent. Gains were recorded across the board.
The sub-index of the Hang Seng tracking energy shares was up 0.7 per cent, the IT sector climbed 1.5 per cent, while the financial sector ended 1.7 per cent higher. But it was the property sector, up 2.8 per cent, that stole the show. Real estate companies are well poised to harvest the gains from looser policies in China and the US, said analysts.
Hong Kong banks raised their benchmark rates for the first time in 12 years in September, by only by 12.5 basis points, when the Fed hiked 25 basis points. The RMB’s recent rebound also helped cement rises among Chinese real estate companies’ shares, Leung added.
MSCI’s Asia ex-Japan stock index was firmer by 1.3 per cent, while Japan’s Nikkei index closed up 2.2 per cent.
Sovereign bonds and stocks rallied in India on optimism of a more dovish monetary policy after the government named former bureaucrat Shaktikanta Das as the central bank chief. The rupee weakened amid investor concerns about central bank independence. The yield on the benchmark 10-year bonds dropped 12 basis points to 7.41 per cent, sending bonds to their highest levels since April on a closing basis.
Currencies
The British pound jumped, rebounding from a 20-month low, as traders bet UK Prime Minister Theresa May would survive a no-confidence vote on her leadership, allowing her to salvage her deal for Britain to exit the EU. The pound jumped 1.4 per cent to $US1.2659. However traders expressed concern about other factors such as the margin of May’s win. “Sterling upside could be limited if May wins the leadership challenge unless or until there are clearer signs that parliament is willing to pass the withdrawal deal,” Erik Nelson, currency strategist at Wells Fargo Securities, said in a research note.
A Bloomberg report on a revised Italian budget proposal to the EU that is lighter on debt lifted the euro from a near one-and-a-half-week low. The euro increased 0.4 per cent to $1.1363. The Japanese yen gained 0.1 per cent to 113.24 per dollar.
Italy’s populist government may propose a 2 per cent fiscal target for next year to the EU, a sign that weeks of clashes between Rome and Brussels over the country’s spending plans could be nearing an end. Italian bonds extended earlier gains after Bloomberg reported that the government may propose a 2 per cent fiscal target, with the yield on 10-year bonds dropping below 3 per cent for the first time since September.
Commodities
Oil pared gains after US crude inventories fell less than expected, but remained supported by a cut in Libyan exports and an OPEC-led deal to trim output. US crude stockpiles fell by 1.2 million barrels in the week to December 7, the US Energy Information Administration said, smaller than the draw reported by industry group the American Petroleum Institute on Tuesday and less than half the draw of 3 million barrels analysts had forecast.
Three-month copper on the London Metal Exchange (LME) ended down 0.5 per cent at $US6,140 a tonne, heading for falls of around 15 per cent this year despite decade-low stocks at LME warehouses. Copper is showing a marginal net speculative short or sell position of 1.2 per cent of open interest, according to estimates from broker Marex Spectron.
“US production is expected to climb 67 per cent this year, as new aluminium expansion projects come online … adding to a globally oversupplied market,” said SP Angel in a note, quoting the Economic Policy Institute think tank.
Aluminium ended flat at $US1,939 a tonne, steelmaking raw material zinc closed down 0.8 per cent at $US2,570, lead ended up 0.1 per cent at $US1,976, tin closed up 1.1 per cent at $US19,325. Nickel ended 0.2 per cent higher at $US10,795 a tonne.
Gold prices edged higher as the dollar slipped and expectations of US interest rate hikes next year dimmed, brightening the appeal of non-interest yielding bullion. Spot gold was up 0.2 per cent at $US1,245.31 per ounce as of 11.03 am in New York. US gold futures were 0.3 per cent higher at $US1,250.70 per ounce. Gold is likely to further consolidate below the 200-day moving average, around $US1,255 at present, Commerzbank analysts said in a weekly note.
Spot palladium was trading at a premium to gold, with prices rising about 1.3 per cent to $US1,260 an ounce. Palladium has climbed about 18 per cent so far this year.
Australian Sharemarket
Australian shares closed firmly higher on Wednesday as investor sentiment lifted on the back of positive signs from US-China trade negotiations.
The S&P/ASX 200 Index rose 77.6 points, or 1.4 per cent, to 5653.5 while the broader All Ordinaries closed 76.1 points, or 1.4 per cent, higher at 5727.3.
The major banks lifted through the session to close modestly higher. Commonwealth Bank rose 2.4 per cent to $US70.08, ANZ advanced 1.7 per cent to $US25.20, NAB closed 1.7 per cent higher at $US23.89 and Westpac lifted 1.6 per cent to $US25.47 following its AGM on Wednesday.
The large material stocks also closed higher, led by BHP, which advanced 1.5 per cent to $US32.19. Rio Tinto closed 1.7 per cent higher at $US74.10, Fortescue Metal Group rose 0.5 per cent to $US4.15 and South32 climbed 2.9 per cent to $US3.18.
Street Talk
Luminis tapped for NetComm Wireless review; PE courted
Commonwealth Bank in the frame for GrainCorp
RBC Capital Markets tapped for $1.7b land registry refinance
with Reuters, Bloomberg, AAP
Comments? Questions? Let us know what you think of Before the Bell: natasha.rudra@fairfaxmedia.com.au
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