Equities Boosted By The Little Blue Box | Daily Market Commentary with Jeffrey Halley
The S&P 500, Nasdaq and Dow Jones all closed at record highs overnight, boosted by China’s weekend intellectual property olive branch and a frenzy of M&A activity on Wall Street. Charles Schwab is assimilating TD Ameritrade for $26 billion, Novartis is buying the appropriately named The Medicines for $9.7 billion, and French luxury conglomerate, LMVH, is swooping on Tiffany’s, with a flawlessly cut all-cash offer of $16.2 billion.
I am reliably informed that every woman loves receiving a famous little blue box from Tiffany’s, or more importantly, the sparkling goodies it contains. Please don’t #meto me; I am just the messenger. Tiffany’s shareholders will be glittering as well, banking a 50% gain in weeks and being paid entirely in cash by LMVH. M&A flows such as LMVH’s is one reason why the Dollar outperformed overnight.
Sadly, Mrs Halley’s jewellery baseline starts above Tiffany’s market segment; she prefers to roam amongst some of LMVH’s brands, further up the exclusivity chain. With her own money, I might add. The increasingly squeezed wardrobe and cupboard space I have at home though does suggest that LMVH’s future is bright. Thus, wedding rings aside, I devote my energies into more imaginative gifts such as steam pressure irons. Who said the age of romance is over?
The all that glitters is gold equity theme, that actually started in Asia yesterday, looks set to continue across the region today, as the data vacuum continues. Markets continue to price in trade-deal progress. We are, off course, only one negative headline or Tweet away from the sentiment turning on its tale, but for now, all is good with the world.
New Zealand’s Retail Sales outperformed this morning, rising 1.60% QoQ for Q3, versus 1.20% expected. With financial markets eyes firmly on Wall Street and the trade negotiations, the data’s effect on the NZD was negligible. Singapore Industrial Production at 1300 SGT is the only other highlight in Asia today, expected to fall by 1.70% YoY. European and US data is strictly 2nd tier for the remainder of the day ahead of the week’s highlights tomorrow, China Industrial Profits and US personal consumption.
Wall Street’s major indices all closed at record highs on trade hopes and heavyweight M&A activity. The S&P 50 rose 0.75% to 3133.6, the Nasdaq rose 1.32% to 8590.80 and the Dow Jones rose 0.68% to 28,065.50. Trade sentiment continues to be the main driver of day to day optimism.
That optimism has, unsurprisingly, flowed into Asia this morning with most of the region’s stock markets tracking higher. Down under, the ASX 200 has risen 0.85% and the NZX 50 by 0.67%. In Asia the Nikkei 225 is up 0.87%, the South Korean Kospi by 0.43% and Taiwan higher by 0.20%. The Hang Seng, Straits Times, Shanghai Composite and CSI 300 are all roughly flat in early trade, perhaps reflecting their outperformance yesterday on the initial trade hopes. Barring any headline surprises, we would expect the laggards to move cautiously higher as the day progresses.
Alibaba’s secondary listing on Hong Hong’s stock exchange has impressed this morning as the shares started trading. Having raised $11 billion in it’s pre-offer, the shares have jumped 6.0% in early trading, roughly equivalent to the discounted price offered to investors in the IPO.
The Dollar was mostly stronger overnight, boosted by trade sentiment, robust demand for the 2-year treasury note auction and potential M&A related inflows. Trade, in particular, saw the USD/JPY rise 0.26% to 108.98, breaching 109.00 this morning. Technical resistance remains at 109.50 as havens such as Yen lose appeal in the positive trade environment.
The Australian Dollar fell by 0.10% to 0.6780 overnight, marking its third daily close under 0.6800, and continuing its now month-long down-trend. Worries about the Australian domestic economy and the expectations of more RBA easing are outweighing any peace dividend gained by progress on Sino-US trade negotiations.
The GBP/USD rose to 1.2900 overnight, as polls showed the Conservatives increasing their lead over Labour, at the half-way mark of the election campaign. Sterling tough, remains locked in a clearly delineated 1.2800/1.3000 range as options volatility across the election date continues to fall. A break-out from this range will require more developments, for good or bad, on the election front as financial markets remain cautious about increasing their GBP positioning.
Spot oil prices were almost unchanged overnight after last weeks impressive rally. Brent crude was unchanged at $63.60 a barrel, and WTI was unchanged at $57.90 a barrel. Traders probably welcomed a relatively quiet night after the aggressive intra-day volatility seen last week.
AT these levels, oil has much good news already baked into prices, which likely explains the lack of upward progress yesterday. The Thanksgiving holiday in the US will also play its part with a shortened trading week. With both futures curves in backwardation, buyers will undoubtedly emerge on any significant dips on the spot market. Asia will content itself to watch from the sidelines today.
Gold fell o.51% to $1455.00 an ounce overnight as investors continued rotating out of haven positioning. A stronger dollar, equity markets and a positive trade negotiation sentiment combined to erode gold support across the overnight session.
In the present environment, it is hard to make a bullish case for gold. That is only likely to occur now with a severe speedbump in the Sino-US trade negotiations.
Gold’s daily technical resistance remains impressive at $1480.00 an ounce. Nearby technical support rests at $1445.00 an ounce with no chart support of note after that, until the $1400.00 regions.