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The world is net long commodities and stocks with consistent calls for a top. The S&P 500 has already exceeded the most bullish of analysts’ calls for 2017.
Doubters will say that if you dig a little deeper, some 40% (1700) of US companies are still making losses. However, Trump’s ‘phenomenal’ tax cuts are expected to add $12 billion to the US banks alone, and will surely keep bank’s fees in the cost of borrowing low.
The most anticipated results for this part of the year were BHP, coming in ahead of analysts’ expectations with a seven-fold increase in 1H profit in the turnaround commodities space. Net debt fell 10% below expectations of $20 billion, and most analysts are now coming through with an outperform rating.
Interestingly, BHP traded in a mixed range overnight as the market digested the results and closed 0.4% higher in London overnight.
This morning the BHP ADR suggests a lower open at $26.43 down from last trade at $26.73.
With the US President’s Day holiday out of the way, the market seemed to step back into the already underway trajectories, with US ten-year bond yields rising 0.52% putting the yield at 2.42%. The Dow is heading to 21,000, the S&P 500 is looking for 2500 points, and the Nasdaq is unstoppable at 5347 points. The US dollar index is also moving higher back to 101.46, pushing all G10 currencies lower, with the EUR/USD moving back under 1.06 and clearly on its way back to the parity party. A break below the key level of 1.0300 would have the bears in full control. This level has not been seen since 2003.
It’s a double-edged issue for the Euro as it’s also losing ground from the French election polls continuing to suggest Marine Le Penn will take 26% of the first-round votes. Francois Fillon has to make it to the second round and, if so, take 57% of votes.
The spread between French and German bonds remains at 0.8%.
The ASX 200 looks set for a solid open with the futures up 25 points in late session trading.
Strength is expected to come from the retail stock following a strong move higher in the US.
The retail sector in Australia is enjoying some strength in the home furnishing area with Nick Scali trading at an all-time high of $7.00. Woolworths is probably going to be the turnaround story in Australian retailing for 2017, now 25% off its lows of July last year.
The resource ADRs suggest the materials sector will open lower today, which may be based around a solid AUD/USD still trading at the high side to 0.7680.
With the CBA ADR suggesting a higher open for the financials, a retest of the 5833 resistance level looks imminent in this bullish market.
CBA goes ex-dividend today, which will account for about 14 points. It will be an interesting open as always