Daily Market Reports | Jul 18 2017
By Greg Peel
Ups and Downs
China’s GDP grew by 6.9% year on year in the June quarter as it had done in the March quarter. Economists had forecast 6.8% and Beijing has set a 6.5% target for 2017.
Chinese industrial production grew a better than expected 7.6% year on year in June, up from 6.5% in May, to mark the fastest rate of growth since December 2014. Retail sales also beat in rising 11.0%, up from 10.7%, while fixed asset investment was flat in the year to June from the year to May at 8.6%, but still topped expectations.
The ASX200 had opened slightly higher yesterday morning before being immediately slapped down some -30 points on what brokers have suggested appeared to be a short position building exercise. The China data halted the selling and the index ran quickly all the way back from whence it came before once again being sold down in the afternoon to a soggy close.
School holidays are now over and we should see a return to more normal volumes as we head into the local reporting season.
Among the sectors, energy won the day with a 1.0% gain on the rising oil price but that might reverse today with oil falling -1.5% overnight. Materials gained 0.5% on stronger base metal prices, with new measures by Beijing to curb aluminium production providing incentive.
The banks slipped -0.4% ahead of tomorrow’s scheduled revelation by APRA of just what “unquestionably strong” means in quantifiable terms for bank capital positions. More speculation over Telstra ((TLS)) having to cut its dividend had telcos down -1.8%.
All in all not much going on outside of sector-specific moves in either direction.
The Chinese data was also well received on Wall Street but having hit new highs on Friday night and with some key earnings reports due from tonight, trading all but stalled last night as traders awaited the next catalyst.
One such catalyst could be last night’s aftermarket result from Netflix, which prompted an 8% jump on better than expected subscriber growth. Otherwise tonight sees more big bank reports and a swag of Dow names will provide numbers as the week progresses.
The energy sector provided little incentive for indices to push higher once more, with WTI falling -1.5%. The Energy Information Agency posted a report forecasting an increase in US shale production in August ahead of slower production growth in 2018 as the impact of lower prices is felt.
The news from Washington last night is that headway is being made on a tax reform bill despite a total lack of progress on healthcare, which Trump had wanted to get out of the way first. The Senate is waiting to vote on the latest draft for healthcare reform but as it is known two Republicans will definitely vote against the bill, voting will be stalled while Senator John McCain undergoes surgery. The Republicans cannot afford even one senator not to be in attendance.
Wall Street is otherwise looking ahead to Thursday’s round of central bank policy meetings. No one is expecting any change from the Bank of Japan but the later ECB meeting will be closely watched.
We recall that recently Mario Draghi put his foot in it by making rather hawkish comments at a European bank forum that later had to be quickly watered down by other ECB officials. It mattered not – European data support the view the eurozone economy is recovering nicely and performing better than the US economy, where the central bank has already hiked rates four times and is set to unwind its balance sheet. On that basis, a global bond sell-off transpired.
Will Draghi choose his words more carefully this time? Or is the genie already out of the bottle?
West Texas crude is down -US68c at US$46.00/bbl.
Gold continued to respond last night to the waning of expectations of another Fed rate hike in 2017. It’s up US$5.30 at US$1233.70/oz despite the US dollar index being flat at 95.15.
Aluminium came off -0.5% in London last night but copper and zinc both posted 1% gains.
Iron ore jumped US$1.30 to US$66.80/t.
Is US78c as far as the Aussie can reasonably stretch? Having jumped through that mark on Friday night on greenback weakness, the Aussie has now fallen back -0.3% to be right on US$0.7800.
The SPI Overnight closed down -4 points.
The minutes of the RBA meeting are due today and may be interesting in the context of unwanted Aussie strength.
Local result season strictly begins in August but there is always a handful of gun-jumpers in July, including Cimic ((CIM)), which reports today.
Rudi will connect with Sky Business through Skype at around 11.15am to discuss broker call.
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