The Overnight Report: Storm In A D-Cup

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World Overnight
SPI Overnight (Jun)	5793.00	0.00	0.00%
S&P ASX 200	5808.70	+ 20.00	0.35%
S&P500	2613.16	+ 8.69	0.33%
Nasdaq Comp	6950.34	+ 35.23	0.51%
DJIA	23979.10	+ 46.34	0.19%
S&P500 VIX	21.77	+ 0.28	1.30%
US 10-year yield	2.79	+ 0.01	0.40%
USD Index	89.84	– 0.29	– 0.32%
FTSE100	7194.75	+ 11.11	0.15%
DAX30	12261.75	+ 20.48	0.17%

By Greg Peel

Just Joshing

“President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”

So said Donald Trump over the weekend, via his preferred medium of communication.

Whether or not anything that comes out of the Donald’s mouth can be taken without a grain of salt is totally questionable, but it was enough to sooth a skittish Wall Street following Friday night’s big sell-off. Or at least to sooth the computers.

So it was that when the Australian market opened yesterday, in the wake of Friday night’s -700 point plunge in the Dow and -33 point lower close for the local futures on Saturday morning, the ASX200 did not sell off as would otherwise have been expected. The Dow futures began to rally in US overnight trade, ultimately rising around 200 points.

Energy was the only Australian sector not to finish in the green yesterday, due to a sharp drop in the oil price. Healthcare led the charge with a 1.2% gain, having suffered most of last week. US earnings dominate Australia’s big healthcare names, hence trade war talk is not comforting for the sector.

Consumer staples (+0.9%) also had a strong session but elsewhere moves were fairly uniform, around the 0.5% mark. The one exception was financials, which barley moved.

The other news to come out of the weekend was the imposition by the US of ever greater sanctions on Russia, or specifically the so-called oligarchs who comprise Putin’s inner circle. One in particular is the head of Rusal, the Russian aluminium giant responsible for some 7% of global aluminium supply.

The risk of that supply being curtailed lit a fuse under an aluminium price that had been otherwise in the doldrums these past weeks. Alumina Ltd ((AWC)) subsequently topped the ASX200 leaders’ board yesterday with a 6.3% gain. The LME aluminium price jumped almost 5% last night.

Another targeted oligarch is the head of Russian energy giant Gazprom. The WTI price is up over 2%.

In other news yesterday, a long awaited agreement has finally been reached between Macquarie Atlas Roads ((MQA)) and Macquarie Group ((MQG)) which will see management of the toll road fund internalised. The process will still take some time but the benefits to Macq Atlas shareholders are evident in yesterday’s 4.6% share price jump. Or should I say the benefits to Atlas Arteria ((ALX)) shareholders, given a name change will accompany the deal.

On the downside, shareholders of Mineral Resources ((MIN)) were not so happy with the news Atlas Iron ((AGO)) has agreed to a proposed scrip takeover. Mineral Resources, known for its iron ore, or mineral processing business, or lithium production depending on which way commodity prices are moving at the time, fell -7%.

How Tweet It Is

As noted, the above tweet from Donald Trump over the weekend was enough to turn a -700 point fall in the Dow to a 200 point rebound in the futures, and ultimately to over 400 points in the physical market last night by mid-session.

Friday night’s sell-off prompted the White House to send the usual suspects out once more to do the round of Sunday morning talk shows. Having put their respective feet in it on Friday, some redemption was required.

Having said on Friday night that there is “potential for a trade war”, Treasury Secretary Steven Mnuchin said on Sunday that he doesn’t “expect there will be a trade war”.

Well thank God for that.

Having said on Friday night the president was “not bluffing” with his tariff threats, chief economic advisor Larry Kudlow praised the president on Sunday for having some “backbone” in taking on China and its devious trade practices over past decades, when others before him have not. But with regard the tariff threats, Kudlow suggested “hopefully it will mostly negotiations,” and “I don’t know if we’ll have tariffs or not”.

Very comforting.

Still, the algos liked it, and there remains a cohort of investors prepared to buy US stocks at levels deemed more realistic. The Dow closed in correction territory on Friday night, and the S&P500 was once again testing its 200-day moving average, which to date has held.

But then the storm clouds gathered once more. Or should I say stormy clouds.

News came through in the afternoon that the FBI had raided the offices of Donald Trump’s long-time personal lawyer, Michael Cohen. It all has to do, allegedly, with Trump’s personal lawyer's payment to an adult film actress. Wall Street proceeded to give up all but a small amount of earlier gains.

Just what Wall Street needs – another distraction. Not to mention that over the next two days, Facebook founder and controlling shareholder Mark Zuckerberg will face two sessions of grilling from Congressional committees. It is hard not to see some form of social media regulation ultimately transpiring from the Cambridge Analytica fiasco.

But on Friday, the first of the key earnings reports are due. All eyes are on the big banks.

Whereas S&P500 earnings growth in past quarters has averaged around 10%, this quarter closer to 20% is expected given the tailwind of tax cuts. Each of those prior quarters saw Wall Street in rally mode, such that solid earnings results were more of a confirmation of market multiples rather than a basis for re-rating. This time, however, is different.

This time Wall Street is in correction territory, in which multiples are a little less daunting. Could earnings season be the catalyst to overcome ongoing trade war uncertainty? We shall see.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1335.70	+ 2.40	0.18%
Silver (oz)	16.47	+ 0.12	0.73%
Copper (lb)	3.08	+ 0.03	0.88%
Aluminium (lb)	0.96	+ 0.04	4.83%
Lead (lb)	1.08	– 0.00	– 0.31%
Nickel (lb)	6.06	+ 0.07	1.08%
Zinc (lb)	1.46	– 0.01	– 0.76%
West Texas Crude (May)	63.29	+ 1.37	2.21%
Brent Crude (Jun)	68.55	+ 1.48	2.21%
Iron Ore (t)	64.10	+1.10	1.75%

Aluminium and oil stand out as the only two commodity price moves to make a mark last night,a long with improvement in the iron ore price nwo the Chinese are back on board. Aluminium’s rally is explained above, while oil trades up and down with trade war fear escalation/easing, notwithstanding sanctions against the head of Gazprom.

The Aussie is relatively flat at US$0.7695.

Today

The SPI Overnight is dead flat – unchanged.

NAB’s monthly business confidence survey is out today.

In the US, the PPI is not much of a market mover but it will be scrutinised nonetheless.

Rudi will connect via Skype with Sky News Business today at around 11.15am to discuss market madness and some broker calls.

The Australian share market over the past thirty days…

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