The Overnight Report: Missiles Left And Right

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World Overnight
SPI Overnight (Jun)	5798.00	– 10.00	– 0.17%
S&P ASX 200	5828.70	– 28.30	– 0.48%
S&P500	2642.19	– 14.68	– 0.55%
Nasdaq Comp	7069.03	– 25.27	– 0.36%
DJIA	24189.45	– 218.55	– 0.90%
S&P500 VIX	20.24	– 0.23	– 1.12%
US 10-year yield	2.79	– 0.01	– 0.25%
USD Index	89.53	– 0.10	– 0.11%
FTSE100	7257.14	– 9.61	– 0.13%
DAX30	12293.97	– 103.35	– 0.83%

By Greg Peel

Technical Failure

Tuesday’s rally on the local market was very much a risk-on affair in the wake of President Xi’s soothing words and subsequent easing of trade tensions, at least rhetorically. All sectors finished in the green bar healthcare.

That rally took the ASX200 back up to its 200-day moving average. We note that the index bottomed out at its 200MA in February following the initial Wall Street correction, but that level was breached last month at the height of trade war fears, resulting in an accelerated dip. That prior support now becomes resistance, and when the index failed to push through yesterday, Tuesday buying turned into Wednesday selling.

We didn’t quite give it all back, but that was largely due to further strength in the resources sectors thanks to stronger commodity prices. Energy (+1.0%) and materials (+0.7%) were the only sectors to finish in the green. Resources rallied on Tuesday on easing trade war tensions, and rallied again yesterday on stronger commodity prices, which rallied on easing trade war tensions.

Most other sectors gave back what they had recovered on Tuesday, most notably the banks (-1.0%). The moment in the sun didn’t last long. The National Bank ((NAB)) fraud allegations won’t have helped, but they were known on Tuesday.

The coin came up heads for Telstra ((TLS)) on Tuesday and tails yesterday.

The only sector not to go anywhere was healthcare, after having been the laggard on Tuesday.

Westpac’s consumer confidence index has dipped to 102 from 103 in March, managing to hold on the optimistic side of neutral. The index has exceeded 100 for five consecutive months but is now well down from last year’s 115 high.

Speaking in Perth yesterday, RBA governor Philip Lowe warned “A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy”. Thanks Scoop.

He also reiterated the longstanding warning that high levels of household debt are the Australian economy’s greatest source of vulnerability, but that risks had eased somewhat as banks tightened their lending standards.

And subsequently reduced their earnings growth trajectories.

The Dow futures were off during the local session last night, but not meaningfully. It wasn’t until later they began to slide into the New York open.

Something Else To Worry About

The US intends to respond to the Assad regime’s chemical weapons attack with selected missile strikes, according to the highly respected news service, a Donald Trump tweet. Russia has previously threatened to shoot down any US missiles which target its ally, but Trump has said bring it on, our missiles are “smarter”.

Meanwhile, just down the road, Saudi Arabia last night shot down three missiles fired out of Yemen, one heading for Riyadh and the other two targeting Aramco oil facilities in cities near the Yemeni border. The Yemeni attack is not believed to be connected to Trump’s threats, despite Iran being a backer of both Assad and the Yemeni rebels.

Just when Wall Street thought it had enough to worry about, the Middle East rears its ugly head once more. Not that it hasn’t been rearing for eternity, it’s just that global geopolitical risk is once again rising. On the one hand, US-Russian tensions will take another step up, and on the other hand global oil production is in the spotlight. In both cases, Iran is in the middle.

Trump is yet to make good on his longstanding threat to unwind the deal struck between Obama and Tehran, resulting in the lifting of sanctions. Trump’s new security advisor, John Bolton, is known to be seriously anti-Iran.

It is thus no surprise oil prices rose another 2% last night. On Tuesday night a similar rally it was all about easing trade war fears, last night it was all about supply concerns.

Energy was the only sector to meaningfully move higher on Wall Street last night. Real Estate held its ground while all other sectors finished lower. The Dow futures had been down -300 points ahead of the open, hence the day session did manage to claw some of that back.

Early in the session it was revealed the US headline CPI actually fell -0.1% in March, despite rising inflation fears. The core rate nevertheless rose 0.2% to mark 2.1% annual, up from 1.8% in February. The Fed’s target is 2%, but it prefers the PCE measure, which is still wallowing around 1.6% at last count.

The minutes of the Fed’s March meeting, released last night, represented a milestone. For the first time since the GFC, the Fed spoke of a need to tap the brakes on the US economy, as opposed to a decade of consistently assuring accommodative support. The FOMC needs to gradually move its funds rate back to “neutral”, which it deems to be 2.9%.

If we call that 3%, that’s five more 25bp rate hikes. The market nonetheless continues to believe there is a negligible chance of a fourth rate hike in 2018. A June hike is running at 78% probability.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1352.80	+ 13.70	1.02%
Silver (oz)	16.65	+ 0.10	0.60%
Copper (lb)	3.13	+ 0.00	0.01%
Aluminium (lb)	1.01	+ 0.02	2.26%
Lead (lb)	1.10	+ 0.01	0.70%
Nickel (lb)	6.27	+ 0.09	1.41%
Zinc (lb)	1.47	– 0.00	– 0.20%
West Texas Crude (May)	66.74	+ 1.13	1.72%
Brent Crude (Jun)	71.88	+ 0.89	1.25%
Iron Ore (t)	64.20	– 1.65	– 2.51%

Aluminium kicked on last night following Tuesday night’s gains while other base metals were quieter. Iron ore went the other way.

Oil prices were strong again as noted and gold enjoyed a rally despite little movement in the greenback, thanks to geopolitics.

Today

The SPI Overnight closed down -10 points or -0.2%.

Local housing finance numbers are due today.

GWA Group ((GWA)) hosts an investor day.

Rudi will appear on Sky News Business from noon til 2pm.

The Australian share market over the past thirty days…

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