The Monday Report

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World Overnight
SPI Overnight (Jun)	6100.00	+ 4.00	0.07%
S&P ASX 200	6116.20	– 2.50	– 0.04%
S&P500	2727.72	+ 4.65	0.17%
Nasdaq Comp	7402.88	– 2.09	– 0.03%
DJIA	24831.17	+ 91.64	0.37%
S&P500 VIX	12.65	– 0.58	– 4.38%
US 10-year yield	2.97	0.00	0.00%
USD Index	92.57	– 0.14	– 0.15%
FTSE100	7724.55	+ 23.58	0.31%
DAX30	13001.24	– 21.63	– 0.17%

By Greg Peel

Lacking the Conviction

The ASX200 surpassed its prior 6135 post-GFC closing high from the opening bell on Friday, hitting 6140 within half an hour, before dropping to 6124 by an hour later. Another assault was mounted, reaching 6139 at lunchtime, before the index closed the session at 6116, down -2 points.

The will is there but the support is lacking. Volume is low now the momentum traders have hopped off the ride and conviction is always hard to muster on a Friday afternoon. Last week saw a similar fade-out towards the weekend. With Trump in the White House, the “anything could happen” threat always looms large.

April housing finance numbers were released on Friday morning. They showed the value of all lending fell -4.8% in the month to be down -6.0% year on year. Owner-occupier loans fell by -1.5% but are up 3.2% for the year, while investor lending fell -9.0% and is now down -16.1% for the year.

The investor loan result for the month is the weakest since September 2015, ANZ’s economists note, which was when the initial APRA clampdown on investor borrowing kicked in. The proportion of investor loans in March was, at 42%, the lowest since 2012. Good news if you’re a first home buyer looking to break in, bad news if you’re a bank.

The financials sector fell -0.5% on Friday to provide the biggest drag on the index. The stampede out of AMP ((AMP)) continued, with that stock falling another -5.8% to top the ASX200 losers’ board.

Materials continue to be reignited, closing up 0.8% which, along with telcos (+0.8%), provided most of the offset. Investors were encouraged by news Telstra ((TLS)) is taking Optus to court over false advertising claims.

Info Tech also had a strong session, up 0.8%, thanks largely to a strong quarterly result from REA Group ((REA)), which strangely lives in the IT sector alongside online peer Carsales, while Seek is an industrial. Go figure.

Consumer discretionary (+0.9%) was aided by a 6.7% rebound for Greencross ((GXL)), which topped the leaders’ board.

Energy (-0.5%) unsurprisingly eased off on the Friday following a very strong week.

Anything can happen on a weekend with Trump in the White House but nothing did, unless you’re particularly interested in US pharmaceutical benefits policy.

The futures closed up 4 on Saturday morning to suggest a slow start to this week – a week which will be handicapped notably by three of the major banks and Macquarie Group ((MQG)) all going ex-dividend.

Attempts were made to push to a new post-GFC high on both Thursday and Friday. If a third attempt fails, technically this would suggest a pullback to consolidate.

Seven Day Wonder

The Dow’s near hundred point gain on Friday night marked the average’s first seven-day winning streak in six months. Day seven was a close-run thing, given it looked like Wall Street was in for a negative close from mid-afternoon when Trump proposed sweeping changes to US healthcare policy.

Over the past 18 months Trump has been trying to tick the boxes of the policies upon which he campaigned. Repealing Obamacare was a fail but the unwinding of over-regulation has been lauded. Tax cuts were a triumph until he made good on tariff threats, The Wall still looks like a pipedream but a withdrawal from the Iran nuclear deal has come to pass. Another campaign promise related to too-high drug pricing.

Clinton actually campaigned on the same theme and US drug companies and their distributors have been holding their breath ever since the election. Last night Trump finally came out and blasted high drug prices. Relevant healthcare stocks fell into a hole.

But it’s all talk without much promise of action, as traders quickly decided. Indeed, a follow-up briefing from the chief health administrator confirmed intended action is nowhere near as damaging as was feared, and those relevant stocks not only rallied back but rallied strongly to the close.

Healthcare proved the second best performing sector on the day. Energy was the best performing despite the oil price slipping last night. All week commentators pointed out that US energy stocks as a whole had been lagging the oil price itself, and as oil prices hold onto their gains thanks to the Iran deal and other geopolitical considerations, investors have decided to play catch-up.

FANG stocks were also another driver as the fallout from the Facebook data breach saga fades away. Those expecting a swift regulatory response have realised there will not be one anytime soon, for no other reason than trying to regulate the New World is a lawmaker’s nightmare.

Also helping Wall Street last week was a plateauing in the previously runaway US dollar, and a failure of the US ten-year yield to actually break through 3%.

The S&P500 has rebounded from the year’s lows and now sits 5.5% away from January’s all-time high.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1317.90	– 3.30	– 0.25%
Silver (oz)	16.64	– 0.05	– 0.30%
Copper (lb)	3.13	+ 0.01	0.37%
Aluminium (lb)	1.03	– 0.02	– 2.06%
Lead (lb)	1.06	+ 0.02	1.74%
Nickel (lb)	6.35	+ 0.08	1.21%
Zinc (lb)	1.39	– 0.00	– 0.14%
West Texas Crude (Jun)	70.51	– 0.89	– 1.25%
Brent Crude (Jul)	76.97	– 0.48	– 0.62%
Iron Ore (t)	67.80	+ 1.30	1.95%

Aluminium continues to give back a lot of what it had gained on Russian sanctions, as those sanctions are watered down.

Iron ore appears to be gradually gaining in strength.

Oil prices came off on Friday but had a strong week.

The Aussie is a little higher at US$0.7541.

The SPI Overnight closed up 4 points.

The Week Ahead

The Australian corporate calendar again has the potential to make a micro-mark on the local market this week. An undeniable impact will be ANZ Bank ((ANZ)) and Macquarie Group going ex today, National Bank ((NAB)) tomorrow and Westpac ((WBC)) on Thursday.

There is another smattering of earnings results, quarterly updates, investor days and AGMs across the week which I will highlight on a daily basis.

Earnings results are due today from AusNet ((AST)) and Elders ((ELD)).

Economically, this week brings the minutes of the May RBA meeting tomorrow, the March quarter wage price index on Wednesday and April jobs numbers on Thursday.

China will provide a monthly data-dump tomorrow of industrial production, retail sales and fixed asset investment numbers.

The US will see retail sales, housing sentiment and the Empire State index tomorrow, industrial production and housing starts on Wednesday and the Philadelphia Fed index on Thursday.

Japan will release its March quarter GDP result on Wednesday and chances are it may be negative.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am; and again on Friday via Skype, this time probably around 11am.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMP	AMP	Downgrade to Neutral from Outperform	Macquarie
BBN	BABY BUNTING	Upgrade to Neutral from Sell	Citi
CGF	CHALLENGER	Upgrade to Buy from Neutral	Citi
		Upgrade to Outperform from Neutral	Credit Suisse
CSR	CSR	Downgrade to Underweight from Equal-weight	Morgan Stanley
DMP	DOMINO'S PIZZA	Upgrade to Neutral from Sell	Citi
GMG	GOODMAN GRP	Downgrade to Hold from Buy	Deutsche Bank
GXL	GREENCROSS	Downgrade to Sell from Hold	Deutsche Bank
IGO	INDEPENDENCE GROUP	Downgrade to Underperform from Neutral	Macquarie
IPL	INCITEC PIVOT	Downgrade to Underperform from Neutral	Credit Suisse
JBH	JB HI-FI	Downgrade to Hold from Buy	Deutsche Bank
LNK	LINK ADMINISTRATION	Downgrade to Neutral from Buy	Citi
PTM	PLATINUM	Upgrade to Neutral from Underperform	Macquarie
RAP	RESAPP HEALTH	Upgrade to Add from Hold	Morgans
SUL	SUPER RETAIL	Upgrade to Buy from Hold	Ord Minnett
SUN	SUNCORP	Downgrade to Neutral from Outperform	Credit Suisse
SYD	SYDNEY AIRPORT	Downgrade to Hold from Add	Morgans
TPE	TPI ENTERPRISES	Downgrade to Hold from Add	Morgans
XRO	XERO	Upgrade to Neutral from Underperform	Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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