The Overnight Report: Back At 25k

This story features CSL LIMITED, and other companies. For more info SHARE ANALYSIS: CSL

World Overnight
SPI Overnight (Jun)	6080.00	– 13.00	– 0.21%
S&P ASX 200	6084.50	– 2.90	– 0.05%
S&P500	2733.01	+ 20.04	0.74%
Nasdaq Comp	7394.04	+ 39.70	0.54%
DJIA	25013.29	+ 298.20	1.21%
S&P500 VIX	13.08	– 0.34	– 2.53%
US 10-year yield	3.07	– 0.00	– 0.07%
USD Index	93.55	– 0.12	– 0.13%
FTSE100	7859.17	+ 80.38	1.03%
DAX30	13077.72	– 36.89	– 0.28%

By Greg Peel

Quiet Trade

If there was any relief felt in the local stock market that there may not be a trade war between the US and China it wasn’t evident yesterday. The only evidence was a one percent jump for the Aussie.

A global trade war is not good for anyone but arguably if tariff battles are contained only between the US and China then there are losers and winners elsewhere.

The futures had suggested down -30 points for the ASX200 on Saturday morning, pre the trade truce announcement, and as much as -42 ahead of the ASX open on Monday morning. That seemed strangely excessive, and indeed the index only fell -17 points from the open and was back in the green by late morning.

A flat afternoon followed on what was again low volume.

Individual stories dominated the session. Healthcare was the winning sector with a 1.4% gain after brokers upgraded their CSL ((CSL)) forecasts to match fresh guidance. CSL can seemingly do no wrong, which is not something we could say about Telstra ((TLS)). Yet another outage, the cause of which is yet to be determined, ensured telcos fell -1.4%.

Utilities rose 1.0% after AGL Energy ((AGL)) rejected Alinta’s bid for the Liddell power station. Materials fell -0.5% as profit-taking continues in that sector on smallish falls in the iron ore price. BlueScope Steel’s ((BSL)) -1.3% fall likely does reflect the loss of the 25% import tariff in the US.

China has vowed to buy more US energy, which would include LNG, so energy would have been down yesterday were it not for Harbour Energy again upping its bid for Santos ((STO)). The sector closed flat.

And the Royal Commission was back in swing yesterday, and we can be safe in the knowledge that no session is likely to result in a good day for the banks. Financials fell -0.2%.

Outside of the ASX200, hair/skincare company BWX ltd ((BWX)) entered a trading halt having received a takeover offer. The stock is 11% shorted.

There were no moves of any note for base metal prices overnight other than an unrelated jump for lead. The dip in the iron ore price has accelerated. Oil is up again on Iran/Venezuela related issues.

The Dow closed up 300 points last night and this morning, our futures are down -13.

It’s hard work.

Big Cap Boon

Your Boeings, your Caterpillars and your United Technologies are the sorts of big cap US companies that do a lot of business in China, and as such had been beaten down when the whole trade war threat first emerged. Last night those three companies led the Dow’s outperformance among the major indices.

Boeing has the highest nominal share price in the Dow and is thus the most influential on the price average. Boeing rose 3.6%. It was a session which saw a comeback for the cyclicals, mostly big industrials, chip-makers, materials and tech. The Dow regained the 25k mark.

But not at the expense of the small caps, otherwise unaffected by international trade issues. The Russell posted its fourth straight all-time high.

It was not all beer and skittles nonetheless, given that while the trade truce news comes as a relief, and eases tensions, no actual deal has been as yet struck. A measure of caution remains.

For many US companies the more important trade deal is NAFTA, for which a final deal is also yet to be made.

In other geopolitical news, Trump last night vowed to impose the “strongest ever” sanctions on Iran. This would include no oil exports to the US. Also at risk of having its oil exports banned by the US government is Venezuela, following what has been described as a “sham” election on the weekend. Venezuela is a major source of US oil imports given its proximity.

The WTI price jumped 1.7%.

With the US earnings season as good as over, and the market rating June Fed rate hike as a 100% chance, Wall Street is now searching for the incentive to once again test new highs. Trade resolutions would be welcomed. Volumes remain tepid, which worries traders.  

The Memorial Day long weekend approaches for the US, which unofficially marks the beginning of summer, irrespective of the calendar. If volumes are low heading into the summer, what will they be like when vacations begin in earnest?

It is largely due to summer doldrums that “Sell in May” became an adage, but so far this May has been anything but a sell.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1292.20	+ 0.30	0.02%
Silver (oz)	16.49	+ 0.06	0.37%
Copper (lb)	3.10	+ 0.01	0.27%
Aluminium (lb)	1.03	+ 0.00	0.42%
Lead (lb)	1.08	+ 0.04	3.56%
Nickel (lb)	6.64	– 0.03	– 0.42%
Zinc (lb)	1.41	+ 0.00	0.29%
West Texas Crude (Jun)	72.57	+ 1.22	1.71%
Brent Crude (Jul)	79.53	+ 0.82	1.04%
Iron Ore (t)	64.90	– 1.80	– 2.70%

Long positions in the lead contract on the Shanghai exchange have jumped 50% in the month, it was revealed last night, following tightness in the physical market. But lead does have a history of spikes and crashes in China.

At almost -3%, last night’s iron ore price fall marks an acceleration in what had been a gentle pullback.

Brent is now just shy of US$80/bbl on another 1% jump. The 1.7% gain for West Texas focuses attention on the US summer “driving season”, for which the Memorial Day long weekend marks the beginning. Will Americans pay up for “gas”, or stay home?

The Aussie is up 1% at US$0.7583.

Today

The SPI Overnight closed down -13 points or -0.2%. We may see more exiting from the big cap miners today, and who knows what new horror stories the Royal Commission might reveal.

TechnologyOne ((TNE)) reports half year earnings today and James Hardie ((JHX)) quarterly earnings.

Rudi will Skype-connect with Sky News Business to talk share market and broker calls at around 11am.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M	A2 MILK	Downgrade to Neutral from Buy	Citi
AHY	ASALEO CARE	Downgrade to Underperform from Neutral	Credit Suisse
ALQ	ALS LIMITED	Downgrade to Sell from Hold	Deutsche Bank
BLD	BORAL	Downgrade to Underperform from Neutral	Credit Suisse
CWN	CROWN RESORTS	Downgrade to Hold from Buy	Ord Minnett
LNK	LINK ADMINISTRATION	Upgrade to Buy from Neutral	Citi
MQA	MACQUARIE ATLAS ROADS	Downgrade to Equal-weight from Overweight	Morgan Stanley
SYD	SYDNEY AIRPORT	Downgrade to Equal-weight from Overweight	Morgan Stanley
TWE	TREASURY WINE ESTATES	Upgrade to Neutral from Underperform	Credit Suisse

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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