Daily Market Reports | Jun 15 2018
This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS
| World Overnight | |||
| SPI Overnight (Jun) | 6058.00 | + 33.00 | 0.55% |
| S&P ASX 200 | 6016.60 | – 6.90 | – 0.11% |
| S&P500 | 2782.49 | + 6.86 | 0.25% |
| Nasdaq Comp | 7761.04 | + 65.34 | 0.85% |
| DJIA | 25175.31 | – 25.89 | – 0.10% |
| S&P500 VIX | 12.12 | – 0.82 | – 6.34% |
| US 10-year yield | 2.95 | – 0.03 | – 1.04% |
| USD Index | 94.90 | + 1.32 | 1.41% |
| FTSE100 | 7765.79 | + 62.08 | 0.81% |
| DAX30 | 13107.10 | + 216.52 | 1.68% |
By Greg Peel
Memories
After Wednesday’s sharp fall, the ASX200 yesterday did not a lot as a whole but there was a lot going on under the surface with regard sectors and stocks.
The banks have come under renewed pressure, not because of any further horror stories emerging from the RC but because the Fed has hiked and may hike twice more this year. By contrast, there seems little chance of the RBA hiking in possibly the next twelve months. Witness yesterday’s jobs report, beyond anything else.
Australia added 12,000 jobs in May, missing estimates of 19,000, but then only once in a blue moon are estimates met. Full-time jobs fell -20,000 and part-time rose 32,000. The unemployment rate fell to 5.4% from 5.6% but only because of a drop in participation.
In the recent run of data, this is seen as a soft outcome.
The banks’ cost of funding is rising but opportunities to lift lending rates are questionable given the impact of the RC. Financials fell -0.6% yesterday.
Blow me down if Telstra ((TLS)) didn’t jump 5% yesterday. It was all about an upgrade from JP Morgan, suggesting a structural break-up may be in the offing. Telcos was the standout sector with a 4.6% leap. It looks like there are investors out there just pleading for a reason to buy.
On the flipside, UBS downgraded Primary Healthcare ((PRY)) to Sell, suggesting the market is not factoring in downside earnings risk. Primary fell -8.3% and healthcare fell -1.4%.
After surging on Wednesday, yesterday APA Group ((APA)) pulled back, leading utilities down -1.3%, after brokers pointed out the bleeding obvious that FIRB approval of the Chinese takeover offer is far from assured.
And in other takeover news, Atlas Iron ((AGO)) plunged -19% after the WA government changed its mind over priority rights to develop valuable export infrastructure. Atlas was, nevertheless, up around 65% in a week when first Mineral Resources ((MIN)) and then Fortescue Metals ((FMG)) and Gina Rinehart moved in on the stock. It is suggested by at least one broker that it is the infrastructure, more than the iron ore, that is of most interest to Fortescue (and Rinehart).
Atlas is not top 200 so there was no impact on a 0.5% gain for materials, which came about despite the day’s release of monthly Chinese data.
Chinese industrial production grew 6.8% year on year in May, slightly below April and forecasts. Retail sales dropped to a fifteen-year low 8.5%, down from 9.4% in April and missing 9.6% forecasts. Fixed asset investment grew 6.1% year to date when a steady 7.0% was expected.
April’s set of numbers had appeared encouraging, May’s have disappointed.
So a lot of movement among the various parts yesterday netting out to a small loss for the index.
Whatever the futures traders were taking over the long weekend it appears they're back on them again. The futures are up 33 points this morning. We could perhaps point to a big plunge in the Aussie, but then base metal prices have all been hit as a result.
We could say Fed/ECB risk is now out of the way, but Wall Street’s response was muted.
Indian Giver
Mario Draghi surprised no one last night by announcing that ECB bond purchases, currently E30bn per month, will drop to E15bn in September and cease in December, marking the end of eurozone QE. Initially, the euro rallied slightly on the news, which was largely anticipated.
Then came the shock. There will be no rate hikes (from negative currently) for twelve months. And the ECB balance sheet will be maintained at the December level for the foreseeable future.
The euro tanked.
Earlier in the day, New York time, US April retail sales growth was revealed as 0.8% when 0.4% was forecast. And that’s seasonally adjusted. The nominal rate was bigger still. Wall Street was blown away.
The data sparked a further rally for the US dollar but when the ECB announcement was made, and the euro plunged, the US dollar index continued its run to be up a significant 1.4%.
The stock market, on the other hand, was divided. Wall Street would have preferred a less dovish ECB but also weighing on sentiment is the fact tonight represents the end of the trade “truce” between the US and China, with nothing having been resolved. The US will thus go ahead with tariffs on a list of goods worth US$50bn in trade, albeit the number of goods has been reduced from over to under 1000 and US$50bn is not really that much in the scheme of things.
China is now expected to return fire. The big US industrials closely tied to China trade helped drag down the Dow last night.
US Big Tech should also be worried, given the level of export of iPhones and what have you, but the Nasdaq rallied again to hit another new high. There’s just nothing one can throw at that sector at present.
And it’s tech sector growth that is to a great extent behind that latest CNBC survey of economists, many of whom have forecast June quarter GDP growth beginning with a 4.
The only downside to a 4% result would be Trump’s gloating. That was the number he pledged.
The Bank of Japan meets today to wrap up the week’s central bank festival. But if it were a festival, most would have gone home after the ECB announcement. Nothing earth shattering is expected.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1301.90 | + 3.10 | 0.24% |
| Silver (oz) | 17.13 | + 0.12 | 0.71% |
| Copper (lb) | 3.26 | – 0.03 | – 0.96% |
| Aluminium (lb) | 1.01 | – 0.01 | – 0.85% |
| Lead (lb) | 1.10 | – 0.02 | – 1.46% |
| Nickel (lb) | 6.91 | – 0.15 | – 2.12% |
| Zinc (lb) | 1.46 | – 0.01 | – 0.82% |
| West Texas Crude (Jul) | 67.00 | + 0.38 | 0.57% |
| Brent Crude (Aug) | 75.99 | – 0.55 | – 0.72% |
| Iron Ore (t) | 66.00 | + 0.20 | 0.30% |
Base metal prices were clear victims of the big move in in the greenback. Interestingly, gold ticked up in defiance, likely because the ECB was not as hawkish as expected.
Lower US crude supplies are keeping the WTI price elevated while Brent took the currency hit last night, closing that yawning price gap further.
Iron ore always does its own thing.
The Aussie has matched the greenback in falling -1.4% to US$0.7470.
Today
The SPI Overnight closed up 33 points.
Beyond the BoJ meeting, the US will see industrial production numbers tonight. Tonight also brings the quarterly “quadruple witching” expiry of US equity derivatives, which often leads to unjustifiable volatility.
Today the changes to the S&P/ASX indices, announced last week, become effective.
Rudi will connect with Sky News Business, via Skype, at around 11am to talk share market and broker calls.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ADH | ADAIRS | Upgrade to Add from Hold | Morgans |
| APA | APA | Upgrade to Outperform from Underperform | Credit Suisse |
| Downgrade to Hold from Buy | Ord Minnett | ||
| AST | AUSNET SERVICES | Upgrade to Neutral from Sell | Citi |
| AZJ | AURIZON HOLDINGS | Upgrade to Buy from Neutral | UBS |
| CIP | CENTURIA INDUSTRIAL REIT | Downgrade to Hold from Add | Morgans |
| CTX | CALTEX AUSTRALIA | Upgrade to Outperform from Neutral | Macquarie |
| Upgrade to Buy from Hold | Ord Minnett | ||
| MTS | METCASH | Upgrade to Buy from Neutral | UBS |
| PRY | PRIMARY HEALTH CARE | Downgrade to Sell from Buy | UBS |
| RIO | RIO TINTO | Downgrade to Hold from Buy | Deutsche Bank |
| SEH | SINO GAS & ENERGY | Downgrade to Neutral from Outperform | Macquarie |
| TLS | TELSTRA CORP | Upgrade to Accumulate from Hold | Ord Minnett |
| WEB | WEBJET | Upgrade to Equal-weight from Underweight | Morgan Stanley |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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CHARTS
For more info SHARE ANALYSIS: APA - APA GROUP
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED