The Monday Report

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World Overnight
SPI Overnight (Jun)	6100.00	0.00	0.00%
S&P ASX 200	6094.00	+ 77.40	1.29%
S&P500	2779.66	– 2.83	– 0.10%
Nasdaq Comp	7746.38	– 14.66	– 0.19%
DJIA	25090.48	– 84.83	– 0.34%
S&P500 VIX	11.98	– 0.14	– 1.16%
US 10-year yield	2.92	– 0.02	– 0.75%
USD Index	94.79	– 0.11	– 0.12%
FTSE100	7633.91	– 131.88	– 1.70%
DAX30	13010.55	– 96.55	– 0.74%

By Greg Peel

Where did that come from?

There I was suggesting on Friday morning a 30 plus point gain in the overnight futures, against the run of play offshore, looked a tad optimistic. What do I know?

The ASX200 opened up over 40 points from the bell, continued to push higher through the morning and held on to it all afternoon. There wasn’t even a Friday afternoon fade.

Only one sector missed out on what otherwise was across-the-board buying, and that was healthcare, which fell -0.2% as high-flying CSL ((CSL)) fell -1.2%. We can only assume profits were taken in CSL in order to fund bargain hunting elsewhere, given it appears the primary reason the local market had a rocket under it on Friday was the big fall in the Aussie.

A lower Aussie is a clear benefit for the resources sectors, and for other major export sectors such as, well, healthcare. But even the banks joined in the spree, posting a 1.9% gain to be the best performing sector on a day most saw gains in excess of 1%.

We did see Moody’s reaffirm Australia’s Aaa rating on Friday, citing robust and stable economic growth and strong growth potential relative to peers, modest deficit, and strong institutions that preserve macroeconomic and financial stability. Can’t see how the big banks have been helping financial stability of late, but given a rating downgrade for Australia would directly impact on the banks’ borrowing cost, the reaffirmation was a positive for the sector.

The lower Aussie also alleviates some of the pressure on bank borrowing costs, which have been rising as US rates rise.

The materials sector (+1.1%) was also boosted by BHP’s ((BHP)) announcement it has approved development of the new US$2.9bn South Flank project to replace diminishing reserves elsewhere in the Pilbara.

And a 2.2% jump for Wesfarmers ((WES)) came after the company announced we’re going down, down once more, with prices to be cut to counter the resurgence of its major rival. Its major rival did still manage a 0.9% gain on the day.

Just when analysts had assumed the supermarket price wars were over, they’re back on again. And always shall it be so, one assumes, as the two incumbents continue to try and knock each other off the top.

Friday’s 1.3% gain for the index came despite falls in base metal prices overnight, with the Aussie providing the trade-off. The Aussie is down another -0.4% this morning, but base metal prices took some big hits on Friday night; gold fell over twenty bucks and oil was down -3%.

The futures are steady this morning, with Wall Street down again, so we’ll see whether Friday was a flash in the pan or not. We may note that a lower Aussie makes us more attractive for offshore buyers, whether or not they were involved.

Trading Trade

The Dow dropped around -280 points on Friday night when China announced that in retaliation for the list of some 900 items worth US$50bn in trade upon which the US will impose tariffs, China will counter tariffs on its own list, worth US$35bn. The trade war is on.

Or at least, it will begin next month, unless an agreement is reached in the meantime.

The Dow ultimately recovered to be down only -100 points, and the S&P closed with only a -0.1% fall. The Nasdaq lost -0.2% after its soaring week.

The assumption is that Trump is back to using leverage, via tariff threats, to get China back to the negotiating table. All attempts during the trade “truce” came to nought. Trump is feeling pretty bullet proof at the moment, post Singapore, so no doubt he’s assuming his tactic will work.

Wall Street does not like tariffs, but has come to recognise the war has not begun until it has begun, and there can be plenty of to-ing and fro-ing and about-facing in the next month. Earlier in the year tariff threats sparked major sell-offs. Not anymore.

And there’s the ongoing recognition that in the wider scheme of things, US$50bn from the US and US$35bn from China is pretty modest. The US economy is going gangbusters, and can thus absorb a trade war if it has to.

For the record, the Bank of Japan left its QE and negative rate policies in place on Friday, as expected. The central bank downgraded its inflation forecasts, suggesting Abenomics is continuing not to gain any traction.

Other news out on Friday is that Saudi Arabia is considering adding back 500,000 to one million barrels per day of oil production, while Russia is suggesting up to 1.5 million, to replace lost exports from Iran and Venezuela. On that note oil prices fell -3% on Friday night.

OPEC meets at the end of this week to discuss the matter. Iran and Venezuela are apparently pleading for no production increases, given the lower oil prices they imply. Indeed, most OPEC members are against any change given the stronger oil prices they have been enjoying.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1278.90	– 23.00	– 1.77%
Silver (oz)	16.54	– 0.59	– 3.44%
Copper (lb)	3.19	– 0.07	– 2.10%
Aluminium (lb)	0.99	– 0.02	– 2.36%
Lead (lb)	1.09	– 0.02	– 1.74%
Nickel (lb)	6.87	– 0.04	– 0.52%
Zinc (lb)	1.42	– 0.04	– 2.49%
West Texas Crude (Jul)	65.06	– 1.94	– 2.90%
Brent Crude (Aug)	73.44	– 2.55	– 3.36%
Iron Ore (t)	66.00	0.00	0.00%

Beyond the oil market, the weak Chinese data released last week and trade tensions have sparked profit-taking in base metals, with aluminium, copper and zinc all down over -2%.

Iron ore held its ground.

It never ceases to amaze how gold always seems to wait 24 hours before responding to market moves. On Thursday night gold traded over US$1300/oz thanks to a more dovish than expected ECB. But that move ignored the big jump in the US dollar. On Friday night gold dropped almost -2%, with traders citing the stronger dollar.

The Aussie is down -0.4% at US$7440 this morning.

The SPI Overnight closed “unch”.

The Week Ahead

China is closed today.

The Bank of England meets on Thursday but is not expected to do anything rash.

OPEC meets at week’s end.

US data this week include housing sentiment tonight, housing starts tomorrow night, existing home sales on Wednesday and FHFA house prices on Thursday. The Philadelphia Fed index is also out on Thursday, while Friday brings flash estimates for the June manufacturing PMIs of the US, Japan and the eurozone.

New Zealand releases its March quarter GDP result on Thursday.

It’s a quiet week ahead in Australia. The minutes of the June RBA meeting are out tomorrow and will likely contain nothing new. Philip Lowe speaks on Wednesday night.

The corporate calendar is winding down to year-end. Sydney Airport ((SYD)) releases monthly traffic stats on Wednesday.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am; again on Thursday from midday 'til 2pm; and again on Friday via Skype, probably around 11am.

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
AZJ	AURIZON HOLDINGS	Upgrade to Buy from Neutral	UBS
BOQ	BANK OF QUEENSLAND	Upgrade to Outperform from Neutral	Credit Suisse
CIP	CENTURIA INDUSTRIAL REIT	Downgrade to Hold from Add	Morgans
CL1	CLASS	Upgrade to Buy from Neutral	UBS
CTX	CALTEX AUSTRALIA	Upgrade to Outperform from Neutral	Macquarie
		Upgrade to Buy from Hold	Ord Minnett
GMG	GOODMAN GRP	Downgrade to Lighten from Hold	Ord Minnett
MTS	METCASH	Upgrade to Buy from Neutral	UBS
NHF	NIB HOLDINGS	Upgrade to Neutral from Underperform	Credit Suisse
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.

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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