Daily Market Reports | Jun 19 2018
This story features TELSTRA GROUP LIMITED. For more info SHARE ANALYSIS: TLS
| World Overnight | |||
| SPI Overnight (Jun) | 6154.00 | + 35.00 | 0.57% |
| S&P ASX 200 | 6104.10 | + 10.10 | 0.17% |
| S&P500 | 2773.75 | – 5.91 | – 0.21% |
| Nasdaq Comp | 7747.02 | + 0.65 | 0.01% |
| DJIA | 24987.47 | – 103.01 | – 0.41% |
| S&P500 VIX | 12.31 | + 0.33 | 2.75% |
| US 10-year yield | 2.93 | + 0.00 | 0.07% |
| USD Index | 94.76 | – 0.03 | – 0.03% |
| FTSE100 | 7631.33 | – 2.58 | – 0.03% |
| DAX30 | 12834.11 | – 176.44 | – 1.36% |
By Greg Peel
Unlikely Heroes
On Friday the local market surged unexpectedly, driven by a big drop in the Aussie. The drop countered modest falls in commodity prices on Thursday night for the big exporters. On Friday night commodity prices took a turn for the worse, with all of oil, gold and base metals posting sizeable drops.
Thus on any other day we might have expected big falls in the energy and materials sectors, yet energy fell only -0.4% despite the -3% plunge in oil and while materials fell -1.2%, it could have been worse. Gina Rinehart’s weigh-in to the Atlas Iron ((AGO)) battle saw that stock up 22%, but Atlas is not in the ASX200, being a penny-dreadful, and 22% equates to 0.8c.
But it goes to show what a berth at Port Hedland is worth.
The Aussie was lower again yesterday morning, which provides the offset for exporters but also helps to attract interest from offshore investors. The Dow has fallen five days in a row.
We wouldn’t normally associate the banks and currency moves given the banks are basically domestic only, but in this period of interest rate dislocation – Fed hiking while RBA remains anchored – the weaker Aussie provides the offset to higher US borrowing costs when loan repricing locally is a risk.
And having been knocked down so far, there is likely a bit of bargain hunting going on in the banks, up 0.8% yesterday following Friday’s solid jump. All is forgiven.
Healthcare (+0.8%) is one of the biggest beneficiaries of a weaker currency.
The 10 point gain for the index is certainly a sign of resilience but it could have been better if investors didn’t decide to bail out of Telstra ((TLS)) once more, after a brief rebound. Telcos let the side down with a -2.0% fall. Telstra hosts an investor day tomorrow.
REITs also had a good session yesterday. Most REITs are domestic-only but there is some offshore real estate being held, which plays to the currency theme, but rising global rates are the enemy. Investors are moving into the sector ahead of the run of dividend payments, it is suggested.
Moves in other sectors were less notable yesterday.
This morning we find Wall Street down, again, with metal prices mixed and oil rebounding somewhat. Critically the Aussie is again lower. Albeit only by -0.2%.
The futures are showing up 35 points. It would seem this globally isolated rebound has further to run. If correct, this move would take the ASX200 through the prior post-GFC closing high at 6130 and on towards the intraday high of 6150.
Avoid Exporters
The Dow was down for its fifth straight session last night led by the usual trade war whipping boys, such as Boeing. While Wall Street has not panicked over the risk of the US and China sliding into a heated tariff battle, and let’s not forget Canada, Mexico and the EU, there is still unease. Better to steer clear for the time being and move into something less dangerous.
The Russell small cap index was again the winner last night on the back of its domestic leaning. Not only are most small caps immune from international trade disputes, some will actually benefit from tariffs on imports.
If ever there were a sector that should be the antithesis of “safe haven” it’s Big Tech, trading on thin-air multiples, and in this instance, also at risk of being impacted by trade wars. But with the likes of Amazon and Netflix continuing to book strong earnings growth, Wall Street has decided tech is a better bet than old-school industrials at this time.
So we saw the Russell up 0.5% and the Nasdaq up a tad in the face of a -0.4% drop for the Dow and the S&P netting out at -0.2%.
Another sector to find some support last night was energy, which responded to a 1% rebound for WTI crude and 2.5% for Brent.
Friday night’s big drop in oil prices came as suggestions were made that Saudi Arabia was looking for a production increase, or decrease of the cuts in place, of up to one million barrels per day, while Russia was talking perhaps 1.5 million. Last night, after protests from both Iran and Venezuela, that figure was pulled back to a more modest 300,000-600,000 barrels, with the OPEC meeting yet to be held.
That sort of figure better equates the exports that may be lost from the two producers in the firing line.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1277.90 | – 1.00 | – 0.08% |
| Silver (oz) | 16.44 | – 0.10 | – 0.60% |
| Copper (lb) | 3.17 | – 0.02 | – 0.49% |
| Aluminium (lb) | 1.00 | + 0.01 | 0.76% |
| Lead (lb) | 1.10 | + 0.01 | 1.11% |
| Nickel (lb) | 6.79 | – 0.09 | – 1.28% |
| Zinc (lb) | 1.42 | – 0.00 | – 0.14% |
| West Texas Crude (Jul) | 65.83 | + 0.77 | 1.18% |
| Brent Crude (Aug) | 75.36 | + 1.92 | 2.61% |
| Iron Ore (t) | 66.00 | 0.00 | 0.00% |
Just when the yawning price gap between Brent and WTI was beginning to reverse, we’re back out to almost US$10/bbl once more.
After falling in concert on Friday night, base metal moves were more mixed last night.
China was on holiday yesterday so the iron ore price was again unchanged.
The US dollar index was relatively steady and gold will probably go back to sleep again for a while.
The Aussie is -0.2% lower at US$0.7424.
Today
The SPI Overnight closed up 35 points or 0.6%.
There is very little on the global calendar today. The minutes of the RBA meeting will be pro forma and local March quarter house price data are a bit old.
Rudi will connect with Sky News Business via Skype at around 11am to discuss 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 | ||
| AZJ | AURIZON HOLDINGS | Upgrade to Buy from Neutral | UBS |
| BAP | BAPCOR LIMITED | Downgrade to Neutral from Buy | UBS |
| BOQ | BANK OF QUEENSLAND | Upgrade to Outperform from Neutral | Credit Suisse |
| CL1 | CLASS | Upgrade to Buy from Neutral | UBS |
| GMG | GOODMAN GRP | Downgrade to Lighten from Hold | Ord Minnett |
| GUD | G.U.D. HOLDINGS | Upgrade to Neutral from Sell | UBS |
| NHF | NIB HOLDINGS | Upgrade to Neutral from Underperform | Credit Suisse |
| PRY | PRIMARY HEALTH CARE | Downgrade to Sell from Buy | UBS |
| 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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For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED
