The Overnight Report: That Will Do For Now

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

World Overnight
SPI Overnight (Jun)	6151.00	– 30.00	– 0.49%
S&P ASX 200	6232.10	+ 59.50	0.96%
S&P500	2749.76	-17.56	–0.63%
Nasdaq Comp	7712.95	– 68.56	– 0.88%
DJIA	24461.70	– 196.10	– 0.80%
S&P500 VIX	14.64	+ 1.85	14.46%
US 10-year yield	2.90	– 0.03	– 1.06%
USD Index	94.86	– 0.26	– 0.27%
FTSE100	7556.44	– 70.96	– 0.93%
DAX30	12511.91	– 183.25	– 1.44%

By Greg Peel

Blue Sky Alternative

It’s not actually blue sky, given the ASX200 is still well below its 2007 all-time high, but it’s taken a long time to get to a new post-GFC high so that’s the way it feels. The local market is trading on momentum, leading up to and being boosted by the technical break-out.

It might not be the same story today, as having played contrarian all week, we appear set to give way to global stock market weakness today. Wall Street saw profit-taking, the futures are down -30 points this morning, and it’s a Friday – always a good day for traders to lock in their gains.

It has been a FOMO-driven week for the banks, giving the impression of a scramble not wanting to be the one who didn’t buy at the bottom. Financials were up another 1.0% yesterday. There was not much action in commodity prices overnight, but energy still chimed in with 0.6% and materials 0.5%.

The standout movers on the day included IT, up 2.6%, and now looking to be very much correlated to the Nasdaq. Consumer staples rose 2.2% as buyers moved into Wesfarmers ((WES)) ahead of the Coles spin-off.

A takeover bid for APN Outdoor by French rival JC Decaux saw that stock up 12%, and consumer discretionary up 2.0%. That’s a fun sub-sector at present.

APN Outdoor is in a battle with rival oOh!media ((OML)) to buy the Adshel outdoor business of HT&E ((HT1)). APN and HT&E used to be part of the same company. APN and OML are fighting over Adshel after the ACCC knocked back a merger between the two. Now JC Decaux is after APN. And none of these possible deals are guaranteed regulatory approval.

The big individual loser on the day was Ramsay Health Care ((RHC)), falling -7.5% on a guidance downgrade. CSL analysts had a big night on the town last night. The healthcare sector nevertheless managed to gain 1.4% as CSL ((CSL)) just keeps on keeping on, now not far off the $200 mark.

Would the last investor to leave Telstra ((TLS)) please turn out the lights.

In the background, the government got its tax cuts through. While this should be a positive for corporate Australia, one wonders if the ASX200 would not have been up 60 points anyway if the bill failed.

It’s also unlikely yesterday’s derivatives expiry had much impact up at these levels. We might today see a pullback to the 6200 level, but these are now just big figures rather than specific technical levels given we’ve left those all behind.

A Bit Tired

The Dow posted its eighth consecutive loss last night, which it hasn’t done since March 2017. Trade wars continue to weigh on the big industrials, well represented in the Dow average, while last night German car giant Daimler, owner of Mercedes Benz, issued a guidance waring based on tariff impact ahead.

Profit-taking was also finally seen in the Nasdaq and Russell small cap index. The Russell in particular has had a stellar run over the past couple of weeks, so -1% is no big deal.

Amazon was amongst the losers, as were many online-only retailers, when the US Supreme Court overruled a previous judgment that states cannot charge sales tax on a company that does not have an operation in that state. That rule is clearly now very twentieth century, given one can argue Amazon does not have an operation in any state, only in the ether.

Still, a -1% fall in a stock that’s up some ridiculous amount year to date is hardly an issue, and nor do analysts for a second suggest the game is up for online shopping simply because of sales tax.

Maybe they should come to Australia.

There was also some consternation when the Philadelphia Fed activity index, which has been flying high for a while, showed a plunge to 19.9 this month from 34.4. This index, and other Fed district indices, can be highly volatile, but the Philly just added to the mood.

It was a day to take profits after Wednesday night’s run of all-time highs in a lot of the US indices.

Trade developments will continue to dominate next week but end-of-quarter will also come into play. Thereafter, it’s a couple of weeks before Wall Street learns whether high hopes for second quarter earnings are validated, and so too high stock prices.

Netflix bucked the trend last night and hit another new all-time high. Not bad for a company with -120% negative cash flow.

Did you know the combined market cap of FAANG – Facebook, Apple, Amazon, Netflix, Google – is now greater than that of the FTSE 100?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1266.90	– 0.70	– 0.06%
Silver (oz)	16.28	+ 0.03	0.18%
Copper (lb)	3.08	– 0.00	– 0.02%
Aluminium (lb)	0.98	+ 0.01	0.61%
Lead (lb)	1.07	– 0.01	– 1.02%
Nickel (lb)	6.74	– 0.00	– 0.01%
Zinc (lb)	1.34	– 0.03	– 2.49%
West Texas Crude (Aug)	65.80	+ 0.09	0.14%
Brent Crude (Aug)	73.07	– 1.14	– 1.54%
Iron Ore (t)	63.85	– 0.40	– 0.62%

I noted last night that in the oil market, Brent was showing the greatest nervousness ahead of the OPEC meeting while WTI was holding up on US inventory shortfalls. Last night Brent fell another -1.5% while WTI stood still. The spread is now almost back into US$7/bbl, but last night WTI rolled over into the new August delivery front month, which may have something to do with it.

Otherwise, the US dollar saw some profit-taking but this did not do much to reverse recent trade-related weakness in metals prices.

The Aussie nevertheless did not rebound in response, relatively steady at US$0.7377 despite having fallen a long way.

Today

The SPI has also rolled over, now trading the September expiry, and is down -30 points or -0.5% this morning. It’s the first time in several sessions the SPI has actually followed Wall Street.

The flashers are out in the Northern Hemisphere tonight where thankfully for them it’s summer. Estimates of June manufacturing PMIs for Japan, the eurozone and US are due.

Otherwise, all eyes on Vienna, where the OPEC meeting will soon get under way.

Rudi will not do his weekly Skype cross with Sky News Business this morning. He's occupied elsewhere, but should be back into his weekly media schedule next week.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CCL	COCA-COLA AMATIL	Downgrade to Lighten from Hold	Ord Minnett
IAG	INSURANCE AUSTRALIA	Downgrade to Hold from Buy	Deutsche Bank
MGR	MIRVAC	Downgrade to Neutral from Outperform	Credit Suisse
MQG	MACQUARIE GROUP	Upgrade to Overweight from Equal-weight	Morgan Stanley
SUL	SUPER RETAIL	Downgrade to Neutral from Buy	UBS

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

Click to view our Glossary of Financial Terms