The Overnight Report: No Fireworks

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World Overnight
SPI Overnight (Sep)	6149.00	+ 12.00	0.20%
S&P ASX 200	6183.40	– 26.80	– 0.43%
S&P500	2713.22
Nasdaq Comp	7502.67
DJIA	24174.82		–
S&P500 VIX	16.14
US 10-year yield	2.84
USD Index	94.54	– 0.06	– 0.06%
FTSE100	7573.09	– 20.20	– 0.27%
DAX30	12317.61	– 31.53	– 0.26%

By Greg Peel

Aussie, Aussie, Aussie

As to why the ASX200 would leap into risk-on mode on Tuesday, rising over 30 points with no notable offshore lead, only to fall back by that much again yesterday by early afternoon, albeit recovering slightly at the close, is unclear. Perhaps there was a big buy order out there on Tuesday.

Asia may have some influence, given Tuesday saw the Chinese market finally regain some ground after falling into (technical) bear territory, then yesterday saw another -1% drop.

Right now it looks like the primary driver of sentiment is the Aussie dollar. Aussie goes down, ASX200 goes up, and vice versa.

Yesterday the Aussie jumped a bit higher still on the release of the May trade data.

Yet the data were actually somewhat of a mixed bag. Forex traders appeared to focus specifically on exports, which were up a better than forecast 4.0% to 8.1% annual growth. Resources exports jumped 4.7% in May having fallen -3.3% in April. A rebound in rock exports can only be good for the Australian economy, and thus the Aussie.

Except that imports were up a higher than expected 3.0% in May, having risen only 0.1% in April. Imports of textiles, clothing and footwear led the charge with a 6.8% rise. This meant the trade surplus came in only at $827m when the market had forecast $1200m. It’s better than April’s $472m, but otherwise disappointing.

It implies the June quarter GDP will not look as good as the surprise March GDP result.

Retail sales continue to surprise, particularly given house prices are down, oil prices are up, and everyone’s up to their necks in debt. May sales rose 0.4% when 0.2% was expected, and April’s result was revised up to 0.5%.

Lo and behold if department store sales didn’t increase, just when we thought the bell was tolling. For years now we have often seen spending at cafes, restaurants and fast food outlets leading the retail sales data, with department store spending fading into history. But spending on food outside the home fell in May, and spending on food for the home rose. And what does one buy at department stores? Clothing and footwear.

Remember the lingering summer this year, followed by a sharp cold snap to herald in winter? Looks like it caught consumers shivering.

On Tuesday every sector was up by similar percentages except for telcos, which outperformed with a 2% gain, and materials, which was the only sector to fall. Yesterday telcos (+0.5%) and materials (-0.2%) went on with it while utilities (+0.2%) was the only other sector to finish in the green. Otherwise, everything that went up on Tuesday came back down yesterday.

Financials (-0.7%) were the worst performer, led this time not by the banks but by the listed wealth managers, with Platinum Asset Management ((PTM)) and Magellan Financial ((MFG)) both receiving broker downgrades on weak funds flows and fee compression.

What will today bring? Well with Wall Street closed, typically not much. However, the Aussie has retreated from above 74 yesterday to be back at US$0.7387, and the futures are up 12 points this morning.

Is that the connection?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1256.50	+ 4.20	0.34%
Silver (oz)	16.06	+ 0.06	0.38%
Copper (lb)	2.90	– 0.05	– 1.64%
Aluminium (lb)	0.94	+ 0.00	0.46%
Lead (lb)	1.06	– 0.02	– 2.03%
Nickel (lb)	6.40	– 0.14	– 2.09%
Zinc (lb)	1.25	– 0.04	– 2.88%
West Texas Crude (Aug)	74.33	+ 0.05	0.07%
Brent Crude (Sep)	78.23	+ 0.35	0.45%
Iron Ore (t)	63.35	– 0.40	– 0.63%

The US dollar index appears, for now, to have stalled in its run-up in the 94-5 range. But this is not helping base metal prices.

As the world awaits an assumed forthcoming resolution to the global trade war, the war seems only to escalate further. After flying high earlier this year, base metal prices are now looking at multi-year lows.

Iron ore is proving relatively stable in the low 60s, leaving coal, both thermal and coking, to hold up the metals/minerals complex for the time being.

Today

The SPI Overnight closed up 12 points or 0.2%.

Australia’s major economic data releases are done for the week but the US is back on board tonight, with the ADP private sector jobs report for June and the minutes of the June Fed meeting.

Rudi will appear on Sky News Business today, noon-2pm.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX	ATLAS ARTERIA	Upgrade to Add from Hold	Morgans
AOG	AVEO	Downgrade to Neutral from Outperform	Macquarie
BPT	BEACH ENERGY	Upgrade to Hold from Lighten	Ord Minnett
CGC	COSTA GROUP	Downgrade to Neutral from Buy	UBS
CIM	CIMIC GROUP	Upgrade to Hold from Sell	Deutsche Bank
FXL	FLEXIGROUP	Upgrade to Outperform from Neutral	Credit Suisse
ILU	ILUKA RESOURCES	Upgrade to Buy from Neutral	Citi
MFG	MAGELLAN FINANCIAL GROUP	Downgrade to Underweight from Equal-weight	Morgan Stanley
SIG	SIGMA HEALTHCARE	Upgrade to Buy from Sell	Citi
VVR	VIVA ENERGY REIT	Downgrade to Accumulate from Buy	Ord Minnett

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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