The Monday Report

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World Overnight
SPI Overnight (Sep)	6213.00	– 7.00	– 0.11%
S&P ASX 200	6268.40	+ 0.10	0.00%
S&P500	2801.31	+ 3.02	0.11%
Nasdaq Comp	7825.98	+ 2.06	0.03%
DJIA	25019.41	+ 94.52	0.38%
S&P500 VIX	12.18	– 0.40	– 3.18%
US 10-year yield	2.83	– 0.02	– 0.77%
USD Index	94.68	– 0.14	– 0.15%
FTSE100	7661.87	+ 10.54	0.14%
DAX30	12540.73	+ 47.76	0.38%

By Greg Peel

Much Ado

On face value one would be forgiven for assuming Friday’s local session was a dull affair, but this was not the case. The ASX200 may have closed flat as a tack but it opened up around 20 points and fell to be down around -20 points by lunchtime before recovering to the close.

It was a fitting end to a week in which the market asked questions and could not find the answers. Will there be a fully-blown trade war? How bad will that be? Are the banks worth buying for yield? Can big cap healthcare names just keep on going?

Trade war fears impacted on the resource sectors over the week but they closed largely flat on Friday. The banks (-0.4%) provided most of the weakness, along with consumer staples (-0.7%), offset by healthcare (+1.5%), industrials (+0.5%) and high-flying IT (+0.5%).

China’s June trade numbers were out on Friday and for some sectors they were not great news.

China’s trade surplus blew out to US$46.1bn when US$27.7bn was forecast, thanks to a balance of exports rising 11.3% year on year against a 9.5% forecast, while imports rose only 14.1% when 21.3% was expected.

This is definitely not a set of numbers Beijing could cite in its battle with Trump. Exports to the US hit a record US$29bn, up from US$24.5bn in May.

It’s also not a great look for Australian companies exporting to China, such as your infant formula crowd or winemakers, or the materials sector. And nor is it a good look for the government, whose goal is to reduce China’s reliance on exports and boost domestic consumption. One presumes measures will need to be taken in the second half, and US tariffs will start to bite.

China’s June quarter GDP result is out today.

Over the Mark

There was much consternation back home when the US president initially told The Sun Theresa May had stuffed up Brexit and a free trade agreement was thus not possible.

He said what?

Next thing we know, he’s all praise for the prime minister and of course an FTA will be agreed upon once Brexit is complete. One presumes his minders put Trump in the naughty chair on Friday night.

With that little road bump overcome, Wall Street’s session was going to be all about big bank earnings. And they were not so good.

JP Morgan beat on the top and bottom lines, but suffered a mortgage growth decline. Citigroup beat on earnings but missed on revenue, and Wells Fargo missed on both. All banks suffered weaker quarters in their trading divisions, most likely because the US ten-year yield did not move a jot in the period.

The banks are also fighting against a near-flat US yield curve.

All three banks saw share price falls and weakness spread across the sector, both for large names and for smaller regionals that are a significant weight within the Russell small cap index. The Russell fell -0.2%.

JP Morgan is the only big commercial bank left in the Dow, along with investment bank Goldman Sachs. For the Dow it was a week of ups and downs driven by the same question of will there, won’t there be a trade war. On Friday Wall Street decided it needn’t worry.

The Dow reclaimed 25,000 in rising 0.4%. In rising a mere three points, the S&P500 closed above the 2800 level – at 2801 to be precise – which is its highest close since the January peak and represents a break-out of the range since early March.

At least it will unless tonight sees a turnaround. One point over the mark is not yet convincing.

The positive tone with regard trade perhaps harks back to those Chinese trade numbers for June. Beijing is hard pressed to argue the case, and may need to consider some form of concession.

At least, that’s the hope Wall Street’s hanging on to.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1241.00	– 5.90	– 0.47%
Silver (oz)	15.79	– 0.13	– 0.82%
Copper (lb)	2.82	+ 0.00	0.13%
Aluminium (lb)	0.95	– 0.00	– 0.01%
Lead (lb)	0.99	– 0.00	– 0.44%
Nickel (lb)	6.29	– 0.10	– 1.53%
Zinc (lb)	1.18	+ 0.00	0.03%
West Texas Crude (Aug)	71.01	+ 0.66	0.94%
Brent Crude (Sep)	75.33	+ 0.84	1.13%
Iron Ore (t)	63.50	0.00	0.00%

Little to report from commodity markets on Friday night, with nickel’s -1.5% fall the only stand-out among the metals and the oils enjoying a small recovery.

With the US dollar index slipping back, the Aussie is up 0.2% at US$0.7421.

The SPI Overnight closed down -7 points on Saturday morning.

The Week Ahead

Along with June quarter GDP, China will release monthly industrial production, retail sales and fixed asset investment numbers today.

Japan is closed today.

The US will see retail sales tonight along with the Empire State activity index, with industrial production tomorrow night along with housing market sentiment.

Wednesday it’s housing starts and the Fed Beige Book, and the Philadelphia Fed index is out on Thursday.

Locally, the minutes of the July RBA meeting are due tomorrow ahead of Thursday’ June jobs numbers.

On the local stock front, the week will be dominated by resource sector quarterly production reports, with the big hitters in mining and gas in the frame. Tomorrow it’s Oil Search ((OSH)), Rio Tinto ((RIO)) and Whitehaven Coal ((WHC)), Wednesday BHP ((BHP)), and on Thursday it's Evolution Mining ((EVN)), South32 ((S32)), Santos ((STO)) and Woodside Petroleum ((WPL)).

Atlas Arteria ((ALX)) and Sydney Airport ((SYD)) report traffic numbers on Friday.

Cimic ((CIM)) will play the canary in the coal mine that is next month’s earnings season with an early report this Thursday.

Rudi will appear on Sky Business on Tuesday via Skype around 11am; 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
ALU	ALTIUM	Downgrade to Sell from Neutral	UBS
APX	APPEN	Downgrade to Neutral from Buy	UBS
BOQ	BANK OF QUEENSLAND	Upgrade to Buy from Neutral	Citi
CLW	CHARTER HALL LONG WALE REIT	Downgrade to Neutral from Buy	UBS
EVN	EVOLUTION MINING	Downgrade to Sell from Hold	Deutsche Bank
FPH	FISHER & PAYKEL HEALTHCARE	Downgrade to Sell from Neutral	Citi
IGO	INDEPENDENCE GROUP	Upgrade to Buy from Hold	Deutsche Bank
ING	INGHAMS GROUP	Downgrade to Sell from Neutral	UBS
IVC	INVOCARE	Downgrade to Neutral from Buy	Citi
JIN	JUMBO INTERACTIVE	Upgrade to Add from Hold	Morgans
LOV	LOVISA	Downgrade to Underweight from Equal-weight	Morgan Stanley
ORG	ORIGIN ENERGY	Upgrade to Buy from Neutral	Citi
PDL	PENDAL GROUP	Downgrade to Hold from Add	Morgans
SBM	ST BARBARA	Downgrade to Sell from Hold	Deutsche Bank
SHL	SONIC HEALTHCARE	Upgrade to Neutral from Sell	Citi
SKI	SPARK INFRASTRUCTURE	Downgrade to Underperform from Neutral	Credit Suisse
SYD	SYDNEY AIRPORT	Downgrade to Underperform from Neutral	Credit Suisse
WSA	WESTERN AREAS	Upgrade to Buy from Sell	Deutsche Bank

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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