Daily Market Reports | Jul 18 2018
This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP
| World Overnight | |||
| SPI Overnight (Sep) | 6180.00 | + 22.00 | 0.36% |
| S&P ASX 200 | 6203.60 | – 37.90 | – 0.61% |
| S&P500 | 2809.55 | + 11.12 | 0.40% |
| Nasdaq Comp | 7855.12 | + 49.40 | 0.63% |
| DJIA | 25119.89 | + 55.53 | 0.22% |
| S&P500 VIX | 12.06 | – 0.77 | – 6.00% |
| US 10-year yield | 2.86 | + 0.01 | 0.21% |
| USD Index | 94.99 | + 0.49 | 0.52% |
| FTSE100 | 7626.33 | + 25.88 | 0.34% |
| DAX30 | 12661.54 | + 100.52 | 0.80% |
By Greg Peel
Red Sea
It was a particularly weak session on the ASX yesterday with all sectors closing lower. However, it was not a simple plunge from the open nor all-day sell-off.
The ASX200 did dip on the open but by 11.20am it was back to square. This seemed a pretty good effort given weakness in the energy sector, thanks to a -4% fall in the oil price overnight, and accompanying weakness for materials.
But between 11.20am and 12.50pm, the index fell -37 points. And at 4pm it closed down -37 points. That was a very neat hour and a half of market-wide selling, which smacks of one big order.
Energy remained the worst performer with a -2.2% drop. Materials suffered from weaker metals prices and lost -1.2%. But the down-days we’ve experienced in the past few weeks have almost invariably featured a level of rotation, with buying in some sectors offsetting weakness in others – banks up, banks down; resources up, resources down, telcos up, telcos down, risk-on one day and defensive the next. There was still a bit of that evident yesterday.
Alongside the resource sectors, healthcare, IT, telcos, utilities (wherein lies AGL) and consumer discretionary all posted decent falls. The “outperformers” on the day were banks (-0.1%) and industrials (-0.1) and to a lesser extent staples (-0.3%). So it appears there was a level of rotation, but not enough to result in any green on screen against the late morning selling wave.
We note this morning that commodity prices are again mostly weaker, albeit only modestly for oil, but the futures are up 22 points, matching the gain overnight for the S&P500. The index also closed yesterday on 6200, which should provide some level of “round number” support.
Break Out
The 0.4% gain for the S&P last night to 2809 confirms, as far as Wall Street is concerned, a break-out of the four-month range. There is now clear air to the January peak. The highlight of the day was nevertheless a new record high for the Nasdaq.
After the bell on Monday night, Netflix shares were down -14% after posting a miss on subscriber growth, and growth guidance, in its earnings report. All through the day, Amazon suffered from technical glitches which threatened to derail the retail deity’s biggest day (36 hours) of each year – Prime Day. The scene was set last night for possibly a big pullback for Big Tech.
Not so. I suggested yesterday any weakness in the FANGs would likely only bring out previously slow buyers, and sure enough Netflix closed down -5.2%, not -14%. Despite the glitches, now resolved it appears, Amazon reported that the first ten hours of Prime Day saw even greater revenues than the same period last year. Amazon closed up 1.2%.
The rebound for two of the FANGs prompted buying in all FANGs, and tech across the board.
Back in the old world, Johnson & Johnson drove strength in the Dow with a positive earnings result while having fallen earlier on an earnings beat but revenue miss, Goldman Sachs rallied back to close only slightly weaker.
The Russell small cap index saw a return to form with a 0.5% gain.
Underpinning positive sentiment last night was the Fed chair’s semi-annual testimony to the Senate Banking Committee. While refusing to be drawn on anything political, Jay Powell asserted that “the best way forward is to keep gradually raising the federal-funds rate for now”. While not implying any change to recent Fed rhetoric, this comment allayed fears that the Fed may become more hawkish on signs of strong June quarter economic growth.
Powell did nevertheless caution that “it is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy”, referring to the trade war and the blow-out in the US budget deficit to pay for tax cuts and infrastructure and defence spending.
But perhaps the most interesting element of last night’s session was Wall Street appeared not to care less that Trump had just brought himself arguably closer to impeachment proceedings than ever before. The world outside Wall Street, and particularly in Washington, has been up in arms.
Thus it’s probably no surprise Trump completely recanted last night. “Did I say that? Oh well I actually meant this” – the diametric opposite. Of course the US intelligence agencies are fabulous, and of course Russia might have hacked the election, but it could have been someone else, and it did not affect the outcome.
Of course not.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1227.20 | – 13.00 | – 1.05% |
| Silver (oz) | 15.54 | – 0.22 | – 1.40% |
| Copper (lb) | 2.78 | – 0.02 | – 0.72% |
| Aluminium (lb) | 0.95 | – 0.01 | – 1.34% |
| Lead (lb) | 0.98 | – 0.00 | – 0.03% |
| Nickel (lb) | 6.09 | – 0.08 | – 1.37% |
| Zinc (lb) | 1.16 | + 0.02 | 1.79% |
| West Texas Crude (Aug) | 67.61 | – 0.39 | – 0.57% |
| Brent Crude (Sep) | 71.63 | – 0.34 | – 0.47% |
| Iron Ore (t) | 63.70 | + 0.70 | 1.11% |
Also not impacting notably on Wall Street last night was another strong session for the US dollar, up 0.5% on its index. While to some extent the greenback is presently being supported by pound weakness, given Brexit uncertainty brought on by an imploding May cabinet, the Fed chair’s soothing words were also an impetus.
Combine the strong dollar with a trade war and commodities prices are handicapped to begin with, individual influences notwithstanding. But the selling was a little milder last night, certainly for oil, and zinc finally managed a rebound.
Iron ore also rebounded but it was all too much for gold, which has again fallen back into the US$1220s.
Today
The SPI Overnight closed up 22 points or 0.4%.
The Fed will publish its Beige Book tonight.
BHP ((BHP)) and Northern Star Resources ((NST)) post quarterly production reports.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AWC | ALUMINA | Upgrade to Outperform from Neutral | Credit Suisse |
| CAB | CABCHARGE AUSTRALIA | Downgrade to Sell from Neutral | UBS |
| CLW | CHARTER HALL LONG WALE REIT | Downgrade to Hold from Accumulate | Ord Minnett |
| FMG | FORTESCUE | Upgrade to Buy from Sell | Citi |
| FNP | FREEDOM FOODS | Downgrade to Reduce from Hold | Morgans |
| HPI | HOTEL PROPERTY INVESTMENTS | Upgrade to Accumulate from Hold | Ord Minnett |
| MND | MONADELPHOUS GROUP | Upgrade to Hold from Sell | Deutsche Bank |
| NWL | NETWEALTH GROUP | Downgrade to Hold from Buy | Ord Minnett |
| ORA | ORORA | Downgrade to Sell from Hold | Deutsche Bank |
| ORG | ORIGIN ENERGY | Upgrade to Buy from Neutral | Citi |
| PPS | PRAEMIUM | Upgrade to Add from Hold | Morgans |
| SKI | SPARK INFRASTRUCTURE | Downgrade to Hold from Add | Morgans |
| SXY | SENEX ENERGY | Upgrade to Neutral from Sell | Citi |
| WHC | WHITEHAVEN COAL | Downgrade to Neutral from Outperform | Credit Suisse |
| WOR | WORLEYPARSONS | Downgrade to Hold from Buy | Deutsche Bank |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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