The Overnight Report: Grinding Higher

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World Overnight
SPI Overnight (Sep)	6203.00	+ 9.00	0.15%
S&P ASX 200	6245.10	+ 41.50	0.67%
S&P500	2815.62	+ 6.07	0.22%
Nasdaq Comp	7854.44	– 0.67	– 0.01%
DJIA	25199.29	+ 79.40	0.32%
S&P500 VIX	12.10	+ 0.04	0.33%
US 10-year yield	2.88	+ 0.01	0.38%
USD Index	95.09	+ 0.10	0.11%
FTSE100	7676.28	+ 49.95	0.65%
DAX30	12765.94	+ 104.40	0.82%

By Greg Peel

Headless Chooks

Yesterday the ASX200 recovered everything it lost on Tuesday. Nothing changed in the meantime.

It does rather support my assumption a big sell order hit the market on Tuesday which drove the index down lower than anyone, futures traders included, were expecting. With that order cleared, it was back to where we started. The index regained the loss in the first half hour, and more, before drifting off a little to the close.

It does also rather confirm that uncertainty rules in Australia at present, perhaps more so than in the US. The unresolved trade war is weighing on commodity markets, the fallout from the banking Royal Commission is yet to be known, the local housing market is looking vulnerable, and while the RBA is upbeat on the economy, it is worried about elevated household debt. What will drive this market on to new post-GFC highs?

Answers to the questions posed above.

Energy was the only sector not to rebound yesterday and by rights materials might have been another, given ever lower metals prices, but a 1.3% gain can be mostly attributed to a 3.3% jump for BHP ((BHP)) after the company reported record iron ore production in the June quarter and confirmed bids had been received for its US shale business.

Otherwise, every other sector rebounded roughly by the amount they fell on Tuesday, except for the banks, which flipped a -0.1% loss into a 0.6% gain.

IT was up 1.2% as cloud services company TechnologyOne ((TNE)) topped the ASX200 leaders’ board for the second day running, following increased revenue guidance and an announced change of revenue model. Payments disruptor Afterpay Touch ((APT)) has been rising in TechnologyOne’s slip stream.

Moving on, we can probably just write off the past two sessions as netting out, with the exception of energy given the big fall in oil prices. Last night metals price moves also netted out to some extent, with zinc’s sharp comeback continuing after a long fall.

Today we get the June jobs numbers.

Focus on the Good News

The Fed’s anecdotal Beige Book, released last night, suggested 11 of 12 Fed districts are seeing “modest” or better growth, which is a slight upgrade on the “modest to moderate” assessment that prevailed through pretty much the entirety of Janet Yellen’s tenure. But growth ahead is going to be harder to come by, given an increasing shortage of skilled workers and increasing raw material costs, the Fed warned.

That said, forecast for June quarter GDP growth are now cemented at 4% — a big jump on March. Such a pace of growth, and the inflationary influences highlighted by the Beige Book, might suggest a Fed moving faster on rates. But in his testimony to the House last night, Jay Powell reiterated the theme he maintained with the Senate.

The Fed will hike every three months unless it decides best not to do so.

The Fed remains wary of the possibility of an inverted yield curve, and the recession implications thereof, but is an economy growing at 4% about to go into recession? September quarter forecasts remain at least in the threes, and expectations for S&P500 earnings remain around the 20% mark for June and at least the September quarters.

On that note, airline United Continental blew away forecasts last night with its earnings result, as did rail company CSX. United jumped 9% and CSX 7% taking the Dow Transports average up 2.3%. Fear of higher oil prices weighing on transport companies abated.

Morgan Stanley was the last of the big banks to report and of the Big Five, posted the best result. It rose 2.8%.

EU antitrust regulators have hit Google with a US$5bn fine, basically because everyone in the world “Googles” to the point of monopoly, but Google (Alphabet) shares were unmoved. The company is appealing, but while the biggest EU fine ever to be imposed, US$5bn is the Google board’s average lunch bill.

So it was a case of the financials again leading the way on Wall Street last night with strong support from industrials, wherein lie transports. Industrials also contain what are now being dubbed the big “China” stocks, being Boeing, Caterpillar et al, who are whipping boys for any escalation of the trade war.

On that note, Trump advisor Larry Kudlow said in an interview last night that the market is about to be very pleased with progress made in trade negotiations with the EU. China, however, is another story.

In the meetings held between US and Chinese trade delegates in both Beijing and Washington, Kudlow reports clear progress apparently being made. But that progress has come to a dead stop at an unmoved President Xi. At this stage, Kudlow sees no progress at all.

Which should have been bad news, but Wall Street seems a bit over trade fears at the moment, and would rather concentrate on earnings and a “dovish” Fed.

And still no one gives a hoot about Trump’s attempted acrobatics.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1227.10	– 0.10	– 0.01%
Silver (oz)	15.52	– 0.02	– 0.13%
Copper (lb)	2.78	– 0.00	– 0.06%
Aluminium (lb)	0.94	– 0.01	– 0.89%
Lead (lb)	0.98	+ 0.00	0.12%
Nickel (lb)	6.15	+ 0.05	0.89%
Zinc (lb)	1.19	+ 0.04	3.23%
West Texas Crude (Aug)	68.98	+ 1.37	2.03%
Brent Crude (Sep)	73.02	+ 1.39	1.94%
Iron Ore (t)	63.75	+ 0.05	0.08%

Zinc was the only stand-out among the metals last night but the oils made a bit of a comeback after recent big falls.

The bounce is being attributed to weekly US inventory data which showed lower gasoline stocks than expected. Yet the report also showed higher than expected crude supplies, and record US crude production in the week, so realistically the bounce was probably more technical than anything else.

The US dollar ticked up a bit more but the Aussie also rose 0.1% to US$0.7397.

Today

The SPI Overnight closed up 9 points.

As noted, June jobs numbers out today. NAB will also provide a June quarter summary of its business confidence survey.

It’s a busy day for resource sector quarterly reports. In the frame are Alumina ltd ((AWC)), Evolution Mining ((EVN)), South32 ((S32)) and Santos ((STO)).

The ACCC will also be busy, with decisions on Transurban’s bid for the WestConnex contract and on whether Aurizon ((AZJ)) can sell Acacia Ridge to Pacific National expected to be handed down.

Rudi will appear on Sky News Business from noon till 2pm.

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
OSH	OIL SEARCH	Downgrade to Hold from Accumulate	Ord Minnett
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
		Upgrade to Accumulate from Hold	Ord Minnett
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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