The Monday Report

This story features JAMES HARDIE INDUSTRIES PLC, and other companies. For more info SHARE ANALYSIS: JHX

World Overnight
SPI Overnight (Sep)	6229.00	+ 11.00	0.18%
S&P ASX 200	6278.40	– 19.30	– 0.31%
S&P500	2833.28	– 20.30	– 0.71%
Nasdaq Comp	7839.11	– 52.67	– 0.67%
DJIA	25313.14	– 196.09	– 0.77%
S&P500 VIX	13.16	+ 1.89	16.77%
US 10-year yield	2.86	– 0.08	– 2.66%
USD Index	96.36	+ 0.75	0.78%
FTSE100	7667.01	– 74.76	– 0.97%
DAX30	12424.35	– 251.76	– 1.99%

By Greg Peel

Ups & Downs

The ASX200 tried to push up through the 6300 barrier from the open on Friday but yet again failed. The sellers moved in to ensure a choppy session thereafter, with a late afternoon sell-off reversed just at the death.

There were some sizeable ups and downs among sectors within the negative overall result.

Energy (-1.7%) and utilities (-1.1%) led the selling on a lower oil price and a NEG looming ever closer. Materials fell -0.9% with some help from James Hardie ((JHX)), which reported a strong currency-led earnings result but disappointed on guidance. That stock fell -6.6% to top the ASX200 losers’ board.

Industrials (-1.1%) rounded out the sector losers but telcos (+0.7%) provided an offset. Healthcare rallied yet again as the Aussie tracked lower. The Aussie was down a full -1.3% on Friday night so watch that space today.

The Royal Commission wrapped up on Friday which might have brought a sigh of relief for financials, but regulatory and/or punitive responses are yet to be known and won’t be for some months. Financials closed flat.

The reporting season highlight of the day was provided by Baby Bunting ((BBN)), which is not in the ASX200. The retailer reported a -29% slump in profit and the stock rallied 38%.

The reason for the slump was a round of closing down sales at Baby Bunting’s major competitors. Once that inventory is cleared, the baby market is there for the taking. The only surprise is that the outlook came as a surprise – analysts have been pointing this out for months.

The RBA’s Statement on Monetary Policy, released on Friday, read like a broken record. No change in rates in sight.

There was some good news out of Japan, which posted a GDP increase in the June quarter of 0.5% when 0.3% was expected, taking annual growth to 1.9% when 1.4% was expected. This is just shy of what the US achieved in the March quarter, and can only increase the pressure on the Bank of Japan to further address its negative cash rate and QE policies.

The local earnings season steps up a gear this week but hope of the micro being the only focus is rapidly diminishing as the macro backdrop takes another turn for the worse. The 6300 level remains a brick wall but the Aussie is materially weaker, which may be behind an 11 point gain for the futures on Saturday morning when the Dow fell -200 on Friday night.

Turkey Turmoil

The Turkish lira plummeted -15% on Friday night to be down almost -70% for the year. Friday’s trigger was an announcement Trump plans to double the tariff on steel and aluminium imports from Turkey to 50% and 20% respectively, largely due to Ankara refusing to release a US pastor held for dubious reasons. Trump is also nevertheless angry that the NATO member’s currency has fallen so far already, largely due to questions over the independence of the Turkish central bank due to an increasingly autocratic president.

Erdogan does not want interest rates to be raised.

The news obviously sent the Turkish stock market into a tailspin but the real pain was felt by European banks, which have extensive loans out to Turkey denominated in euros. Turkish corporations have also borrowed extensively in US dollars, and the general bank contagion spread across The Pond.

For US banks it was nevertheless more of a case of the US ten-year yield falling -9 basis points to 2.86% on safe haven flows. Every time it looks like the ten-year is finally going to move through 3%, it doesn’t.

The US dollar is also a safe haven in the circumstances and it rallied 0.8%, despite money also flowing into the yen. The stronger dollar has become a headwind for Wall Street.

And it wasn’t just Turkey in the frame on Friday night. New sanctions imposed on Russia led the Russian prime minister to claim the US has declared “economic war”. The latest round of tariffs on China have led the Chinese to declare the US is acting with “mob mentality”, and to note there can be no progress on trade negotiations as a result.

It’s a beautiful world we live in.

The response on Wall Street was a -0.7% drop for the S&P500, which is actually its worst session in six weeks. It just goes to show how inured the market has become to the trade war and its ramifications. And still, it wasn’t that bad a session.

While Turkey’s financial collapse is reminiscent of Greece back in the day, the difference is contagion is unlikely in this instance. Greece’s demise flowed to all of Italy, Spain, Portugal and Ireland, while Turkey is much more isolated.

But as Ergodan now turns to Russia for support, instead of its NATO ally, security issues are raised. Turkey is where the US has large military bases positioned to counter any Russian threat.

The rouble fell -5% in response to new sanctions and the Russian stock market dropped -7%.

The outperformer on Wall Street on Friday night, in terms of only falling -0.2% to the major indices’ -0.7% falls, was the Russell small cap index, which is largely immune to the trade war.

Spot Metals,Minerals & Energy Futures
Gold (oz)	1211.20	– 0.90	– 0.07%
Silver (oz)	15.28	– 0.14	– 0.91%
Copper (lb)	2.78	– 0.04	– 1.27%
Aluminium (lb)	0.93	+ 0.00	0.27%
Lead (lb)	0.94	– 0.01	– 0.82%
Nickel (lb)	6.21	– 0.05	– 0.78%
Zinc (lb)	1.16	– 0.04	– 2.94%
West Texas Crude (Sep)	67.63	+ 0.93	1.39%
Brent Crude (Oct)	72.81	+ 0.81	1.13%
Iron Ore (t)	69.40	0.00	0.00%

The International Energy Agency has lifted its global demand forecast for 2019, while at the same time noting supply has also increased thanks to Russia. It is nevertheless a net positive for oil prices, as is the glaring omission of oil among the US imports upon which Beijing is placing new tariffs. China cannot afford it, it seems.

A flare up in the trade war is never good for metals prices and nor is a big jump in the greenback.

For gold, the jump in the greenback was cancelled out by at least some safe haven support, for a square result.

The Aussie is down -1.3% at US$0.7282.

The SPI Overnight closed up 11 points on Saturday morning.

The Week Ahead

Local earnings results are coming out this week, a lot of them. Please refer to the FNArena Calendar.

Economically, NAB releases its monthly business confidence survey tomorrow and Westpac its consumer survey on Wednesday. The June quarter wage price index is out on Wednesday reminding us that the GDP result is looming.

The July jobs report is out on Thursday and the RBA governor speaks on Friday.

Earnings season remains underway in the US but we are now into the extended tail.

US data next week include industrial production, retail sales, housing sentiment and the Empire State activity index all on Wednesday, housing starts on Thursday and consumer sentiment on Friday.

China will release July industrial production, retail sales and fixed asset investment numbers tomorrow.

Today’s earnings season highlights include Aurizon ((AZJ)), Bendigo & Adelaide Bank ((BEN)), BlueScope Steel ((BSL)) and JB Hi-Fi ((JBH)), the latter being the second most shorted stock on the market.

Rudi has seemingly caught the flu over the weekend and might appear on Sky Business on Tuesday via Skype around 11.15am; 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
A2M	A2 MILK	Downgrade to Sell from Neutral	Citi
ABC	ADELAIDE BRIGHTON	Downgrade to Lighten from Hold	Ord Minnett
AGL	AGL ENERGY	Downgrade to Hold from Buy	Deutsche Bank
		Downgrade to Underweight from Equal-weight	Morgan Stanley
AMP	AMP	Downgrade to Hold from Add	Morgans
BSL	BLUESCOPE STEEL	Downgrade to Hold from Buy	Deutsche Bank
ECX	ECLIPX GROUP	Downgrade to Neutral from Outperform	Credit Suisse
		Downgrade to Hold from Buy	Deutsche Bank
EVN	EVOLUTION MINING	Upgrade to Equal-weight from Underweight	Morgan Stanley
FLT	FLIGHT CENTRE	Downgrade to Sell from Neutral	Citi
IGO	INDEPENDENCE GROUP	Downgrade to Underweight from Equal-weight	Morgan Stanley
MFG	MAGELLAN FINANCIAL GROUP	Downgrade to Neutral from Outperform	Credit Suisse
MGR	MIRVAC	Downgrade to Neutral from Buy	Citi
SDA	SPEEDCAST INTERN	Upgrade to Add from Hold	Morgans
SGM	SIMS METAL MANAGEMENT	Downgrade to Hold from Accumulate	Ord Minnett
TAH	TABCORP HOLDINGS	Upgrade to Hold from Lighten	Ord Minnett
TCL	TRANSURBAN GROUP	Downgrade to Neutral from Outperform	Credit Suisse

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

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