The Overnight Report: A Glimmer

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By Greg Peel

China to the Rescue I

The ASX200 opened down almost -50 points yesterday morning, as the futures had suggested, on China slowing fears fuelled by one weak corporate result. At 11am news came through a “low level” Chinese trade delegation, meaning vice ministers rather than ministers was heading to Washington to meet their “low level” US counterparts.

It’s the first sign in a while Beijing may just be willing to talk. Suffice to say, the index came all the way back again.

Which is handy, because it allowed the market to focus on earnings results instead.

Telstra ((TLS)) was the winner on the day, meeting expectations but announcing a shock special dividend, at a time analysts continue to mark down their future dividend expectations. Telstra jumped 5.9% to make telcos (+4.9%) the star performer of the day.

This was needed to balance out materials and energy, which fell -1.7% and -1.5% respectively. Commodity prices were hammered on Wednesday night on China fears, and unsurprisingly last night saw a rebound, but the resources sectors could not shake off the weakness.

Origin Energy ((ORG)), now a top 20 stock, fell -6.4% following its result, which didn’t help. Peer AGL Energy ((AGL)) fell -1.4% in sympathy, or on the lower oil price, or because of all the NEG carry-on, but it’s a utility. Utilities were the only other sector to close in the red yesterday, down -0.7%.

Elsewhere, sector moves were more minor, as one might expect on a day the index closes flat. There were nevertheless some big moves among companies reporting on the day.

Perennial disappointer QBE Insurance ((QBE)) jumped 6.8%. Perennial forecast-misser InvoCare ((IVC)) dropped -8.8%. Mineral sands producer Iluka Resources fell -7.7%. Volatile infant formula producer Bellamy’s jumped 6.7%, but the highlight of the day was the toasted sandwiches. Breville ((BRG)) leapt 12.5% to top the winners’ table.

We might also note that while Domino’s Pizza ((DMP)) initially fell on its earlier earnings report, it’s done nothing but surge back ever since, including another 7.7% yesterday. Domino’s is, or was, one of the most shorted stocks on the market at 15%.

The ABS announced yesterday it had bought some new darts, as the feathers on the old ones were looking a bit frayed. I have noted often enough that the monthly jobs numbers almost never come in anything like economist forecasts, and the swings and roundabouts are often so wild economists are left scratching their heads. So with new darts at hand, the bureau would now like us to concentrate on the trend numbers, and not so much on the monthlies.

Let’s just say the labour market still looks strong.

So we’re back where we were two days ago, at the new post-GFC high. We’ll wait with baited breath to see what transpires next week when the Chinese trade delegation lands. In the meantime, it’s back to earnings season, which only gets more crowded from here.

The futures are down -2 points this morning, which looks a bit strange when the Dow is up 400 overnight, but we got the news first and responded.

China to the Rescue II

It was a disproportionately large gain for the Dow last night (1.6%) to the Nasdaq (0.4%), which is usually the outperformer, with the S&P (0.8%) in the middle. But this was due to two factors.

The Dow contains the big industrial stocks that are hammered any time trade fears escalate, being your Boeings, Caterpillars, 3Ms etc. So it stands to reason that if there is going to be any breakthrough in trade negotiations, those stocks will be the ones enjoying a recovery.

The Dow also contains Wal-Mart, which last night posted June quarter earnings and jumped almost 10%.

The FANGs have been the go-to stocks as the trade war battle has raged to date, so last night they sat out and watched.

It was Washington that invited the Chinese in for a chat, and Beijing accepted. So it is not yet Beijing waving a white flag. Given the meetings are “low level”, no major resolutions are expected to result but at least it’s a start.

Interestingly, the meetings will begin on August 23 – the day tariffs take effect on the big US$200bn tranche. Maybe Trump simply plans to hold a blowtorch to the vice ministers and ask” How does it feel?”

It has not escaped anyone that the US mid-term elections are approaching. Trump probably expected he’d have made better progress by now, and does not want to risk losing his majority in Congress on a trade war stalemate. So commentators suggest that while the meetings are good news, they may prove simply to be a bit cosmetic.

Trump wants to be able to throw the electorate a bone before November.

Otherwise, Wall Street is starting to relax a little over the Turkey issue. Another 3% gain for the lira last night, following on from the announcement of Qatar’s rescue package the night before, means the currency has now rebounded 10%. It’s still down 15% in August, nonetheless.

Now Wall Street will also simply wait with baited breath.

Commodities

Base metal prices recovered a lot of Wednesday night’s falls, except for aluminium, which is incidentally the only one with a tariff on it.

The oil prices, too, modestly bounced back.

Talk in gold circles is that the reason the metal is seemingly being kicked down for no reason recently is that there’s some big central bank selling going on. This would make sense in the face of various currencies going through the floor.

The Aussie typically bounces around on trade war news and it’s up a mild -.3% at US$0.7260.

Today

The SPI Overnight closed down -2 points.

The RBA governor speaks today, or sends in an old tape.

Earnings reports are due today from Evolution Mining ((EVN)), Goodman Group ((GMG)), Link Administration ((LNK)) and Primary Health Care ((PRY)), among others.

Rudi might connect with Sky News Business via Skype around 11.15am today, programming and work-flow permitting.

The Australian share market over the past thirty days…

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