The Monday Report

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World Overnight
SPI Overnight (Dec)	6169.00	– 23.00	– 0.37%
S&P ASX 200	6194.60	+ 25.10	0.41%
S&P500	2929.67	– 1.08	– 0.04%
Nasdaq Comp	7986.96	– 41.28	– 0.51%
DJIA	26743.50	+ 86.52	0.32%
S&P500 VIX	11.68	– 0.12	– 1.02%
US 10-year yield	3.07	– 0.01	– 0.32%
USD Index	94.22	+ 0.31	0.33%
FTSE100	7490.23	+ 122.91	1.67%
DAX30	12430.88	+ 104.40	0.85%

By Greg Peel

Technical Barriers

Back in June, the ASX200 needed a handful of attempts to break up through the 6200 level. Once through, the index shot up to, but failed to break 6300. There followed a choppy July, in which 6300 was a ceiling and 6200 became support, before 6300 was finally breached in August and new new post-GFC high was attained.

It’s now a case of deja-vu. Having fallen all the way back to 6100 before bouncing, 6200 has again become a barrier for the index. We almost got there on Wednesday, tried again but failed on Thursday, and on Friday morning we hit 6200 in the first half hour but failed to hold it. It then became a typical Friday afternoon of weekend squaring.

It was not a particularly convincing attempt on Friday. IT jumped 2.2%, but is the most volatile of sectors and second lowest cap-weight. Materials (+1.5%) was the main driver, on stronger metals prices, and consumer staples (+0.6%) were strawberry flavoured. Beyond that, nothing much moved. The banks were close to flat and energy was dead flat.

Utilities (-0.4%) was the only sector to close lower. A US ten-year yield above 3% is taking its toll on bond proxies.

There was not a lot going on at the individual stock level. Premier Investments ((PMV)) continued to slide on Friday (-4.2%) following its result earlier in the week while on the upside, jumps for lithium miner Orocobre ((ORE)) and graphite miner Syrah Resources ((SYR)) of 7.0% and 5.3% remind us that battery-land is both very volatile and heavily shorted.

Syrah is the second most shorted stock on the ASX (17.2%) and Orocobre (16.8%) third, with fourth place occupied by peer Galaxy Resources ((GXY)) on 16.6%.

Even bigger moves up in metal prices in London on Friday night might otherwise have portended an attempt to breach 6200 today, but the futures closed down -23 points on Saturday morning.

Rebalancing

It was a quarterly rebalance at the close for the S&P500 on Friday night which always leads to late volatility and a big jump in volumes. But the truth is Wall Street had been rebalancing all week, and Friday was no exception.

We need only look at the split of three indices at the close: Dow up 0.3%, Nasdaq down -0.5%, S&P flat. The market (S&P) didn’t move but investors continued to shift out of the tech growth story (Nasdaq) and into the cyclical value story (Dow). Within the Dow itself, Caterpillar was the winner for the week and Apple the loser.

Apple’s new round of phones went on sale on Friday and while there was still the usual line of blind fanatics queued up from the wee hours, these days pre-orders and online sales mean those queues are no longer much of a benchmark. Rather, reviewers spent the day trying to figure out what exactly was the difference between the iPhoneXS and iPhoneX.

Apple shares fell -1.1%.

Chipmaker Micron was one company to come out on Friday and warn US-China tariffs would mean a significant cut to gross margins, sending that stock down -2.9%. Walmart (Dow) was another, warning of increased prices at the checkout.

Yet it was another new record high for the Dow.

There was a lot of focus on Friday night on Brexit, or lack thereof. The EU’s summary rejection of Theresa May’s latest proposal sent the pound down -1.3% and further raised the prospect of the deadline being reached – now less than six months away – with no deal.

The stumbling block is whether or not you’d need to carry a passport in Ireland to cross the the North. EU says yes, UK says no, which is a little ironic in an historical sense. But it is this small detail that threatens a “hard Brexit”, threatens May’s tenure as PM, and threatens yet another referendum.

On the subject of trade, Wall Street was closed for the week when news broke that sideline talks at the UN between the US and Canada failed to make any progress on the stalemate between the two with regard tariffs and NAFTA, despite both parties constantly telling us a deal is “close”.

The LME had long ago closed, so that news is not in Friday night’s metal price moves.

Looking at the US economy in isolation, the data flow continues to wreak astonishment.

On Thursday night we saw weekly new jobless claims fall to their lowest level since 1969. The Philly Fed index jumped more than expected. The leading economic indicators index implied GDP growth in excess of 3% in the second half of 2018. On Friday, a flash estimate of US manufacturing PMI suggested a jump to 55.6 from 54.7.

The US is leaving the world in its dust.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1198.70	– 8.20	– 0.68%
Silver (oz)	14.25	– 0.06	– 0.42%
Copper (lb)	2.82	+ 0.09	3.37%
Aluminium (lb)	0.93	+ 0.02	2.14%
Lead (lb)	0.91	– 0.00	– 0.02%
Nickel (lb)	5.94	+ 0.26	4.50%
Zinc (lb)	1.12	+ 0.02	1.63%
West Texas Crude (Oct)	70.80	+ 0.04	0.06%
Brent Crude (Nov)	78.80	+ 0.17	0.22%
Iron Ore (t) futures	68.69	+ 0.02	0.03%

The big fall in the pound drove the US dollar index up 0.3% on Friday night bit that did not deter base metal prices. The Shanghai Futures Exchange launched copper options on Friday and Chinese copper miners went piling in. Volumes traded were far in excess of Comex on the day, and had the 147 year-old London Metals Exchange a bit worried.

Metals strength was put down otherwise to “easing” trade tensions, which is still a reflection of the “10% instead of 25%” result on US-China tit-for-tat tariffs.

The Aussie is down -0.3% at US$0.7268 to perfectly match out the greenback.

The SPI Overnight closed down -23 points or -0.4%.

The Week Ahead

The Fed statement and press conference are due on Wednesday night. A rate hike is assumed, but the market will be looking for hints about December. If there are any, it will be a case of weighing up economic strength and trade wars.

US data this week include consumer confidence, house prices and the Richmond Fed index tomorrow, durable goods and new home sales on Wednesday, pending home sales on Thursday, and PCE inflation on Friday.

Thursday brings another revision to the US June quarter GDP result.

China is closed today ahead of industrial profits numbers on Thursday and PMIs on Friday.

Japan is closed today.

The RBNZ holds a policy meeting on Thursday.

It’s a quiet economic week locally, with Friday’s private sector credit numbers the highlight.

On the local stock front, the ex-dividend list is beginning to diminish but there are still a handful of ASX200-300 stocks among that number this week, including Carsales ((CAR)) today.

Thursday, as has become traditional, will see a long list of high yield investment funds (REIT, infra etc) going ex.

Nufarm ((NUF)) reports earnings on Wednesday and AGL Energy ((AGL)) holds its AGM.

Rudi will appear on Sky Business on Tuesday via Skype around 11.15am; 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
CGC	COSTA GROUP	Upgrade to Buy from Neutral	UBS
EHE	ESTIA HEALTH	Downgrade to Neutral from Outperform	Macquarie
JHC	JAPARA HEALTHCARE	Downgrade to Underperform from Neutral	Macquarie
PMV	PREMIER INVESTMENTS	Downgrade to Sell from Neutral	Citi
		Downgrade to Hold from Buy	Deutsche Bank
RIO	RIO TINTO	Upgrade to Add from Hold	Morgans
RWC	RELIANCE WORLDWIDE	Upgrade to Hold from Sell	Deutsche Bank
WPL	WOODSIDE PETROLEUM	Upgrade to Outperform from Underperform	Credit Suisse

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

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