The Overnight Report: Beijing Pipes Up

This story features COLES GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: COL

World Overnight
SPI Overnight (Dec)	5676.00	+ 13.00	0.23%
S&P ASX 200	5668.40	– 44.70	– 0.78%
S&P500	2700.06	– 90.31	– 3.24%
Nasdaq Comp	7158.43	– 283.09	– 3.80%
DJIA	25027.07	– 799.36	– 3.10%
S&P500 VIX	20.74	+ 4.30	26.16%
US 10-year yield	2.92	– 0.07	– 2.27%
USD Index	97.05	+ 0.08	0.08%
FTSE100	6921.84	– 100.92	– 1.44%
DAX30	11200.24	– 135.08	– 1.19%

By Greg Peel

Fightback

The ASX200 plunged from the open to be down over a hundred points in the first ten minutes yesterday. That was the low for the day. There was a slight stumble late morning when the GDP result was released, but otherwise the market tracked higher all session to more than halve the opening loss by the close.

Australia’s GDP grew by only 0.3% in the September quarter, down from 0.9% in the June quarter. Economists had forecast 0.6% growth, but only after adjusting for the various constituent numbers released over the past couple of weeks. Previously, they had forecast 0.9%.

Annual growth is now 2.8%, down from 3.1% in June. Economists had expected 3.3%, having previously forecast 3.5%. The RBA is forecasting 3.5% for 2018 and 2019.

Might need to rethink.

Net exports made a familiar strong contribution to the result, supported by government spending. The contribution from housing construction was barely positive, while consumer spending growth slowed significantly as wage growth remained weak. The biggest surprise was a fall in business investment, which seemed at odds with both the capex numbers released last week and rising business credit demand noted in monthly data. A sharp fall in mining investment was to blame.

ANZ Bank economists suggest that despite slowing momentum, the economy remains solid. Near term support is provided by infrastructure spending, business investment (assumed from capex intentions data) and exports. But housing is set to swing from driver to drag in the coming quarters. This leaves the consumer to carry the can.

When house prices fall, households stop spending. If wage growth remains low, so does inflation. The futures market now forecasts no rate rise from the RBA until September next year (low chance) and only a 50% chance of a hike in 2020. AMP’s Shane Oliver is now predicting two rate cuts next year.

The biggest percentage fall among the sectors yesterday was unsurprisingly IT (-2.8%), led down by the Nasdaq. The greatest impact on the index came from financials (-1.3%), which led the market down because US banks had led the market down on Wall Street overnight due to a flattening US yield curve.

Energy (-1.1%) was next worst performer ahead of tonight’s OPEC meeting while consumer discretionary’s -1.0% drop was likely just as much about the GDP numbers as it was to do with Wall Street.

Defensives stepped up to the plate. Utilities rose 1.4% and consumer staples managed 0.1%, now the market has stopped selling down Coles ((COL)).

The contrary play on the day were the miners, with BHP Group ((BHP)) rising 0.7% and the gold miners enjoying a stronger gold price. Materials fell only -0.1%. Train wreck of the day was rare earth miner Lynas Corp ((LYC)). Just when things were looking up in Malaysia, the government has imposed stricter environmental restriction. Lynas fell -22.4%.

Next worst ASX200 player on the day was Nine Entertainment ((NEC)), which fell -8.0% on news it might bid for radio group Macquarie Media ((MRN)). Macquarie Media rose 12%.

The good news, from a technical perspective, is that the index did not close below 5650 yesterday, despite trading as low as 5610 from the open. The technicals have not yet been damaged. On last glimpse, the Dow futures are up over 100 points this morning, thanks to some clarification (sort of) from Beijing.

With Wall Street closed overnight, our futures are up 13 this morning.

The sooner, the better

Beijing yesterday confirmed it had agreed to a ninety day ceasefire on tariffs. It had not done so before yesterday.

"China will start from implementing specific issues on which consensus has been reached, and the sooner, the better," the Chinese Commerce Ministry said on its website. The two sides have a "clear timetable and road map" for talks, the ministry said.

But there were no details. There was no confirmation President Xi had agreed to buy lots of US soybeans and other produce, and no suggestion of auto tariffs falling to zero, as Trump has claimed. Trump has since stepped up the pressure once more, calling himself “tariff man”.

China experts warn that while Beijing may be committed to negotiations, the longest journey begins with the first step. Trump is the off-the-cuff deal maker. The Chinese way is to make the other side sweat. For months, or years.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1236.50	– 1.50	– 0.12%
Silver (oz)	14.46	– 0.04	– 0.28%
Copper (lb)	2.82	+ 0.00	0.07%
Aluminium (lb)	0.90	– 0.00	– 0.27%
Lead (lb)	0.89	– 0.00	– 0.15%
Nickel (lb)	5.05	– 0.01	– 0.22%
Zinc (lb)	1.23	– 0.00	– 0.09%
West Texas Crude (Jan)	53.02	– 0.11	– 0.21%
Brent Crude (Feb)	61.72	– 0.30	– 0.48%
Iron Ore (t) futures	67.60	+ 0.80	1.20%

Nothing to see here.

The Aussie, on the other hand, is down a full percent at US$0.7266 which is entirely a response to the weak GDP result, given the US dollar is unmoved.

Today

The SPI Overnight closed up 13 points or 0.2%.

Locally today we’ll see October retail sales and trade data.

On the assumption US data releases previously scheduled for last night will shift to tonight, it will be a busy session, which will see private sector jobs, the Fed Beige Book and trade numbers, among other numbers.

OPEC meets in Vienna.

Nufarm ((NUF)) will hold its AGM today and Inghams Group ((ING)) and Boart Longyear ((BLY)) hold extraordinary meetings.

Telstra ((TLS)) provides an investor update.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AQG	ALACER GOLD	Upgrade to Outperform from Neutral	Macquarie
CCL	COCA-COLA AMATIL	Upgrade to Hold from Sell	Deutsche Bank
		Upgrade to Hold from Lighten	Ord Minnett
GNC	GRAINCORP	Upgrade to Buy from Neutral	UBS
GXY	GALAXY RESOURCES	Downgrade to Neutral from Outperform	Macquarie
HUO	HUON AQUACULTURE	Downgrade to Neutral from Outperform	Credit Suisse
MTS	METCASH	Upgrade to Neutral from Underperform	Credit Suisse
		Downgrade to Underperform from Neutral	Macquarie
NHC	NEW HOPE CORP	Upgrade to Outperform from Neutral	Macquarie
ORE	OROCOBRE	Downgrade to Neutral from Outperform	Macquarie
RBL	REDBUBBLE	Downgrade to Hold from Add	Morgans
RRL	REGIS RESOURCES	Downgrade to Neutral from Outperform	Macquarie
SCG	SCENTRE GROUP	Upgrade to Overweight from Underweight	Morgan Stanley
SFR	SANDFIRE	Upgrade to Outperform from Neutral	Macquarie
WHC	WHITEHAVEN COAL	Upgrade to Outperform from Neutral	Macquarie

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms