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The Overnight Report: Beijing Pipes Up

Daily Market Reports | Dec 06 2018

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


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.


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.


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…

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)

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