The Monday Report

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World Overnight
SPI Overnight (Dec)	5637.00	– 30.00	– 0.53%
S&P ASX 200	5681.50	+ 23.80	0.42%
S&P500	2633.08	– 62.87	– 2.33%
Nasdaq Comp	6969.25	– 219.01	– 3.05%
DJIA	24388.95	– 558.72	– 2.24%
S&P500 VIX	23.23	+ 2.04	9.63%
US 10-year yield	2.85	– 0.03	– 0.90%
USD Index	96.51	– 0.29	– 0.30%
FTSE100	6778.11	+ 74.06	1.10%
DAX30	10788.09	– 22.89	– 0.21%

By Greg Peel

Tough Battle

Last Wednesday and Thursday saw the ASX200 drop from the open before fighting back to the close, pushing against US concerns with regard the arrest of the Huawei executive and what that might mean for US-China trade negotiations. Thursday night saw Wall Street also fight back, from a very precipitous opening fall.

This appeared to provide a green light for the ASX200 to rally from the open on Friday, rising 50 points by late morning. Midday then saw the index hit by selling, before the afternoon brought stability and less impressive but reasonable close of up 23 points.

The bargain hunters are trying hard, and technically the index is holding that 5650 level so far. But another test appears likely today as Wall Street again ran scared on Friday night. The futures were down -30 points on Saturday morning which again puts us right on that 5650 mark.

Defensives were the main winners last week – a week which saw the index close up a net 14 points. Friday retained the theme, with staples (+1.4%), healthcare (+1.8%), telcos (+0.9%) and utilities (+1.0%) providing the support.

Financials closed flat but would have been positive if not for a -35% fall for IOOF Holdings ((IFL)). The wealth manager was relatively sanguine about possible RC fallout at its AGM last week. On Friday IOOF received notice from APRA in relation to alleged breaches of superannuation industry laws.

The main offset on Friday was provided by energy (-0.5%), following a no-result OPEC meeting and materials (-0.4%) on metals price weakness. The story for energy will change today after Friday’s developments and the fall in materials was aided by a -9.5% fall for Adelaide Brighton ((ABC)) following a guidance downgrade.

It feels as if the Australian market is just itching to get a Santa rally happening before heading off for Christmas, although it’s worth noting the original “Santa Rally” referred only to the week between Christmas and New Year. Making that difficult is constant volatility on Wall Street on the ups and downs of trade developments.

Wall Street posted its worst week since March last week, on Friday’s close. We closed up 14 but still have to respond today to another -2% sell-off in New York.

Can we continue to hang in there?

Mixed Signals

The US added 155,000 jobs in November against expectation of 190,000. The unemployment rate remained at 3.7%. There was no increase in annual wage growth of 3.1%.

While Wall Street does not want to see US growth slowing too quickly, it does want to keep the Fed in its box. Doubt is now beginning to creep in as to whether a December rate hike is truly baked in and this is a relief for stock markets. If December is baked in then at the very least it is now assumed 2019 won’t see the Fed as hawkish as was previously feared.

The Dow opened up around 150 points on Friday night. Apart from the jobs numbers, comments from national economic advisor Larry Kudlow buoyed sentiment.

US-China trade negotiations will yield immediate results, Kudlow declared, before the ninety day truce period is even over. Chinese tariffs in agriculture and energy will be lowered, barriers to American ownership of Chinese companies will come down and progress will be made on technology transfers and intellectual property.

Sounds fab. Trump made similarly positive noises in one of his many tweets on Friday.

Then along came trade advisor Peter Navarro, who said that if an agreement cannot be made within ninety days, the US would proceed with new tariffs and tariff increases. He also said the Meng arrest and trade talks were not related, but as far as Wall Street was concerned, Navarro tipped a bucket on Kudlow’s upbeat mood.

The Dow fall to be down -660 points. An attempt to rally back in the final hour proved fleeting, with the Dow closing down -550 to mark its worst week since March. The Dow fell -4.5% for the week, the S&P500 -4.6% and the Nasdaq -4.9%.

It’s the worst start to December since 2008. December is historically one of the most positive months on Wall Street.

There was good news from Vienna, at least for oil producers. OPEC-Russia has agreed to cut crude production by 1.2mbpd. The market was hoping for 1mbpd and fearing only 500,000bpd so it was quite a pleasant surprise. Oil prices did not nevertheless shoot for the moon, but clawed back 2%.

In November the US became a net exporter of oil for the first time in 75 years.

Energy stocks led Wall Street higher from the open but even they, too, succumbed by the death. US banks continue to be hammered on falling yields and a flattening yield curve. The US ten-year fell another -3 basis points to 2.85%.

A lot rests on what might happen in the next ninety days. Or actually, 82 days and counting down. At the coal face, US companies have put capex plans on hold until they can be confident of what the trade situation actually is. In other words, the US economy is starting to stall until some sort of clarity emerges.

Throw in Brexit risk (vote tomorrow night) and the mood is definitely sour, resulting in timid upticks but stampeding down-moves.

It’s not beginning to look a lot like Christmas.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1247.80	+ 10.30	0.83%
Silver (oz)	14.58	+ 0.13	0.90%
Copper (lb)	2.79	+ 0.02	0.63%
Aluminium (lb)	0.89	+ 0.00	0.45%
Lead (lb)	0.89	+ 0.01	0.70%
Nickel (lb)	4.91	– 0.04	– 0.82%
Zinc (lb)	1.22	– 0.01	– 0.61%
West Texas Crude (Jan)	52.61	+ 0.94	1.82%
Brent Crude (Feb)	61.67	+ 1.45	2.41%
Iron Ore (t) futures	66.80	+ 0.80	1.21%

Metals prices continue to fluctuate on small moves, aided by a weaker US dollar, waiting to see what transpires.

There was not a lot of conviction in the oil price bounce.

Rising nervousness is evident in gold’s steady climb.

The typical relationship between the US dollar index and the Aussie dollar broke down last week and it was more of the same on Friday. The Aussie is down another -0.7% at US$0.7182, with disappointing economic data providing last week’s impetus.

The SPI Overnight closed down -30 points or -0.5% on Saturday morning. Not -2%, as was the case on Wall Street.

The Week Ahead

Prime Minister Johnson? Not beyond the bounds this week.

China posted trade numbers over the weekend. Exports fell to an annual growth rate of 5.4% last month, down from 12.6% in October. Imports fell to 3.0% from 20.3%. Enough said. Presumably such numbers give Washington an upper hand in trade talks.

This Friday China posts industrial production, retail sales and fixed asset investment numbers.

The US will see the November PPI tomorrow and CPI on Wednesday, with industrial production on Friday.

In Australia we’ll see housing finance numbers today, NAB’s business confidence survey tomorrow and Westpac’s consumer confidence survey on Wednesday.

Macquarie Group ((AGM)) holds its AGM today. Westpac ((WBC)) follows on Wednesday and Suncorp ((SUN)) on Thursday.

Inghams Group ((ING)) goes ex-capital return today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AHY	ASALEO CARE	Upgrade to Buy from Neutral	Citi
AQG	ALACER GOLD	Upgrade to Outperform from Neutral	Macquarie
ASG	AUTOSPORTS GROUP	Upgrade to Buy from Neutral	UBS
AWC	ALUMINA	Downgrade to Hold from Accumulate	Ord Minnett
BHP	BHP	Downgrade to Hold from Accumulate	Ord Minnett
EVN	EVOLUTION MINING	Downgrade to Hold from Accumulate	Ord Minnett
GXY	GALAXY RESOURCES	Downgrade to Neutral from Outperform	Macquarie
HT1	HT&E LTD	Downgrade to Underweight from Overweight	Morgan Stanley
HUO	HUON AQUACULTURE	Downgrade to Neutral from Outperform	Credit Suisse
IGO	INDEPENDENCE GROUP	Upgrade to Buy from Neutral	UBS
NEC	NINE ENTERTAINMENT	Upgrade to Overweight from Equal-weight	Morgan Stanley
NHC	NEW HOPE CORP	Upgrade to Outperform from Neutral	Macquarie
NST	NORTHERN STAR	Upgrade to Buy from Neutral	UBS
ORE	OROCOBRE	Downgrade to Neutral from Outperform	Macquarie
RRL	REGIS RESOURCES	Downgrade to Neutral from Outperform	Macquarie
S32	SOUTH32	Upgrade to Buy from Neutral	UBS
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.

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