article 3 months old

The Overnight Report: Another Wild Ride

Daily Market Reports | Dec 12 2018

This story features WESTPAC BANKING CORPORATION. For more info SHARE ANALYSIS: WBC

World Overnight
SPI Overnight (Dec) 5608.00 + 16.00 0.29%
S&P ASX 200 5575.90 + 23.40 0.42%
S&P500 2636.78 – 0.94 – 0.04%
Nasdaq Comp 7031.83 + 11.31 0.16%
DJIA 24370.24 – 53.02 – 0.22%
S&P500 VIX 21.76 – 0.88 – 3.89%
US 10-year yield 2.88 + 0.02 0.81%
USD Index 97.40 + 0.20 0.21%
FTSE100 6806.94 + 85.40 1.27%
DAX30 10780.51 + 158.44 1.49%

By Greg Peel

It’s a Struggle

Wall Street’s sharp reversal on Monday night encouraged a similar attempt by the ASX200 yesterday morning following Monday’s rout. The index opened up 35 points but by midday, it was back to square again.

There followed a directionless session of failed rally attempts before at least some face was saved by the bell.

Healthcare was clobbered on Monday for no apparent reason and rebounded 1.7% yesterday. The banks were also clobbered but could not rebound yesterday, given we’re all about to default on our mortgages.

Because of that we’ll have no money to spend, thus the consumer sectors were again weaker.

Energy fell -0.3% as the oil price gave way despite OPEC cuts and utilities (-0.4%) went the same way on the AGL connection. Materials did not fall by much on Monday and jumped 0.9% yesterday as expectations grow the PBoC will be forced to cut its cash rate, or pull some other stimulus lever, in the face of a deteriorating Chinese economy.

Telcos rose 0.9% as it seemed everyone was a winner at the 5G spectrum auction.

Brexit is now delayed until after Christmas, and possibly longer if May doesn’t survive till then, doubt is creeping in as to whether the Fed actually will raise next week, and China is threatening retaliation over the Huawei arrest on the one hand but supposedly ready to make trade concessions on the other. In Australia, a change of government is in the offing.

It is not the sort of trading environment in which investors can make informed decisions with any degree of certainty.

Wall Street has managed a small rally overnight after another wild ride and our futures are up 16 this morning. It’s all looking like an attempt at a bottoming process but we could have said that last week about the ASX200 at 5650 and we’re now at 5575.

Whether it’s golden goose or cold turkey for Christmas is at this stage anyone’s guess.

The mood among businesses continues to sour. NAB’s business conditions (now) index fell to 10.6 in November from 12.7 in October and 14.3 in September. The confidence index (ahead) fell to 3.2 from 4.5 and 6.5. The numbers remain above average, but the trend is clear.

All in All

How do we think the US is going to fare over the next two years with Trump as prime minister and the Democrats holding the House? Well last night we got a taste.

In case you’d forgotten, Trump wants to build The Wall. In his election campaign he told supporters Mexico would pay for it. Mexico won’t. So now he needs US$5bn from the budget, and the Democrats are only prepared to offer US$1.4bn to cover border security in general. Last night the Oval Office was the scene for a raucous argument between Trump and Democrat Congressional leaders. If Trump doesn’t get the money he’s quite happy for the US government to shut down, just to make his point.

Should be a great couple of years. So great that TV vision of the argument was enough to turn a 370 point opening rally for the Dow into a -200 point loss by early afternoon. Wall Street opened higher and then tracked straight down.

The opening step-jump was sparked by news US-China trade negotiations had begun, with a phone call. According to the White House, the discussion centred around China buying US agricultural products and making changes to fundamental policies such as “Made in China 2025”, which of course harks back to IP theft.

Apparently China did say it would reduce tariffs on US autos to 15% from 40%. Sound like progress, but other details remain vague at this stage.

At the same time, Washington is contemplating whether it should issue a warning to US travellers to China, fearing Huawei retaliation.

As to whether the -570 turnaround in the Dow was simply because of the Wall argument overriding any positive trade developments or whether there are simply traders lined up to sell into any rally is unclear. But at 2pm, for no apparent reason, Wall Street rallied back again.

By 3.30pm the Dow was up 100, before closing up 44. The whipsaw action all seems pretty mindless at present, but this is often how bottoms come about.

On the other hand, there remains a believe Wall Street must test the February low before a true rebound can begin. That’s 2532 (intraday) for the S&P500, another -4% down.

In other news, the US producer price index rose 0.1% in November when a fall of -0.1% was forecast. However the annual rate fell to 2.5% from 2.9%.

More fodder for the Fed.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1242.50 – 1.00 – 0.08%
Silver (oz) 14.54 + 0.05 0.35%
Copper (lb) 2.78 + 0.02 0.81%
Aluminium (lb) 0.89 – 0.00 – 0.12%
Lead (lb) 0.89 + 0.01 1.09%
Nickel (lb) 4.82 – 0.06 – 1.15%
Zinc (lb) 1.21 – 0.00 – 0.02%
West Texas Crude (Jan) 51.66 + 0.81 1.59%
Brent Crude (Feb) 60.21 + 0.38 0.64%
Iron Ore (t) futures 66.70 + 0.20 0.30%

Rebels have seized a Libyan oil terminal, again. It was enough to encourage some buying in oil markets, but not a lot.

Metals prices continue to trade in smallish ups and downs. Just as directionless as everything else.

The Aussie has now decided it wants to trade in line with the greenback, rather than the opposite direction as is usually the case. This has been happening for several days now, and last night the US dollar index was up 0.2%, with the pound continuing to slide, and the Aussie is up 0.3% at US$0.7206.

Today

The SPI Overnight closed up 16 points or 0.3%.

The US CPI numbers are out tonight.

Westpac (economists) releases its last consumer confidence survey before Christmas today.

Westpac ((WBC)) holds its AGM. Should be a cracker.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC ADELAIDE BRIGHTON Upgrade to Outperform from Neutral Credit Suisse
AHY ASALEO CARE Upgrade to Buy from Neutral Citi
HT1 HT&E LTD Downgrade to Underweight from Overweight Morgan Stanley
IFL IOOF HOLDINGS Downgrade to Neutral from Buy Citi
Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Neutral from Outperform Macquarie
Downgrade to Equal-weight from Overweight Morgan Stanley
ING INGHAMS GROUP Upgrade to Equal-weight from Underweight Morgan Stanley
NEC NINE ENTERTAINMENT Upgrade to Overweight from Equal-weight Morgan Stanley

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

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

WBC

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION