The Monday Report

This story features SIGMA HEALTHCARE LIMITED, and other companies. For more info SHARE ANALYSIS: SIG

World Overnight
SPI Overnight (Dec)	5580.00	– 32.00	– 0.57%
S&P ASX 200	5602.00	– 59.60	– 1.05%
S&P500	2599.95	– 50.59	– 1.91%
Nasdaq Comp	6910.67	– 159.67	– 2.26%
DJIA	24100.51	– 496.87	– 2.02%
S&P500 VIX	21.63	+ 0.98	4.75%
US 10-year yield	2.89	– 0.02	– 0.69%
USD Index	97.44	+ 0.37	0.38%
FTSE100	6845.17	– 32.33	– 0.47%
DAX30	10865.77	– 58.93	– 0.54%

By Greg Peel

China Syndrome I

Chinese industrial production rose 5.4% year on year in November, its slowest pace in three years. Forecasts were for 5.9% growth, steady from October.

Retail sales grew 8.1%, the weakest pace in fifteen years. Forecasts were for 8.8%, up from 8.6% in October.

Fixed asset investment grew 5.9% year to date in November, up from 5.7% in October and better than the 5.8% forecast.

Three cheers for fixed asset investment.

But it’s the other two numbers that had global markets concerned over Friday and Friday night. The retail sales number in particular is a shocker, even though developed countries would give their right arm for 8% sales growth, given China is supposed to be shifting to a consumer-driven economy some one and a half billion strong.

The ASX200 began the day slightly lower on Friday despite Wall Street closing positive. But once the Chinese data were released, it was Goodnight Irene. At lunchtime the index bottomed out down -73 points and V-bounced on some buying to be down -44 heading into the last hour, but then saw a fade to the close.

I would hazard a guess that Friday saw many market participants calling it quits for the year, squaring up for Christmas by selling out. Who would want to take risky trades across the holiday period in this current environment? We have one more week to go, not counting an abbreviated session on Monday for which about four people will turn up, but the kids are now off and the shutters are coming down.

The telcos led the market down (-2.5%), reflecting their own issues at present aside from overall sentiment. The banks (-1.6%) had the biggest impact on the index while materials (-0.9%) and energy (-1.3%) actually started the day to the upside but swung around on the Chinese data.

The only sector to finish in the green was utilities (+0.2%) on the defensive play, while healthcare’s “outperformance” (-0.3%) was driven by a 43% jump for Sigma Healthcare ((SIG)) on the announcement of an intended merger with Australian Pharmaceutical Industries ((API)), which itself rose 8.5%.

It was announced on Friday Nine Entertainment ((NEC)) will be promoted to the ASX100 this coming Friday. Nine fell -8.9%. Thanks for coming. The clue probably lies in an -8.7% fall for Domain Holdings ((DHG)), with which Nine is now inexorably linked, which we could put down to housing market hysteria.

The ASX200 is again technically damaged, and one wonders for how long it can remain so before previous lows are tested. We could argue the local market does not have to fall today in response to Wall Street on Friday night give we fell first for the same reason, other than Wall Street was down -2% to our -1%. Our futures closed down -32 on Saturday morning.

Australia was not alone on Friday. The Chinese stock market fell -1.5% and Japan fell -2%.

China Syndrome II

European markets also closed lower. The news from China was compounded at home by a flash estimate for the eurozone manufacturing PMI suggesting a drop to a 34-month low 51.4 in December.

The global economy is slowing. Let there be no doubt. While China only accounts for 15% of global GDP, it accounts for closer to 30% of global GDP growth. The latest forecast for US December quarter growth is 3%, which has been ticked up after fears of a retail sales slowdown proved unfounded.

US retail sales rose by 0.2% in November, which includes the critical Black Friday period, to 4.2% annual growth.

But while the US may outperform, it cannot go it alone.

The -500 point fall in the Dow was compounded on Friday night by a -10% trouncing of Johnson & Johnson, in the wake of an asbestos-in-baby-powder scandal. J&J had been a go-to stock this year as a plodder with a reliable dividend stream. Another -3% drop for Apple, as its patent problems in China continue to play out unresolved, also helped to drive down all three major indices.

The S&P500 has now surpassed its October low. The April low is the next in sight. All S&P sectors closed to the downside on Friday night.

In the background, the news out of Beijing vis a vis trade seems positive. It was announced on Friday tariffs on US auto imports will be suspended for three months on January first, and that China has just made its first major purchase of US soybeans since tariffs were increased on July first. The president, of course, is still talking it all up on Twitter.

But he always does, and no one believes him. No one much believes Chinese data either, it must be said, but Beijing is hardly talking itself up with its November numbers. A trade resolution would surely be the tonic Wall Street needs but at this stage nobody’s holding their breath. And then there’s the Huawei thing…

All attention now turns to the Fed. Wall Street is still putting a 70%-odd chance on a rate hike on Wednesday night but also hoping for a further dovish shift in the statement, suggesting perhaps the FOMC might go into 2019 without an immediate intention to hike lest the data suggest a pause might be prudent.

Santa? Where are you?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1238.10	– 4.20	– 0.34%
Silver (oz)	14.54	– 0.18	– 1.22%
Copper (lb)	2.77	– 0.03	– 1.23%
Aluminium (lb)	0.87	– 0.01	– 0.99%
Lead (lb)	0.88	– 0.01	– 1.30%
Nickel (lb)	4.86	– 0.02	– 0.35%
Zinc (lb)	1.18	– 0.03	– 2.14%
West Texas Crude (Jan)	51.23	– 1.30	– 2.47%
Brent Crude (Feb)	60.30	– 1.20	– 1.95%
Iron Ore (t) futures	67.90	– 0.30	– 0.44%

A straightforward tale. Weak Chinese data compounded by a 0.4% rise in the US dollar index, which also explains why gold cannot hang in there.

The Aussie is down -0.8% at US$0.7169, being a proxy for health of the Chinese economy.

The SPI Overnight closed down -32 points or -0.6% on Saturday morning.

The Week Ahead

The Fed statement is due on Wednesday night along with a press conference with the Fed chair.

US date this week include housing market sentiment tonight, housing starts tomorrow, and durable goods, PCE inflation and consumer sentiment on Friday. Friday also brings a “final” revision of US September quarter GDP.

Both the Bank of Japan and Bank of England hold policy meetings on Thursday.

Locally, the minutes of the December RBA meeting are due on Tuesday. Note that while the RBA is still insisting the next move in the cash rate will be up, albeit not in the near future, the overnight swaps curve has now inverted, meaning the market is calling the next move as down.

November jobs numbers are due on Thursday.

Thursday also brings the December quarter expiry of SPI futures and options, index options and stock options.

On Friday the S&P/ASX index promotions/relegations announced last Friday come into effect.

ANZ Bank ((ANZ)), National Bank ((NAB)) and Orica ((ORI)) hold AGMs on Wednesday while DuluxGroup ((DLX)) and Incitec Pivot ((IPL)) follow suit on Thursday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC	ADELAIDE BRIGHTON	Upgrade to Neutral from Sell	Citi
BEN	BENDIGO AND ADELAIDE BANK	Downgrade to Sell from Hold	Deutsche Bank
BPT	BEACH ENERGY	Upgrade to Neutral from Sell	Citi
DLX	DULUXGROUP	Upgrade to Add from Hold	Morgans
EVN	EVOLUTION MINING	Downgrade to Underperform from Neutral	Credit Suisse
FMG	FORTESCUE	Upgrade to Overweight from Underweight	Morgan Stanley
NHC	NEW HOPE CORP	Upgrade to Outperform from Neutral	Credit Suisse
ORG	ORIGIN ENERGY	Upgrade to Add from Hold	Morgans
QBE	QBE INSURANCE	Upgrade to Add from Hold	Morgans
RIO	RIO TINTO	Downgrade to Neutral from Outperform	Credit Suisse
SBM	ST BARBARA	Downgrade to Underperform from Neutral	Credit Suisse
SHL	SONIC HEALTHCARE	Upgrade to Buy from Neutral	Citi
TPM	TPG TELECOM	Downgrade to Hold from Add	Morgans

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