Daily Market Reports | Jan 21 2019
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| World Overnight | |||
| SPI Overnight (Mar) | 5864.00 | + 43.00 | 0.74% |
| S&P ASX 200 | 5879.60 | + 29.50 | 0.50% |
| S&P500 | 2670.71 | + 34.75 | 1.32% |
| Nasdaq Comp | 7157.23 | + 72.76 | 1.03% |
| DJIA | 24706.35 | + 499.19 | 2.06% |
| S&P500 VIX | 17.80 | – 0.26 | – 1.44% |
| US 10-year yield | 2.78 | + 0.04 | 1.27% |
| USD Index | 96.33 | + 0.26 | 0.27% |
| FTSE100 | 6968.33 | + 133.41 | 1.95% |
| DAX30 | 11205.54 | + 286.92 | 2.63% |
By Greg Peel
Solid Week
Happy New Year, if it’s not now too late to say so. It’s a new year for me nonetheless as I return for another year of fun and markets.
When I left for my annual break just before Christmas the ASX200 was around 5500. It dipped a bit from there before beginning a solid rally that has taken us as far as 5879 on Friday. As far as I can tell the bulk of the movement locally has been macro-driven, with a particular focus on Wall Street. I can’t say my own attention has been finely focused during my holiday.
I did note a 1000 plus point rally on the day for the Dow when most of us were on the beach. I doubt any humans were involved. I believe the bulk of the rally on Wall Street, aside from being from a point of heavily oversold, is due to optimism over US-China trade negotiations and most recently positive US earnings results. Donald, his Wall, and the longest running government shutdown in US history have been making headlines, but it does not seem to have had too much impact on market sentiment.
Locally, well, no one pays any attention to our own politicians anymore.
So, back into the swing of it: Friday on the local market.
Easing global trade tensions are positive for our market and reflected in commodity prices and subsequent resource sector moves. Materials and energy both gained 0.7% on Friday with utilities chiming in with 0.5% thanks to AGL.
Financials (+0.5%) have presumably been boosted by a big turnaround for US bank share prices earlier in the week and the fact the Royal Commission focus is now on aged care. To that end we note the major residential aged care players all had negative sessions on Friday if for no other reason the RC has now begun. Healthcare as a whole was a laggard with a 0.2% gain.
The consumer sectors were also popular on Friday, rising 0.5% (discretionary) and 0.7% (staples). I had the impression it was not a great Christmas in consumer land, coming, as the mass media will have us believe, in the midst of a Major Housing Crisis.
The standout on the day was IT, and it is already apparent this sector has picked up where it left off in 2018 – highly correlated to the Nasdaq and driven by a handful of highly volatile individual stocks such as Afterpay Touch ((APT)), which jumped 12% on Friday on a trading update.
You’ll no doubt recall the December quarter, from the outset, was dominated by talk of will there be a Santa rally? In strict terms, “Santa rallies” occur only in couple of weeks from Christmas and into the New Year. Well guess what? We got one. But it’s a bit like a Christmas present from your elderly auntie when it begins only after a steep fall.
Still, the ASX200 gained 1.8% last week and is up 5.5% in 2019. Could 2019 be the year the index actually returns to its previous high, set in 2007?
Positive Signs
The S&P500 gained 2.9% last week. It is up some 12% since Christmas Eve but remains around -10% below the 2018 high.
The primary driver of Friday’s rally on Wall Street was a Bloomberg report suggesting Chinese officials have offered to increase imports form the US by US$1trn over the next six years, which would bring the US trade deficit with China in line by 2024. Six years would span not only the 2020 presidential election but also another four years, heaven forbid, of a Trump administration.
On Thursday a Wall Street Journal report suggested US officials are considering lowering tariffs on Chinese imports to give Beijing an incentive to make further concessions.
All sounds great and…yes, we’ve heard it all before. Or versions of the same story at least, all through 2018. I wouldn’t be holding my breath.
The question being asked at present, in the context, is whether a 12% rally from the bottom means positive assumptions about trade resolution have been priced in, or whether, if something actually does happen – something real – on the trade front, Wall Street could rally back to those 2018 highs.
I’m sure we’ll find out eventually. Meanwhile, US economic signs are mixed. Industrial production rose 0.3% in December but the University of Michigan’s fortnightly index of consumer sentiment opened the year with a fall to 90.7 from 98.3 around Christmas. Economists had forecast 97.5. Economists are probably being paid at this point.
Oil was the other point of focus on Wall Street on Friday night. WTI was challenging US$50/bbl when I left and now at almost US$54 after a 2.8% gain on Friday night but yes, I am aware there was a bit of a dip in the interim.
Oil prices rose on Friday night thanks to aforementioned trade optimism and also a drop in the weekly US rig count of -21 to 852, representing a third straight week of declines and the biggest weekly decline in almost three years. That “bit of a dip” clearly had its impact on marginal production.
Energy was unsurprisingly the leading sector on Wall Street on Friday night.
So, there’s a trade summit due for next month, only 10% of the S&P500 has reported so far, and some resolution of sorts must be nigh on the government shutdown front. Perhaps Trump can plant a hedge. 2019 should be another fun year.
Then there’s Brexit of course, which, if you recall, sent global markets into a tailspin back in 2016. Not anymore. No one has the slightest clue.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1281.30 | – 9.50 | – 0.74% |
| Silver (oz) | 15.31 | – 0.19 | – 1.23% |
| Copper (lb) | 2.71 | + 0.03 | 0.93% |
| Aluminium (lb) | 0.83 | + 0.02 | 1.83% |
| Lead (lb) | 0.89 | + 0.01 | 0.75% |
| Nickel (lb) | 5.31 | + 0.14 | 2.73% |
| Zinc (lb) | 1.17 | + 0.01 | 1.06% |
| West Texas Crude (Feb) | 53.76 | + 1.48 | 2.83% |
| Brent Crude (Mar) | 62.65 | + 1.39 | 2.27% |
| Iron Ore (t) futures | 75.20 | + 0.45 | 0.60% |
Metals prices were also beneficiaries of trade hopes, other than gold.
Gold is nevertheless around US$50/oz higher than when I left but I note the Aussie’s little changed, down -0.4% on Friday to US$0.7170, but I believe it caught sight of a 69 at one point in the past month.
Iron ore’s around US$10/t higher. All must be right with the world.
The SPI Overnight closed up 43 points or 0.7% on Saturday morning.
The Week Ahead
US earnings results will no doubt dominate this week, pending any further news on the trade or shutdown fronts. Wall Street is nevertheless closed tonight for Martin Luther King Day.
China will be in clear focus today as its December quarter GDP result is released, along with monthly industrial production, retail sales and fixed asset investment numbers.
The Bank of Japan holds a policy meeting on Wednesday and the ECB on Thursday.
Durable goods orders, due on Friday, will be the highlight on the US economic calendar.
Locally we have jobs numbers out on Thursday.
On the local stock front, we’re deep into resource sector production report season. Following Rio Tinto’s report on Friday we have BHP Group ((BHP)) looming tomorrow but I’ll list them on a daily basis. Today we have Saracen Mineral Holdings ((SAR)).
We can also look ahead to Friday for an earnings report from ResMed ((RMD)).
Rudi will appear on Your Money today, noon-2pm.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABC | ADELAIDE BRIGHTON | Upgrade to Equal-weight from Underweight | Morgan Stanley |
| AGL | AGL ENERGY | Downgrade to Hold from Accumulate | Ord Minnett |
| AUB | AUB GROUP | Downgrade to Neutral from Outperform | Credit Suisse |
| BPT | BEACH ENERGY | Upgrade to Outperform from Neutral | Credit Suisse |
| CTD | CORPORATE TRAVEL | Upgrade to Buy from Neutral | UBS |
| MHJ | MICHAEL HILL | Upgrade to Neutral from Sell | Citi |
| Upgrade to Hold from Reduce | Morgans | ||
| NWS | NEWS CORP | Upgrade to Buy from Neutral | UBS |
| SDF | STEADFAST GROUP | Downgrade to Neutral from Outperform | Credit Suisse |
| SXY | SENEX ENERGY | Upgrade to Buy from Accumulate | Ord Minnett |
| SYD | SYDNEY AIRPORT | Downgrade to Sell from Buy | Citi |
| WHC | WHITEHAVEN COAL | Downgrade to Neutral from Outperform | Macquarie |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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