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The Monday Report (On Tuesday)

Daily Market Reports | Jan 29 2019

World Overnight
SPI Overnight (Mar) 5828.00 – 23.00 – 0.39%
S&P ASX 200 5905.60 + 39.90 0.68%
S&P500 2638.74 – 26.02 – 0.98%
Nasdaq Comp 7085.68 – 79.18 – 1.11%
DJIA 24528.22 – 208.98 – 0.84%
S&P500 VIX 19.18 + 1.76 10.10%
US 10-year yield 2.74 – 0.01 – 0.33%
USD Index 95.76 – 0.01 – 0.01%
FTSE100 6747.10 – 62.12 – 0.91%
DAX30 11210.31 – 71.48 – 0.63%

By Greg Peel


The local futures had suggested up 20 points on Friday morning without much of a lead from Wall Street but the ASX200 closed up 40 points, steadily rising in the morning before plateauing after lunch, as one might expect ahead of a long weekend.

Resources were the primary drivers from the outset, enjoying the benefits of steady commodity prices and a weaker Aussie, with energy closing up 1.2% and materials up 0.9%. There was also positive news out of China, if one considers ongoing PBoC stimulus as positive rather than dangerous. But the extra 20 points on top of the futures came largely from micro news over the morning.

Across The Ditch, the RBNZ announced an extension to the consultation period ahead of a proposed almost doubling of bank capital requirements set for later in the year. Consultation was expected to be complete by March 29 but that date is now May 3. All four Australian majors have fingers in the Kiwi pie, not just the obvious one.

Financials rose 0.4%. It might have been better had not AMP ((AMP)) fallen -7.9% after a further profit warning, including announced write-offs and restructuring charges and a reduction in the dividend. The foundering wealth manager did nonetheless confirm it would pay out the majority of its Life sale proceeds to shareholders.

The only sector to close in the red on Friday was healthcare (-0.5%), led down by a -12% plunge for market darling ResMed ((RMD)). The company beat on quarterly earnings but missed on revenues, and given its popularity was seen to be overvalued by analysts going into the result release. Not anymore. Now we can all get some sleep.

There had been much hope for investment platform “disruptors” as the old guard crashed and burned in the Royal Commission but it’s been a bumpy road, and not without regulatory issues. Netwealth ((NWL)) revealed a fall in funds under administration in the December quarter and was punished -9.5%.

Seems harsh. FUA flows were actually up 14% in the quarter and show me a fund manager who didn’t lose their shirt in the December stampede.

On the positive side of the ledger, mineral sands producer Iluka Resources ((ILU)) rose 9.1% following the release of its quarterly production report.

Super Retail ((SUL)) is also coming back from the brink (+5.2%) as bargain hunters continue to move into the auto-related space following a surprisingly positive update from car dealer AP Eagers ((APE)) earlier in the week. Consumer discretionary rose 1.0%. Anything auto had previously been sold down due to Australia’s Major Housing Crisis.

And then the market wrapped up for the long weekend.

Friday Night

Note that the prices in the table above reflect last night’s trade. On Friday night, the Dow closed up 184 points or 0.7% at 24737, the S&P rose 22 points or 0.8% to 2664, and the Nasdaq gained 91 points or 1.2% to 7164.

After spending most of the week in the doldrums, with the government shut down and Fed and trade meetings pending this week, Wall Street suddenly shot up from the open on Friday night. The Dow was up 300 mid-morning.

Commentators continue to point to solid earnings results but realistically it is not so much the results themselves driving optimism but positive tones emanating from accompanying conference calls with CEOs that have for the most part been upbeat about prospects in 2019. This has come at a time recession talk had become prominent as 2018 wound down with a very weak December quarter for markets.

Initial enthusiasm faded somewhat but the Dow hung on for a 180 point gain by the close. News from Washington mid-session had no impact.

The president has reached a deal with the Democrats to reopen the government for three weeks. The deal came after proposals from each side of the aisle were defeated in the Senate, as they had expected to be, begging the question why did they bother? Trump’s minders have no doubt warned the president each further day of the shutdown is likely a lost vote, so best do something.

It is not an end to the shutdown, just a ceasefire of sorts. It means workers will be paid, including lost back-pay. The fact that it is not a resolution meant Wall Street saw little reason to react, but then Wall Street has managed to rally strongly from the December low throughout the period of the shutdown, so it is not seen as a major issue.

Opinions have it that the shutdown would only start to bite on Wall Street, via lost spending, were it to go on and on. Economists to date are suggesting just a small impact on March quarter GDP, which is typically the weakest of the four quarters anyway, a lot of which has to do with snow.

Late 2018 had also brought much speculation as to whether the December Fed rate hike would represent the end of the central bank’s normalisation cycle for now, and whether 2019 would see rates on hold in the face of a global slowdown. But we recall that the Fed has been “double tightening”, by not only raising its cash rate but also reducing its balance sheet.

News on Friday night is that the FOMC might decide to stop the balance sheet wind-down, settling at a higher level than previously targeted. To date the Fed had been allowing bonds on the balance sheet, purchased during QE, to mature without replacement but presumably a halt to the wind-down means the purchase of new bonds to keep the balance sheet in, um, balance.

Any talk of a Fed on hold, whether through a halt to rate rises or a halt to the wind-down, is good news for Wall Street given global slowdown angst.

Monday Night

Not all US earnings results have been positive.

Caterpillar had been the poster child for the impact of the US-China trade war all through 2018 and despite having borne the brunt, fell -9% last night on an earnings miss. Revenues were in line, hence it was all about costs. Sales to China were flat. Caterpillar’s fall was worth around -80 Dow points.

Having a greater impact on the wider market was a profit warning from chip maker Nvidia ahead of its result release. The company warned it would miss December quarter revenue expectations by a wide margin, blaming, among other things, weakness in China. Nvidia’s original revenue forecast had itself already been a disappointment, blamed then on the end of the crypto-currency frenzy. Nvidia shares fell -14% last night.

Apple is set to report after the bell tonight. How confident are investors? Apple fell -1% last night, which impacts on all three major indices. Nvidia has made Wall Street nervous.

As to whether or not the government shutdown is having any impact on market sentiment is a matter of disagreement. But it has been suggested that the temporary reopening, while good news for workers who hadn’t been paid, is actually a negative because it highlights the fact the two parties are nowhere near a resolution. Trump gives a resolution a 50/50 chance after the three week deadline.

Also affecting the market last night were oil prices. Prices had jumped a week earlier when the US rig count fell by -21, suggesting weaker prices were beginning to have an impact on marginal production. But last week the count rose by 10, which rather stymies that argument. WTI fell by more than -3%.

It has come back a little bit in the meantime on news Washington is sanctioning the Venezuelan state-owned oil company, related to its recognition of the opposition leader as being the true president-elect

As we look ahead, Wednesday night brings the press conference with Jay Powell following the January FOMC meeting, at which Wall Street would like to learn more about the Fed balance sheet and the impact of the government shutdown, with a rate rise not expected.

Wednesday night also sees the commencement of trade talks between US officials and the Chinese vice president, expected to continue over two days.

So there is much to look forward to, including the fact this week is the biggest on the US earnings calendar in terms of the number of S&P500 stocks reporting.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1302.40 + 0.10 0.01%
Silver (oz) 15.72 0.00 0.00%
Copper (lb) 2.69 + 0.03 1.28%
Aluminium (lb) 0.83 – 0.01 – 1.66%
Lead (lb) 0.94 + 0.00 0.01%
Nickel (lb) 5.34 + 0.01 0.20%
Zinc (lb) 1.20 + 0.01 1.09%
West Texas Crude (Feb) 52.14 – 1.44 – 2.69%
Brent Crude (Mar) 59.99 – 1.54 – 2.50%
Iron Ore (t) futures 75.30 + 0.70 0.94%

Note that the table above outlines commodity price moves for last night only, not inclusive of Friday night.

On Friday night we saw the US dollar index tank -0.8% on the Fed news, which is only speculation, providing general support for commodity prices.

The oils were up around 0.5%, as were aluminium and zinc, while nickel rose 1% and lead 2%, leaving copper (-0.7%) the only laggard in London. Iron ore also found a bid.

Gold enjoyed a fresh shot in the arm, jumping US$22.80 to US$1302.30/oz.

And yet again it appears forex traders have been playing the Aussie short, given the -0.8% drop in the greenback translated to a 1.3% leap for the Aussie to US$0.7181.

Last night, with the greenback steady, the Aussie slipped back -0.2% to US$0.7165.

Base metals were again stronger, including copper this time, but with the exception of aluminium. Last night Washington finally lifted the sanctions on Russian aluminium company Rusal, news of which had sent the aluminium price soaring last April. The intention to lift the sanctions had been well-flagged, hence the price move was not so dramatic last night.

Between rig counts and sanctions, the oils are trading down around -2.5%.

The SPI Overnight closed up 3 points on Saturday morning and down -23 this morning for a net -20 loss.

The Week Ahead

Presumably now that the US government is back open for business, US economic data will be released as scheduled this week. I say presumably, because I suppose there’s the possibility they won’t be ready because no one had been there to start preparing them. So we can only wait and see.

If all on is schedule, we’ll see pending home sales on Wednesday, PCE inflation on Thursday and non-farm payrolls on Friday. Non-government data releases include consumer confidence tonight, ADP private sector jobs on Wednesday, and the January manufacturing PMI on Friday.

Friday is the first of the month, thus manufacturing PMIs are due around the globe, albeit Beijing releases official manufacturing and services PMI numbers on Thursday.

The highlight of Australia’s economic week will be the December quarter CPI numbers due on Wednesday. The forecast is for annual headline inflation to have fallen back to 1.7% from 1.9% in the prior quarter.

Other releases include the NAB business confidence survey today, Westpac consumer confidence survey tomorrow, and private sector credit along with December quarter import/export prices on Thursday. On Friday it's house prices, along with the PPI and PMI.

The last week of January brings a late rush of resource sector production reports, which I’ll highlight on a daily basis. None appearing on the calendar today.

And the last week of January also brings a handful of early bird earnings results, ahead of next month’s result season proper. Today it’s Credit Corp ((CCP)), followed by GUD Holdings ((GUD)) and Navitas ((NVT)) tomorrow.

Rudi will not appear on Your Money today as he is in Melbourne. He'll re-appear next week.

The Australian share market over the past thirty days…

ABC ADELAIDE BRIGHTON Upgrade to Hold from Lighten Ord Minnett
CGF CHALLENGER Downgrade to Neutral from Buy Citi
EVN EVOLUTION MINING Downgrade to Neutral from Buy Citi
NST NORTHERN STAR Downgrade to Neutral from Buy UBS
QAN QANTAS AIRWAYS Downgrade to Neutral from Outperform Credit Suisse
RRL REGIS RESOURCES Downgrade to Underperform from Outperform Credit Suisse
Downgrade to Lighten from Hold Ord Minnett
STO SANTOS Upgrade to Buy from Neutral UBS
SUN SUNCORP Upgrade to Buy from Neutral Citi
SYD SYDNEY AIRPORT 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.

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