The Monday Report

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World Overnight
SPI Overnight (Mar)	5821.00	+ 20.00	0.34%
S&P ASX 200	5862.80	– 1.90	– 0.03%
S&P500	2706.53	+ 2.43	0.09%
Nasdaq Comp	7263.87	– 17.87	– 0.25%
DJIA	25063.89	+ 64.22	0.26%
S&P500 VIX	16.14	– 0.43	– 2.60%
US 10-year yield	2.69	+ 0.06	2.13%
USD Index	95.58	+ 0.02	0.02%
FTSE100	7020.22	+ 51.37	0.74%
DAX30	11180.66	+ 7.56	0.07%

By Greg Peel

Friday Fade

The ASX200 opened enthusiastically on Friday morning, trading up 18 points in the first hour. But thereafter sentiment faded away to lunchtime, ahead of a flat close.

The banks were sold down aggressively over the week, with hedge funds allegedly setting themselves short ahead of today’s aftermarket release of the RC report. Friday saw a bit of consolidation, with financials closing down only -0.1%.

Let’s see what tomorrow brings.

The resource sectors had been the big winners over the week to counter financials, on iron ore and oil price strength. The oil price dipped on Thursday night, apparently sparking some profit-taking. The energy sector fell -0.9% to be the worst performer on the day.

Materials (+0.3%) hung in there alongside the iron ore price, which will likely stand still now for a week during the Chinese New Year shutdown. Pure-play miner Fortescue Metals ((FMG)) was the greatest beneficiary of the Brazilian dam tragedy, gaining 20% for the week.

As a counter, graphite miner Syrah Resources ((SYR)), the most shorted stock in the market, fell -27% over the week post production report, including another -8% on Friday.

Telcos (-0.7%) continued to drift back on Friday while utilities (+0.9%) remain popular in the current climate.

News came through from Washington during the Asian session that Donald Trump had received a letter from Xi Jinping suggesting he was keen to “meet halfway” on trade negotiations ahead of the March 1 tariff increase deadline. There has been talk of possibly another trade meeting before then, and also of possibly an extension of that deadline, but a press statement issued by the White House stated “While progress has been made, much work remains to be done,” while reiterating the March 1 deadline.

So nothing to get excited about there, at this stage.

Meanwhile, China’s manufacturing industry continues to suffer, with Caixin’s independent measure of China’s PMI showing a drop to 48.3 in January from 49.7 in December, suggesting accelerating contraction.

It was US-China news that appeared to take the wind out of the ASX200’s sails late morning, that and the fact it was Friday.

And we so look ahead with trepidation to the release of the Hayne report after the share market's close.

Fed got it wrong?

The US added 304,000 new jobs in January, when 172,000 was forecast. The US manufacturing PMI rose to 56.6 when 54.3 was expected. The University of Michigan’s fortnightly consumer sentiment index rose to 91.2 from 90.7 prior. Construction spending rose 0.8% in November.

And the Fed’s on hold?

While it appeared 300,000 jobs had been added two months running, December’s result was revised down by -70,000. The low January forecast was due to the assumption the government shutdown would distort the numbers but this appears not to have been the case, other than affecting an uptick in the unemployment rate to 4.0% from 3.9%.

Wages grew only 0.1% in the month when 0.2% was forecast.

The PMI is a solid number, but down from the sort of readings enjoyed throughout 2018. Consumer sentiment was running at 98.3 in December. The construction spending number is a bit old.

The upshot is that while the US economy is indeed strong, the Fed is justified in pausing at this point given there appears to be little in the way of an inflation threat. Market commentators agree, nonetheless, that there may yet be cause to slip in another 25 basis point hike at some stage during the year.

The US ten-year bond yield had sagged throughout the week but on Friday night popped 6 basis points to 2.69% on the strength of the jobs numbers.

How did Wall Street see it? The Dow was up 190 points early on but back to square with an hour to go.

The Dow ultimately did outperform the other indices, because Amazon is not in the Dow. Amazon posted a solid result but with disappointing revenue guidance, and fell -5.5%, weighing on both the S&P and the Nasdaq. Amazon is not in the Dow simply because its nominal share price is too large.

On the flipside, the energy sector led the charge. The weekly oil rig count is becoming as much of a chocolate wheel as the weekly US inventory numbers, on Friday night showing a fall of -15 to 847. This prompted a 3% gain for oil prices, which had another solid week on the back of sanctions on Venezuela.

It also happened to be the day Exxon reported, and it did so positively, rising 3.6%.

The jobs number dominated market chat on Friday and little mention was made of trade. Wall Street has likely become inured to Trump’s day to day hyperbole and rather expects something might happen one day, but it won’t be today. There remains a month before the tariff increase, by which stage this earnings result season will be over, so perhaps then things might get interesting.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1317.10	– 3.20	– 0.24%
Silver (oz)	15.87	– 0.14	– 0.87%
Copper (lb)	2.79	+ 0.02	0.54%
Aluminium (lb)	0.85	– 0.00	– 0.28%
Lead (lb)	0.96	+ 0.00	0.49%
Nickel (lb)	5.59	+ 0.05	0.90%
Zinc (lb)	1.23	+ 0.01	0.56%
West Texas Crude (Feb)	55.35	+ 1.49	2.77%
Brent Crude (Mar)	62.82	+ 1.98	3.25%
Iron Ore (t) futures	87.00	+ 1.60	1.87%

It was another strong session for iron ore, maybe a last hurrah. Typically the iron ore price comes to a screaming halt over Chinese New Year, barely moving, if at all. But it still trades, even if the Chinese are absent.

The jobs number had no impact on the US dollar, but generally positive base metal prices may reflect US economic strength.

The Aussie is off -0.2% at US$0.7247.

The SPI Overnight closed up 20 points. That’s a gutsy call given the S&P500 was flat and by tomorrow all the banks could be trashed. But who knows?

The Week Ahead

To reiterate, the Hayne report is due out after the close of the ASX today. The RBA then meets tomorrow, as is scheduled. Governor Lowe will also speak on Wednesday and the RBA’s quarterly Statement on Monetary Policy is out on Friday.

Local data releases this week include building approvals today and retail sales (December) and the trade balance tomorrow. The services PMI is due tomorrow and construction on Thursday.

Services PMIs are due across the globe tomorrow.

China is closed for the week.

The Bank of England meets on Thursday night.

The local results season is upon us, quietly. There are several results due this week which I will highlight each morning, but none today.

Rudi will appear on Your Money today, noon-2pm, and again from 7.30-8pm with Peter Switzer and Julia Lee.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC	ADELAIDE BRIGHTON	Downgrade to Sell from Hold	Deutsche Bank
AIZ	AIR NEW ZEALAND	Upgrade to Neutral from Underperform	Credit Suisse
		Downgrade to Underperform from Outperform	Macquarie
CCP	CREDIT CORP	Downgrade to Hold from Accumulate	Ord Minnett
CGF	CHALLENGER	Upgrade to Equal-weight from Underweight	Morgan Stanley
DLX	DULUXGROUP	Upgrade to Outperform from Neutral	Macquarie
ECX	ECLIPX GROUP	Downgrade to Equal-weight from Overweight	Morgan Stanley
FMG	FORTESCUE	Downgrade to Hold from Add	Morgans
		Downgrade to Sell from Buy	UBS
GUD	G.U.D. HOLDINGS	Upgrade to Buy from Neutral	UBS
IGO	INDEPENDENCE GROUP	Downgrade to Underperform from Neutral	Macquarie
MMS	MCMILLAN SHAKESPEARE	Upgrade to Overweight from Equal-weight	Morgan Stanley
NAB	NATIONAL AUSTRALIA BANK	Upgrade to Equal-weight from Underweight	Morgan Stanley
NCM	NEWCREST MINING	Downgrade to Underperform from Neutral	Credit Suisse
		Downgrade to Hold from Accumulate	Ord Minnett
NWL	NETWEALTH GROUP	Upgrade to Buy from Hold	Ord Minnett
OGC	OCEANAGOLD	Downgrade to Neutral from Buy	UBS
RBL	REDBUBBLE	Upgrade to Add from Hold	Morgans
SFR	SANDFIRE	Downgrade to Hold from Buy	Deutsche Bank
SGF	SG FLEET	Downgrade to Underweight from Equal-weight	Morgan Stanley
SIQ	SMARTGROUP	Downgrade to Equal-weight from Overweight	Morgan Stanley
WBC	WESTPAC BANKING	Downgrade to Underweight 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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