The Overnight Report: Back To The Future

Daily Market Reports | Mar 08 2019

World Overnight
SPI Overnight (Mar) 6235.00 – 35.00 – 0.56%
S&P ASX 200 6263.90 + 18.30 0.29%
S&P500 2748.93 – 22.52 – 0.81%
Nasdaq Comp 7421.46 – 84.46 – 1.13%
DJIA 25473.23 – 200.23 – 0.78%
S&P500 VIX 16.59 + 0.85 5.40%
US 10-year yield 2.64 – 0.06 – 2.08%
USD Index 97.66 + 0.80 0.83%
FTSE100 7157.55 – 38.45 – 0.53%
DAX30 11517.80 – 69.83 – 0.60%

By Greg Peel

Damn the Torpedoes

It’s full steam ahead for the ASX200, apparently, at least on the basis of yesterday’s trade. Might be different today – the futures are down -35 points this morning – but yesterday it seemed the index was simply hell bent on making it back to the previous (post-GFC) high.

A rally of 18 points doesn’t seem so exciting but when we put that in the context of no less than 40 stocks going ex-dividend yesterday (not all index stocks), including substantial hand-outs from both BHP Group ((BHP)) and Rio Tinto ((RIO)), it really was quite a performance. Wall Street had been soggy overnight and so had been most commodity prices.

Not only BHP and Rio, but South32 ((S32)) and Iluka Resources ((ILU)) went ex, yet the materials sector managed only to fall -0.3%, so a net gain in reality. That left the volatile IT sector (-0.7%) as the only patch of weakness in an otherwise green-on-screen session. So few and far between were the share price falls, Rio managed to top the losers’ board just by going ex.

The trade data released yesterday may have provided some impetus.

Australia’s trade surplus widened sharply in January on a 9.3% surge in exports. This included a 6.2% increase for coal and 3.4% for other minerals, as well as 2.4% in agriculture (meat and wool). But the biggest driver were exports of non-monetary gold (gold not related to central bank reserves but for industrial or aesthetic use), which managed to increase 174%. This segment is very lumpy and very volatile.

So gold did rather distort the numbers, but we should acknowledge the lag effect that will have the big jump in the iron ore price cycling through shortly. It then depends on volumes.

Perhaps more remarkable was a 1.0% gain for consumer discretionary despite a disappointing retail sales number. Sales rose only 0.1% in January after falling -0.4% in December. Forecasts were for a 0.4% rebound. The annual rate fell to 2.7% from 2.8%.

While the slow death of department stores continued in January, the most notable decline was in furniture and other household goods, and that’s hardly a surprise. Yet despite the weak result, four of the top five ASX200 winners yesterday were a consumer discretionary stock, and all five were consumer stocks.

A chance to bargain hunt post result season? Gains ranged from 3-5% for (in descending order) Super Retail ((SUL)), Costa Group ((CGC)), Elders ((ELD)), JB Hi-Fi ((JBH)) and Tassal Group ((TGR)). Elders is a staple.

Or more anticipation of an RBA rate cut? See: Yesterday’s Overnight Report.

Bad news is good news.

Bad News is Bad News

A year ago the ECB had ended QE and for markets it was a matter of when, not if, Mario Draghi would hike the cash rate (from zero) for the first time since the GFC, in the wake of the Fed. Last night the ECB said it now expected to keep rates on hold throughout 2019.

The central bank has cut its eurozone 2019 growth forecast to 1.1% from 1.7%. In order to provide stimulus to the European banking system, a new round of cheap loans to banks, known as LTROs (long term refinancing operations), will be commenced.

The German stock market fell -0.6% and the French -0.4%. Further recognition of slowing global growth had Wall Street down -0.9%.

I noted earlier the local SPI futures are down -35 points this morning (-0.6%). It would be somewhat ironic if after two days of rallying on the hope the RBA might soon have to cut rates, the ECB does exactly that (after a fashion) and we’re heading south.

Wall Street’s rally from Christmas had a lot to do with the Fed now moving to a neutral stance, trade talks notwithstanding, but now Wall Street, too, is feeling the global pinch.

At least last night, bearing in mind the big rally of the last two months has stalled.

The question is as to whether the US economy can continue to flourish when all about are sinking. Last night’s data suggests it’s a possibility – US productivity rose at a 1.9% annual rate in the December quarter, ahead of 1.8% expectations, to mark the fastest pace of growth in four years.

But there’s no getting around the fact global growth is exactly that – global. We’re all in this together. If resolution of trade wars wasn’t critical enough already, it appears to be getting more critical every day.

Last night’s update from President Trump was “We’ll see what happens”.

And don’t forget Brexit.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1284.90 – 1.60 – 0.12%
Silver (oz) 14.97 – 0.08 – 0.53%
Copper (lb) 2.93 – 0.01 – 0.39%
Aluminium (lb) 0.84 – 0.00 – 0.38%
Lead (lb) 0.95 + 0.00 0.24%
Nickel (lb) 6.04 – 0.09 – 1.53%
Zinc (lb) 1.25 – 0.02 – 1.32%
West Texas Crude 56.59 + 0.42 0.75%
Brent Crude 66.18 + 0.33 0.50%
Iron Ore (t) futures 87.05 + 1.45 1.69%

On the ECB’s growth forecast cut, the euro tanked. The euro is the largest chunk of the US dollar index, by a margin, so it’s up 0.8%. Not good for commodity prices.

Base metals felt that way, but iron ore just seems to be bouncing around in the eighties.

Oil prices might have been different but for the latest data showing OPEC production is near four-year lows.

If ever there was a prompt for the Aussie to slip under 70, last night was it. But the Aussie’s only down -0.2% at US$0.7010 on the balance of the strong trade surplus and, probably, the fact forex traders seem always to be short.

Today

The SPI Overnight closed down -35 points or -0.6%.

China will release February trade numbers today and inflation data on Sunday.

It’s jobs night in the US.

Sonic Healthcare ((SHL)) is today’s bigger ex-div in a smaller list of mostly small companies.

It’s a Friday – always a good day for profit-taking.

Note that the US goes onto summer time on the weekend. From Tuesday morning the NYSE will close at 7am Sydney time, as will our SPI Overnight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ ANZ BANKING GROUP Downgrade to Neutral from Buy Citi
CHC CHARTER HALL Upgrade to Accumulate from Hold Ord Minnett
CIM CIMIC GROUP Downgrade to Neutral from Outperform Macquarie
COH COCHLEAR Upgrade to Buy from Neutral Citi
GDF GARDA DIV PROP FUND Downgrade to Hold from Add Morgans
MYR MYER Upgrade to Hold from Sell Deutsche Bank
RIO RIO TINTO Downgrade to Neutral from Buy UBS
SCP SHOPPING CENTRES AUS Upgrade to Neutral from Underperform Credit Suisse
SIL SMILES INCLUSIVE Downgrade to Hold from Add Morgans
SXY SENEX ENERGY Downgrade to Lighten from Hold Ord Minnett
TAH TABCORP HOLDINGS Downgrade to Lighten from Hold Ord Minnett
TPE TPI ENTERPRISES Upgrade to Add from Hold Morgans
VCX VICINITY CENTRES Downgrade to Neutral from Outperform Credit Suisse
VRL VILLAGE ROADSHOW Upgrade to Outperform from Neutral Macquarie

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.)

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CHARTS

BHP CGC ELD ILU JBH RIO S32 SHL SUL TGR