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The Overnight Report: Beautiful Bounce

Daily Market Reports | May 10 2019

World Overnight
SPI Overnight (Jun) 6263.00 – 9.00 – 0.14%
S&P ASX 200 6295.30 + 26.20 0.42%
S&P500 2870.72 – 8.70 – 0.30%
Nasdaq Comp 7910.59 – 32.73 – 0.41%
DJIA 25828.36 – 138.97 – 0.54%
S&P500 VIX 19.10 – 0.30 – 1.55%
US 10-year yield 2.46 – 0.03 – 1.01%
USD Index 97.44 – 0.17 – 0.17%
FTSE100 7207.41 – 63.59 – 0.87%
DAX30 11973.92 – 206.01 – 1.69%

By Greg Peel

Ignoring the President

The ASX200 started strongly yesterday morning, fell back into a hole and then recovered again, reaching what would be its closing price just before noon.

The positive tone belied a speech by President Trump after Wall Street's close in which he proclaimed China "broke the deal", more often than once. By the close of trade on the ASX, the Dow futures were down -120 points.

We now know Wall Street plunged from the open last night but recovered most of that loss to the close, and our futures are down -9 points this morning. At 2.01pm Sydney time the tariff increase will go into effect unless a deal is agreed upon or an extension is granted. If there is no deal, the next step is for tariffs on all Chinese imports to the US.

Consensus has Wall Street down -10-15% on such a scenario.

So for now we wait, but as for yesterday, buying in the banks (+0.4%) ahead of dividend payments and strength in telcos (+2.1%), specifically Telstra, in the wake of the ACCC decision, helped support the market.

Energy (+1.3%) was also strong as were utilities (+2.2%) given AGL joined in.

No sector was overly weak. Materials (-0.3%) fared the worst following a profit warning from Adelaide Brighton ((ABC)) which sent that stock down -10.4%. On Wednesday peer CSR's earnings result commentary suggested the housing downturn was not yet biting.

Orica ((ORI)) was a winner on the day, exploding up 5.6% on its earnings result while a quarterly update from Qantas ((QAN)) was well received, to the tune of 2.2%.

It was a dry argument for Graincorp ((GNC)), which fell -4.3% on its earnings result.

Not much point in dwelling any further – the world might be a different place by the close of trade this afternoon.

Not Ignoring the President

Trump's "broke the deal" comment saw the Dow down -450 points early in US trade. He did not mean a deal was off, he was simply explaining why tariffs would increase at midnight. But Wall Street is very jittery.

By around mid-morning Trump reappeared to say he had just received a "beautiful letter" from President Xi, suggesting there is scope for a deal to be reached. Hence Trump believes a deal is possible before the tariff increase goes into effect.

Wall Street bounced, and the Dow closed down -138.

The Chinese delegation will only now be arriving in the US.

The question is as to whether a comprehensive deal can really be reached in the timeframe. Commentators suggest it is more likely the "framework" for a deal could be laid out – enough to appease Wall Street to the point it won't crash, but it may not shoot to the moon either. Thereafter, it could still be a long and drawn out process, as most have expected for some time.

We can only now wait.

Also waiting with baited breath will be shareholders of Uber, the IPO for which priced last night at a slightly disappointing US$45 per share. That values the ride-share company at around US$7.5bn despite never having made a profit over the many years it's been in operation.

What sort of market will Uber meet on its first day of trade?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1283.40 + 3.10 0.24%
Silver (oz) 14.72 – 0.08 – 0.54%
Copper (lb) 2.77 – 0.00 – 0.16%
Aluminium (lb) 0.79 – 0.01 – 1.13%
Lead (lb) 0.84 – 0.01 – 1.02%
Nickel (lb) 5.34 – 0.12 – 2.21%
Zinc (lb) 1.24 – 0.01 – 1.00%
West Texas Crude 61.60 – 0.39 – 0.63%
Brent Crude 70.24 0.00 0.00%
Iron Ore (t) futures 95.15 + 0.90 0.95%

It appears LME traders are taking no chances.

However iron ore has bounced back a little from Wednesday night's fall.

The US dollar and gold price are largely hovering at this point.

The Aussie is also relatively steady at US$0.6991.

Today

The SPI Overnight closed down -9 points.

The US will see CPI numbers tonight, although they may pale into insignificance. It is anticipated, nevertheless, that after tonight the Fed will be very much in focus once more as it responds to deal or no deal scenarios.

The RBA will release its quarterly Statement on Monetary Policy today.

REA Group ((REA)) and News Corp ((NWS)) will release quarterly earnings reports.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AWC ALUMINA Upgrade to Neutral from Sell UBS
CCL COCA-COLA AMATIL Downgrade to Underperform from Neutral Macquarie
CSR CSR Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Hold from Buy Deutsche Bank
EPW ERM POWER Upgrade to Add from Hold Morgans
GNC GRAINCORP Downgrade to Reduce from Hold Morgans
HUB HUB24 Downgrade to Sell from Neutral Citi
HVN HARVEY NORMAN HOLDINGS Downgrade to Neutral from Outperform Macquarie
JBH JB HI-FI Downgrade to Neutral from Outperform Macquarie
MFG MAGELLAN FINANCIAL GROUP Downgrade to Hold from Buy Ord Minnett
MYR MYER Downgrade to Sell from Neutral UBS
PPH PUSHPAY HOLDINGS Downgrade to Lighten from Hold Ord Minnett
PTM PLATINUM Upgrade to Hold from Sell Ord Minnett

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)

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CHARTS

ABC GNC NWS ORI QAN REA