article 3 months old

The Monday Report

Daily Market Reports | May 13 2019

World Overnight
SPI Overnight (Jun) 6325.00 + 29.00 0.46%
S&P ASX 200 6310.90 + 15.60 0.25%
S&P500 2881.40 + 10.68 0.37%
Nasdaq Comp 7916.94 + 6.35 0.08%
DJIA 25942.37 + 114.01 0.44%
S&P500 VIX 16.04 – 3.06 – 16.02%
US 10-year yield 2.46 – 0.00 – 0.08%
USD Index 97.33 – 0.11 – 0.11%
FTSE100 7203.29 – 4.12 – 0.06%
DAX30 12059.83 + 85.91 0.72%

By Greg Peel

Resilient

The Australian market was surprisingly positive on Friday, with all sectors closing in the green bar materials, which closed flat. Financials were little moved as well.

Trading was nonetheless thin and choppy, suggesting a nervous tone, but when the tariff deadline came and went with no deal between the US and China, and the Dow futures were down -88 points by the local close, the ASX200 actually rallied from its low of the session, down -12, to close up 15.

Is it because Australia stands to lose exports to China if part of a deal means China buying more US products? But then the futures closed up 29 points on Saturday morning after a Wall Street rebound based on talks being described as “constructive”. So it’s hard to tell.

There was the small matter of the release of the RBA’s quarterly Statement on Monetary Policy, in which the central bank slashed its GDP growth forecast for FY18 to 1.7% from a prior 2.5%, which was down from 3.25% in November. The RBA expects growth to recover to 2.6% by year-end, but expectations for a rate cut very soon have only strengthened.

Possibly the board held off in May because it needed to know the election outcome, which would make June a shoe-in as far as many are concerned.

The Aussie has fallen back under US70c in the wake of the SoMP.

There is nothing else remarkable to report about Friday’s trade other than utilities won the day with a standout 2.1% gain when most sector gains were modest.

There were no overly substantial moves among individual stocks either, although we note investors remain confident a merger can still proceed between TPG Telecom ((TPM)) and Vodafone, with TPG shares rallying 5%.

Blind Faith

When the US awoke to learn no deal had been announced between the US and China, hence the tariff increase had indeed come into effect, the response was to sell the Dow down -350 points.

When Washington finally piped up late morning, and Treasury Secretary Steve Mnuchin said that despite an agreement not being reached, talks were “constructive”, the Dow spun around and rallied to be up 150 points, before fading slightly to the close.

Mnuchin’s comments were followed by a tweet from the president:

Over the course of the past two days, the United States and China have held candid and constructive conversations on the status of the trade relationship between both countries. The relationship between President Xi and myself remains a very strong one”.

Trump went on to say that tariffs could still be withdrawn.

But on the other hand, the increase to 25% from 10% on US$200bn of goods is now in effect and ahead of the Friday deadline, Trump noted the administration was working on 25% tariffs on the remaining US$325bn of Chinese imports, which would mean a tariff on anything Chinese.

It is also expected that China will retaliate, although Beijing has been quiet so far.

Clearly Wall Street remains ever-optimistic, despite no date being set for talks to resume. Talk is that Presidents Trump and Xi may meet at the G20 summit in Japan in late June, but there is nothing formal at this stage.

It has also been considered important that when the tariff increase came into effect at midnight, it did not apply to goods already in transit from China to the US, which by ship is typically two weeks. This is the first time Trump has allowed such a grace period with regard to tariff deadlines.

That, apparently, is a positive sign.

What we do know is that Wall Street will now likely stumble along in trade limbo, again, until there is any new news.

Meanwhile, the US CPI increased by 0.3% in April when 0.4% was forecast. Core inflation rose 0.1%, below 0.2% expectations. That takes headline inflation to an annual rate of 2.0%, and core inflation to 2.1%, but then the Fed prefers the PCE inflation measure which remains below 2%.

Wall Street is also comforted by the knowledge that were trade talks to completely break down, and Wall Street were to tank, the Fed, unlike other major developed economies, has room to cut rates.

Wall Street is further heartened by the knowledge that Trump does not like a falling stock market, and with an election only a mere 18 months away (but a few minutes in US election terms), he will not want to make matters worse.

The other highlight of Friday night’s session was the debut on the NYSE of Uber. The stock fell -4% on the open from its listing price but investors shrugged this off, given the Dow was on its way to a -350 point loss through no fault of Uber’s.

But when the Dow turned and rallied back 500 points, Uber fell another -4%.

Taxi!

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1285.80 + 2.40 0.19%
Silver (oz) 14.74 + 0.02 0.14%
Copper (lb) 2.78 + 0.01 0.34%
Aluminium (lb) 0.80 + 0.01 0.92%
Lead (lb) 0.83 – 0.01 – 1.56%
Nickel (lb) 5.40 + 0.06 1.16%
Zinc (lb) 1.25 + 0.01 0.57%
West Texas Crude 61.72 + 0.12 0.19%
Brent Crude 70.88 + 0.64 0.91%
Iron Ore (t) futures 95.45 + 0.30 0.32%

The only commodity that stands out on the table above is lead, which was the only one in the red on Friday night. More optimism.

The US dollar index fell, which does provide support, but only by -0.1%.

The Aussie did not rally on the greenback fall given the RBA’s forecast cut. It’s steady at US$0.6993.

The SPI Overnight closed up 29 points or 0.5%.

The Week Ahead

China will provide April industrial production, retail sales and fixed asset investment numbers on Wednesday, and the US will provide March industrial production and retail sales numbers on Wednesday night.

Further US data include housing sentiment on Wednesday, housing starts on Thursday and consumer sentiment on Friday.

Today is a big day for bank watchers on the local market. We’ll see housing finance data, Commonwealth Bank ((CBA)) will provide a quarterly update and both ANZ Bank ((ANZ)) and Macquarie Group ((MQG)) will go ex-dividend.

Other data this week include the NAB business confidence survey tomorrow, the Westpac consumer confidence survey on Wednesday and the April jobs numbers on Friday.

Something happens this Saturday, but I can’t remember what.

National Bank ((NAB)) goes ex tomorrow and Westpac ((WBC)) on Thursday.

Earnings reports are due from AusNet ((AST)) today, DuluxGroup ((DLX)) on Wednesday and Xero ((XRO)) on Thursday. CYBG ((CYB))) posts quarterly earnings on Wednesday.

There is also a smattering of AGMs which I will note on a daily basis.

Rudi will make his final appearance on Your Money today, midday-2pm. (In case you missed it: beyond Friday Australia's sole 24 hour business and finance TV channel will no longer exist).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC ADELAIDE BRIGHTON Upgrade to Hold from Sell Deutsche Bank
Downgrade to Sell from Neutral Citi
Downgrade to Neutral from Outperform Credit Suisse
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
EVN EVOLUTION MINING Upgrade to Accumulate from Hold Ord Minnett
GNC GRAINCORP Upgrade to Hold from Reduce Morgans
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
ORI ORICA Upgrade to Neutral from Sell Citi
Downgrade to Neutral from Outperform Credit Suisse
PPH PUSHPAY HOLDINGS Downgrade to Lighten from Hold Ord Minnett
PTM PLATINUM Upgrade to Hold from Sell Ord Minnett
QAN QANTAS AIRWAYS Downgrade to Neutral from Outperform Macquarie
QBE QBE INSURANCE Downgrade to Sell from Hold Deutsche Bank
TPM TPG TELECOM Upgrade to Accumulate from Hold 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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

ANZ AST CBA CYB DLX MQG NAB TPM WBC XRO