Daily Market Reports | May 17 2019
This story features XERO LIMITED, and other companies. For more info SHARE ANALYSIS: XRO
| World Overnight | |||
| SPI Overnight (Jun) | 6392.00 | + 47.00 | 0.74% |
| S&P ASX 200 | 6327.80 | + 43.60 | 0.69% |
| S&P500 | 2876.32 | + 25.36 | 0.89% |
| Nasdaq Comp | 7898.05 | + 75.90 | 0.97% |
| DJIA | 25862.68 | + 214.66 | 0.84% |
| S&P500 VIX | 15.29 | – 1.15 | – 7.00% |
| US 10-year yield | 2.41 | + 0.03 | 1.09% |
| USD Index | 97.83 | + 0.27 | 0.28% |
| FTSE100 | 7353.51 | + 56.56 | 0.78% |
| DAX30 | 12310.37 | + 210.80 | 1.74% |
By Greg Peel
Lock it in?
It was a choppy start for the ASX200 yesterday. The index tentatively matched Wall Street’s overnight enthusiasm in rising around 10 points from the open, bearing in mind that was net of Westpac going ex-dividend. But 45 minutes later in it fell into a hole to be down -10 points mid-morning.
I don’t know what happens at 10.45, but several times recently the market has seen a sharp move at this time, only to be reversed swiftly thereafter, as was the case again yesterday.
Then at 11.30 the jobs numbers were released.
The unemployment rate rose to 5.2% in April from 5.1% (bad) but that was because of a jump in the participation rate (good). There were 28,400 jobs added in the month ahead of a 15,000 forecast (good) but that was on a net of 49,200 part-time jobs being added at the expense of -6,300 full-time jobs (bad).
The bottom line is despite more people choosing to look for work, both the unemployment rate and underemployment rate (not enough hours) have now turned tail. What has been holding the RBA back from cutting its cash rate in the face of the housing downturn has been the labour market, the strength of which is the basis of the board’s assumption inflation will eventually rise back to the 2% comfort zone.
Once more, the odds of a rate cut have increased as far as the market is concerned. Having assumed a rate cut in May, the pundits are now more convinced June is a gimme, particularly with the election result then known.
The jobs numbers got the index back to up 10 on the day, before it began to fade again. But at lunchtime it appears a big buy program hit the market. It was a straight line up to a 43 point gain from there.
Every sector closed in the green, if we count back Westpac’s dividend. Energy led the charge, rising 2.2% as oil prices continue to track higher on US-Iran tensions. Materials (+1.1%), industrials (+1.0%) and telcos (+1.3%) provided support.
While cyclicals fared better than defensives for the most part, it was still a market-wide rally.
Individual stock winner on the day was accounting software company Xero ((XRO)), which jumped 10.8% after posting an earnings beat. We note also OOH advertising company oOh!media’s ((OML)) AGM was good for 5.3%.
On the downside, Westpac’s dividend was enough to make the bank second-place loser on the day with -3.9%.
And Wall Street has shot up again overnight. Our futures are up 47 points this morning which, if we add that to yesterday’s close, would leave the ASX200 only 16 points short of April’s post-GFC high.
Not Bovvered
President Trump issued an executive order last night that bans telecom equipment from countries considered to be “foreign adversaries”. It was an order clearly aimed at Huawei, given the Commerce Department followed up by adding Huawei to a list of entities that engage in “activities contrary to US national security and/or foreign policy interests”.
Interesting timing, given Washington is struggling to get Beijing over the line on trade, but the White House insists the timing was “purely coincidental”.
In simple terms it means Huawei won’t be building America’s 5G network. In broader terms, Huawei stands to be crippled by its inability to source US-made chips.
Beijing is not happy. Is this another attempt by Trump to force a trade resolution? Because it would be unlikely to work. The Treasury Secretary last night said a US delegation would “most likely” meet with the Chinese again in Beijing. China said there are no plans for another visit.
The response? Wall Street shot up another 0.9%. All three major indices are now roughly back to where they were before Monday night’s trade-related slump.
It appears domestic issues overrode international issues last night. Wall Street continues to hang onto a belief that a trade resolution will ultimately be reached, so last night it was Dow components Walmart and Cisco that fuelled the rally.
Each reported earnings, and share prices rose 1.4% and 6.7% respectively. While Wal-Mart’s gain doesn’t seem like much of a deal, the fact the stock is considered a bellwether on the state of the US consumer does make the “beat” a big deal.
It also drives home what some in the market are beginning to concede to. If there is a full-blown trade war, it won’t be good for anyone. But at the end of the day, it’s a relatively small amount of tariffs in the context of a US$21trn economy.
It will be the US consumer that will ultimately pay, hence Walmart’s 3.4% increase in same store sales in the March quarter, despite tariffs already in place, provides comfort.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1286.40 | – 9.70 | – 0.75% |
| Silver (oz) | 14.53 | – 0.24 | – 1.62% |
| Copper (lb) | 2.73 | + 0.00 | 0.00% |
| Aluminium (lb) | 0.82 | + 0.02 | 1.99% |
| Lead (lb) | 0.82 | + 0.01 | 1.54% |
| Nickel (lb) | 5.50 | + 0.08 | 1.51% |
| Zinc (lb) | 1.25 | + 0.01 | 0.64% |
| West Texas Crude | 63.13 | + 1.00 | 1.61% |
| Brent Crude | 72.77 | + 0.86 | 1.20% |
| Iron Ore (t) futures | 98.00 | + 3.05 | 3.21% |
Aluminium was the star on the LME last night, as copper sat and watched. One of China’s biggest aluminium smelters has shut down all production pending resolution of an environmental dispute. The shutdown highlights capacity constraints in metal production brought about by Beijing’s crackdown on emissions.
Hence despite a 0.3% gain for the US dollar, metals had a strong session. Iron ore clearly chimed in.
The oils continue to rise on US-Iran tensions, leaving only gold to directly reflect the greenback’s rally.
A combination of the greenback rally and the “weak” local jobs report has the Aussie down -0.6% at US$0.6891. At this rate we’re becoming a banana republic.
And on that note, vale Bob.
Today
The SPI Overnight closed up 47 points or 0.7%. The resource sectors will be champing at the bit.
UR-Westfield ((URW)) holds its AGM today.
And those who haven’t yet voted – I think there’s three or four left – will have the run of the sausage sangers tomorrow.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ANN | ANSELL | Downgrade to Hold from Buy | Deutsche Bank |
| AST | AUSNET SERVICES | Downgrade to Sell from Neutral | Citi |
| CBA | COMMBANK | Downgrade to Hold from Add | Morgans |
| CYB | CYBG | Downgrade to Hold from Add | Morgans |
| FMG | FORTESCUE | Upgrade to Outperform from Neutral | Credit Suisse |
| IDX | INTEGRAL DIAGNOSTICS | Upgrade to Buy from Accumulate | Ord Minnett |
| MYX | MAYNE PHARMA GROUP | Downgrade to Neutral from Outperform | Credit Suisse |
| NHC | NEW HOPE CORP | Upgrade to Outperform from Neutral | Credit Suisse |
| RWC | RELIANCE WORLDWIDE | Downgrade to Hold from Add | Morgans |
| SBM | ST BARBARA | Downgrade to Underperform from Neutral | Credit Suisse |
| SCG | SCENTRE GROUP | Upgrade to Outperform from Neutral | Credit Suisse |
| SGM | SIMS METAL MANAGEMENT | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| SYD | SYDNEY AIRPORT | Downgrade to Sell from Neutral | UBS |
| URW | UNIBAIL-RODAMCO-WESTFIELD | Downgrade to Sell from Neutral | Citi |
| WES | WESFARMERS | Downgrade to Neutral from Outperform | Macquarie |
| WOW | WOOLWORTHS | Downgrade to Neutral from Buy | UBS |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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