The Overnight Report: Bungling Along

Daily Market Reports | May 23 2019

World Overnight
SPI Overnight (Jun) 6503.00 – 11.00 – 0.17%
S&P ASX 200 6510.70 + 10.60 0.16%
S&P500 2856.27 – 8.09 – 0.28%
Nasdaq Comp 7750.84 – 34.88 – 0.45%
DJIA 25776.61 – 100.72 – 0.39%
S&P500 VIX 14.75 – 0.20 – 1.34%
US 10-year yield 2.39 – 0.03 – 1.36%
USD Index 98.10 + 0.08 0.08%
FTSE100 7334.19 + 5.27 0.07%
DAX30 12168.74 + 25.27 0.21%

By Greg Peel

Holding the Fort

For all intents and purposes, the ASX200 is now trading in “blue sky”. Sure, the all-time high of November 2007 is 6828, around 5% away, but there are many in the market today who’ve never known such a number, so for them we’re really trading in virgin territory.

It would have been reasonable to assume 6500 would be a nice, big round number at which to take profits after election exuberance subsided, and to that end the the index fell -20 points early in yesterday’s trade, despite strength on Wall Street.

But the buyers were waiting, so from a late morning turnaround it was a straight line to a close of up 10 points, seemingly consolidating the 6500 mark. Support or resistance? We might find out today given the futures are down -11 this morning.

The highlight of the day was a bounce-back for the consumer discretionary sector, up 0.8% after being curiously sold down on Tuesday after the RBA dropped its big rate cut hint. There followed energy (+0.7%), but it will be a different story for that sector today.

No other sector moves were particularly large, although we should acknowledge materials, which rose 0.3% despite Fortescue Metals ((FMG)) going ex (a very big) dividend.

Outside of the biggies, the current high-flyer in materials is Lynas Corp ((LYC)), which has made moves to allay Malaysian environmental concerns at a time the possibility of China cutting off rare earth supply to the US is very real, and very concerning. FNArena leads with an article on that very subject today. Lynas rose another 7.5%.

The biggest loser on the day was IOOF ((IFL)), which fell -7.1% after APRA issued a firm warning regarding the fund manager’s failure to comply with wealth management licence conditions. The financials sector nonetheless closed flat for once.

The government has now confirmed another seat to take it to 77, with 78 still looking the likely outcome. Once the dust settles on the immediate implications of a Coalition victory, or perhaps more specifically of a Labor loss, the longer term outlook has always been politically indifferent. Stock markets equally rise or fall over time under either party. What stock markets don’t like is uncertainty.

Whatever your stripe, a majority government provides a lot more certainty than a hung parliament, and that’s good for the market.

Marking Time

Last night’s session on Wall Street was devoid of any headline zingers, but there was still a lot to absorb. Oil prices, infrastructure and trade developments were subjects of consideration, as were the Fed minutes.

For once the Fed minutes prompted a tepid response – positive but nothing particularly new.

More definitive was a near -3% fall in the WTI crude price. Forecasts were for US crude inventories to decline last week after rising strongly in prior weeks, but no, they rose strongly again. The energy sector led Wall Street lower.

On the wider trade front, the Chinese ambassador to the US said last night that Beijing was open to fresh trade talks, but that it was the White House that was being indecisive. Meanwhile, President Xi is touring the country in an effort to keep Chinese hopes up in the face of US tariffs, calling for China to start a new “long march” through what may be a long-term trade war.

Not particularly encouraging.

Meanwhile, hot on the heels of the ban on supplying Huawei, for which there is a temporary 90-day reprieve, the White House is now considering adding Chinese video surveillance firms to the blacklist.

At the US domestic level, Trump is trying to get his infrastructure program off the ground and for that he needs the Democrat-led House on side. Talks ended last night when Trump walked out, refusing to proceed until the Democrats dropped their ongoing push to expose more from the “phoney” Russian probe.

For the Democrats part, they say they are keen to get going with infrastructure plans – it is Trump who is holding things up.

There are construction companies across America primed and ready to join in an infrastructure boom, as they cop the brunt of tariffs, but the dust is building on idled machinery.

So add it all up and it was a relatively stable session on Wall Street last night, compared to what we’ve been experiencing recently. The Dow made a few attempts to claw back from a hundred points down, but in the end the sum of the above parts leant more to the negative.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1272.80 – 1.40 – 0.11%
Silver (oz) 14.41 – 0.02 – 0.14%
Copper (lb) 2.68 – 0.03 – 1.08%
Aluminium (lb) 0.81 – 0.01 – 0.95%
Lead (lb) 0.81 – 0.00 – 0.38%
Nickel (lb) 5.42 + 0.02 0.34%
Zinc (lb) 1.22 – 0.01 – 0.95%
West Texas Crude 61.32 – 1.81 – 2.87%
Brent Crude 70.81 – 1.19 – 1.65%
Iron Ore (t) futures 102.60 + 1.60 1.58%

Commentary continues to cite trade war concerns as reason for ongoing net weakness in base metal markets.

But for iron ore, it remains more of a supply issue than a tariff issue.

The Aussie is steady at US$0.6880.

Today

The SPI Overnight closed down -11 points.

Estimates of June manufacturing PMIs will be flashed across the globe today/night, including for Australia and US.

Aristocrat Leisure ((ALL)) reports earnings, while Alumina ltd ((AWC)) and Viva Energy ((VEA)) hold AGMs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALQ ALS LIMITED Downgrade to Neutral from Buy Citi
Downgrade to Sell from Hold Deutsche Bank
AMP AMP Downgrade to Sell from Neutral Citi
CPU COMPUTERSHARE Upgrade to Neutral from Underperform Macquarie
Upgrade to Hold from Lighten Ord Minnett
IFL IOOF HOLDINGS Downgrade to Sell from Neutral UBS
JHX JAMES HARDIE Downgrade to Neutral from Buy UBS
MPL MEDIBANK PRIVATE Upgrade to Hold from Lighten Ord Minnett
NAB NATIONAL AUSTRALIA BANK Upgrade to Overweight from Equal-weight Morgan Stanley
NWH NRW HOLDINGS Downgrade to Sell from Hold Deutsche Bank
Downgrade to Neutral from Buy UBS
QAN QANTAS AIRWAYS Upgrade to Outperform from Neutral Credit Suisse
RHC RAMSAY HEALTH CARE Upgrade to Accumulate from Hold Ord Minnett
SGP STOCKLAND Upgrade to Outperform from Neutral Macquarie
TNE TECHNOLOGYONE Downgrade to Lighten from Hold Ord Minnett
VAH VIRGIN AUSTRALIA Upgrade to Neutral from Underperform Credit Suisse
WOW WOOLWORTHS Downgrade to Lighten 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.)

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