The Overnight Report: In For The Duration

This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS

World Overnight
SPI Overnight (Jun)	6464.00	– 29.00	– 0.45%
S&P ASX 200	6491.80	– 18.90	– 0.29%
S&P500	2822.24	– 34.03	– 1.19%
Nasdaq Comp	7628.28	– 122.56	– 1.58%
DJIA	25490.47	– 286.14	– 1.11%
S&P500 VIX	16.92	+ 2.17	14.71%
US 10-year yield	2.30	– 0.10	– 4.05%
USD Index	97.85	– 0.25	– 0.25%
FTSE100	7231.04	– 103.15	– 1.41%
DAX30	11952.41	– 216.33	– 1.78%

By Greg Peel

Gloss Fades

We need to take yesterday’s trade on the ASX in the context of a -1.2% fall on Wall Street overnight, a -5% crash in oil prices and a -29 point drop in the futures ahead of today’s open.

But outside of the Wall Street influence, and the trade issue, the local market has of course marched to its own tune this week on the election result and RBA rate cut hints. It was inevitable that the initial exuberance of the election surprise would eventually wane, and yesterday we saw the signs.

It was another choppy session. The ASX200 was down -30 points at midday before closing down -18. The financials sector closed down -1.0%, finally trimming some of those election gains.

Materials (-0.9%) was another loser despite another sizeable move up in iron ore prices. Countering iron ore were overnight falls in base metal prices with no reprieve from gold, while lithium miners copped the worst of it as Orocobre ((ORE)), Galaxy Resources ((GXY)) and Pilbara Minerals ((PLS)) took all the medals in worst performance on the day, all down -6-5% despite being shorted to the eyeballs.

Weakness in materials also came despite strong gains for Adelaide Brighton ((ABC)) and CSR ((CSR)), up around 6% each after Macquarie upgraded both to Outperform on a better outlook for housing construction since last Saturday.

Energy fell -1.3% as the oil price dipped. Today will be a case of stand back.

While IT (+1.6%) was one standout to the upside, the winner on the day was consumer discretionary, which rose 2.0% on the back of an upside earnings surprise from Aristocrat Leisure ((ALL)), which alone rose 7.1% to top the table.

We might also note telcos (+0.5%) continue to lean to the upside.

But today is another day.

Reality Check

Ahead of the Wall Street open last night, data had been released showing a flash estimate of Japan’s manufacturing PMI for May suggesting a drop into contraction at 49.6, down from 50.2 in April, the eurozone falling further into contraction at 47.7, down from 47.9, and the US on the brink at 50.6, down from 52.6.

PMIs are considered to be one of the more accurate coal-face indicators of economic activity. Global growth is going backwards. The IFO monthly survey of German business sentiment also fell to a four-year low.

Reality is quietly settling in. Last night saw a notable step-up in vitriol in Chinese media commentary, accusing the US of being everything from “selfish” to “fascist” with regard trade negotiations in general and the Huawei blacklisting in particular. Last night more US tech companies announced they will cease supplying Huawei.

The war will not be over by Christmas. Wall Street is in the midst of a quarterly earnings season for the retail sector and one by one major retailers are downgrading guidance as they adjust for the tariff step-jump to 25% from 10%, and warning of further downgrades to come if the president makes good on his final “tariffs on everything” assault.

The government has announced a US$16bn package to support US farmers through a trade war.

Last night any lingering signs of optimism slipped away. The flight to safety stepped up a gear, with gold bouncing back ten dollars and the US ten-year bond yield falling -10 basis points to 2.30%.

Having run up on US-Iran tensions over the past few sessions, oil gave way to the overriding trade war and global growth story. The stampede saw WTI crude fall -5%.

If there was any silver lining, it was that the Dow was down -440 points at its nadir before recovering in the final hour to close down -286. The VIX volatility index rose, but only to 16. The threshold into fear is considered to be 20.

But if the buyers that have come in to save the day in many recent sessions finally bow to the pressure, the strong level of support for the S&P500 at 2800 will give way and it will be next stop Christmas Eve low. The S&P closed last night at 2822.

Wall Street has been trading on daily headlines, but at this stage it’s difficult to see any upcoming tweets being positive. If there were any breakthrough, the bounce-back would be swift. But businesses and investors are now beginning to hunker down, fearing a long duration.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1282.80	+ 10.00	0.79%
Silver (oz)	14.56	+ 0.15	1.04%
Copper (lb)	2.67	– 0.01	– 0.28%
Aluminium (lb)	0.80	– 0.01	– 0.66%
Lead (lb)	0.82	+ 0.01	0.69%
Nickel (lb)	5.38	– 0.03	– 0.64%
Zinc (lb)	1.21	– 0.01	– 0.76%
West Texas Crude	58.17	– 3.15	– 5.14%
Brent Crude	67.95	– 2.86	– 4.04%
Iron Ore (t) futures	102.45	– 0.15	– 0.15%

The US dollar index has fallen -0.3% after a recent run of strength. This provides some relief for commodity prices, but clearly no one told oil traders.

Base metal prices continue to tick lower and even iron ore wobbled last night.

A US$10 bounce in the gold price is one reprieve, but the Aussie is also up, by 0.3% at US$0.6901.

Today

The SPI Overnight closed down -29 points or -0.5%.

Data for US durable goods orders are due tonight.

EclipX Group ((ECX)) will report earnings.

Spark Infrastructure ((SKI)), Sydney Airport ((SYD)) and Syrah Resources ((SYR)) all hold AGMs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC	ADELAIDE BRIGHTON	Upgrade to Outperform from Neutral	Macquarie
AGL	AGL ENERGY	Downgrade to Sell from Buy	UBS
ALQ	ALS LIMITED	Downgrade to Neutral from Buy	Citi
		Downgrade to Sell from Hold	Deutsche Bank
AMP	AMP	Downgrade to Sell from Neutral	Citi
CLW	CHARTER HALL LONG WALE REIT	Upgrade to Buy from Hold	Ord Minnett
CPU	COMPUTERSHARE	Upgrade to Neutral from Underperform	Macquarie
		Upgrade to Hold from Lighten	Ord Minnett
CSR	CSR	Upgrade to Outperform from Neutral	Macquarie
EVN	EVOLUTION MINING	Downgrade to Hold from Accumulate	Ord Minnett
IFL	IOOF HOLDINGS	Downgrade to Sell from Neutral	UBS
NST	NORTHERN STAR	Downgrade to Hold from Accumulate	Ord Minnett
OSH	OIL SEARCH	Downgrade to Underperform from Neutral	Credit Suisse
QAN	QANTAS AIRWAYS	Upgrade to Outperform from Neutral	Credit Suisse
SGP	STOCKLAND	Upgrade to Outperform from Neutral	Macquarie
SHL	SONIC HEALTHCARE	Downgrade to Sell from Neutral	UBS
SUL	SUPER RETAIL	Upgrade to Overweight from Equal-weight	Morgan Stanley
TNE	TECHNOLOGYONE	Downgrade to Lighten from Hold	Ord Minnett
		Downgrade to Sell from Neutral	UBS
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.

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