The Overnight Report: Still Drifting

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World Overnight
SPI Overnight (Jun)	6542.00	+ 1.00	0.02%
S&P ASX 200	6530.90	– 23.10	– 0.35%
S&P500	2889.67	+ 2.69	0.09%
Nasdaq Comp	7845.02	+ 48.37	0.62%
DJIA	26112.53	+ 22.92	0.09%
S&P500 VIX	15.35	+ 0.07	0.46%
US 10-year yield	2.09	– 0.01	– 0.33%
USD Index	97.54	– 0.03	– 0.03%
FTSE100	7357.31	+ 11.53	0.16%
DAX30	12085.82	– 10.58	– 0.09%

By Greg Peel

Squaring Up

It was a relatively dull session on the local market yesterday as the ASX200 dropped from the open, attempted to rally back to square but then faded in the afternoon. The bulk of the net weakness reflected profit-taking in sectors that have been performing well of late.

Materials (-1.1%) is an obvious choice, having enjoyed a stellar year to date on the iron ore price rally. Energy (-0.8%) came back from a strong session on Friday.

Healthcare (-0.7%) has outperformed in recent sessions and telcos (-2.3%) have been very resilient during recent volatility. Telstra ((TLS)) fell -1.8% but the underperformer in the sector yesterday was Vocus Group ((VOC)), which fell -24.5% when AGL Energy ((AGL)) pulled its takeover bid.

AGL is the fourth potential suitor to walk away from Vocus. The last bid came from private equity and was abandoned after a period of due diligence. AGL took only a week to change its mind, suggesting the decision was not about due diligence but rather pressure from disgruntled shareholders seeing a lack of value-add in the deal.

Mining equipment hire company Emeco Holdings ((EHL)) went the other way, rising 12.5% after a locally-based boutique fund manager increased its stake in the company.

Infection fighter Nanosonics ((NAN)) marked a second strong session in a row after a broker upgrade, rising 8.7%. On the losers' board, lithium miner Pilbara Minerals ((PLS)) fell -9.9% after a production guidance downgrade brought about by delays in China, while Afterpay Touch's ((APT)) regulation scare plunge continued (-6.1%).

Elsewhere, the banks, industrials and consumer discretionary provided the index offset with small gains.

The local market is likely squaring up ahead of the Fed statement due on Thursday morning (our time) and perhaps looking ahead to the G20, also remembering that EOFY is approaching.

Volume Light

For the same reasons (other than EOFY), Wall Street continues to drift on low volumes.

The story of the day on stock markets was one of anticipation, as Facebook prepares to formally announce tonight its intended move in crypto with its own currency called Libra.

Okay you can stop sniggering now.

Facebook shares shot up 4% after investors took the opportunity to move back into the recent underperformer which continues to suffer from regulation fears.

Facebook had the communications services sector atop the leader board along with the same defensives – REITs and utilities – that have been outperforming since US bond rates took their tumble recently.

Low rates continue to hamper US financials which, along with materials (not a lot of iron ore in America), underperformed during the Mexico-related bounce-back.

US economic data continued to be mixed. On Friday night we saw a not-so-bad retail sales number and a strong industrial production number, and then last night it was revealed the Empire State (New York Fed district) activity index fell -26.4 points to -8.6 points to mark its biggest ever monthly plunge.

That one's a zero-neutral index, while the housing sentiment index is 50-neutral. It fell to 64 when economists expected a rise.

How this all informs a data-dependent Fed is anyone's guess. The assumption is (albeit not unanimous) that the Fed will not cut rates at this week's meeting for the simple reason it wants to see what happens in Osaka. On that note, the US Commerce Secretary last night played down G20 anticipation, saying not only was it unlikely any deal would be struck but a meeting between Trump and Xi may not even happen.

If there is a meeting, the likely outcome is an agreement to keep talking.

Meanwhile, a seven-day period of public hearings has begun to argue the case for and against Trump going ahead with the threatened 25% tariff on the remaining US$300bn of Chinese exports.

For some reason, Wall Street still remains quietly confident a deal will be reached eventually.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1338.90	– 2.20	– 0.16%
Silver (oz)	14.82	– 0.02	– 0.13%
Copper (lb)	2.61	– 0.03	– 0.99%
Aluminium (lb)	0.78	– 0.01	– 1.06%
Lead (lb)	0.85	– 0.00	– 0.04%
Nickel (lb)	5.33	– 0.08	– 1.42%
Zinc (lb)	1.17	– 0.00	– 0.31%
West Texas Crude	51.92	– 0.59	– 1.12%
Brent Crude	60.98	– 1.10	– 1.77%
Iron Ore (t) futures	108.20	– 1.20	– 1.10%

Iran was back in the spotlight on the Nymex last night – not blowing up tankers this time but warning it will breach its agreement regarding uranium stockpiling within a couple of weeks, being the agreement Trump pulled out of.  Supposedly this is an attempt to get the European signatories to provide some relief from the US sanctions which are crippling the Iranian economy.

Which translates to "let us sell oil". We recall that lost Iranian exports are one factor recently supporting oil prices.

Meanwhile, metal prices just keep on sagging.

As does the Aussie, which is down another -0.2% at US$0.6854.

Today

The SPI Overnight closed up one point.

The minutes of the June RBA meeting will be closely scrutinised today for hints of further rate cuts to come.

Coles ((COL)) and Link Administration ((LNK)) host investor days today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL ENERGY	Upgrade to Hold from Reduce	Morgans
AMP	AMP	Downgrade to Underweight from Equal-weight	Morgan Stanley
BSL	BLUESCOPE STEEL	Upgrade to Buy from Neutral	Citi
HLS	HEALIUS	Downgrade to Hold from Buy	Deutsche Bank
MHJ	MICHAEL HILL	Downgrade to Hold from Add	Morgans
SGM	SIMS METAL MANAGEMENT	Upgrade to Buy from Neutral	Citi
VHT	VOLPARA HEALTH TECHNOLOGIES	Upgrade to Hold from Lighten	Ord Minnett
VRL	VILLAGE ROADSHOW	Downgrade to Neutral from Outperform	Macquarie
WES	WESFARMERS	Downgrade to Sell from Hold	Deutsche Bank

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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