Daily Market Reports | Jun 20 2019
This story features GOODMAN GROUP. For more info SHARE ANALYSIS: GMG
| World Overnight | |||
| SPI Overnight (Jun) | 6664.00 | + 9.00 | 0.14% |
| S&P ASX 200 | 6648.10 | + 78.10 | 1.19% |
| S&P500 | 2926.46 | + 8.71 | 0.30% |
| Nasdaq Comp | 7987.32 | + 33.44 | 0.42% |
| DJIA | 26504.00 | + 38.46 | 0.15% |
| S&P500 VIX | 14.33 | – 0.82 | – 5.41% |
| US 10-year yield | 2.03 | – 0.03 | – 1.50% |
| USD Index | 97.25 | – 0.39 | – 0.40% |
| FTSE100 | 7403.54 | – 39.50 | – 0.53% |
| DAX30 | 12308.53 | – 23.22 | – 0.19% |
By Greg Peel
Step-Jump
There’s really not much to say about yesterday’s 1.2% gain for the ASX200. The index opened up around 60 points and traded sideways for the most of the day before those hoping for an intraday pullback gave up and bought towards the close. If you weren’t set beforehand, there was no chance to pick anything up cheaply.
All sectors closed with gains of 1-1.5% with two exceptions. Energy outperformed with a 2.2% gain given the coin came up heads for oil prices overnight (there have been a lot of ups and downs lately). Consumer discretionary underperformed with a 0.5% gain but that sector was one of the best performers on Tuesday on the promise of another RBA rate cut.
Clearly the prospect of progress on the US-China trade front, given confirmation the two presidents will now meet at the G20 as hoped, was the primary driver. Which is interesting.
While it is in Australia’s best interests to have its major trading partner firing on all cylinders, and hoovering up anything we can throw at it, a US-China trade resolution, if not pie in the sky, will likely require China to buy a lot more from the US. This would likely be weighted to agriculture – another thing we enjoy selling to China beyond iron ore.
But in the wider scheme, a US-China resolution may lead to similar resolutions with Europe and others and if the global trade war reaches an armistice that would be positive for global growth, and the world will be a happier place.
Nobody wins in a trade war, they keep telling us.
Yesterday’s market-wide onslaught puts the index 225 points short of the all-time (intraday) high set in 2007. Making Australia’s stock market attractive, when Australia’s economy is on the slide, is the yield on offer at what is now an accommodating exchange rate. It’s taken a decade to get the Aussie back down to where it was just after the GFC, and the run to parity in between, thanks to Fed QE, scared off foreign investors.
But can we go on with it? We have an “RBA put” now in place to counter an economic slowdown, so it will all come down to the eventual trade war outcome. If the war ends, maybe we will see a new all-time high before the market wonders what the hell to do next.
If it doesn’t…
Swings & Roundabouts
Low US inflation is no longer considered “transitory” according to a Fed that is no longer “patient” but on amber alert. These two keys words, by their omission, made last night’s Fed statement very different to recent statements, as Chair Powell acknowledged.
In a nutshell, the Fed is ready to act, but not just yet. And while not saying so directly, Powell implied that a lot hinges on the trade war. The Fed would have looked pretty foolish if it cut last night and then Trump and Xi kissed a made up in Osaka, and jointly announced the war is over.
So we can pretty much bake in July for the first Fed rate cut, unless by some miracle US data suddenly start to look a lot stronger. For the prospect of a trade deal being signed before then looks remote, despite Wall Street confidence.
I’ll stick my neck out and put it more simply: If Trump, in frustration, launches the final tranche of tariffs on the remaining US$300bn of Chinese exports post-G20, which are locked and loaded in the breech, the Fed will cut in July. If he holds off, suggesting possible progress, the Fed will also hold off.
There’s no August meeting (Fed meetings are six-weekly), so that would take us to September. Wall Street is already only slightly below its all-time highs. Where can it go in the meantime?
Maybe the June quarter earnings season, which begins next month, might prove not to be as bad as feared. Or maybe it will be worse.
Last night the US stock indices were flat before the Fed release and the subsequent rallies were modest. Wall Street heard what it wanted to hear and had already surged the night before.
The US ten-year bond yield nevertheless fell -3 basis points to 2.03%. The two-year fell further, providing some steepening of the curve. The US dollar index fell -0.4% post release.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1359.90 | + 14.00 | 1.04% |
| Silver (oz) | 15.13 | + 0.17 | 1.14% |
| Copper (lb) | 2.64 | + 0.02 | 0.61% |
| Aluminium (lb) | 0.79 | + 0.00 | 0.51% |
| Lead (lb) | 0.86 | – 0.00 | – 0.29% |
| Nickel (lb) | 5.40 | + 0.03 | 0.62% |
| Zinc (lb) | 1.17 | – 0.01 | – 1.17% |
| West Texas Crude | 54.14 | + 0.06 | 0.11% |
| Brent Crude | 62.24 | – 0.02 | – 0.03% |
| Iron Ore (t) futures | 114.25 | + 2.25 | 2.01% |
That move in the greenback, and the reason for it, was clearly evident in the gold price response.
Exchanges in London and Singapore had closed ahead of the release, so there is no Fed impact in metal price moves. Iron ore never correlates with monetary policy anyway.
The oils had moved up sharply the night before, so they sat it out.
The Aussie did well to only rise 0.1% against the greenback’s fall, to US$0.69881, but it’s now a race between Powell and Lowe as to who next delivers.
Today
The SPI Overnight closed up 9 points.
Governor Lowe will make a speech today, the Bank of Japan will hold a policy meeting today and the Bank of England tonight.
New Zealand’s March quarter GDP result is out today.
Today brings the quarterly expiry of ASX index options, the SPI and SPI options, so we could be in for a bumpy ride. But I’d wager that the sharp rally we’ve seen recently will have taken the index away from the concentration of strike prices, suggesting not that much gamma in play, for those who understand such things.
Goodman Group ((GMG)) hosts an investor day today.
Sydney Airport ((SYD)) releases monthly traffic numbers.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AGL | AGL ENERGY | Upgrade to Neutral from Underperform | Macquarie |
| Upgrade to Hold from Reduce | Morgans | ||
| AX1 | ACCENT GROUP | Upgrade to Add from Hold | Morgans |
| MMS | MCMILLAN SHAKESPEARE | Downgrade to Neutral from Outperform | Macquarie |
| NAN | NANOSONICS | Downgrade to Hold from Add | Morgans |
| SXY | SENEX ENERGY | Upgrade to Outperform from Neutral | Credit Suisse |
| VHT | VOLPARA HEALTH TECHNOLOGIES | Upgrade to Hold from Lighten | Ord Minnett |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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