The Overnight Report: Could Have Been Worse

Daily Market Reports | Jul 09 2019

World Overnight
SPI Overnight (Sep) 6616.00 + 1.00 0.02%
S&P ASX 200 6672.20 – 79.10 – 1.17%
S&P500 2975.95 – 14.46 – 0.48%
Nasdaq Comp 8098.38 – 63.41 – 0.78%
DJIA 26806.14 – 115.98 – 0.43%
S&P500 VIX 13.96 + 0.68 5.12%
US 10-year yield 2.03 – 0.01 – 0.68%
USD Index 97.37 + 0.08 0.08%
FTSE100 7549.27 – 3.87 – 0.05%
DAX30 12543.51 – 25.02 – 0.20%

By Greg Peel

Overdue

It had to come one day, and yesterday was it. The local market had reached a mindset of believing a new all-time high was an inevitability rather than a possibility, underscored by an extremely complacent VIX level of 10, and an army of computers running momentum algos.

The clue came on Friday when the ASX200 ran up another 30-odd points ahead of the critical US jobs number, despite no lead from Wall Street and no other real driver to identify beyond over-exuberance. Typically, with such an important data release due, we would sit tight.

Clearly the better than expected US jobs number provided yesterday’s trigger, as we note the Dow closed down over a hundred points last night but our futures are up one point this morning. We booked in a disappointed Wall Street yesterday. The fall was uniform and orderly, closing near enough to the lows but coming in for a smooth landing as selling decelerated in the afternoon.

It was always going to be the case the big miners would see further profit-taking, with the iron ore price down over -6%. As it was the materials sector’s -1.1% fall was par for the course on a day which saw all sectors closing in the red, mostly by similar percentages. Iron ore futures also bounced during the day.

Utilities (-2.1%) were the worst performer, with yield-payers having been prominent in the rally towards a new high, while consumer discretionary (-0.3%) “outperformed”, after not having been a major driver in that rally.

The banks chimed in with a -1.2% fall to provide a good chunk of the -80 points.

There was nothing startling among individual stocks, other than to note G8 Education ((GEM)) fell -9.8% on a broker downgrade and SpeedCast International ((SDA)) finally found a bottom (+6.4%). Next best performer was Costa Group ((CGC)) which had also been sold off recently against the trend, so its 3.2% gain, alongside SpeedCast, suggests traders took the opportunity to look for bargains.

On the flipside, one of the most popular stocks on the market for some time has been logistics REIT Goodman Group ((GMG)). It copped a -3.8% reality check.

And it was largely a reality check overall for the market, which may from here behave more cautiously now the party balloon has been popped. Wall Street is nervously awaiting Jerome Powell’s testimony to Congress beginning on Wednesday night, eager for any confirmation of a July rate cut or not. He won’t confirm specifically, but he may give a big Philip Lowe-style hint one way or the other.

Or he might just say “data-dependent”, which will leave everyone on edge.

Still Hopeful

Yet Wall Street remains ever optimistic. Optimistic, that is, that the US economy is in bad enough shape for the Fed to feel the need to ease. The Fed funds futures continue to price in at least a -25 point cut at the end of the month, and still a chance of a -50 point cut, despite many seeing that prospect as ludicrous.

A hundred point loss for the Dow is not as significant a fall as one might have expected on the strong jobs number, given Wall Street has similarly become over-exuberant on almost baked-in rate cut expectations. Two stocks were fundamental in driving the Dow lower, and not for any monetary policy reason.

Apple fell -2% after a broking house downgraded the stock to Sell. There is now fierce debate on Wall Street over whether Apple is a hardware company, in which case its glory days of innovation and iThings are now behind it, or a growing services company, as management, too, shifts focus away from phones and pads that just about everyone in the world now owns.

Boeing fell -1.3% after a Saudi airline cancelled an order for 737 Max jets worth US$5.5bn, announcing it will buy Airbuses instead. The share price drop does not seem that significant, but Boeing has the highest nominal share price in the Dow by a margin and hence it is the average’s most significant price mover.

So take those two out, and noting Apple is one of the largest caps in the S&P and more so in the Nasdaq, and we can conclude last night’s response to the strong jobs number was far from panicky.

Now it’s over to Jay, but we still have a session in between.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1395.10 – 3.20 – 0.23%
Silver (oz) 15.00 + 0.03 0.20%
Copper (lb) 2.66 + 0.00 0.12%
Aluminium (lb) 0.81 + 0.01 0.68%
Lead (lb) 0.85 + 0.01 1.29%
Nickel (lb) 5.74 + 0.13 2.25%
Zinc (lb) 1.08 – 0.02 – 1.68%
West Texas Crude 57.57 – 0.16 – 0.28%
Brent Crude 64.52 + 0.29 0.45%
Iron Ore (t) futures 117.75 + 3.50 3.06%

Concerns of Chinese oversupply continue to dog zinc but there’s no such issue for nickel, it would seem.

Iron ore recovered around half of Friday night’s loss.

After sharp moves up on Friday night, US bond yields and the US dollar stabilised last night, as did gold.

The Aussie is down -0.1% at US$0.6974.

Today

The SPI Overnight closed up one point.

NAB will release its monthly business confidence survey today.

Perseus Mining ((PRU)) will report earnings while Metcash ((MTS)) and Collins Foods ((CKF)) go ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CBA COMMBANK Downgrade to Neutral from Outperform Credit Suisse
IAG INSURANCE AUSTRALIA Downgrade to Equal-weight from Overweight Morgan Stanley
IGO INDEPENDENCE GROUP Downgrade to Hold from Accumulate Ord Minnett
ILU ILUKA RESOURCES Downgrade to Hold from Accumulate Ord Minnett
MFG MAGELLAN FINANCIAL GROUP Downgrade to Sell from Neutral UBS
PLS PILBARA MINERALS Upgrade to Hold from Lighten Ord Minnett
SUN SUNCORP Downgrade to Underweight from Equal-weight Morgan Stanley

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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CGC CKF GEM GMG MTS PRU SDA