The Overnight Report: Another Milestone

Daily Market Reports | Jul 12 2019

World Overnight
SPI Overnight (Sep) 6628.00 – 26.00 – 0.39%
S&P ASX 200 6716.10 + 26.30 0.39%
S&P500 2999.91 + 6.84 0.23%
Nasdaq Comp 8196.04 – 6.49 – 0.08%
DJIA 27088.08 + 227.88 0.85%
S&P500 VIX 12.93 – 0.10 – 0.77%
US 10-year yield 2.12 + 0.06 2.86%
USD Index 97.06 – 0.04 – 0.04%
FTSE100 7509.82 – 20.87 – 0.28%
DAX30 12332.12 – 41.29 – 0.33%

By Greg Peel

Well Resourced

Having sat out the bulk of upside this week, yesterday saw the resource sectors kick back into gear to lead the ASX200 higher yet again. Every sector closed in the green, but this time only a handful meaningfully contributed to the index.

IT won the day with a 1.4% gain as it followed the Nasdaq, but doesn’t count for much. In contrast, a 1.0% gain for energy and 0.8% for materials provided the bulk of the upside.

The top four winners in the index yesterday were two gold miners, an O&G company and Whitehaven Coal ((WHC)), who coincidently released a better-than-anticipated production report on the day.

Oil prices had shot up on Wednesday night on a confluence of factors – the Fed rate cut promise and weaker greenback, the usual ups and downs of weekly US crude inventories, and the tanker-seizing match being played between the UK and Iran. Base metal prices all jumped on the greenback, and gold surged. Iron ore watched from the sidelines.

So it were not the usual suspects leading materials higher yesterday, and we note gold has last night given back most of Wednesday night’s rally.

Elsewhere, we’re only approaching winter’s halfway mark but the flu season is already proving devastating, continuing to underpin CSL ((CSL)). Healthcare rose 0.5% yesterday.

There was little evidence of a looming Fed rate cut boosting bond proxy stocks yesterday, with utilities, staples and industrials sitting it out, although telcos rose 0.5%. Telstra ((TLS)) was up 0.8%. I don’t know why a nation-wide outage, bringing commerce to a standstill, is a positive for the stock.

Remaining sectors, including the banks, also rested. It was a market-wide rally, but very much sector-concentrated and thus lacking breadth.

Interestingly, the Dow caught the S&P and Nasdaq last night in finally reaching a new all-time high, and our futures are down -26 points this morning. Gold gave back fifteen of the twenty dollars it rallied on Wednesday night and iron ore is off a bit again, but base metals and oil largely stabilised.

Is it a Friday thing? Or is diminishing breadth of concern?

Healthy Gain

Last night’s US CPI data showed 0.1% headline growth when 0.2% was expected, but the core CPI grew 0.3% when 0.2% was expected, the fastest monthly gain in a year and a half.

Perhaps a Fed rate cut is not such a good idea?

If so, no one’s told Jerome Powell. The Fed chair’s testimony ended last night in front of the Senate committee, to which he made the case for why a “pre-emptive” rate cut might be necessary even if economic and job growth remained strong. So dismiss last Friday’s jobs number, and we might as well now dismiss the upcoming first estimate of June quarter GDP. And the CPI. A July rate cut is baked in.

But now all talk is of could July be “one and done”? The one cut that cancels out the mistake made in December, and then it’s back to the data? The market is still backing a September cut as a good chance nonetheless (no meeting in August).

Meanwhile, last night saw the Dow finally catch up with the S&P and Nasdaq in hitting a new all-time high, as it passed the 27,000 mark for the first time. We might note that the move from 25,000 to 26,000 took two weeks, in early 2017 post-election, and the move from 26,000 to 27,000 has taken a year and a half.

We might also note that last night’s milestone was a bit misleading, as the 0.9% rally in the Dow was all about one stock – United Health – which jumped 5% after the White House backed down on a plan to cut drug rebates. The S&P’s modest 0.2% gain is more representative.

On the subject of milestones, the S&P closed at another all-time high of 2999.9. An interesting snippet from CNBC this morning: the S&P first hit 30 in 1929 (retrospective calculation) and 300 in 1987.

In other news, the WSJ reported last night the Trump administration is concerned about the prospects of a trade deal, with China making no move to increase imports of US agricultural products, as was part of the “truce” agreement. And the administration is investigating a proposal in France to place a 3% tax on US Big Tech.

But hey, the Fed’s gonna cut!

An auction of US thirty-year bonds was held last night, and no one turned up. The CPI numbers were blamed for the thirty-year yield jumping 7 basis points, and the ten-year 6 basis points to 2.12%. The curve has steepened, just as the Fed would like to see.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1403.20 – 15.20 – 1.07%
Silver (oz) 15.09 – 0.12 – 0.79%
Copper (lb) 2.68 + 0.00 0.07%
Aluminium (lb) 0.82 – 0.01 – 0.94%
Lead (lb) 0.89 + 0.01 0.69%
Nickel (lb) 5.91 + 0.09 1.61%
Zinc (lb) 1.08 – 0.00 – 0.16%
West Texas Crude 60.43 + 0.16 0.27%
Brent Crude 66.76 + 0.08 0.12%
Iron Ore (t) futures 119.25 – 1.95 – 1.61%

The sharp pullback in the gold price following Wednesday night’s sharp rally has been attributed to profit-taking after the strong run through 1400.

Elsewhere, commodity price movements were more stable last night. Iron ore’s down again, but in the current environment could just as easily jump back up at any time.

The US dollar index is steady but the Aussie is up another 0.2% at US$0.6974. Back to the seventies again?

Today

The SPI Overnight closed down -26 points or -0.4%.

China will release June trade numbers today.

The US will follow up with the PPI.

Sydney Airport ((SYD)) will release monthly traffic data.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Upgrade to Buy from Neutral UBS
ABC ADELAIDE BRIGHTON Downgrade to Lighten from Hold Ord Minnett
AWC ALUMINA Downgrade to Underperform from Neutral Macquarie
CBA COMMBANK Downgrade to Sell from Neutral Citi
DCN DACIAN GOLD Downgrade to Neutral from Outperform Macquarie
EBO EBOS GROUP Upgrade to Add from Hold Morgans
EVN EVOLUTION MINING Downgrade to Underperform from Neutral Macquarie
Downgrade to Hold from Add Morgans
FLT FLIGHT CENTRE Upgrade to Buy from Neutral Citi
GOR GOLD ROAD RESOURCES Upgrade to Outperform from Neutral Macquarie
GXY GALAXY RESOURCES Downgrade to Neutral from Outperform Macquarie
HVN HARVEY NORMAN HOLDINGS Upgrade to Neutral from Sell Citi
JBH JB HI-FI Upgrade to Neutral from Sell Citi
MPL MEDIBANK PRIVATE Downgrade to Underperform from Neutral Macquarie
NST NORTHERN STAR Downgrade to Neutral from Outperform Macquarie
PMV PREMIER INVESTMENTS Upgrade to Neutral from Sell Citi
RRL REGIS RESOURCES Downgrade to Neutral from Outperform Macquarie
S32 SOUTH32 Downgrade to Underperform from Neutral Macquarie
SAR SARACEN MINERAL Downgrade to Neutral from Outperform Macquarie
SBM ST BARBARA Upgrade to Neutral from Underperform Macquarie
SFR SANDFIRE Upgrade to Neutral from Underperform Credit Suisse
Downgrade to Neutral from Outperform Macquarie
SGM SIMS METAL MANAGEMENT Downgrade to Hold from Buy Ord Minnett
WPL WOODSIDE PETROLEUM 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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CHARTS

CSL SYD TLS WHC