The Overnight Report: Poised

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World Overnight
SPI Overnight (Sep)	6569.00	– 13.00	– 0.20%
S&P ASX 200	6641.00	– 12.00	– 0.18%
S&P500	3004.04	– 10.26	– 0.34%
Nasdaq Comp	8222.80	– 35.39	– 0.43%
DJIA	27335.63	– 23.53	– 0.09%
S&P500 VIX	12.86	+ 0.18	1.42%
US 10-year yield	2.12	+ 0.03	1.43%
USD Index	97.37	+ 0.43	0.44%
FTSE100	7577.20	+ 45.48	0.60%
DAX30	12430.97	+ 43.63	0.35%

By Greg Peel

On Holidays

"Members also judged that the extent of spare capacity in the economy, and the likely pace at which it would be absorbed, meant that a decline in interest rates was unlikely to encourage an unwelcome material pick-up in borrowing by households that would add to medium-term risks in the economy.

"Members recognised that, in the current environment, the main channels through which lower interest rates would support the economy were a lower value of the exchange rate than otherwise would be the case and lower required interest payments on borrowing, which would free up cash for other expenditure by households and businesses."

Look out! Here comes another one.

The RBA board decided at its July meeting that a lower cash rate would not suddenly spark a revival of the housing market bubble. Members believed two things could help prop up the Australia economy – a lower exchange rate and a lower cash rate. The Aussie has barely moved from its level before the RBA made two rate cuts, because the Fed is anticipated to follow suit. So that only leaves…

It's just a matter of when.

Was the local market excited about this news? No. Firstly, anything up to four rate cuts has been anticipated by economists for some months now, so no surprise here. The government may have delivered tax cuts, but still has its head firmly stuck in the sand with regard the goal of surplus that all around are lampooning. Even the cartoonists are in on the act.

And school holidays across parts of the country appear to have slowed down market activity, along with Wall Street having done little this week. So yesterday we saw a meandering market with no commitment either way.

The banks (-0.4%), telcos (-1.3%) and energy (-1.4%) provided the bulk of the weakness. Lower rates are not good for the banks, and oil prices were lower overnight. Oil Search ((OSH)) also fell -2.3% on a weak production report. Telcos have seen a spate of profit-taking after a solid run-up in recent weeks.

IT also had another soft day (-1.0%)

The balance was provided by healthcare (+0.4%), specifically the usual suspect, and utilities (+0.7%). No one turned up to trade materials, industrials or the consumer sectors.

One bright day amidst stormy weather for the lithium miners saw Galaxy Resources ((GXY)) up 4.2%, after exceeding production guidance.

I highlighted yesterday that Perpetual ((PPT)) is among the old world fund managers being abandoned in favour of the new world platforms, with Praemium firing as Perpetual tanked. Yesterday it was the turn of investment platform Hub24 ((HUB)), which rallied 3.9% on its funds flow numbers while Perpetual sank another -5.9%.

The holidays continue and Wall Street remains little moved near all-time highs with the US earnings season in first gear. Our futures are down -13 this morning.

Long Way Off

JP Morgan (Dow), Wells Fargo and Goldman Sachs (Dow) reported earnings last night. All three beat on earnings, but those forecasts had previously been lowered, and the outlook for margins remains muted in a slow credit growth environment. Share price responses were mixed and inconsequential.

Johnson & Johnson (Dow) also beat, but is no longer a safe go-to stock given pending lawsuits over baby powder and opioids.

In economic news, US retail sales jumped 0.4% in June when 0.1% was forecast, rather delighting the market. Industrial production was flat when 0.1% growth was expected. Tariffs are blamed.

And on that subject, the president last night suggested a trade deal had "a long way to go". The Chinese commerce minister separately said China must uphold "the spirit of the struggle".

Wall Street has priced in Fed rate cuts and priced in a trade deal. The former may be as good as locked in but disappointment lurks if the Fed provides only a 25 basis point "one and done". The latter, well…

There was some surprise the poster child big industrials like Boeing, Caterpillar, 3M etc did not do their usual trick of tanking every time there's discouraging news on trade. Maybe Trump's comments come as no surprise, or maybe it's a bit foolhardy to sell into pending earnings results. Whatever the case, Wall Street is looking for a new upside driver from all-time highs.

With trade a long way off and the Fed supposedly baked in, it will have to come from earnings, if at all. On that front the good news is expectations are already low. But time will tell.

It's early days.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1405.60	– 8.00	– 0.57%
Silver (oz)	15.54	+ 0.19	1.24%
Copper (lb)	2.72	+ 0.01	0.39%
Aluminium (lb)	0.82	+ 0.00	0.34%
Lead (lb)	0.90	+ 0.00	0.54%
Nickel (lb)	6.21	+ 0.19	3.12%
Zinc (lb)	1.13	+ 0.02	2.07%
West Texas Crude	57.48	– 1.83	– 3.09%
Brent Crude	64.40	– 1.80	– 2.72%
Iron Ore (t) futures	122.20	+ 0.80	0.66%

The spike in nickel overnight was attributed by traders to concerns increasing demand from EV production will meet diminishing supply. I didn't realise that was new news.

Perhaps the announcement, earlier this week, that Ford and Volkswagen have formed an alliance to pool their resources with regard EVs and AI (for autonomous vehicles) has reignited an old story. Perhaps soon we'll see a self-driving, electric Beetle GTHO.

Actually, what will future Bathursts be like when the cars all drive themselves around making no sound?

The US Secretary of State has suggested he will take up Tehran's offer to sit down and talk about Iran's missile program. Recent price strength in oil has been down to US-Iran tensions, and UK-Iran tensions, so last night some of that tension eased.

The US retail sales result had the dollar index popping 0.4%, translating to a -0.3% fall for the Aussie to US$0.7010.

Today

The SPI Overnight closed down -13 points. The oil price would underscore that move.

The Fed Beige Book is out tonight.

Alcoa will report earnings tonight, which will inform the performance of the JV with Alumina ltd ((AWC)).

BHP Group ((BHP)) and Syrah Resources ((SYR)) release their production reports today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMS	ATOMOS	Upgrade to Add from Hold	Morgans
CAR	CARSALES.COM	Downgrade to Reduce from Add	Morgans
DTL	DATA#3	Downgrade to Hold from Add	Morgans
NHF	NIB HOLDINGS	Downgrade to Sell from Neutral	Citi
STO	SANTOS	Upgrade to Outperform from Neutral	Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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