The Overnight Report: Tell Me That Again

Daily Market Reports | Jul 24 2019

World Overnight
SPI Overnight (Sep) 6691.00 + 33.00 0.50%
S&P ASX 200 6724.60 + 33.40 0.50%
S&P500 3005.47 + 20.44 0.68%
Nasdaq Comp 8251.40 + 47.27 0.58%
DJIA 27349.19 + 177.29 0.65%
S&P500 VIX 12.61 – 0.92 – 6.80%
US 10-year yield 2.07 + 0.03 1.52%
USD Index 97.69 + 0.41 0.42%
FTSE100 7556.86 + 41.93 0.56%
DAX30 12490.74 + 201.34 1.64%

By Greg Peel

Just Buy It

On Monday, strength in the resources sectors on the back of higher commodity prices was the counterbalance to a market otherwise disappointed it appears there won’t be a -50 Fed rate cut, preventing a more extended fall. Yesterday on the local market it seems Fed disappointment lasted only a day.

Investors just bought everything yesterday, inspired by a rally on Wall Street overnight that was all about Apple and little else.

Energy (+1.4%) topped the pops again as the oil price continues higher on Iran tensions. Materials were impacted by lower base metal and iron ore prices but still managed to rise 0.2%. Between those two was every other sector rising in a fairly uniform manner.

Consumer discretionary (+0.9%) was another leader as retailers responded to a guidance upgrade from Kogan ((KGN)), which despite being dubbed “Australia’s Amazon” is not actually an ASX200 stock. Kogan, which is also heavily shorted, jumped 4.8% but the message is consumer land may not be as dour downunder as feared.

On the flipside, any exuberance with regard a possible bottom in the housing market, and thus an implied return to growth, was deflated by UBS yesterday as the broker downgraded Domain Group ((DHG)) to Sell, citing weak listings, earnings downside risk and a too rich valuation.

Rival REA Group ((REA)) fell slightly (-0.1%), suggesting it’s not a matter of competition.

The IT sector had a solid session (+0.8%) because the Nasdaq had a strong session, even though it was all about Apple. The likes of Afterpay Touch ((APT)) and Nearmap ((NEA)) appeared in the top five leaders’ board. If I had a dollar for every day Afterpay appears in either the leaders or losers boards I wouldn’t need to invest in the stock market.

So it’s onward ever upward, with the post-GFC high set early in the month looming only 39 points away, and the all-time (closing) high around a hundred away.

A strong session on Wall Street has our futures looking to a repeat performance today, up 33 points.

Things Go Better

Coca-Cola (Dow) had been underperforming the US market since February when the company issued subdued guidance, suggesting the global slowdown would impact on sales at home and abroad. Last night the stock popped 6.6% on an earnings result that indicated those fears, by the CEO’s own admission, were largely unfounded.

Even sales in China were strong.

United Technologies (Dow), which is into everything from lifts to aerospace, also beat expectations and rose 1.5%.

Wall Street is to date witnessing a very strong earnings season, or so it seems. The bottom line is Coke’s result sums up the situation nicely – fears of an “earnings recession” that abounded last quarter were simply overblown. Companies are beating earnings expectations that were negative, and for a lot of companies reporting to date revenue “beats” belie actual revenue declines.

Yet Wall Street had rallied to new highs despite earnings recession fears, and now that the numbers are rolling in the market is rallying once more. Indeed, it seems Wall Street is ready to rally on anything.

The Dow was up around 80 points around lunchtime on positive earnings results when the WSJ reported US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to China for meetings with China's Vice Premier Liu He. On that news, an 80 point rally for the Dow became a 180 point rally.

This from yesterday’s Overnight Report:

“In other news, the US trade delegation will fly to Beijing next week.”

Not sure what time warp Wall Street is living in, but it proves my “rally on anything” point. I suspect it’s more to do with computers programmed to react to trigger words rather than humans making rational investment decisions.

Also yesterday I suggested that in the face of Fed rate cut expectations, last night’s Richmond Fed activity index would be interesting, given both the Empire State and Philly Fed indices published last week had hit it out of the park. The Richmond index came in a -12 when +5 was expected, its lowest level since January 2013.

I’d hate to be the Fed.

I don’t think I’d like to be Boris either.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1417.20 – 6.80 – 0.48%
Silver (oz) 16.37 + 0.03 0.18%
Copper (lb) 2.70 – 0.02 – 0.83%
Aluminium (lb) 0.81 – 0.00 – 0.10%
Lead (lb) 0.92 + 0.01 1.14%
Nickel (lb) 6.42 – 0.01 – 0.16%
Zinc (lb) 1.09 – 0.00 – 0.38%
West Texas Crude 57.17 + 0.95 1.69%
Brent Crude 64.26 + 0.92 1.45%
Iron Ore (t) futures 118.10 0.00 0.00%

It was hardly a shock, but confirmation of Johnson’s rise to PM had both the pound and euro falling last night against the greenback, sending the dollar index up another 0.4%.

Other than a dip for gold, the spike wasn’t much reflected in commodity price moves. And no it’s not a typo, the iron ore price actually was unchanged last night.

The oils just keep heading in one direction for the time being. We await the weekly US inventory lottery.

The greenback spike has the Aussie down -0.5% at US$0.7002. Here we go again.

Today

The SPI Overnight closed up 33 points or 0.5%.

The flashers are out and about today, as manufacturing PMI estimates are posted locally and in Japan, the eurozone and US.

Atlas Arteria ((ALX)) will report quarterly traffic numbers today.

Beach Energy ((BPT)), Evolution Mining ((EVN)), Iluka Resources ((ILU)) and Sandfire Resources ((SFR)) all release production reports.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ADI APN INDUSTRIA REIT Downgrade to Neutral from Outperform Macquarie
ANZ ANZ BANKING GROUP Upgrade to Add from Hold Morgans
AVN AVENTUS GROUP Upgrade to Outperform from Neutral Macquarie
CIM CIMIC GROUP Downgrade to Underperform from Neutral Credit Suisse
DHG DOMAIN HOLDINGS Downgrade to Sell from Neutral UBS
EVT EVENT HOSPITALITY Downgrade to Hold from Buy Ord Minnett
NGI NAVIGATOR GLOBAL INVESTMENTS Downgrade to Neutral from Outperform Macquarie
OSH OIL SEARCH Upgrade to Overweight from Equal-weight Morgan Stanley
PRU PERSEUS MINING Downgrade to Neutral from Outperform Macquarie
S32 SOUTH32 Upgrade to Add from Hold Morgans
SKI SPARK INFRASTRUCTURE Downgrade to Reduce from Hold Morgans
SYD SYDNEY AIRPORT Upgrade to Add from Hold Morgans
URW UNIBAIL-RODAMCO-WESTFIELD Upgrade to Neutral from Underperform Macquarie
WSA WESTERN AREAS Downgrade to Neutral from Outperform Credit Suisse

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

ALX APT BPT DHG EVN ILU KGN NEA REA SFR