Daily Market Reports | Aug 07 2019
|SPI Overnight (Sep)||6437.00||+ 47.00||0.74%|
|S&P ASX 200||6478.10||– 162.20||– 2.44%|
|Nasdaq Comp||7833.27||+ 107.23||1.39%|
|S&P500 VIX||20.17||– 4.42||– 17.97%|
|US 10-year yield||1.74||+ 0.00||0.23%|
|USD Index||97.59||+ 0.08||0.08%|
|FTSE100||7171.69||– 52.16||– 0.72%|
|DAX30||11567.96||– 90.55||– 0.78%|
Wall Street bounced last night, but few are ready to call a bottom. Dow up 331.
By Greg Peel
Nowhere to run to
In the scheme of things, the ASX200 didn’t really do much yesterday. It just opened lower. There was a bit of a comeback running into the Fed announcement but then a drift back off when the RBA held firm.
“The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
It was not considered likely the RBA would go three for three and sudden market volatility was not about to force the central bank’s hand, unless it becomes sustained. The statement did actually say “ease” monetary policy this time, rather than “adjust”, as had been the case in prior statements, but then no one expects the RBA to hike.
While acknowledging global trade and technology “uncertainty”, the board is most focused on domestic household spending and wage growth. If there are no signs of improvement ahead, the RBA will cut again.
Monetary policy aside, what we have seen in the past two sessions is a global equity de-rating from above average multiples, back to something more realistic in the current climate. TINA is all well and good, but has its limits.
FNArena has been pointing out that week after week as the ASX200 ran back towards its old high, stock analysts persistently downgraded their ratings on stocks in far greater number than any were upgraded. Heading into result season, the market was running too far ahead of the fundamentals. It was shaping up to potentially be a shocker of a result season on the risk that earnings would not match price/earnings expectations.
Now earnings results can be assessed from a more realistic level. That is assuming this volatility does subside, and there’s no certainty there. Wall Street bounced last night, but few are convinced of its implications at this stage. The renminbi was fixed yesterday at a level slightly higher than Monday, which is one reason why the ASX200 rebased yesterday but did not go on with it.
The index fell -2.4% and almost every sector fell by around about that much. That tells the story. No discrimination, no rotation.
IT fell -3.9% but no great surprise there. More notable was -3.7% fall for healthcare, which had arguably run too far on flu exuberance. This was offset by only a -1.0% fall for materials.
Within materials, there was support from gold miners but that trade is starting to run out of steam. On the flipside, the big iron ore miners did not fall as far as one might have expected given the iron ore price crashed back through the ton, but iron ore had already been correcting for several sessions and Monday took that correction to over -20%, so again, that trade is running out of steam. Fortescue Metals ((FMG)) rose 2.8% would you believe, but had fallen -30% in recent sessions to get there.
You know it’s a bad day when a 2.8% gain puts you fourth on the top five leaders’ board. Fortescue came in behind Pinnacle Investments ((PNI)), which jumped 10.3% on its earnings report, Lynas ((LYC)), which rallied another 7.9% on ongoing expectations China will cut off exports of rare earths to the US, and Bingo Industries ((BIN)), which rose 4.5%.
Maybe Bingo has the contract to clean up the blood.
Wall Street has bounced last night and our futures are up 47 this morning, but don’t get carried away just yet. In terms of trade war/monetary policy/Hong Kong/Brexit, nothing has changed. At least we know that having rebased, along with a ten-year low Aussie, our market is back to looking attractive again in yield terms.
We just need earnings season to underscore that attraction.
Poke the Cat
One of Trump’s campaign pledges was to declare China a “currency manipulator”, which does carry IMF ramifications, and on Monday night the president finally got his chance. But given the PBoC pegged the renminbi slightly higher yesterday after Monday’s shock fix above US$7, it looks like the initial move was probably just a shot across the bow.
Just as it would be mutually destructive for China to sell US bonds in retaliation for trade tariffs, so too would a free-falling currency prove a shot in the foot. In the global equity sell-off this week, China’s market has fared worse than the US and others.
Wall Street opened higher last night on currency relief, was met with selling from Europe (the DAX fell another -0.8% last night), and when Europe closed, rebounded. But was it a “Turnaround Tuesday”?
No, say the pundits. Turnaround Tuesdays, which can signal the bottom, typically occur after a Monday “crash” is followed by more panicked selling on the open on Tuesday before the buyers seize the opportunity. That was not really the case last night, and as many have pointed out, nothing has actually changed. Global risks remain.
Hence the market will likely remain on edge, beholden to the next tweet.
The Dow will open tonight with a handicap from Disney, which disappointed with its aftermarket earnings release and is down -3.2%.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1474.00||+ 10.60||0.72%|
|Silver (oz)||16.42||+ 0.06||0.37%|
|Copper (lb)||2.57||+ 0.01||0.23%|
|Aluminium (lb)||0.79||+ 0.00||0.15%|
|Lead (lb)||0.89||+ 0.01||1.32%|
|Nickel (lb)||6.76||+ 0.02||0.26%|
|Zinc (lb)||1.05||– 0.02||– 1.65%|
|West Texas Crude||53.46||– 1.55||– 2.82%|
|Brent Crude||58.55||– 1.57||– 2.61%|
|Iron Ore (t) futures||97.90||– 1.25||– 1.26%|
Base metals mostly stabilised last night, with the US dollar also steady.
Iron ore fell further, but at least the fall was small compared to recent movements.
Gold rose further, and is now likely more connected to the Chinese currency than anything else.
The oils bounced initially but found no traction.
The Aussie is relatively steady at US$0.6960.
The SPI Overnight closed up 47 points or 0.7%.
The RBNZ meets this morning.
Locally we’ll see housing finance data.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|NAB||NATIONAL AUSTRALIA BANK||Downgrade to Equal-weight from Overweight||Morgan Stanley|
|RWC||RELIANCE WORLDWIDE||Downgrade to Equal-weight from Overweight||Morgan Stanley|
|SYD||SYDNEY AIRPORT||Upgrade to Neutral from Sell||UBS|
|TCL||TRANSURBAN GROUP||Downgrade to Neutral from Buy||UBS|
|WBC||WESTPAC BANKING||Upgrade to Equal-weight from Underweight||Morgan Stanley|
|XRO||XERO||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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