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The Monday Report – 12 August 2019

Daily Market Reports | Aug 12 2019

World Overnight
SPI Overnight (Sep) 6499.00 – 22.00 – 0.34%
S&P ASX 200 6584.40 + 16.30 0.25%
S&P500 2918.65 – 19.44 – 0.66%
Nasdaq Comp 7959.14 – 80.02 – 1.00%
DJIA 26287.44 – 90.75 – 0.34%
S&P500 VIX 17.97 + 1.06 6.27%
US 10-year yield 1.73 + 0.02 1.05%
USD Index 97.49 – 0.13 – 0.13%
FTSE100 7253.85 – 32.05 – 0.44%
DAX30 11693.80 – 151.61 – 1.28%

By Greg Peel

Shuffling the Deck

After a wild week of mostly market-wide panic selling followed by bargain hunting across selected sectors, Friday's trade on the ASX was one of repositioning. A modest gain was made up of shuffling around in sectors.

A flow was evident from the big miners into the banks, although falls in iron ore stocks were less pronounced than another big fall in the iron ore price might have earlier suggested. The materials sector nonetheless closed up 0.5%, boosted by a well-received earnings result from James Hardie ((JHX)) which drove that stock up 14% to top the ASX200 winners table, as well as big moves up for heavily-shorted lithium miners after offshore peer Albemarle posted a positive report. Orocobre jumped 10.3%.

The banks were also helped by an 11.6% gain for AMP ((AMP)) after the company announced it had successfully completed its capital raising. Clearly there was some doubt, and supposedly now AMP has the wherewithal to re-right the ship.

Energy (+0.4%) managed to stabilise after a rough week and should be supported today after a bounce in oil prices on Friday night.

Positions were trimmed in utilities, healthcare and the consumer sectors with industrials and telcos favoured, while IT rose 1.3%.

The top five ASX200 losers on the day included three gold miners as profits were taken after a stellar week.

The RBA governor told a parliamentary committee on Friday that a zero cash rate remained a possibility but on examination the board had decided QE was not really suited to Australia. Deutsche Bank economists became the first to forecast a cash rate at 0.25%.

We head into the new week with sentiment remaining on edge, balancing global risks in trade, Hong Kong and Brexit with the knowledge the Fed and friends will be there to provide a safety net. Wall Street closed lower on Friday but only after some very late Friday squaring.

Our futures were down -22 points on Saturday but this week we begin to head into the guts of the local reporting season. It will be a battle of the micro and macro as reports are assessed on an alpha basis while worldwide volatility will drive the macro.

Need a Rest

Wall Street traders would have been thankful for the weekend after a wild ride throughout the week. The S&P closed down -0.5% for the week which, in isolation, would suggest not a lot transpired but every session brought severe volatility and Friday's was no exception.

The day started with a response from a late Thursday report indicating the Trump administration was not ready to ease restrictions such that US companies could resume doing business with Huawei, given China had failed to purchase US agricultural products as was supposed to be the trade-off.

Trump told reporters on Friday morning that things are going "very well with China", so well in fact that he's not ready to make a deal and may cancel a planned meeting of trade delegations in Washington in early September, which was set to occur just after the new tariffs became effective.

The Dow was down over -280 points early in the session. But indices began to bottom out late morning before the buyers stepped in and drove them all the way back to near square ahead of the last half hour of trade. Then Friday afternoon squaring ahead of a weekend, and likely a desire not to risk carrying positions over a weekend, saw the Dow close down -90.

It is assumed every time Wall Street falls on trade worries it rallies back on hopes of further Fed support, given trade uncertainty was signalled out as one of the primary reasons for the -25 point cut in July.

The US PPI rose 0.2% in July, meeting expectations, while the annual rate remained unchanged at 1.7%.

Meanwhile, 90% of the S&P500 has now reported quarterly earnings for a net -0.7% reduction, to mark the first two consecutive quarters of negative growth since 2016.

With the earnings season now tailing off and the next Fed meeting not until next month, Wall Street will be very tweet-exposed for the next few weeks.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1496.20 – 4.70 – 0.31%
Silver (oz) 16.93 – 0.15 – 0.88%
Copper (lb) 2.59 + 0.01 0.47%
Aluminium (lb) 0.79 + 0.01 0.99%
Lead (lb) 0.94 + 0.03 3.40%
Nickel (lb) 7.10 + 0.38 5.70%
Zinc (lb) 1.01 – 0.02 – 1.95%
West Texas Crude 54.50 + 2.19 4.19%
Brent Crude 58.53 + 1.12 1.95%
Iron Ore (t) futures 94.80 0.00 0.00%

The nickel price is currently beholden to an Indonesian decision to ban nickel exports, with news on Friday night suggesting Jakarta may bring that decision forward. For some time the government has been attempting to shift from being a raw metals exporter to China to maintaining the value-add within Indonesia of smelting.

The bounce-back in oil prices on Friday night was not about the weekly inventory lottery but simply a spike from perceived oversold territory following a fall of over -20% from prior highs.

The more Wall Street expects further Fed rate cuts, the further the US dollar index should in theory fall. But given Philip Lowe is not ruling out cuts to zero in Australia, the race to the bottom is a well-contested one. The Aussie is up 0.3% at US$0.6781.

The SPI Overnight closed down -22 points or -0.3% on Saturday morning.

The Week Ahead

China will release July industrial production, retail sales and fixed asset investment numbers on Thursday.

The US will see the CPI on Tuesday, industrial production, retail sales and housing sentiment on Thursday and housing starts and consumer sentiment on Friday.

In Australia we'll see NAB's business confidence survey tomorrow and Westpac's consumer confidence survey on Wednesday, accompanied by the June quarter wage price index. Thursday brings the July jobs numbers.

Local reporting season begins to ramp up in earnest this week. Today sees reports from Ansell ((ANN)), Aurizon ((AZJ)), Bendigo & Adelaide Bank ((BEN)) and JB Hi-Fi ((JBH)), among others.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL AGL ENERGY Upgrade to Hold from Lighten Ord Minnett
Upgrade to Neutral from Sell UBS
Downgrade to Reduce from Hold Morgans
ALQ ALS LIMITED Upgrade to Buy from Neutral Citi
AMP AMP Upgrade to Equal-weight from Underweight Morgan Stanley
APE AP EAGERS Upgrade to Overweight from Equal-weight Morgan Stanley
ARB ARB CORP Downgrade to Neutral from Outperform Macquarie
BRG BREVILLE GROUP Upgrade to Neutral from Underperform Credit Suisse
DMP DOMINO'S PIZZA Upgrade to Buy from Neutral UBS
NGI NAVIGATOR GLOBAL INVESTMENTS Upgrade to Outperform from Neutral Macquarie
SLC SUPERLOOP Downgrade to Equal-weight from Overweight Morgan Stanley
TNE TECHNOLOGYONE Upgrade to Hold from Lighten Ord Minnett
TPM TPG TELECOM Downgrade to Equal-weight from Overweight 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.)

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CHARTS

AMP ANN AZJ BEN JBH JHX