The Overnight Report: Getting Bonkers In Honkers

Daily Market Reports | Aug 13 2019

World Overnight
SPI Overnight (Sep) 6480.00 – 52.00 – 0.80%
S&P ASX 200 6590.30 + 5.90 0.09%
S&P500 2883.09 – 35.56 – 1.22%
Nasdaq Comp 7863.41 – 95.73 – 1.20%
DJIA 25897.71 – 389.73 – 1.48%
S&P500 VIX 21.09 + 3.12 17.36%
US 10-year yield 1.64 – 0.10 – 5.48%
USD Index 97.41 – 0.08 – 0.08%
FTSE100 7226.72 – 27.13 – 0.37%
DAX30 11679.68 – 14.12 – 0.12%

By Greg Peel

Good Result

The local market took a breather from the macro yesterday to concentrate on the micro. It was a quiet session in index terms, but among individual stocks there were some notable moves, mostly due to earnings results.

Early indications from the handful of companies reporting to date have been that misses of forecasts appeared set to dominate, but numbers from Friday and yesterday suggested quite the opposite. We should take into account, nevertheless, the market as a whole has fallen steeply in August to a less overblown valuation.

Year after year, shorts in JB Hi-Fi ((JBH)) have been among the highest in the market. Year after year JB Hi-Fi's result blows those shorts apart. Yesterday was no exception, as the shorters were again forced to scramble on a beat from the electronics retailer and the stock jumped 10.0%.

That move topped the ASX200 winners list and hot on the heels were Friday reporters News Corp ((NWS)), up 7.5%, and REA Group ((REA)), up 6.3%. There followed another of yesterday’s reporters. Ansell ((ANN)) rose 6.0%.

Aurizon ((AZJ)), Bendigo & Adelaide Bank ((BEN)) and Cooper Energy ((COE)) also reported yesterday and also moved higher on their results.

As did Charter Hall Long WALE REIT ((CLW)) and Praemium ((PPS)). Only GPT Group ((GPT)), among the larger caps, posted a miss.

So as far as result season sessions go, yesterday’s was a cracker. But as Karen Carpenter would warn us, we’ve only just begun.

The downside was dominated by materials stocks, most notably Orocobre ((ORE)), which surged on Friday and fell back -6.6% yesterday, and Fortescue Metals ((FMG)), down another -4.0% on another fall in Asian iron ore futures during the session.

The upshot is the materials sector fell -1.5%, balanced out by a 1.2% gain for healthcare (Ansell) and 1.0% for discretionary (JB Hi-Fi). The banks helped out with a 0.4% gain.

Passing by without a murmur yesterday was the daily fix of the renminbi. At US$7.0211 the Chinese currency continues to devalue, but for some reason is no longer an issue. Also ignored was the closure of Hong Kong airport.

To date the protests in Hong Kong have been somewhat of background noise for the market, rather than any substantive source of fear. Beijing has been largely absent in any overt way. But Chinese hardware has been building up on the border as a show of strength, and the closure of Hong Kong airport suggests a dramatic escalation in tensions, raising fears Beijing cannot sit idly by any longer.

Concern was piqued on Wall Street last night, which is why our futures are down -52 points this morning.

Stop the World

Developments in Hong Kong were of primary concern on Wall Street last night. Not helping was a primary vote for the presidential election in Argentina, which saw the business-friendly incumbent lose heavily to a populist rival. The peso subsequently tanked.

Markets opened with US bond yields crashing once more in a flight to safety. The ten-year yield fell -10 basis points to 1.64%. The two-year to ten-year yield spread closed in to a mere 5 basis points.

Stock indices followed bond yields down, and while there was a modicum of respite towards the close, it was nothing to suggest the bargain hunters were out in force. All S&P sectors closed lower, with banks and materials hardest hit while utilities and REITs were least impacted.

Hong Kong is Asia’s major money centre and a developed-world conduit into China. Pundits suggest Beijing has so far been assuming the protesters would soon burn themselves out, noting the protests are student-led and classes resume in September. They also believe Beijing is at pains to avoid any Tiananmen-style incident. But the airport closure represents an escalation, so the question is what does Beijing do now?

That concern was the major trigger of the US bond market, and subsequently the stock market.

To add salt to the wound, several US investment banks chose yesterday to put out bearish strategy reports in unison. Cuts to economic growth forecasts and a rising chance of a recession were attributed to the impact from the next round of tariffs, on top of all before. If the PLA rolls into Kowloon, where does that leave US-China trade negotiations?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1510.50 + 14.30 0.96%
Silver (oz) 17.04 + 0.11 0.65%
Copper (lb) 2.59 0.00 0.00%
Aluminium (lb) 0.79 – 0.00 – 0.35%
Lead (lb) 0.94 – 0.00 – 0.37%
Nickel (lb) 7.14 + 0.04 0.56%
Zinc (lb) 1.01 + 0.00 0.04%
West Texas Crude 54.78 + 0.28 0.51%
Brent Crude 58.30 – 0.23 – 0.39%
Iron Ore (t) futures 94.80 0.00 0.00%

Iron or futures fell -2.2% last night. The spot price is unchanged due to a holiday in Singapore.

Base metals were back to playing rabbits in the headlights while the gold rally continues on the flight to safety.

The US dollar index is down less than -0.1% but the Aussie is down -0.5% at US$0.6748.

Today

The SPI Overnight closed down -52 points or -0.8%.

The US reports July CPI tonight.

NAB releases its business confidence survey today.

Today’s major earnings reporters are Challenger ((CGF)) and Magellan Financial ((MFG)).

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 Outperform from Neutral Credit Suisse
AMP AMP Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Equal-weight from Underweight Morgan Stanley
AQZ ALLIANCE AVIATION Downgrade to Hold from Buy Ord Minnett
ARB ARB CORP Downgrade to Neutral from Outperform Macquarie
ASB AUSTAL Downgrade to Hold from Accumulate Ord Minnett
BRG BREVILLE GROUP Upgrade to Neutral from Underperform Credit Suisse
JHX JAMES HARDIE Upgrade to Buy from Neutral UBS
MGR MIRVAC Downgrade to Underperform from Neutral Credit Suisse
NGI NAVIGATOR GLOBAL INVESTMENTS Upgrade to Outperform from Neutral Macquarie
REA REA GROUP Upgrade to Hold from Lighten 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

ANN AZJ BEN CGF CLW COE FMG GPT JBH MFG NWS ORE PPS REA