The Overnight Report: Rock’n’Roll

Daily Market Reports | Aug 16 2019

World Overnight
SPI Overnight (Sep) 6351.00 – 23.00 – 0.36%
S&P ASX 200 6408.10 – 187.80 – 2.85%
S&P500 2847.60 + 7.00 0.25%
Nasdaq Comp 7766.62 – 7.32 – 0.09%
DJIA 25579.39 + 99.97 0.39%
S&P500 VIX 21.18 – 0.92 – 4.16%
US 10-year yield 1.53 – 0.05 – 3.29%
USD Index 97.99 + 0.16 0.16%
FTSE100 7067.01 – 80.87 – 1.13%
DAX30 11412.67 – 79.99 – 0.70%

By Greg Peel

Wash Out

There’s not a lot to dissect from yesterday’s sell-off on the ASX, which simply matched Wall Street’s plunge and took no prisoners. Wall Street fell -2.9%, the ASX200 fell -2.9%, and just about every sector fell by a similar amount.

The standouts were energy, down -5.2% on the oil price, reversing rallies over the prior two days when the oil price recovered mildly, and IT, down -4.9%, because in times of trouble the first investments to go are the high risk, high PE growth stories.

Materials (-2.4%) was not spared despite a slight bounce in the iron ore price and further strength in the gold price. A -3.0% fall for the banks equates to a big chunk of index points.

If there was one “outperformer” it was utilities, down a mere -2.0% as a defensive sector.

For the first couple of hours it didn’t look too bad, if we can call -120 points not too bad in the context, and it looked like a one-step de-rating may be the order of the day. When the index simply opens in a vacuum, the initial plunge is not about selling but about a lack of any bids to sell to. But when the jobs numbers came out, selling ramped up.

Australia saw a surprisingly strong employment gain in July of 41,100 jobs, 34,500 full-time. It was a big turnaround from June's -2,300 job losses, which would have spurred the RBA into action, but that was a big turnaround from May’s +45,000. The bottom line, nonetheless, is over all three months the unemployment rate has remained stubbornly unmoved at 5.2%. In July, participation hit a new record high of 66.1%.

And the underemployment rate rose, to 8.4% from 8.2%, suggesting no progress on spare capacity.

How would the RBA see the numbers? Well, clearly the stock market saw “strong”, which weakens the case for another rate cut as soon as next month. Hence further selling. But the trend is just not heading the RBA’s way, so I’d say the jury is still out.

It was not the best day to report earnings. Indeed any beat/miss had to be given a -2.9% market handicap from the outset. Yet there were still standouts.

ASX200 winner on the day with a 4.1% gain – yes gain – was Super Retail ((SUL)). The stock was over 8% shorted as of last week, but we might wonder what the share price response might have been on a flat to good day for the market.

Ditto Treasury Wine Estates ((TWE)) which gained 2.2% to take the silver. Positions three to five on the winners’ board were all gold miners, but all posted gains of less than 2%. That trade is getting a bit crowded.

The train crash list was a bit more extensive, but again, has to be seen in the context.

Orora ((ORA)) fell -15.9% on its result, Blackmores ((BKL)) fell -14.8% and Cleanaway Waste ((CWY)) fell -13.9%. It was not the day to post a miss. Cleanaway’s story was more one of guidance to increased costs as the world turns away from plastic.

To sum up the mood of the day, Breville Group ((BRG)) posted a modest beat and fell -6.5%.

Wall Street chopped around last night in the sort of session that is not unusual after such a substantial fall the night before. The S&P closed up 0.25% but our futures are showing down -23 points, or -0.36%, this morning.

One wonders when the dividend yield/weak Aussie trade might once again kick in, although we do note Woodside Petroleum ((WPL)) fell -6.7% yesterday after cutting its dividend.

Mixed Messages

Early last night Beijing told Washington to stop offering advice on Hong Kong and that it should meet halfway on a trade deal. Trump tweeted that Xi should sit down and talk to Hong Kong protestors, and that it’s his deal or no deal. Beijing said that if the next tariffs come into effect on September 1, it will retaliate, without saying how.

This was the backdrop as Wall Street spent all session trying to find its feet.

Before the bell July retail sales numbers came out, showing a 0.7% jump, following 0.3% in June. Underscoring the strong US consumer was Wal-Mart’s earnings result, which led to a 6% jump for the stock and a lot of Dow points.

Wal-Mart’s numbers also underscored a secondary factor, which is that not all retailers are enjoying a confident consumer. Online sales jumped 2.8% in the month, although Amazon did have its “Prime Day” in the period. Meanwhile, iconic department store chain JC Penney’s share price has now fallen below US$1 hence it is at risk of being de-listed by the NYSE.

The New York and Philadelphia Fed activity indices both saw healthy gains for the month, but industrial production fell -0.2%. As yet, the US consumer is little impacted by tariffs while industry is. The next round of tariffs will hit the consumer.

As Wall Street absorbed the above, the US bond ten-year yield fell as low as 1.47% and the 30-year fell below 2% for the first time in history. The ten-year then recovered to be down -5 points at 1.53%, and stock markets tracked the bond market all session.

The US bond nadir coincided with the German ten-year closing at -0.72% after an ECB official confirmed the central bank will roll out fresh stimulus measures at its next meeting. Mexico cut its cash rate, for the first time in five years.

The session ended with tentative buying in stocks, but it is clear this volatility is not set to subside any time soon.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1522.90 + 6.80 0.45%
Silver (oz) 17.23 + 0.05 0.29%
Copper (lb) 2.57 – 0.01 – 0.42%
Aluminium (lb) 0.79 + 0.00 0.13%
Lead (lb) 0.92 – 0.00 – 0.49%
Nickel (lb) 7.34 + 0.16 2.29%
Zinc (lb) 1.01 – 0.00 – 0.07%
West Texas Crude 54.70 – 0.25 – 0.45%
Brent Crude 58.40 – 0.54 – 0.92%
Iron Ore (t) futures 88.80 – 1.55 – 1.72%

Nickel’s back in action on supply issues and gold has ticked up yet again, but elsewhere there’s not much to smile about.

The jobs numbers have the Aussie up 0.4% at US$0.6773.

Today

The SPI Overnight closed down -23 points.

Domain Group ((DHG)), Newcrest Mining ((NCM)) and Star Entertainment ((SGR)) are among today’s earnings reporters.

We are now reaching the point where a building number of daily reports is being chased by an increasing number of ex-divs from earlier reporters.

Ansell ((ANN)) and Magellan Financial ((MFG)) go ex today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
1AD ADALTA Downgrade to Hold from Add Morgans
AFG AUSTRALIAN FINANCE Downgrade to Hold from Add Morgans
ANN ANSELL Downgrade to Neutral from Outperform Credit Suisse
AOG AVEO Upgrade to Neutral from Underperform Macquarie
APE AP EAGERS Upgrade to Outperform from Neutral Credit Suisse
AZJ AURIZON HOLDINGS Downgrade to Underperform from Neutral Macquarie
CSL CSL Upgrade to Outperform from Neutral Credit Suisse
Downgrade to Neutral from Buy UBS
FMG FORTESCUE Upgrade to Neutral from Sell UBS
GMA GENWORTH MORTGAGE INSUR Upgrade to Outperform from Neutral Macquarie
JBH JB HI-FI Downgrade to Equal-weight from Overweight Morgan Stanley
MFG MAGELLAN FINANCIAL GROUP Downgrade to Sell from Neutral Citi
Downgrade to Sell from Hold Ord Minnett
NWH NRW HOLDINGS Upgrade to Buy from Neutral Citi
NWS NEWS CORP Upgrade to Outperform from Neutral Credit Suisse
RIO RIO TINTO Upgrade to Buy from Hold Ord Minnett
RRL REGIS RESOURCES 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.

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CHARTS

ANN BKL BRG CWY DHG MFG NCM ORA SGR SUL TWE WPL