Daily Market Reports | Aug 26 2019
This story features MAYNE PHARMA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MYX
| World Overnight | |||
| SPI Overnight (Sep) | 6400.00 | – 86.00 | – 1.33% |
| S&P ASX 200 | 6523.10 | + 21.30 | 0.33% |
| S&P500 | 2847.11 | – 75.84 | – 2.59% |
| Nasdaq Comp | 7751.77 | – 239.62 | – 3.00% |
| DJIA | 25628.90 | – 623.34 | – 2.37% |
| S&P500 VIX | 19.87 | + 3.19 | 19.12% |
| US 10-year yield | 1.53 | – 0.08 | – 5.09% |
| USD Index | 97.64 | – 0.56 | – 0.57% |
| FTSE100 | 7094.98 | – 33.20 | – 0.47% |
| DAX30 | 11611.51 | – 135.53 | – 1.15% |
By Greg Peel
For the Record
No point in dwelling on Friday’s trade on the local market given subsequent events over Friday night and the weekend.
With no specific news on the macro front on Thursday night the local market was free to assess the day’s earnings result releases as the primary market driver. The ASX200 meandered to a modest gain by the close, with all of staples, energy, IT and materials failing to make a move in either direction of more than 0.1%.
Materials represented a balance between rebounds for iron ore miners as the iron ore price stabilised against a sell-off in gold producers as the gold price came off. Gold is a day to day proposition. It will be different today.
The banks posted a modest gain (+0.2%) so it was otherwise left to telcos (+1.0%), industrials (+0.6%) and utilities (+0.5%) to drive the index higher balanced out by healthcare (-0.3%).
Stocks enjoying positive earnings result responses on the day included Mayne Pharma ((MYX)), up 10.5%, Sims Metal Management ((SGM)), up 9.3% and Goodman Group ((GMG)), up 4.4%, and outside the index a very heavily shorted BWX ((BWX)), up 29%.
Costa Group ((CGC)), also quite heavily shorted, was the main train crash of the day, falling -16%, while Gold Road ((GOR)) fell -17% after Gold Fields sold its 9.9% stake in the company.
Additional losers on the day were Pilbara Minerals ((PLS)), down -7.2% on a lower lithium price, South32 ((S32)), down a further -6.5% after brokers assessed its result the day before and Lynas Corp ((LYC)), down -6.2% as protests build in Malaysia against the company’s rare earth processing plant.
But it’s all a bit academic this morning given what has since transpired.
The Timeline
It is important to appreciate the timeline of events impacting between the close of the ASX on Friday and this morning.
Before Wall Street opened on Friday morning, China announced tariffs of 5% or 10% on over 5000 US imports ranging from agricultural goods to aircraft and crude oil, as well as a reimposition of a 25% tariff on US autos. The tariffs will come into effect in two tranches beginning September 1 and December 15, matching the two rounds on new tariffs Trump has planned for exactly those dates, which (at that point) were set at 10%, moving to 25% at a later date if necessary.
After Wall Street opened, Fed chair Jay Powell made his pre-prepared speech at Jackson Hole which can by summed up with “the Fed stands ready to act appropriately”, meaning further rate cuts are possible, while also noting “we have seen further evidence of a global slowdown” since the July meeting, but also that monetary policy can’t do a lot against trade policy.
In response to Powell’s speech, Trump tweeted:
“As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…”
What the hell is that all about? (1) Did Trump mistake Jackson Hole for a Fed meeting? (2) Is the Fed meant to check with Trump ahead of any policy decision to see what he might be thinking up next? (3) What will he announce shortly? The tariff increases that he did ultimately announce, or intervention to lower the US dollar, which he has threatened (despite now having officially labelled China a “currency manipulator”).
Then there were more tweets:
“We don’t need China and, frankly, would be far…better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP.”
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing .your companies HOME and making your products in the USA.”
It is unclear whether the White House actually has that power, although apparently there is some sort of national security overrider.
Then Wall Street closed, with the Dow down -623. The SPI Overnight closed down -86 points shortly after.
It was after the close on Wall Street Trump announced the new tariffs set to come into effect on September 1 and December 15 will now be set at 15%, up from 10%.
And as at October 1, a previous tranche of goods (US$250bn) now attracting a 25% tariff would move up to 30%.
Then at breakfast on Saturday morning in Biarritz with Boris Johnson, Trump was asked if he was rethinking his decision to escalate tariffs against China.
He replied: “Yeah, sure. Why not?”
Asked again, he repeated: “Might as well. Might as well … I have second thoughts about everything.”
This sent the White House into convulsions. Spokeswoman Stephanie Grisham said the president’s “answer has been greatly misinterpreted”. “President Trump responded in the affirmative,” she said, “because he regrets not raising the tariffs higher.” Trump’s chief economic adviser, Larry Kudlow, repeated Grisham’s line.
Yesterday, the first live ammunition was fired by police in Hong Kong.
And here we are.
The Fallout
Wall Street opened lower on the China tariff news but actually climbed back into the green shortly after as defensive stocks were sought. The indices then fell again ahead of Jay Powell’s speech, and rallied back a bit on the suggestion more cuts may be forthcoming.
Then the Trump tweets started to flow and Wall Street tanked. The Dow was down over -700 just before the death. We should note that the Dow fall would have been much worse if not for Boeing.
Boeing is the highest priced stock in the Dow and thus the biggest points influence on the price average. Whenever there is negative news on trade Boeing typically leads the big US industrials down. But further news on Friday night on the pending approval for the 737 Max to go back into service kept the stock at bay.
The response in US bonds for the 2-10 curve to once again briefly invert, but the chorus of those declaring it’s a misleading indicator grows louder. The ten-year fell -9 points to 1.52% and the two-year also closed at 1.52%. More worrying for observers is not the inversion, but the fact the entire curve has shifted to lower yields so swiftly over the last few months.
The US dollar, on the possibility of currency intervention, fell -0.6%.
The gold price jumped close to thirty US dollars.
The greenback helped to prop up base metal prices which may otherwise have dropped on the China tariff news, but the LME closed before the tweet action hotted up. The LME is closed tonight for a public holiday.
Oil prices reflected both China’s tariff and general trade war escalation.
The Aussie has dropped -0.3% to US$0.6737 in spite of the the greenback.
Apologies but we are unable to provide a spot iron ore price update as this report goes live. I believe the futures fell on Friday night.
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1526.60 | + 29.10 | 1.94% |
| Silver (oz) | 17.40 | + 0.40 | 2.35% |
| Copper (lb) | 2.56 | – 0.00 | – 0.12% |
| Aluminium (lb) | 0.79 | + 0.00 | 0.09% |
| Lead (lb) | 0.94 | + 0.00 | 0.44% |
| Nickel (lb) | 7.14 | + 0.03 | 0.36% |
| Zinc (lb) | 1.01 | + 0.00 | 0.36% |
| West Texas Crude | 54.17 | – 1.18 | – 2.13% |
| Brent Crude | 59.34 | – 0.71 | – 1.18% |
| Iron Ore (t) futures | 85.00 | 0.00 | 0.00% |
Today
The SPI Overnight closed down -86 points or -1.3%, noting this pre-dates Trump’s announced tariff increases.
We’ll see another round of earnings reports locally. Note Woodside Petroleum ((WPL)) is among those stocks going ex today.
The US will see durable goods orders tonight.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| A2M | A2 MILK | Downgrade to Lighten from Accumulate | Ord Minnett |
| AQG | ALACER GOLD | Downgrade to Underperform from Outperform | Macquarie |
| BAP | BAPCOR LIMITED | Downgrade to Hold from Add | Morgans |
| BLX | BEACON LIGHTING | Upgrade to Add from Hold | Morgans |
| BSL | BLUESCOPE STEEL | Upgrade to Neutral from Underperform | Macquarie |
| BXB | BRAMBLES | Downgrade to Underperform from Neutral | Credit Suisse |
| Downgrade to Neutral from Buy | UBS | ||
| CAR | CARSALES.COM | Downgrade to Neutral from Outperform | Macquarie |
| Downgrade to Accumulate from Buy | Ord Minnett | ||
| COL | COLES GROUP | Upgrade to Neutral from Underperform | Credit Suisse |
| DMP | DOMINO'S PIZZA | Upgrade to Neutral from Underperform | Credit Suisse |
| DOW | DOWNER EDI | Upgrade to Neutral from Underperform | Credit Suisse |
| EBO | EBOS GROUP | Downgrade to Hold from Add | Morgans |
| EPW | ERM POWER | Downgrade to Neutral from Outperform | Macquarie |
| Downgrade to Hold from Accumulate | Ord Minnett | ||
| IEL | IDP EDUCATION | Upgrade to Add from Hold | Morgans |
| Downgrade to Hold from Accumulate | Ord Minnett | ||
| IPH | IPH | Downgrade to Hold from Add | Morgans |
| MGX | MOUNT GIBSON IRON | Upgrade to Neutral from Sell | Citi |
| MND | MONADELPHOUS GROUP | Downgrade to Sell from Neutral | Citi |
| MPL | MEDIBANK PRIVATE | Upgrade to Equal-weight from Underweight | Morgan Stanley |
| ORG | ORIGIN ENERGY | Upgrade to Buy from Neutral | Citi |
| PME | PRO MEDICUS | Upgrade to Add from Hold | Morgans |
| PTM | PLATINUM | Downgrade to Sell from Hold | Ord Minnett |
| QAN | QANTAS AIRWAYS | Upgrade to Buy from Neutral | UBS |
| SBM | ST BARBARA | Downgrade to Sell from Neutral | Citi |
| SDF | STEADFAST GROUP | Upgrade to Accumulate from Hold | Ord Minnett |
| SEK | SEEK | Upgrade to Add from Hold | Morgans |
| Upgrade to Neutral from Sell | UBS | ||
| SGF | SG FLEET | Downgrade to Neutral from Buy | Citi |
| SGP | STOCKLAND | Upgrade to Neutral from Underperform | Credit Suisse |
| Downgrade to Neutral from Outperform | Macquarie | ||
| SHL | SONIC HEALTHCARE | Upgrade to Neutral from Underperform | Credit Suisse |
| SHV | SELECT HARVESTS | Upgrade to Buy from Neutral | UBS |
| STO | SANTOS | Upgrade to Add from Hold | Morgans |
| VRT | VIRTUS HEALTH | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| WTC | WISETECH GLOBAL | Upgrade to Hold from Lighten | Ord Minnett |
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CHARTS
For more info SHARE ANALYSIS: BWX - BWX LIMITED
For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: GMG - GOODMAN GROUP
For more info SHARE ANALYSIS: GOR - GOLD ROAD RESOURCES LIMITED
For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED
For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED
For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED
For more info SHARE ANALYSIS: S32 - SOUTH32 LIMITED
For more info SHARE ANALYSIS: SGM - SIMS LIMITED