The Overnight Report: Talking The Talk

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World Overnight
SPI Overnight (Sep)	6610.00	+ 10.00	0.15%
S&P ASX 200	6613.20	+ 60.20	0.92%
S&P500	2976.00	+ 38.22	1.30%
Nasdaq Comp	8116.83	+ 139.95	1.75%
DJIA	26728.15	+ 372.68	1.41%
S&P500 VIX	16.27	– 1.06	– 6.12%
US 10-year yield	1.57	+ 0.11	7.27%
USD Index	98.39	– 0.01	– 0.01%
FTSE100	7271.17	– 40.09	– 0.55%
DAX30	12126.78	+ 101.74	0.85%

By Greg Peel

Risk On I

The news came through during the local session yesterday that China's vice premier and chief trade negotiator had contacted Washington to plan a resumption of trade talks in October. "Serious" mid-level discussions will begin this month in preparation.

Despite an uneasy sense of déjà vu, global markets had little choice than to turn the risk button to on, Australia included.

Hence every sector closed in the green, with only defensive utilities failing to make much of a splash. Consumer staples is not the sector one would expect to lead the risk-on mood but it rose 2.3%, pipping even IT (1.9%) which one might otherwise expect to lead.

Consumer discretionary gained 1.8% but it was a 1.0% jump for the banks which provided a lot of the ASX200 points. And that was despite CYBG ((CYB)) admitting it had under-provisioned for liabilities, sending that stock down -20%.

Materials (+0.3) looked to be a laggard but that is net of BHP Group ((BHP)) in particular going ex-dividend, among others in the sector.

Telcos (+0.9%) finally managed to turn around.

Positive news from Hong Kong, and regarding Chinese stimulus, had the ASX200 performing well on Tuesday and Wall Street regained all that had been lost on Tuesday night. Our market was set to open modestly higher, but late morning brought the kick.

We also learned Australia posted another massive trade surplus in July, albeit down from June on increased imports. June will likely mark a peak, given commodity prices have since fallen.

Among index individual stocks, Emeco Holdings ((EHL)) is on either the winners or losers lists almost every day and it topped the session with a 9.1% gain, followed by another wildly volatile name, Nanosonics ((NAN)) on 7.5%.

Beyond CYBG, Pilbara Minerals ((PLS)) fell -7.1% on a capital raise while Whitehaven Coal fell -4.8% because it went ex.

Because we already responded to the "good" news yesterday our futures are only up 10 points this morning despite the S&P500 jumping 1.3%. While there is a list of ex-divs for today it's shorter than yesterday and there are no real biggies.

The state of play now is having to wait until October before we can hope for any sort of breakthrough, assuming mid-level talks don't break down beforehand. Wouldn't be the first time.

Indeed it wouldn't be the first time for any of it, but what is an investor to do?

Risk On II

Last night's ADP report showed 195,000 new jobs being added in the US private sector last month, ahead of 150,000 forecasts. Tonight brings non-farm payrolls. The US services sector PMI for August rose to 56.4 from 53.7 in July, ahead of 54.2 expectations, and providing at least some relief after the shock manufacturing number.

But the Dow had already opened up 400 points on the trade news, and that was about it for the day.

The overcrowded US ten-year bond yield shot up 11 basis points to 1.57%. The two-year yield posted a similar gain so no change to the flat curve.

Gold fell -US$33/oz.

To round out the risk-on theme, the only three sectors in the S&P to close in the red last night, and only modestly, were utilities, REITs and staples – the sectors that have been the defensive go-to trade throughout August, and realistically for most of the year.

All other sectors charged higher, led out by the banks (higher yields) and all the usual suspects that get caned every time there is bad news on trade – the big industrials, chip makers and Apple.

Key to the strength of last night's session was a breakout for the S&P out of the range it's been stuck in since early August, and a breakout above the 50-day moving average. Thus whether or not Wall Street has any faith in what might be achieved in October, technically, further upside awaits. The broad index is now only -2% below its all-time high.

The scheduling rather puts the Fed in a difficult position, given it will meet on September 18 and is expected to cut by at least -25 points. Does the Fed hold off? Such "talks" have never achieved anything to date, so one presumes the FOMC will have to go ahead anyway.

The mood on the Chinese front has clearly improved, adding on from Wednesday's news from Hong Kong.

Alas, we can't say the same for the dog's breakfast that is UK parliament at this time. Is there a parliament? I can't keep track. But it appears "no deal" is no-go, so at least we might say that downside risk is limited.

The Poms will have at least been cheered up by Smith's double-ton.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1518.70	– 33.30	– 2.15%
Silver (oz)	18.64	– 0.93	– 4.75%
Copper (lb)	2.62	+ 0.05	1.79%
Aluminium (lb)	0.80	+ 0.01	1.03%
Lead (lb)	0.93	+ 0.01	1.02%
Nickel (lb)	7.93	– 0.24	– 2.94%
Zinc (lb)	1.06	+ 0.01	1.26%
West Texas Crude	56.17	+ 0.19	0.34%
Brent Crude	60.79	+ 0.31	0.51%
Iron Ore (t) futures	90.20	– 0.85	– 0.93%

Presumably it was a chance to take profits in nickel, given that metal has surged in past sessions. Otherwise, it's now been two sessions of risk-on at the LME.

Iron ore traders couldn't get excited, and it's going to be a tough day for Australian listed gold miners, which are deemed by analysts to be already well overbought.

The clean-up at Haight-Ashbury has begun, with the Summer of Love over for now. The Aussie is back above 68, up 0.3% at US$0.6810.

Today

The SPI Overnight closed up 10 points.

US jobs numbers tonight.

Might be a good day to go to lunch.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
3PL	3P LEARNING	Downgrade to Neutral from Outperform	Macquarie
CL1	CLASS	Upgrade to Add from Reduce	Morgans
CLH	COLLECTION HOUSE	Downgrade to Reduce from Hold	Morgans
CSR	CSR	Downgrade to Lighten from Hold	Ord Minnett
IPL	INCITEC PIVOT	Upgrade to Buy from Neutral	Citi
MYR	MYER	Upgrade to Accumulate from Lighten	Ord Minnett
PPH	PUSHPAY HOLDINGS	Upgrade to Hold from Lighten	Ord Minnett
WBC	WESTPAC BANKING	Upgrade to Outperform from Neutral	Credit Suisse
WSA	WESTERN AREAS	Upgrade to Overweight from Equal-weight	Morgan Stanley

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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