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The Monday Report – 9 Sep 2019

Daily Market Reports | Sep 09 2019

World Overnight
SPI Overnight (Sep) 6631.00 – 7.00 – 0.11%
S&P ASX 200 6647.30 + 34.10 0.52%
S&P500 2978.71 + 2.71 0.09%
Nasdaq Comp 8103.07 – 13.75 – 0.17%
DJIA 26797.46 + 69.31 0.26%
S&P500 VIX 15.00 – 1.27 – 7.81%
US 10-year yield 1.55 – 0.02 – 0.96%
USD Index 98.38 – 0.01 – 0.01%
FTSE100 7282.34 + 11.17 0.15%
DAX30 12191.73 + 64.95 0.54%

By Greg Peel

The ASX200 closed the week on a strong note, kicking on from positive developments earlier in the week, for what they’re worth – withdrawal of the bill in Hong Kong, although clearly this hasn’t appeased the protesters, a Brexit no-deal being voted down, amidst what is still a complete mess, and trade talks to resume, which at best is better than not resuming.

The PBoC cut its bank reserve ratio requirement (RRR) on Friday but that had already been flagged.

We also had a weak GDP result last week which further cemented expectations of another RBA rate cut next month.

Closing around 6650 on Friday, the index is now -200 points shy of the all-time high of around 6850 posted at the end of July, and 250 points above the mid-August bottom of around 6400. So we’re more than half way back. But we’re still -3% shy when the S&P500 is only -1.6% shy of its all-time high.

All sectors bar two closed in the green on Friday, those being utilities (-0.1%), which have suffered on a rebound in bond rates, and industrials, which fell -0.15% for reasons unclear. There were no big ex-divs in the sector on the day and no industrial stock made the top five losers’ board.

Maybe it was due to the currency, which has rebounded over a cent from its recent low, but then that would typically impact on healthcare, and that sector closed up 0.9%.

IT led the risk-on charge, up 2.2%, while the banks (+0.8%) provided the clout.

On the individual stock front, Speedcast International ((SDA)) again topped the list as it continued to rally back from its near death experience. Cooper Energy ((COE)) gained 6.0% on a new gas discovery.

Pro Medicus ((PME)) fell -12.1% after two of the company’s founders sold one million shares each, and otherwise there were a couple of gold miners in the top five losers as well, as the gold price slipped back.

All in all nothing overly notable as risk-on continued to play out.

With no more earnings reports to provide impetus this week and Wall Street closing on Friday night without excitement, there’s not a lot to drive the market until something happens, whatever that may be.

We will still begin each session with a dividend handicap this week.

Just the Ticket

The US August jobs report released on Friday day had something for everyone. At 130,000, new job additions missed expectations of 170,000, which means there is no reason for the Fed to baulk at another rate cut.

Mind you, history shows the August report is invariably revised higher when the September report is released because survey responses are slow to arrive in the summer vacation period.

Nonetheless, the participation rate increased, hours worked increased, the unemployment rate remained at 50-year low 3.7% and wages grew by a healthy 3.2% annual rate. The last three months have provided a bit of a kick in wage growth that had been sadly lacking for so long, so expectations are inflation may begin to see the signs.

On the other hand, the latest round of tariffs began this month and weaker than expected job additions in August have had commentators pointing to the impact of the trade war.

Fed chair Jay Powell also highlighted the trade war on Friday night as an uncertainty factor offering “significant downside”, as he spoke in Zurich. But the Fed is “not forecasting or expecting a recession”.

No central bank has ever foreseen a recession.

Wall Street opened up from the bell and climbed steadily, with the Dow up over a hundred points at lunchtime. A late sell-off came courtesy of the FANGs.

On top of a federal investigation, a number of US state attorneys general have banded together to launch antitrust investigations into Facebook and Google.

While it is generally agreed the two are overly dominant in their markets, it is also considered a tough call to prove anti-competitive activity in such an ethereal marketplace as cyberspace. These guys ain’t selling widgets. And whatever transpires, a legal battle, if one were to transpire, would be expected to last for years.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1506.50 – 12.20 – 0.80%
Silver (oz) 18.22 – 0.42 – 2.25%
Copper (lb) 2.62 + 0.00 0.01%
Aluminium (lb) 0.80 + 0.00 0.24%
Lead (lb) 0.94 + 0.01 1.09%
Nickel (lb) 8.03 + 0.10 1.24%
Zinc (lb) 1.06 – 0.00 – 0.01%
West Texas Crude 56.52 + 0.35 0.62%
Brent Crude 61.54 + 0.75 1.23%
Iron Ore (t) futures 88.10 – 2.10 – 2.33%

Nickel is still drawing all the attention on the LME while volatility continues in the iron ore price.

While the share prices of the big miners used to slavishly follow daily movements in the iron ore price, investors have appeared more circumspect of late, willing to ride out the daily noise.

Gold is again lower on the risk-on theme while oil prices received a boost from the third consecutive week of a cut to the US rig count on top of a third week of US inventory drawdowns.

China’s RRR cut may be the reason the Aussie is up 0.5% at US$0.6846 with the greenback steady. Looks like a few shorts have been shaken out as usual.

The SPI Overnight closed down -7 points on Saturday morning.

The Week Ahead

The big event next week will be the ECB policy meeting on Thursday night. Weakening German data – reflecting both Trump and Brexit trade uncertainty – have already prompted the German government to announce fiscal measures. Draghi has flagged action often enough, is now finally the time?

The US will see numbers for the PPI on Wednesday and CPI on Thursday along with retail sales.

China delivers inflation numbers tomorrow.

In Australia we’ll see housing finance data today, followed by the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday.

On Friday S&P/ASX will announce changes to index components, which will come into effect the following Friday.

It’s another very big week for ex-dividends, with the pace picking up into Thursday.

The Australian share market over the past thirty days…

3PL 3P LEARNING Downgrade to Neutral from Outperform Macquarie
CL1 CLASS Upgrade to Add from Reduce Morgans
CSR CSR Downgrade to Lighten from Hold Ord Minnett
MYR MYER Upgrade to Accumulate 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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