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The Monday Report – 16 Sep 2019

Daily Market Reports | Sep 16 2019

World Overnight
SPI Overnight (Sep) 6667.00 – 7.00 – 0.10%
S&P ASX 200 6669.20 + 14.30 0.21%
S&P500 3007.39 – 2.18 – 0.07%
Nasdaq Comp 8176.71 – 17.75 – 0.22%
DJIA 27219.52 + 37.07 0.14%
S&P500 VIX 13.74 – 0.48 – 3.38%
US 10-year yield 1.90 + 0.11 6.25%
USD Index 98.28 – 0.07 – 0.07%
FTSE100 7367.46 + 22.79 0.31%
DAX30 12468.53 + 58.28 0.47%

By Greg Peel

Muddled Market

While Wall Street quietly ticked up towards the prior highs over the course of last week – the Dow marked eight straight up-days on Friday night – the ASX200 closed only marginally higher for the week after bumbling around without a clear theme emerging.

One consistent factor was financials, which posted another rally on Friday (+0.6%) in a solid week in which the spike in global bond yields dominated. Industrials (+0.9%) won Friday's session, but had been up and down throughout the week.

Defensives were consistently sold over the week on Wall Street but here were another case of ups, downs and inconsistencies. Utilities (+0.6%) and telcos (+0.5%) did well on Friday but staples (-0.4%) did not. Healthcare (-0.1%) was mostly weaker over the week, notwithstanding CSL's ((CSL)) dividend.

IT (-0.8%) followed the Nasdaq around as usual while materials also saw ups and downs, balancing a volatile iron ore price, a spike in the nickel price and pullback from the highs for gold. That sector sat it out on Friday.

There was nothing remarkable on Friday among individual stock moves other than to note nib Holdings ((NHF)) won the day (+4.5%) after admitting it had stuffed up claims inflation guidance and had now reset that expectation lower, while Pro Medicus (-5.7%) was again the biggest loser. That stock has fallen some -25% since two founders each sold one million shares.

With Wall Street posting another rotation session on Friday night our futures closed down -7 points on Saturday morning, but this was all before the Saudi refineries suffered their drone attacks.

The loss of half of Saudi refining capacity is set to send global prices of petrol, diesel et al soaring. The Saudis have said they will release domestic inventories and the US has said it will dip into strategic reserves, encouraging other countries to do the same.

As for the crude price, in isolation the loss of such capacity might weigh on the crude price if inventories back up as a result, but the overriding factor is the escalation of geopolitical tension the act itself implies. The US has blamed Iran.

ANZ Bank analysts, for one, suggest the Brent price could jump up to US$70/bbl (currently US$60/bbl) in a hurry, which of course implies our local energy sector might be in for a bit of a boost today.

Rinse and Repeat

US retail sales rose 0.4% in August when 0.2% was forecast. On that note, Wall Street ended the week exactly where it had begun – in a clear rotation.

The US ten-year yield jumped another 11 basis points to 1.90%, the gold price fell another -US$10/oz, financials, industrials and resource sectors were the winners on the stock market while REITs, utilities and consumer staples were the losers, along with Big Tech.

Big Tech seems the odd one out in that equation given the rest is clearly a case of buying cyclicals and selling defensives, but it's also a case of buying what has been sold all year and on the trade war/global recession theme and selling what has been bought. While chip-makers are very much a part of the former group, the big software-driven companies had posted stellar gains.

Weighing on that latter group has been antitrust investigations for the FAGs (N's biggest problem at the moment actually is competition).

While the major indices mostly rose for the week, new all-time highs went begging as rotation clipped net gains. The Dow marked eight straight up-days but is heavily influenced by the big industrials like Boeing, Caterpillar and 3M.

The Nasdaq balanced out the hardware vs software theme while the S&P balanced out all of the above.

Speaking of balance, raging in the background has been the Fed factor. With bond yields rising and the US yield curve shifting away from inversion, US economic data coming in hot and strong and trade war tensions showing hints of easing, does the Fed actually have to cut this week as everyone assumes?

In isolation, definitely not. But it's the global context that underscores the emphatic assumption. The Fed has to cut simply to come into line with the rest of the world – a necessity underscored last week by the ECB cutting further into the negative and reintroducing QE.

Hence -25 points is baked into Wall Street pricing, thus what really matters is whether the accompanying statement and subsequent press conference suggest that's it folks, that'll do for now, or here's the one you wanted and we'll probably have to give you another one before the year's out.

Meanwhile, this week Wall Street will be assessing the fallout from the Saudi refinery issue.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1487.90 – 10.90 – 0.73%
Silver (oz) 17.41 – 0.65 – 3.60%
Copper (lb) 2.69 + 0.05 2.05%
Aluminium (lb) 0.81 + 0.01 0.66%
Lead (lb) 0.95 + 0.01 0.72%
Nickel (lb) 8.04 – 0.12 – 1.46%
Zinc (lb) 1.07 + 0.02 1.43%
West Texas Crude 54.85 – 0.27 – 0.49%
Brent Crude 60.22 – 0.18 – 0.30%
Iron Ore (t) futures 99.10 + 0.25 0.25%

Ignore the oil price.

Momentum grows for copper, nickel has another little step back.

We can likely ignore the gold price move as well if today it reverts to geopolitical hedge rather than joining in with bond selling.

The Aussie is steady at US$0.6869.

The SPI Overnight closed down -7 points, pre-drone strike.

The Week Ahead

The Fed decision is due on Wednesday night.

US data releases this week include industrial production and housing sentiment tomorrow night, housing starts on Wednesday and existing home sales on Thursday.

The Banks of Japan and England both hold policy meetings on Thursday.

China will release August industrial production, retail sales and fixed asset investment numbers today.

New Zealand's June quarter GDP is out on Thursday.

The minutes of the September RBA meeting are due tomorrow and the August jobs numbers are out on Thursday. The two are inexorably connected.

Thursday brings the quarterly expiry of SPI futures and options and ASX index options – a day when volatility can reign for no fundamental reason. The ASX quarterly index changes become effective on Friday.

New Hope Corp ((NHC)) reports earnings tomorrow followed by Kathmandu ((KMD)) on Wednesday, Brickworks ((BKW)) on Thursday and Premier Investments ((PMV)) on Friday.

AGL Energy ((AGL)) will be a canary in the coal mine on Thursday by holding its AGM. Next week seeks more of a trickle for AGM season and next month is the flood.

There are still a lot of ex-divs to get through in the interim.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AQG ALACER GOLD Upgrade to Outperform from Underperform Macquarie
BSL BLUESCOPE STEEL Downgrade to Hold from Accumulate Ord Minnett
EVN EVOLUTION MINING Upgrade to Neutral from Sell Citi
Upgrade to Outperform from Underperform Macquarie
GMG GOODMAN GRP Upgrade to Buy from Neutral UBS
GOR GOLD ROAD RESOURCES Upgrade to Outperform from Neutral Macquarie
MGR MIRVAC Upgrade to Neutral from Underperform Credit Suisse
NCM NEWCREST MINING Upgrade to Neutral from Sell Citi
Upgrade to Neutral from Underperform Macquarie
NST NORTHERN STAR Upgrade to Buy from Neutral Citi
Upgrade to Outperform from Underperform Macquarie
Upgrade to Neutral from Sell UBS
OGC OCEANAGOLD Upgrade to Buy from Neutral Citi
Upgrade to Buy from Neutral UBS
PRU PERSEUS MINING Upgrade to Outperform from Neutral Macquarie
RHC RAMSAY HEALTH CARE Upgrade to Neutral from Underperform Credit Suisse
RRL REGIS RESOURCES Upgrade to Neutral from Sell Citi
Upgrade to Outperform from Underperform Macquarie
Upgrade to Buy from Sell UBS
SAR SARACEN MINERAL Upgrade to Neutral from Sell Citi
Upgrade to Outperform from Underperform Macquarie
SBM ST BARBARA Upgrade to Neutral from Sell Citi
Upgrade to Outperform from Underperform Macquarie
SGM SIMS METAL MANAGEMENT Downgrade to Lighten from Hold 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

AGL BKW CSL KMD NHC NHF PMV