The Overnight Report: Trading Places

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World Overnight
SPI Overnight (Dec)	6721.00	+ 10.00	0.15%
S&P ASX 200	6717.50	+ 35.90	0.54%
S&P500	3006.79	+ 0.06	0.00%
Nasdaq Comp	8182.88	+ 5.49	0.07%
DJIA	27094.79	– 52.29	– 0.19%
S&P500 VIX	14.05	+ 0.10	0.72%
US 10-year yield	1.77	– 0.01	– 0.67%
USD Index	98.36	– 0.19	– 0.19%
FTSE100	7356.42	+ 42.37	0.58%
DAX30	12457.70	+ 68.08	0.55%

By Greg Peel

Stop the World

Trading on the ASX yesterday was no less than extraordinary. When the dust had settled on Wall Street on Wednesday night, US markets offered a fairly benign response to the Fed rate cut and subsequent rhetoric, deciding they were comfortable with the outcome, and our futures suggested a tepid 9 point gain. Half an hour after the bell the ASX200 was up 60 points.

It then held around up 50 up to the jobs report release, spiked slightly, but at 1pm crashed to be up only 20 points, by 3pm was back up 50, and at 4pm closed up 35.

I did warn that it was the SPI futures and options and ASX options expiry day, which can often lead to non-fundamental volatility.

Fundamentally, the odds of another RBA rate cut as soon as next month have shortened again following yesterday's jobs numbers. At face value, a healthy 35,000 jobs were added in August and the participation rate ticked up once more to another new record. But – and this is the big "but" – the unemployment rate ticked up to 5.3% from 5.2%. Stop! You're going the wrong way.

The 35,000 new jobs were net of 50,000 part time jobs being added and -15,000 full-time jobs being lost. Underemployment rose to 8.6% from 8.4%. See above.

Speaking of dust settling, oil prices have now stabilised, for the time being, after their brief spike and energy (-0.2%) and materials (-0.1%), wherein lies oil producer BHP Group ((BHP)), were the only two sectors not to close in the green. Every other sector closed up 0.8-2%. Healthcare shows a 0.1% gain, but that's net of Cochlear ((COH)) going ex.

So apparently everyone had expected a -25 point Fed rate cut except Australia. The argument is fair – the further the Fed cuts, the more attractive our high yield-paying stock market becomes, particularly when the Aussie is low. Yesterday it fell back into the Summer of Love on the jobs report (US$0.6793).

Let's face it, outside of young growth stories in the IT sector, and smaller miners that are in development, pretty much every sector can boast solid dividend payers these days.

Building materials producer/property investor Brickworks ((BKW)) topped the winners' board yesterday with a 6.4% gain following a strong earnings result, while coal miner New Hope Corp ((NHC)), which posted a miss on Wednesday, topped the losers' board by falling -4.2%.

The new December front month futures contract closed up 10 points this morning and Wall Street closed flat, so we may be in for a Friday sort of Friday. But then the futures closed up 9 points yesterday morning…

Now to Trade

It is typical to see a strong move on Wall Street in either direction the morning after a Fed meeting once the wider market, which stayed out of the post-decision argy-bargy on the day, has had time to digest the implications. This time they looked, and they saw that it was good. Wall Street had closed flat, ultimately, on the Wednesday night and closed flat again last night.

A defensive tone remained, nonetheless, with your REITs, utilities and staples being bought and your industrials, materials and banks being sold.

Unlike August, high-flying software companies are no longer being sold down since Microsoft announced an increased dividend and share buyback. That stock is again nearing its all-time high above a trillion dollar market cap.

The monetary policy question now settled to a valid assumption that the Fed will cut if the trade war escalates and not if there is progress, if one reads between the lines. For this is the swing factor. The Fed is caught between relatively strong US domestic growth and weak global growth, and trade is a pervasive swing factor.

"Escalating trade conflicts are taking an increasing toll on confidence and investment," said an OECD report released last night, "adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects world-wide."

Trade meetings among the junior delegates have now begun in Washington and are set to progress next week, ahead of the big guns coming together thereafter. So for Wall Street it's now a question of watching and waiting for the next piece of news.

Hopefully that next piece of news is about trade, and not Iran.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1498.70	+ 4.80	0.32%
Silver (oz)	17.75	+ 0.02	0.11%
Copper (lb)	2.60	– 0.01	– 0.40%
Aluminium (lb)	0.80	+ 0.00	0.49%
Lead (lb)	0.94	+ 0.01	0.59%
Nickel (lb)	7.88	+ 0.11	1.37%
Zinc (lb)	1.05	– 0.00	– 0.10%
West Texas Crude	58.68	+ 0.57	0.98%
Brent Crude	64.81	+ 1.28	2.01%
Iron Ore (t) futures	92.00	– 4.10	– 4.27%

The first chance for base metal traders to respond to the Fed last night brought nothing remarkable.

Iron ore has thrown a bit of a wobbly though.

Oil prices had initially shot up last night on a report from the WSJ the Saudis are looking to buy in crude from OPEC frenemies, notably Iraq, in order to make up lost production. So much for having processing back on line by month's end. It always did sound a bit ambitious.

But prices fell back again when a tropical storm hit Texas and shut down coastal refineries. This suggests US crude inventories will back up, and thus prices fell back again, albeit still closing higher on the day.

Despite the US dollar falling -0.3%, the Aussie is down -0.5% on the jobs report, as noted.

Today

The SPI Overnight closed up 10 points.

Premier Investments ((PMV)) reports earnings today, while Sydney Airport ((SYD)) publishes its latest traffic numbers.

The ASX index rebalance becomes effective today.

If yesterday's expiry day on the ASX is anything to go by, what should be another quiet session on Wall Street tonight may not be, given the "quadruple witching" equity derivative expiry.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT	BEACH ENERGY	Downgrade to Hold from Buy	Ord Minnett
DCN	DACIAN GOLD	Downgrade to Underperform from Neutral	Macquarie
KMD	KATHMANDU	Downgrade to Neutral from Outperform	Credit Suisse
NUF	NUFARM	Downgrade to Neutral from Outperform	Macquarie
OGC	OCEANAGOLD	Upgrade to Outperform from Neutral	Credit Suisse
QAN	QANTAS AIRWAYS	Upgrade to Overweight from Equal-weight	Morgan Stanley
RHC	RAMSAY HEALTH CARE	Upgrade to Outperform from Neutral	Macquarie
SGM	SIMS METAL MANAGEMENT	Downgrade to Neutral from Buy	Citi
		Downgrade to Underperform from Neutral	Macquarie

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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