The Overnight Report: Voyage Of Discovery

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World Overnight
SPI Overnight (Dec)	6591.00	– 32.00	– 0.48%
S&P ASX 200	6642.60	+ 35.80	0.54%
S&P500	2966.15	– 4.12	– 0.14%
Nasdaq Comp	8048.65	– 8.39	– 0.10%
DJIA	26787.36	– 29.23	– 0.11%
S&P500 VIX	14.57	– 1.01	– 6.48%
US 10-year yield	1.73	– 0.02	– 1.08%
USD Index	98.53	+ 0.23	0.23%
FTSE100	7213.45	– 33.63	– 0.46%
DAX30	12486.56	– 25.09	– 0.20%

By Greg Peel

Not Convinced

Having already rallied strongly on Friday in anticipation, the ASX200 again shot out of the blocks yesterday, in line with Wall Street, thanks to the trade deal that isn’t. The index jumped 70 points in the first half hour.

Given a bit more time to think about it, investor enthusiasm waned during the session to ultimately halve those gains by the close. With the S&P500 down a mere -0.1% overnight, the SPI futures closed down 32 points or -0.5% this morning, taking us back to where we were.

There has been much debate overnight as to whether what Trump calls a deal and the Chinese don’t actually represents any progress, but as far as yesterday’s local trade is concerned, a few distinctive factors were evident.

Defensives were sold down, in line with rebounds in both the Aussie ten-year yield and US counterpart. Telcos (-1.0%) fared the worst followed by utilities (-0.8%), while the bond proxy stocks within industrials also saw further selling and consumer staples rose only 0.1% compared to discretionary’s full 1.0%.

Healthcare fell -0.1%, likely due to the bounce in the Aussie, while materials (+0.5%) traded off strength in iron ore miners with another exodus from gold miners.

The banks (+0.5%) also saw a glimmer of hope in a steepening yield curve, ignoring the government’s latest political ploy of having the ACCC investigate why banks don’t want to go broke. No doubt the regulator will find that ultra-low cash rates could have been avoided if the government did its bit.

Sign of the times? Perpetual ((PPT)) and Praemium ((PPS)) both reported quarterly funds under management flows yesterday. The clue is in Perpetual falling -4.0% and Praemium (not in the index) jumping 18.9%.

The standout sector on the day was energy, which was buoyed by a jump in oil prices but a 2.9% gain mostly came down to Santos ((STO)). The stock jumped 5.7% after announcing the acquisition of ConocoPhillips’ LNG assets in the Northern Territory, which is forecast to add 25% to production and 16% to earnings in 2020. No raising required.

While the ASX200 may have drifted off through the session it was not about the latest Chinese trade data, which did not interfere with the day’s trajectory.

China’s imports fell -3.2% year on year in September when -3.0% was expected and exports fell -8.5% when -5.2% was expected. No surprise there – China’s in a trade war, but  that’s now coming to an end.

Or is it?

And on the subject of possible illusions, CYBG ((CYB)) was the best index performer yesterday, jumping 12.1% on Brexit hopes. The top five losers were all gold miners.

What Deal?

It was Columbus Day in the US last night, which sees banks and the bond market closed and the stock market operating on skeleton staff. Volumes on the NYSE were claimed to be “anaemic”. The lack of participants would explain why Wall Street did very little throughout the session, amidst lengthy debate about deal or no deal.

Trump is calling it a phase one “deal”. The Chinese point out nothing is in writing. Treasury Secretary Mnuchin said last night’s there’s a bit more to work through but he’s confident of the deal being signed.

If we all had a dollar for every time Mnuchin has been “confident” we could all have retired by now.

Trump threatened an increase in tariffs on US$250bn of goods to 30% from 25% to get China back to the table (for the thirteenth time). The October 1 deadline was shifted to October 15 when Beijing said yes. That increase has now been withdrawn in exchange for China buying more US agricultural products, which it needs anyway, to stop manipulating its currency, which it did two years ago, and to reform its financial services industry, which it was been working towards for at least a decade.

No tariffs have been removed and the next round slated for December will still go ahead if no “deal” is reached by then. Buy don’t worry, Mnuchin is “confident” it will be.

As for the real targets of tariffs – intellectual property theft and forced technology transfer – they’ll come in phase two, or maybe three…

Let’s party like it’s 2017.

As for Brexit, nobody knows.

Wall Street will be back to normal volumes tonight while investors mull over trade, all of JP Morgan, Goldman Sachs, Citi and Wells Fargo report earnings, to kick off the September quarter season.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1492.10	+ 3.30	0.22%
Silver (oz)	17.62	+ 0.11	0.63%
Copper (lb)	2.59	– 0.02	– 0.68%
Aluminium (lb)	0.77	– 0.00	– 0.14%
Lead (lb)	0.97	– 0.02	– 1.84%
Nickel (lb)	7.68	– 0.36	– 4.49%
Zinc (lb)	1.11	– 0.00	– 0.14%
West Texas Crude	53.46	– 1.24	– 2.27%
Brent Crude	59.21	– 1.30	– 2.15%
Iron Ore (t) futures	91.50	– 1.15	– 1.24%

The LME had closed on Friday night before details emerged from the White House. Between uncertainty about the trade “deal” and China’s weak September import/export data, base metals did not fare well last night.

Oil markets had a rethink.

The US dollar index has ticked back up 0.2% to send the Aussie down -0.2% to US$0.6776.

Today

The SPI Overnight closed down -32 points or -0.5%.

The minutes of the October RBA meeting are out today.

China reports inflation numbers.

Orora ((ORA)) and Telstra ((TLS)) hold AGMs and Charter Hall Group ((CHC)) holds an EGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AWC	ALUMINA	Downgrade to Lighten from Hold	Ord Minnett
BXB	BRAMBLES	Upgrade to Neutral from Underperform	Credit Suisse
DMP	DOMINO'S PIZZA	Downgrade to Neutral from Buy	Citi
		Downgrade to Neutral from Outperform	Macquarie
FLT	FLIGHT CENTRE	Upgrade to Outperform from Neutral	Credit Suisse
IGO	INDEPENDENCE GROUP	Downgrade to Lighten from Hold	Ord Minnett
NWL	NETWEALTH GROUP	Downgrade to Underperform from Neutral	Credit Suisse
		Downgrade to Sell from Neutral	UBS
ORA	ORORA	Upgrade to Outperform from Neutral	Credit Suisse
		Downgrade to Hold from Accumulate	Ord Minnett
PLS	PILBARA MINERALS	Downgrade to Sell from Hold	Ord Minnett
PRU	PERSEUS MINING	Upgrade to Outperform from Neutral	Credit Suisse
RRL	REGIS RESOURCES	Upgrade to Neutral from Underperform	Credit Suisse
SBM	ST BARBARA	Upgrade to Outperform from Underperform	Credit Suisse
SFR	SANDFIRE	Downgrade to Hold from Accumulate	Ord Minnett
WSA	WESTERN AREAS	Downgrade to Hold from Buy	Ord Minnett

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

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