Daily Market Reports | Nov 06 2019
|SPI Overnight (Dec)||6686.00||+ 19.00||0.28%|
|S&P ASX 200||6697.10||+ 10.20||0.15%|
|S&P500||3074.62||– 3.65||– 0.12%|
|Nasdaq Comp||8434.68||+ 1.48||0.02%|
|S&P500 VIX||13.10||+ 0.27||2.10%|
|US 10-year yield||1.87||+ 0.08||4.48%|
|USD Index||97.95||+ 0.40||0.41%|
By Greg Peel
As to why the futures had suggested the ASX200 would be up 45 points yesterday was unclear, given Wall Street rose only mildly on a bit more talking up of the trade deal and there was no support from commodity prices. But computers don’t ask questions.
The index was up 39 points in the first six minutes, and then turned tail for the rest of the morning. By midday the index was mildly lower.
The big event of the day was the return to the boards of Westpac ((WBC)), having successfully put away its placement. The raising of new capital by one of Australia’s biggest companies in by far the biggest sector of the Australian market was always going to prompt a lot of institutional repositioning and reweighting of allocations within the sector and the market.
Westpac fell -4.5% to begin with, but by the close had closed that gap to -2.5%. The action began around midday as buyers moved in and after a period of bank-bashing since ANZ Bank’s ((ANZ)) shock franking reduction the other Big Three all closed up 0.4-0.8%. But the major beneficiaries were the listed fund managers.
Magellan Financial ((MFG)) topped the leaders’ board on the day with a 3.8% gain, Janus Henderson took silver with 3.7% and Pendal Group ((PDL)) got the bronze with 3.5%. Very even moves, suggesting a block buy into that sub-sector. We note that while Janus Henderson and Pendal have struggled this year, Magellan has starred, so no differentiation there.
The financials sector closed the day up 0.07%. Westpac v. The Rest.
As the afternoon wore on, the market became distracted by the day’s other major event.
The RBA left its cash rate on hold at 0.75%.
“The easing of monetary policy since June is supporting employment and income growth in “Australia and a return of inflation to the medium-term target range.
The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.”
No cut is now expected next month either. However…
“The main domestic uncertainty continues to be the outlook for consumption.”
Given the surprising weakness of September retail sales data, this may be the problem for the RBA. Will sales pick up into Christmas?
Outside of the bank sector, there was not much else going on. Energy (+0.9%) won the day on still-rising oil prices, while materials (+0.3%) ignored a drop in the oil price and profit-takers moving in to exploit a week of short-covering in lithium miners. Pilbara Resources ((PLS)) and Galaxy Resources ((GXY)) swung from being index leaders to index losers yesterday.
Here We Go Again?
Wall Street breathed a sigh of relief last night when the US services sector PMI for October was released. The big fear was that trade war-led weakness in manufacturing would eventually spill over into the much bigger services sector, having dragged on for so long, and thus kill the US economy.
The PMI came in at 54.7, up from 52.6 in September.
Wall Street was thus off to a positive start but it was news on the trade front that boosted the afternoon’s action.
The original “phase one” trade deal involved China buying a few more soybeans in return for the US not raising tariffs on the most recent tranche of goods to 30% from 25%. There was no mention of the planned December tranche.
Now China is pushing for the September tariffs to be completely withdrawn and the December tariffs to be withdrawn as a concession for signing the deal. The White House is reported to be considering such a concession, but in return would expect tougher intellectual property protections for US companies.
Call me old-fashioned, but isn’t this the same point we have reached every time a trade deal appeared to be close over the last two years, resulting in China walking away at the last minute and a furious Trump upping the tariff ante once more?
If the deal does get signed, well hallelujah. But the longer the negotiations drag out, the lower the chances. The Dow was up around a hundred points when this news broke, which is not that much in the scheme of things. And the indices faded to the close, suggesting there is indeed justifiable caution.
Boeing shares rose 2% on the day, after the CEO said he would forgo his bonus, which means the Dow ex-Boeing closed lower. The S&P actually did close lower.
Yet the US ten-year bond yield jumped another 8 basis points to 1.86% and gold fell over twenty bucks, in a “flight out of safety”.
A crunch is coming, one way or the other.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1484.40||– 24.20||– 1.60%|
|Silver (oz)||17.59||– 0.43||– 2.39%|
|Copper (lb)||2.67||+ 0.01||0.49%|
|Aluminium (lb)||0.82||+ 0.00||0.50%|
|Lead (lb)||0.99||– 0.01||– 0.56%|
|Nickel (lb)||7.39||– 0.15||– 1.94%|
|Zinc (lb)||1.16||– 0.01||– 0.64%|
|West Texas Crude||57.19||+ 0.60||1.06%|
|Brent Crude||62.95||+ 0.78||1.25%|
|Iron Ore (t) futures||82.70||0.00||0.00%|
No obvious trade excitement on the LME and iron ore did indeed close unchanged.
Yet oil traders did cite trade optimism for further gains.
These hissy fits for gold are becoming rather regular (as the bond market rules over gold too); each time the price eventually gets back above US$1500/oz.
The US dollar rose 0.4% which should have sent the Aussie lower, if the RBA hadn’t hinted it was on hold for now. The Aussie’s up 0.1% at US$0.6893.
The SPI Overnight closed up 17 points or 0.3%. More optimism.
Pendal Group is due to provide a quarterly update.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|ABC||ADELAIDE BRIGHTON||Upgrade to Neutral from Sell||UBS|
|BKL||BLACKMORES||Downgrade to Underperform from Neutral||Credit Suisse|
|CSR||CSR||Upgrade to Neutral from Sell||Citi|
|ILU||ILUKA RESOURCES||Downgrade to Neutral from Outperform||Macquarie|
|JHC||JAPARA HEALTHCARE||Downgrade to Lighten from Hold||Ord Minnett|
|MQG||MACQUARIE GROUP||Downgrade to Neutral from Outperform||Credit Suisse|
|NVX||NOVONIX||Downgrade to Hold from Add||Morgans|
|ORG||ORIGIN ENERGY||Downgrade to Hold from Add||Morgans|
|REG||REGIS HEALTHCARE||Downgrade to Hold from Buy||Ord Minnett|
|Downgrade to Neutral from Buy||UBS|
|RNO||RHINOMED||Downgrade to Hold from Add||Morgans|
|RRL||REGIS RESOURCES||Upgrade to Add from Hold||Morgans|
|SCG||SCENTRE GROUP||Upgrade to Accumulate from Hold||Ord Minnett|
|VCX||VICINITY CENTRES||Downgrade to Hold from Accumulate||Ord Minnett|
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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