The Monday Report – 18 November 2019

This story features GRAINCORP LIMITED, and other companies. For more info SHARE ANALYSIS: GNC

World Overnight
SPI Overnight (Dec)	6794.00	– 3.00	– 0.04%
S&P ASX 200	6793.70	+ 58.60	0.87%
S&P500	3120.46	+ 23.83	0.77%
Nasdaq Comp	8540.83	+ 61.81	0.73%
DJIA	28004.89	+ 222.93	0.80%
S&P500 VIX	12.05	– 1.00	– 7.66%
US 10-year yield	1.83	+ 0.02	1.05%
USD Index	98.00	– 0.16	– 0.16%
FTSE100	7302.94	+ 10.18	0.14%
DAX30	13241.75	+ 61.52	0.47%

By Greg Peel

Follow the Money

“It’s not done yet, but there has been very good progress and it’s also been very constructive,” said senior White House economic advisor Larry Kudlow on Thursday night. And with that, the ASX200 rallied 58 points on Friday.

This is the same market that fell -80 points from Monday’s close to Wednesday’s close before rallying 100 points back again to Friday’s close. The volatility was attributable to the ups and downs of US-China trade progress, along with the excitement of a very bad local jobs number, but over the same period, Wall Street remained little moved, other than up. Specifically, the Dow futures were up a hundred points during Friday’s session, spurring on our own market.

And over the period, the news from the White House has not wavered: a deal is “close”.

Just not signed.

All sectors closed in the green on Friday, led out by IT (+1.6%), healthcare (+1.4%) and consumer discretionary (+1.3%). Materials (+1.0%) enjoyed some improvement in iron ore and gold prices while the banks (+0.5%) are enjoying a settling of the dust post result season.

Yield sectors lagged slightly, having had their run on Thursday after the jobs numbers suggested another rate cut may be nigh, but still closed higher. It was pretty much buy everything.

Wednesday had been sell everything.

Graincorp ((GNC)) was the only real standout mover among individual stocks, rising 11.5% after the ACCC declared it would not oppose the company’s sale of its bulk liquids terminals.

Link Administration ((LNK)) was granted a 4.5% gain following its AGM, but otherwise the winners and losers boards simply contained the usual daily suspects.

The Dow duly closed up 200 points on Friday night, but we did our bit on Friday, so the futures were down -3 points on Saturday morning.

We enter the new week waiting for any actual progress on trade, and worrying about what’s going to happen next in Hong Kong.

All the Way to 28k

Friday night’s rally on Wall Street took the Dow to 28,000 for the first time, and up 20% year to date.

The S&P500 is up 24.5%, having posted its sixth straight weekly rally, and the Nasdaq is up 28.5%.

Yet there has been no progress on trade. The weekend just passed was meant to see the phase one deal signed by Trump and Xi at the APEC summit, until that summit was cancelled. Larry Kudlow said last week the two parties were trying to stick to the same timing, but Trump is not yet ready to sign off on a deal that is “close”. Nor have the two parties agreed on where the signing will take place, as well as when.

The looming cloud is the next round of tariffs scheduled for December 15. This is the critical factor. Whatever the phase one deal might bring, even if it’s not much, part of that deal must include at least a delay of, if not a complete withdrawal of, that tranche. Otherwise, a Wall Street at all-time highs is not going to like the deal, and Christmas 2019 will look a lot like Christmas 2018.

Outside of trade, the US healthcare sector received a boost on Friday when Trump announced planned transparency rules regarding hospital treatments that were seen to be not as bad as feared. And a court cut the fine originally imposed on Johnson & Johnson (Dow) in one of the many legal battles the company is currently fighting.

Chip makers have borne the brunt of trade fluctuations all year, but Friday night saw an earnings result from heavyweight Applied Materials that sent its stock up 7%.

US retail sales rose 0.3% in October when 0.2% was expected. All hail the US consumer.

So it was all beer & skittles on Wall Street on Friday night, on fairly low volume. The VIX fell -8% to 12, because what could possibly go wrong?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1467.90	– 3.10	– 0.21%
Silver (oz)	16.93	– 0.07	– 0.41%
Copper (lb)	2.65	+ 0.01	0.53%
Aluminium (lb)	0.79	+ 0.00	0.46%
Lead (lb)	0.91	– 0.01	– 1.12%
Nickel (lb)	6.84	– 0.06	– 0.83%
Zinc (lb)	1.11	– 0.01	– 0.73%
West Texas Crude	57.72	+ 0.88	1.55%
Brent Crude	63.30	+ 1.00	1.61%
Iron Ore (t) futures	84.75	+ 1.35	1.62%

Global oil demand surprisingly jumped in the September quarter, according to the latest data released on Friday night. Hence oil prices had a good session.

The iron ore comeback continues, but base metals are still showing no signs of trade enthusiasm.

After tumbling on Thursday's jobs numbers, the Aussie bounced back on Friday night on a dip in the greenback, up 0.4% at US$0.6818.

The SPI Overnight closed down -3 points on Saturday morning.

The Week Ahead

Tomorrow the RBA governor speaks, and what he has to say will no doubt be interesting in the context of the jobs numbers.

The minutes of the October Fed meeting are out on Wednesday night, and should confirm the Fed is “on hold”.

US data releases this week include housing sentiment tonight, housing starts tomorrow and existing home sales on Thursday.

Friday brings flash estimates of November manufacturing PMIs in the US, Europe and Japan.

Australian data are limited this week.

It’s still busy on the stock market nonetheless, with another solid week of AGMs ahead. Nanosonics ((NAN)) is on the list today.

ALS ltd ((ALQ)) and TechnologyOne ((TNE)) report earnings tomorrow and Aristocrat Leisure ((ALL)) on Wednesday.

Investor days are being held tomorrow by Class ((CL1)), Qantas ((QAN)) and Woodside Petroleum ((WPL)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APE	AP EAGERS	Downgrade to Hold from Accumulate	Ord Minnett
AST	AUSNET SERVICES	Downgrade to Reduce from Hold	Morgans
AUB	AUB GROUP	Upgrade to Outperform from Neutral	Credit Suisse
CAT	CATAPULT GROUP	Upgrade to Add from Hold	Morgans
CMW	CROMWELL PROPERTY	Downgrade to Lighten from Hold	Ord Minnett
ENN	ELANOR INVESTORS	Upgrade to Accumulate from Hold	Ord Minnett
IPL	INCITEC PIVOT	Downgrade to Neutral from Buy	Citi
		Downgrade to Underweight from Equal-weight	Morgan Stanley
		Downgrade to Hold from Buy	Ord Minnett
OZL	OZ MINERALS	Downgrade to Neutral from Buy	Citi
		Downgrade to Lighten from Hold	Ord Minnett
SKI	SPARK INFRASTRUCTURE	Upgrade to Equal-weight from Underweight	Morgan Stanley

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

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