The Overnight Report: Not Bovvered

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World Overnight
SPI Overnight (Dec)	6786.00	– 35.00	– 0.51%
S&P ASX 200	6814.20	+ 47.40	0.70%
S&P500	3120.18	– 1.85	– 0.06%
Nasdaq Comp	8570.66	+ 20.72	0.24%
DJIA	27934.02	– 102.20	– 0.36%
S&P500 VIX	12.86	+ 0.40	3.21%
US 10-year yield	1.79	– 0.02	– 1.22%
USD Index	97.83	+ 0.05	0.05%
FTSE100	7323.80	+ 16.10	0.22%
DAX30	13221.12	+ 14.11	0.11%

By Greg Peel

Merry Christmas?

Will we get another RBA rate cut in December? The market thinks that’s the case, if yesterday’s trade is anything to go by. The ASX200 drifted lower from the open, but when the minutes of the November RBA meeting were released, it was off to the races.

“The Board agreed that a case could be made to ease monetary policy at this meeting…”

…said the minutes of the policy meeting earlier this month. Since that meeting we’ve had a shocker of a retail sales number and a surprise about-face in jobs growth. If the case could have been made on Cup Day, surely that case must be much stronger now, implying the RBA will simply have to cut in December?

“The Board agreed that a case could be made to ease monetary policy at this meeting, but that the most appropriate approach would be to maintain the current stance of monetary policy and to make another full assessment once more evidence of the effects of the earlier monetary easing had become available.”

Do we now have the evidence? Cut required? In earlier times it used to be considered a rate cut took at least six months to have its impact on the economy. But in earlier times, RBA policy meetings were of little interest (pardon the pun) to the general populace. Nowadays the November policy meeting rivals the Cup in terms of public interest, and rate cuts can thus have an immediate impact on sentiment. But…

“Further evidence on spending by households was required before drawing a conclusion on the effects of the tax cuts and low interest rates. Having already delivered a substantial monetary stimulus in recent months, there was a case to wait and assess the effects of this stimulus, especially given the long and variable lags.”

On that note, ANZ Bank economists, for one, took an opposing view to the minutes yesterday, believing they signalled no rate cut in December, and a reassessment in February (there is no January meeting).

By then we’ll know how Christmas went.

Forex traders clearly agreed, pushing the Aussie up 0.3% despite little movement in the greenback.

Incidentally, it might have all been very exciting on the local market yesterday, but with Wall Street closing flat, again, last night, our futures are down -35 points this morning.

The rollercoaster ride continues.

For the record, all sectors closed in the green yesterday except for IT, which fell -1.2% after WiseTech Global ((WTC)) did no more than reaffirm guidance at its AGM, and faced some tricky questions from short-side predator J Capital. WiseTech fell -7.7%.

TechnologyOne ((TNE)) reported earnings towards the top of the guidance range, and fell -4.6%.

Otherwise, your usual bond proxies and yield-payers led the charge yesterday, and the market continues to believe rate cuts are good for banks (+0.5%). Consumer staples is one such sector, but its market-leading 1.5% gain was aided by a guidance upgrade from a2 Milk ((A2M)), which was worth 11.2%. Hey, let’s give it to the Chinese.

I could go on, but I won’t, given as noted, the futures are down -35 points this morning.

Heard This Before?

“If we don’t make a deal with China, I’ll just raise the tariffs even higher.”

Go on, guess who.

Not that Wall Street was bothered. The S&P500 did dip early in the session but recovered for yet another flat close. Hope springs eternal.

The Dow dropped on the open and then stayed put all session. Dow component Home Depot – a US Bunnings – fell -5.4% after releasing a disappointing earnings result and guidance. That fall was worth -80 Dow points, so ex Home Depot, the Dow also close dead flat.

Commentators suggested the Home Depot result/guidance actually wasn’t bad at all – the market simply expected the moon, and had rallied strongly into the result. Last night’s data showed US building approvals jumping to a 12-year high, so little to be concerned about one might assume.

On the other hand, the Grim Reaper stood by last night as one of the big US department store chains posted earnings. Kohl’s fell -19.5%. Enough said. Investors also abandoned the likes of Nordstrom and Macy’s in fear, which are yet to report.

A UBS report released last night suggested the US economy won’t fall into recession before 2022, but growth will slow to below 0.5% in the first half of 2020, thus elevating the risk of a nearer term recession. One presumes that if the planned December tariffs go ahead, and any others are raised, that chance is further elevated.

And the past couple of years tell us that the greater the threat from Trump, the more likely the Chinese will dig in. China does not respond to threats, it responds to concessions. Beijing already signalled pessimism over the weekend, given Trump appears unprepared to agree to tariff roll-backs in exchange for a phase one deal, so how a threat to increase tariffs is going to help, only the president knows.

Yet still Wall Street hangs in there.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1471.50	+ 0.40	0.03%
Silver (oz)	17.11	+ 0.11	0.65%
Copper (lb)	2.63	– 0.01	– 0.37%
Aluminium (lb)	0.79	– 0.00	– 0.46%
Lead (lb)	0.90	+ 0.02	1.78%
Nickel (lb)	6.62	– 0.08	– 1.12%
Zinc (lb)	1.08	– 0.01	– 0.83%
West Texas Crude	55.23	– 1.61	– 2.83%
Brent Crude	60.94	– 1.29	– 2.07%
Iron Ore (t) futures	85.85	+ 0.75	0.88%

Wall Street may have shrugged off Trump’s threat but oil markets didn’t. Oil is the big mover when it comes to commodity price reaction to negative trade news. Add in concern Russia is not going to agree to further OPEC-plus production cuts, as is being advocated by Saudi Arabia, and forecasts that this week’s US crude inventory lottery will come up with a build, and recent oil price gains were wiped out last night.

Base metals continued their prevailing trend in the face of no progress on trade but iron ore again bucked.

The Aussie is up 0.3% at US$0.6829.

Today

The SPI Overnight closed down -35 points or -0.5%. The Lord giveth…

The minutes of the last Fed meeting are out tonight.

Aristocrat Leisure ((ALL)) reports earnings today, while Sydney Airport ((SYD)) updates traffic statistics.

A long list of AGMs today includes those of Goodman Group ((GMG)), Lendlease ((LLC)), Shopping Centres Australasia ((SCP)) and Webjet ((WEB)).

Webjet has seen short positions grow to over 10% since Thomas Cook’s demise.

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
BLX	BEACON LIGHTING	Downgrade to Hold from Add	Morgans
BSL	BLUESCOPE STEEL	Downgrade to Equal-weight from Overweight	Morgan Stanley
		Downgrade to Sell from Neutral	UBS
CCL	COCA-COLA AMATIL	Upgrade to Neutral from Underperform	Credit Suisse
		Upgrade to Neutral from Underperform	Macquarie
DMP	DOMINO'S PIZZA	Downgrade to Reduce from Hold	Morgans
MVF	MONASH IVF	Upgrade to Add from Hold	Morgans
QAN	QANTAS AIRWAYS	Upgrade to Outperform from Neutral	Macquarie
SIQ	SMARTGROUP	Downgrade to Hold from Add	Morgans
VAH	VIRGIN AUSTRALIA	Upgrade to Neutral from Sell	UBS

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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