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The Monday Report – 02 December 2019

Daily Market Reports | Dec 02 2019

World Overnight
SPI Overnight (Dec) 6861.00 + 5.00 0.07%
S&P ASX 200 6846.00 – 18.00 – 0.26%
S&P500 3140.98 – 12.65 – 0.40%
Nasdaq Comp 8665.47 – 39.70 – 0.46%
DJIA 28051.41 – 112.59 – 0.40%
S&P500 VIX 12.62 + 0.87 7.40%
US 10-year yield 1.78 + 0.01 0.51%
USD Index 98.27 – 0.09 – 0.09%
FTSE100 7346.53 – 69.90 – 0.94%
DAX30 13236.38 – 9.20 – 0.07%

By Greg Peel

Profit-Taking I

The ASX200 eased back on Friday, having run up 2.3% through the week to Thursday’s close as momentum recovered from the earlier bank-led plunge. Investors had snuck back into the banks during the week, but every time they do they get another kick in the teeth.

The latest issue of Westpac ((WBC)) having to let off investors who applied for new shares in the bank’s Share Purchase Plan ahead of the AUSTRAC news is impacting on that SPP as the VWAP (volume-weighted average price) period is underway to determine the ultimate buy-price. Westpac shares fell another -0.7% on Friday and “outperformer” during the scandal period, Commonwealth Bank ((CBA)), fell -1.0%.

That took financials down -0.5%, matching a fall in materials as the iron ore price slipped back below US$90/t once more.

Utilities (-0.9%) saw the greatest profit-taking after a solid week in which momentum was as much about defensives as cyclicals.

Energy (+0.2%) was the best performer on the day but that will all change today with oil prices down -5% on Friday night.

Telcos (+0.1%) remained in favour as did healthcare (+0.05%), with the race now on to raise target prices on CSL ((CSL)). Macquarie has now moved to $300 from $250 and Credit Suisse to $305 from $249.

The market continues to consider consumer staples (+0.04%) as the better bet over discretionary (-0.4%) heading into Christmas, perhaps believing austere Australian consumers won’t overspend this year on unnecessary gifts but will at least still pay overs for prawns.

(Here’s a Christmas tip: There’s no such thing as a fresh prawn. They’re snap-frozen on the boat. Buy now and stick them in your freezer and you won’t have to queue up at the Fish Market at 2am.)

Among individual stocks, Virgin Money UK ((VUK)), the artist formerly known as CYBG, or Clydesdale Bank for the purists, jumped 24.5% on Friday after reporting a better than expected net interest margin and a -6% reduction in costs.

On the downside, Western Areas ((WSA)) topped the list with a -4.5% drop on a now falling nickel price, which fell again on Friday night.

In economic news, private sector credit grew by only 0.1% in October when 0.3% was forecast. Housing credit increased by 0.3% as relief hits that market but business credit (-0.1%) and personal credit (-0.6%) dragged.

Economists expect renewed growth in housing credit to pick up pace into the new year, but business credit remains a concern. Meanwhile, consumers continue to pay off their credit cards rather than load them up in the run-up to Christmas.

In other news, Beijing rebuked Washington on Friday, calling the bill supporting Hong Kong protests “illegal interference”.

Bit of a no-brainer really, and Chinese state media noted it would not de-rail trade negotiations.

Yesterday Chinese media declared that a phase one trade deal will only proceed if there is a roll-back of existing tariffs, above and beyond not going ahead with the planned December tariffs.

This is the point we always get to. And then…

Profit-Taking II

It was a similar story for Wall Street on Friday night. The major indices had rallied all week, ticking off further new all-time highs, and then on Friday a bit of profit-taking set in. China’s rebuke of the US re Hong Kong was cited as a driver, but traders saw it more as simply a natural end to a strong week.

China was always going to voice its anger, and these days it’s always safer to shift to the sidelines ahead of a weekend, given Beijing doesn’t take weekends. And so it was yesterday the Chinese media declared no roll-back, no deal.

So there may be some nervousness heading into the new month but on Friday night it was all about Black Friday watch, and the NYSE closed at lunchtime before any meaningful indications were evident. Volume was negligible as one might expect.

Sales on Thanksgiving Day were up 20% on last year, which either bodes well for Black Friday or sucks Black Friday sales forward. Realistically the whole discount “door buster sale” thing had already been underway all week. Stores have only been opening on Thanksgiving for a couple of years now, so rising sales are not a surprise. We still have to do Cyber Monday before any informative “holiday sales” tally can be made.

Oil prices were in focus on Friday night, after doubt crept in regarding a production cut extension that has been expected from OPEC-Plus. Saudi Arabia has for some time been suggesting deeper production cuts, to be agreed upon at the December OPEC meeting, but now the news is the kingdom is getting sick of doing all the heavy lifting to compensate for excessive production by other members.

Russia also weighed in, declaring it would prefer to not make any decision before April.

US oil markets also had a half-day session on Friday and volumes were also low, aiding a -5% plunge.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1464.00 + 8.40 0.58%
Silver (oz) 17.00 + 0.09 0.53%
Copper (lb) 2.65 + 0.00 0.03%
Aluminium (lb) 0.80 + 0.01 0.87%
Lead (lb) 0.87 + 0.00 0.07%
Nickel (lb) 6.20 – 0.15 – 2.42%
Zinc (lb) 1.05 + 0.00 0.20%
West Texas Crude 55.17 – 3.07 – 5.27%
Brent Crude 60.49 – 3.38 – 5.29%
Iron Ore (t) futures 87.25 – 0.50 – 0.57%

The only other mover in an otherwise quiet session for commodities was nickel, which is starting to meaningfully pull back from its lofty heights driven by Indonesia’s export ban, which on Friday night was being questioned in terms of its actual impact, just as Chinese stainless steel producers shy away at the price.

The Aussie appears content at the moment around the US$0.6774 level.

The SPI Overnight closed up 5 points on Saturday morning, before yesterday’s trade news.

The Week Ahead

The other news from China over the weekend was that its manufacturing PMI rose to 50.2 in November from 49.3 in October, implying a return to (minimal) expansion. The services PMI rose to 54.4 from 52.8.

So mixed messages as we start the new month. All other major economies report manufacturing PMIs today and services PMIs on Wednesday.

Today locally also brings quarterly numbers for corporate profits and inventories, ahead of Wednesday’s GDP result. Tomorrow it’s the current account, and the market expects 0.5% GDP growth for the quarter, matching the previous quarter.

Monthly data for job ads, building approvals and house prices are due today, followed by retail sales and trade on Thursday.

The RBA meets tomorrow.

Wall Street will be keeping a watchful eye on retail sales tracking tonight but will also focus on the manufacturing PMI. Then it’s on to jobs, with private sector numbers out on Wednesday and non-farm payrolls on Friday, with numbers for trade and factory orders in between.

With November now past, the local AGM season slows to a trickle, while off-season earnings results also peter out.

Metcash ((MTS)) reports earnings on Thursday, while AGMs will be held this week by TPG Telecom ((TPG)), Nufarm ((NUF)) and Altium ((ALU)), with Sydney Airport ((SYD)) hosting an investor day.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CKF COLLINS FOODS Upgrade to Add from Hold Morgans
Downgrade to Neutral from Buy UBS
CTX CALTEX AUSTRALIA Downgrade to Hold from Accumulate Ord Minnett
EBO EBOS GROUP Upgrade to Buy from Neutral UBS
EVN EVOLUTION MINING Upgrade to Buy from Neutral Citi
MMS MCMILLAN SHAKESPEARE Downgrade to Neutral from Outperform Credit Suisse
PAN PANORAMIC RESOURCES Downgrade to Neutral from Outperform Macquarie
PPT PERPETUAL Downgrade to Underperform from Neutral Macquarie
SYD SYDNEY AIRPORT Downgrade to Hold from Add Morgans
TLS TELSTRA CORP Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Outperform from Neutral Macquarie
WBC WESTPAC BANKING 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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