The Overnight Report: Nothing New

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World Overnight
SPI Overnight (Dec)	6687.00	+ 8.00	0.12%
S&P ASX 200	6683.00	+ 76.50	1.16%
S&P500	3117.43	+ 4.67	0.15%
Nasdaq Comp	8570.70	+ 4.03	0.05%
DJIA	27677.79	+ 28.01	0.10%
S&P500 VIX	14.52	– 0.28	– 1.89%
US 10-year yield	1.80	+ 0.02	0.90%
USD Index	97.43	– 0.21	– 0.22%
FTSE100	7137.85	– 50.65	– 0.70%
DAX30	13054.80	– 85.77	– 0.65%

By Greg Peel

Stop the World

Bring on the summer holidays eh? This rollercoaster is making me ill. I blame the “information age”. This sort of interday volatility would never have happened on the chalkboards, and the market would not have been receiving real time updates on every subtle twist in a trade deal an ocean away. Hopefully the rise of AI can drum a bit of sense into the computers, because currently they react like headless chooks.

Hope lots of them have lost bucket-loads.

To recap, the ASX200 closed at a new of high of 6862 on Monday, bottomed intraday at 6590 on Wednesday, down -4%, and has since rallied to yesterday’s close of 6683, up 1.4%. What changed?

Nothing!

All sectors closed in the green yesterday, funnily enough, in a mostly uniform range of 1-1.5%. Healthcare had “outperformed” on Wednesday in falling only -0.7%, and “underperformed” yesterday in rising only 0.4%. The second biggest stock on the market is trading on a low beta.

On the other hand, consumer staples fell -2.2% on Wednesday to lead the market down and managed only a 0.7% gain yesterday, but then Metcash ((MTS)) fell on its earnings result and Coles ((COL)) was fined -$5m for raping farmers.

Perhaps the most interesting move yesterday was that of the banks, which gained 1.3% in concert with the Buy Australia theme, when on any other day the sector might have been the star performer.

The RBNZ finally announced its new bank capital requirements yesterday, which impact on Australia’s Big Four through cross-Tasman ownership. The central bank has lifted its required capital requirement for “too big to fail” banks to 18% of risk-weighted assets, up from a prior 10.5%. This suggests a collective $19bn of additional capital.

Which is not as bad as feared. And the banks have seven years to comply, rather than an assumed five. That would be 18 years after the GFC that prompted the capital clamp down. The Big Four have known this was coming for some time and have prepared, including Westpac’s capital raising to cover various drags on capital, and yesterday ANZ Bank ((ANZ)), the most exposed to NZ of the Big Four, said it would not need to raise capital to meet the RBNZ’s requirements.

In other words, all good news.

The ASX200 had pretty much posted its closing gains at the open, with only a bit of to-ing and fro-ing during the session. Sticking with the “on any other day” theme, yesterday’s economic data releases would have had the index falling on the day.

Retail sales rose 0.0% in October. Forecasts were for a 0.3% gain following September’s petty 0.2%. Heading into Christmas, economists fear households will be Scrooges this year and retailers will be forced to discount to shift stock – a double whammy. They’ve already stuffed their margins by joining in the Black Friday discounting idiocy.

Australia’s trade surplus fell to $4.5bn in October, down from $6.8bn in September and well below $6.5bn forecasts. The difference was entirely due to resource exports, which fell in both price and volume.

The RBA will be savouring its holiday break next month, because it’s going to be one hell of a 2020.

Oh and standout individual stock mover on the day was Whitehaven Coal ((WHC)), which fell -10.3% after issuing a profit warning due to the drought.

Just dwell on that one for a moment.

The futures closed up 8 this morning. It will probably be a Friday kind of Friday ahead of tonight’s Christmas party mayhem.

Just Ignore Them

Last night a Chinese spokesperson said trade negotiations are “progressing”, but that China still needs a tariff rollback to be part of any deal.

The Dow fell-100 points.

Um, didn’t we know that already?

The Dow closed up 28.

I think even the computers on Wall Street have become fed up with tiresome day to day flip-flopping on the trade front, most of it hollow rhetoric. That isn’t to say December 15 no longer looms as a major risk – it does – but there seems little point in reacting to every little swing and roundabout along the way.

The US trade deficit dropped -8% in October to a 16-month low, mostly due to fewer Chinese imports. That might suggest Trump is winning, as the US trade deficit is basically what started all this, but no, the US trade deficit is on track to mark an eleven-year high this year.

US factory orders rose 0.3% in October. That’s good, except that the November manufacturing PMI was shown on Monday night to have contracted.

It’s jobs night tonight, which might be one reason to square up somewhat last night, but with the Fed firmly on hold, it would take a shock number either way to actually have an impact.

In other news, Saudi Aramco’s IPO was priced last night and was 465% oversubscribed. This suggests a rally on listing, despite the IPO price valuing the previously state-owned enterprise at a whopping US$1.7trn. We recall that your Apples, Amazons and Microsofts trade only around the US$1trn mark. However, the Saudis have only floated 1.5% of the company, and it will only list on the Saudi exchange, which means it won’t draw much interest elsewhere.

Don’t see the point really.

The Saudis had been planning this IPO for years, but the plan was held up by weak oil prices. As I write, OPEC members remain in negotiation in Vienna regarding productions cuts or lack thereof and for how long. If the oil market doesn’t get a further production cut, oil prices will tank.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1475.20	+ 0.50	0.03%
Silver (oz)	16.93	+ 0.12	0.71%
Copper (lb)	2.65	+ 0.01	0.24%
Aluminium (lb)	0.80	– 0.00	– 0.34%
Lead (lb)	0.85	– 0.01	– 0.84%
Nickel (lb)	6.01	+ 0.05	0.87%
Zinc (lb)	1.02	– 0.01	– 1.11%
West Texas Crude	58.39	– 0.14	– 0.24%
Brent Crude	63.38	+ 0.20	0.32%
Iron Ore (t) futures	88.70	– 0.30	– 0.34%

Oil markets remain poised.

Indeed, everything remains poised, with trade the focus.

The Aussie is down -0.3% at US$0.6833 on yesterday’s data.

Today

The SPI Overnight closed up 8 points.

US jobs tonight, along with consumer sentiment.

Altium ((ALU)) and WH Soul Pattinson ((SOL)) hold AGMs today while Sydney Airport ((SYD)) hosts an investor day.

Fisher & Paykel Healthcare ((FPH)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CSL	CSL	Downgrade to Hold from Accumulate	Ord Minnett
DXS	DEXUS PROPERTY	Upgrade to Outperform from Neutral	Credit Suisse
IAG	INSURANCE AUSTRALIA	Upgrade to Buy from Neutral	Citi
RBL	REDBUBBLE	Upgrade to Add from Hold	Morgans
STO	SANTOS	Upgrade to Buy from Neutral	Citi
TLS	TELSTRA CORP	Upgrade to Buy from Neutral	UBS

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

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