The Monday Report – 09 December 2019

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

World Overnight
SPI Overnight (Dec)	6738.00	+ 35.00	0.52%
S&P ASX 200	6707.00	+ 24.00	0.36%
S&P500	3145.91	+ 28.48	0.91%
Nasdaq Comp	8656.53	+ 85.83	1.00%
DJIA	28015.06	+ 337.27	1.22%
S&P500 VIX	13.62	– 0.90	– 6.20%
US 10-year yield	1.84	+ 0.05	2.50%
USD Index	97.70	+ 0.27	0.28%
FTSE100	7239.66	+ 101.81	1.43%
DAX30	13166.58	+ 111.78	0.86%

By Greg Peel

Friday Fade

The ASX200 took a positive lead from Wall Street to open strongly on Friday as upward momentum continued. The index nevertheless peaked out at lunchtime up 30 points before fading in the afternoon.

So closed a wild week of downs and ups on flip-flopping trade news. The index fell -4% from its Monday high to its Wednesday intraday low and had recovered 1.7% by Friday’s close. But that’s comparing top-down to bottom-up, so suffice to say the ASX200 fell around -280 points and recovered around 110.

By comparison, the S&P500 fell under -3% and by Friday night had recovered all its losses. The other notable difference is Wall Street sold cyclicals and bought defensives on the way down and then bought cyclicals and sold defensives on the way up, whereas here it was a case of Sell Australia and then Buy Australia indiscriminately.

For foreign investors, Australia is a singular asset.

We might also note that Wall Street’s recovery was aided by signs of a strong economy, when the opposite is true downunder.

Healthcare (+1.1%) was the standout winner on Friday as the race to get into CSL ((CSL)) before it returns to all-time highs continued. Materials (-0.1%) was the only loser, on lower iron ore and gold prices.

Defensives were again in demand, although not utilities (flat) this time. The big bond proxies of Transurban ((TCL)) and Sydney Airport ((SYD)) drove industrials up 0.8% while telcos rose 0.5% and staples 0.4%, with discretionary lagging.

The banks (+0.3%) were somewhat timid given the long-awaited release of the RBNZ’s capital requirements, which were not as onerous as feared.

There were no remarkable moves among individual stocks other than a -6.3% fall for Boral ((BLD)). Seems there are transparency problems in its North American windows business.

So we begin the new week having taken a risk haircut, looking ahead to some rather significant events. The Fed meets on Wednesday, the UK goes to the polls on Thursday and Trump’s remaining tariffs go into effect on Sunday if no deal is reached before then, or Trump postpones.

Wall Street shot up on Friday night and our futures closed up 35 points on Saturday morning, so we may see momentum return to at least kick things off.

Good News Good

The US added 266,000 jobs in November when 180,000 were forecast. These out-of-the-box numbers can be subject to later revision, but both the October and September numbers were revised up by a net 41,000. The unemployment rate fell to a 50-year low 3.5%.

Back in the day, such a strong result would have Wall Street panicking, expecting a Fed rate rise in response. But the Fed has firmly indicated it is on hold for now and despite solid growth in jobs, wages rose only by 0.2% in the month, suggesting the Fed has nothing to fear on the wage inflation front.

If 2019 has had a buzzword it is “recession”, as for a while there it looked like the world, and even the US, could be heading that way. Thus for the time being, positive economic data is good news.

Of course “recession” is very much linked to trade, and last week in particular was all about trade. The news on Friday is that a trade deal is “close”.

Actually come to think of it, maybe 2019’s buzzword should be “close”.

There was some genuinely positive news on Friday night nevertheless. Beijing announced that as a sign of goodwill, it will exclude some imports of US pork, soybeans and other commodities from its retaliatory tariffs. Considering China has suffered for many months from blow-out pork prices, and the Chinese eat more pork than any other protein, with soy sauce, then the “goodwill” rings a bit hollow.

But we’ll take it.

In other economic news, Michigan Uni’s fortnightly index of consumer sentiment jumped to 99.2 from 96.8. This is positive news in the run-up to Christmas, but could be completely shattered if Trump’s tariffs do indeed come into effect on December 15.

So in summary, the Fed is expected to remain on hold this week, Boris is stilled tipped to win the election and Wall Street is signalling its confidence that the December tariffs will either be withdrawn or delayed.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1459.70	– 15.50	– 1.05%
Silver (oz)	16.57	– 0.36	– 2.13%
Copper (lb)	2.70	+ 0.05	1.91%
Aluminium (lb)	0.80	+ 0.00	0.10%
Lead (lb)	0.85	– 0.00	– 0.41%
Nickel (lb)	6.08	+ 0.07	1.22%
Zinc (lb)	1.02	+ 0.00	0.14%
West Texas Crude	59.20	+ 0.81	1.39%
Brent Crude	64.37	+ 0.99	1.56%
Iron Ore (t) futures	88.70	0.00	0.00%

The oil market was hoping OPEC would agree to cut production by a further -400,000 barrels per day on top of the existing -1.2mbpd cuts for a period of six months, maybe even a year. The final decision was a -500,000bpd cut, for three months.

So a mixed result, but the plan is to meet again in March and then consider an extension. It is assumed the three month period instead of six is so the Saudis can ensure members are actually complying, and if not it can threaten, come March, to trash the oil price by reversing production cuts.

In base metals, while we expect such volatility for nickel we don’t for copper, but the news on Friday was Chinese copper imports rose 12% in November to their highest level in over a year, as demand from the manufacturing sector exceeded assumptions.

As US stock markets rallied on Friday night, the US ten-year yield rose 5 basis points to 1.84% and the curve steepened, and gold copped the fallout.

Despite a 0.3% gain for the greenback, the Aussie is little moved at US$0.6839.

The SPI Overnight closed up 35 points or 0.5% on Saturday morning.

The Week Ahead

Fed-UK election-tariffs.

Beyond that, the US will see CPI numbers on Wednesday and PPI on Thursday, and retail sales for November, including Thanksgiving sales, on Friday.

In Australia we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence on Wednesday. The RBA governor speaks tomorrow and the RBA issues a Bulletin on Thursday.

The ECB meets on Thursday, with Christine Lagarde in the frame for the first time.

The corporate calendar begins to wind down towards Christmas, but we’re not quite done yet.

Westpac ((WBC)) holds its AGM on Thursday.

Bank of Queensland’s ((BOQ)) AGM is tomorrow followed by Elders ((ELD)) on Thursday and Pendal Group ((PDL)) on Friday while IOOF ((IFL)) hosts an investor day tomorrow.

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
CTX	CALTEX AUSTRALIA	Downgrade to Neutral from Buy	Citi
DXS	DEXUS PROPERTY	Upgrade to Outperform from Neutral	Credit Suisse
MTS	METCASH	Upgrade to Accumulate from Hold	Ord Minnett
NST	NORTHERN STAR	Upgrade to Buy from Neutral	UBS
STO	SANTOS	Upgrade to Buy from Neutral	Citi
TLS	TELSTRA CORP	Upgrade to Buy from Neutral	UBS
WSA	WESTERN AREAS	Upgrade to Neutral from Sell	UBS

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

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