The Overnight Report: Trade War II

Daily Market Reports | May 22 2020

World Overnight
SPI Overnight (Jun) 5537.00 – 7.00 – 0.13%
S&P ASX 200 5550.40 – 22.60 – 0.41%
S&P500 2948.51 – 23.10 – 0.78%
Nasdaq Comp 9284.88 – 90.90 – 0.97%
DJIA 24474.12 – 101.78 – 0.41%
S&P500 VIX 29.53 + 1.54 5.50%
US 10-year yield 0.68 – 0.00 – 0.44%
USD Index 99.43 + 0.26 0.26%
FTSE100 6015.25 – 51.91 – 0.86%
DAX30 11065.93 – 157.78 – 1.41%

By Greg Peel

Meandering

Futures traders can’t take a trick at the moment, calling the ASX200 down on Wednesday only to see it rally, and up yesterday only to see it fall. The index did open higher in the first ten minutes yesterday, up 37 points, just as the futures suggested, but by midday was down -28.

A choppy afternoon to a lacklustre close again underscored the No Idea trade.

Energy was the best performing sector (+1.3%), on a stronger oil price and likely as the market continues to absorb the government’s energy “road map” (the nineteenth plan since coming to power), which implies oil & gas companies may have free reign to stick CSG wells wherever they like. Carbon capture is also an important part, but the question is as to whether there are enough unicorns, drop-bears and flying pigs in the country to operate the facilities.

Utilities (-1.8%) provided the other side of the equation.

Beyond that it was a case of ho-hum. Four sectors rose and six sectors fell, with no theme – both consumer sectors fell – and no conviction.

Among individual stocks, NRW Holdings ((NWH)), which had previously been considered little exposed to the virus but fell along with everything else in the crash, jumped 32.7% just by providing a positive trading update. Contracting peer Perenti Global ((PRN)), the artist formerly known as Ausdrill, rose 9.2% in sympathy.

Insurance broker Steadfast ((SDF)) also provided a positive update, worth 6.3%, while rising US-China tensions helped rare earth producer Lynas Corp ((LYC)) up 6.1%.

Ausso-Sino tensions are more front of mind for the rest of the market, with Beijing now threatening its old parlour game of holding shipments of iron ore and coal in port for closer inspection (Yes, that’s a rock…yes, that’s also a rock) but the fact there’s been no threat of actual tariffs, a la barley, underscores the fact China cannot get by without Australian steel inputs, particularly at a time infrastructure spending is being stepped up.

The materials sector fell yesterday (-0.6%), but so was the iron ore price weaker.

On the other side of the ledger, a trading update from communications network provider Service Stream ((SSM)) was not so well received (-5.9%), and nor was Aristocrat Leisure’s ((ALL)) earnings result (-5.0%).

Wall Street was a tad weaker overnight and our futures are down all of -7 points this morning. Surely one must be able to enjoy a steak and a shiraz somewhere by now.

Hong Kong Phooey

US-China tensions have been building to a boil all week.

On Wednesday night there was talk of de-listing from US exchanges any Chinese company that did not satisfy US audit and disclosure rules, which came after earlier talk of not allowing a Chinese company to list if any proportion is state-owned. We also saw the Secretary of State stand up to speak against China’s trade attacks on Australia.

One of China’s largest US-listed companies, Baidu, is reportedly considering de-listing from the Nasdaq.

Last night the president tweeted that China’s “disinformation and propaganda attack on the United States and Europe is a disgrace,” while the White House issued a broad attack on Beijing’s economic policies, military build-up and human rights violations.

Then US senators introduced a bipartisan bill that would sanction Chinese officials and entities who enforce the new national security laws in Hong Kong.

We recall that last year’s pro-democracy protests in Hong Kong never actually ended, they were just shut down by the virus. Beijing now plans to introduce new laws against subversion, which are sure to go down a treat.

All of this ramped up tension had its impact on the US tech sector last night, which was the worst performer in the S&P500 alongside energy. Tech has been the standout leader in the rebound rally, but whenever it does pull back, it’s never for long.

Another 2.4m Americans filed for unemployment benefits last week, taking the total to close to 40m. However, this series is seasonally adjusted, so on raw numbers there were actually 3.3m last week, and 44m since mid-March.

Markit’s flash estimates of May US PMIs showed an increase in manufacturing to 39.8 from 36.1 in April, which is akin to rising to really really bad from really really really bad. Markit suggests April was the bottom, at least, which makes sense with factories reopening.

Ditto the services PMI, which rose more optimistically to 36.9 from 26.7, as shops and other services also reopen.

New home sales fell -18% in April, to a ten-year low.

More Fed presidents have come out this week to corroborate Chair Powell’s warning that more central bank assistance is likely to be needed. The great debate about whether this might include a negative cash rate continues, with Fed officials not prepared to emphatically rule it out despite declaring their opposition.

Last night the UK government auctioned GBP3.75bn of three-year bonds, which settled at -0.003%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1727.50 – 20.90 – 1.20%
Silver (oz) 17.11 – 0.47 – 2.67%
Copper (lb) 2.42 + 0.01 0.51%
Aluminium (lb) 0.67 + 0.01 1.01%
Lead (lb) 0.74 – 0.01 – 1.74%
Nickel (lb) 5.63 + 0.07 1.17%
Zinc (lb) 0.89 – 0.02 – 2.24%
West Texas Crude 33.91 + 0.39 1.16%
Brent Crude 36.10 + 0.28 0.78%
Iron Ore (t) futures 97.95 +1.85 1.93%

There appeared no actual trigger for gold to fall back twenty dollars last night, with the greenback up only slightly and bond yields unmoved, other than gold always has a pullback session or two after another burst.

Iron ore weakness lasted but one session, while base metals are back to being mixed.

The Aussie is down -0.5% at US$0.6565.

Today

The SPI Overnight closed down -7 points.

It’s a quiet day today on the economic and corporate front, with Sydney Airport’s ((SYD)) AGM being the only highlight.

The recent out-of-cycle earnings season has all but done its dash.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABP Abacus Property Group Upgrade to Outperform from Neutral Credit Suisse
ALQ ALS Limited Upgrade to Outperform from Neutral Credit Suisse
APE AP Eagers Downgrade to Neutral from Outperform Credit Suisse
APX Appen Downgrade to Neutral from Outperform Credit Suisse
BBN Baby Bunting Downgrade to Neutral from Buy Citi
BLD Boral Downgrade to Neutral from Outperform Credit Suisse
CLV Clover Corp Downgrade to Neutral from Buy UBS
ELD Elders Downgrade to Hold from Add Morgans
EVN Evolution Mining Downgrade to Equal-weight from Overweight Morgan Stanley
FBU Fletcher Building Downgrade to Neutral from Buy Citi
FMG Fortescue Upgrade to Hold from Reduce Morgans
Downgrade to Sell from Neutral Citi
NAN Nanosonics Downgrade to Hold from Add Morgans
PRU Perseus Mining Upgrade to Buy from Neutral Citi
SGM Sims Metal Management Upgrade to Hold from Lighten Ord Minnett
TNE Technologyone Downgrade to Sell from Neutral UBS
TPM TPG Telecom Upgrade to Accumulate from Hold Ord Minnett
WGN Wagners Holding Upgrade to Outperform from Neutral Credit Suisse
WSA Western Areas Downgrade to Neutral from Buy Citi

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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CHARTS

ALL LYC NWH PRN SDF SSM SYD