The Overnight Report: Getting Nervous

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World Overnight
SPI Overnight (Jun)	5836.00	– 20.00	– 0.34%
S&P ASX 200	5851.10	+ 76.10	1.32%
S&P500	3029.73	– 6.40	– 0.21%
Nasdaq Comp	9368.99	– 43.37	– 0.46%
DJIA	25400.64	– 147.63	– 0.58%
S&P500 VIX	28.59	+ 0.97	3.51%
US 10-year yield	0.71	+ 0.03	3.68%
USD Index	98.50	– 0.46	– 0.46%
FTSE100	6218.79	+ 74.54	1.21%
DAX30	11781.13	+ 123.44	1.06%

By Greg Peel

Once More With Feeling

“April jobs data was “shocking set of numbers” but not as bad as he feared.
“With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be severe as earlier thought.
“Since the Statement on Monetary Policy things have tracked fractionally better than the baseline scenario.
“Very important that we don’t withdraw the fiscal stimulus too early.
“The economy is doing better than earlier feared.”

These are take-outs from the RBA governor’s update yesterday for the Senate Committee on Covid-19. At midday, the ASX200 was up almost 150 points, breaching the 5900 level.

On the other hand, private sector capital expenditure fell -1.6% quarter on quarter in March – not as bad as economists had feared, but the weakest spend since 2009. The virus impact was felt only late in the quarter.

Which leads us to forward capex intentions, noting that this is a survey, not hard data, and is open to ongoing change.

Non-mining businesses now expect to reduce capex by -8% in FY20 and -21% in FY21. Such numbers were last seen in the 90s recession. Mining (including oil & gas) businesses expect flat capex in FY20, down from a 20% increase expected at the beginning of the year, and a 10% increase in FY21, down from 28% prior.

This may have taken some of the wind out of the sails in the afternoon, but perhaps more ominous was the passing of new security laws in Hong Kong by the Chinese parliament. The vote was 2878 to 1. Mr “1” has not been seen since.

In response, a joint statement from Australia, the US, UK and Canada was issued:

“China's decision to impose the new national security law on Hong Kong lies in direct conflict with its international obligations under the principles of the legally-binding, UN-registered Sino-British Joint Declaration".

So let the games begin, if they haven’t already.

By day’s end the ASX200 had nevertheless still managed to post a 76 point gain, which was once again led by the banks. The financial sector closed up a standout 3.1%.

This time investors did not raid every other sector to pay for it, although healthcare did close flat when all sectors bar energy finished in the green. Energy fell -1.1% on an oil price that is back up again overnight.

The IT sector also underperformed, after JCap launched another attack on WiseTech Global ((WTC)). That stock fell -5.8%. Selling in the sector offset a 16.7% gain from Nearmap ((NEA)) after a trading update.

Consumer discretionary managed only a 0.1% gain, and the appearance of Webjet ((WEB)) in the top five losers’ board, down -4.6%, suggests the relief rally for the heavily beaten-downs may have run its course.

Otherwise, sector gains ranged from 0.7% for staples to 2.0% for utilities.

Can the banks go yet again? With Wall Street slipping overnight, our futures are down -20 points this morning.

Cold War

I noted yesterday that if ever, in Wall Street’s rebound rally, Big Tech pulls back or at least takes a breather, it only lasts one or maybe two sessions. Last night Wall Street was yet again in rally mode right up to mid-afternoon, this time led once more by the mega-caps as the so-called “value” trade began to wane.

But it all went awry to the close, after the president weighed in.

Trump last night signed an executive order ostensibly to prevent online censorship. This is in response to Twitter now “fact-checking” the president’s outbursts. Talk about killing the goose. A broad government review of private companies’ activities, initiated by the order, may have potentially grave consequences for social-media companies, however commentators suggest it may not have legal or constitutional standing.

To that point the Nasdaq had been outperforming, but ultimately underperformed the S&P500.

More influential, nonetheless, was Trump’s announcement he will hold a news conference tonight “on China”. The conference follows on from the aforementioned joint statement.

“Revoking Hong Kong’s special status is Trump’s ‘nuclear option’ that could trigger irrevocable U.S.-China split,” warned analysts in last night’s Capitol Report, noting that the Secretary of State declared Hong Kong “no longer autonomous” on Wednesday night.

On the one hand, commentators suggested this is a short term upping of the rhetoric in a situation that will take a long time to play out. But on the other hand, re-escalating a trade war is not what the US needs right now as it tries to get the economy back on its feet.

Meanwhile, another 2.1 million Americans filed for unemployment benefits last week, taking the total to 41 million. However, the pace of weekly growth in new claims is receding, and continuous claims – those already on the dole prior to last week — dropped by -4 million to 21 million.

Things appear to be heading in the right direction. New durable goods orders nevertheless plunged -17.2% in April.

The US March quarter GDP result has been revised down to -5.0% from -4.8%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1719.00	+ 9.30	0.54%
Silver (oz)	17.34	+ 0.10	0.58%
Copper (lb)	2.40	+ 0.02	0.92%
Aluminium (lb)	0.68	+ 0.00	0.46%
Lead (lb)	0.73	– 0.00	– 0.39%
Nickel (lb)	5.53	+ 0.05	0.94%
Zinc (lb)	0.87	+ 0.00	0.07%
West Texas Crude	33.66	+ 1.44	4.47%
Brent Crude	35.28	+ 1.09	3.19%
Iron Ore (t) futures	96.40	+ 1.30	1.37%

Having fallen on Wednesday night on news Russia is considering ending its production cuts, oil prices rallied back again last night. Data showed US crude inventories actually rose last week, but gasoline inventories fell and storage space at Cushing, Oklahoma – the delivery point for WTI — increased.

Fairly quiet on the metals front despite rising tensions.

The Aussie is up 0.2% at US$0.6638, attributed to Philip Lowe’s upbeat update.

Today

The SPI Overnight closed down -20 points or -0.3%.

There’s a lot of economic data out today/night, beginning with April private sector credit numbers locally.

Japan releases a raft of April data.

The US will see April retail sales and PCE inflation and fortnightly consumer sentiment.

China will report May PMIs on Sunday.

Appen ((APX)) and Costa Group ((CGC)) hold AGMs today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AIZ	Air New Zealand	Downgrade to Underperform from Neutral	Credit Suisse
AX1	Accent Group	Upgrade to Add from Hold	Morgans
BKL	Blackmores	Upgrade to Neutral from Underperform	Macquarie
BKW	Brickworks	Upgrade to Outperform from Neutral	Macquarie
BPT	Beach Energy	Downgrade to Neutral from Outperform	Macquarie
		Downgrade to Hold from Add	Morgans
CCL	Coca-Cola Amatil	Downgrade to Neutral from Outperform	Macquarie
CCX	City Chic	Downgrade to Neutral from Buy	Citi
COF	Centuria Office Reit	Upgrade to Outperform from Neutral	Credit Suisse
CSL	CSL	Upgrade to Buy from Neutral	Citi
DOW	Downer Edi	Downgrade to Neutral from Buy	Citi
FCL	Fineos Corp	Upgrade to Buy from Hold	Ord Minnett
IAG	Insurance Australia	Upgrade to Outperform from Neutral	Credit Suisse
MND	Monadelphous Group	Upgrade to Buy from Neutral	Citi
MTS	Metcash	Upgrade to Buy from Neutral	UBS
NCM	Newcrest Mining	Upgrade to Neutral from Sell	UBS
NGI	Navigator Global Investments	Upgrade to Outperform from Neutral	Macquarie
NTD	National Tyre & Wheel	Upgrade to Add from Hold	Morgans
SIQ	Smartgroup	Upgrade to Add from Hold	Morgans
VOC	Vocus Group	Upgrade to Buy from Hold	Ord Minnett
WSA	Western Areas	Downgrade to Accumulate from Buy	Ord Minnett

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

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