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Overnight: Trade Doubt
BY GREG PEEL - 18/05/2018 | VIEW MORE ARTICLES FROM FNARENA NEWS

World Overnight
SPI Overnight (Jun) 6122.00 + 14.00 0.23%
S&P ASX 200 6094.30 – 12.70 – 0.21%
S&P500 2720.13 – 2.33 – 0.09%
Nasdaq Comp 7382.47 – 15.82 – 0.21%
DJIA 24713.98 – 54.95 – 0.22%
S&P500 VIX 13.43 + 0.01 0.07%
US 10-year yield 3.11 + 0.01 0.45%
USD Index 93.48 + 0.15 0.16%
FTSE100 7787.97 + 53.77 0.70%
DAX30 13114.61 + 118.28 0.91%

By Greg Peel

Reversal of Fortune

Westpac ((WBC)) went ex-div yesterday morning and the computers appeared to go on with the initial drop in the ASX200, sending the index down swiftly through what should now be support at 6100. We could point to a dip in Wall Street overnight but the Australian market has not been paying that much attention to Wall Street’s daily moves of late if the influences aren’t overly macro.

Rather we’ve been concentrating on individual company quarterly updates and earnings and the impact of strong commodity prices, most notably oil, in attempting to push to a new high. That achievement has as yet eluded the market as each session this week, other than yesterday, featured a fade away to the closing bell.

Yesterday we saw a couple of mid-session attempts to recover the initial loss before bottoming out down -30 points at 3pm. Some late buying saved face.

China is in the spotlight in the US but also in Australia regarding trade, but from a different angle. Reports emerging yesterday suggesting the golden run for Treasury Wine Estates ((TWE)) may be slowing, as unsold inventories build up in China, had that stock down -6.2% to be the worst ASX200 performer on the day.

It’s a different story for a2 Milk ((A2M)), which is selling plenty of formula in China but upset the market on Wednesday with the amount the company has spent on new labelling. That stock was again on the top five losers’ board yesterday along with Bellamy’s ((BAL)), which continues to be dragged down on suspicion.

One of the best performing big cap stories of late, CSL ((CSL)), copped some selling yesterday to drag healthcare down -1.2%, possibly because the Aussie rebounded and everyone’s long the stock.

Industrials (-1.4%) was the worst sector performer with no one stock standing out as the culprit. The banks effectively stood still, falling -0.4% on Westpac’s dividend. Despite some big down-moves in the sector, consumer staples fell only -0.2% with the supermarkets providing some support.

Yes, Treasury Wine is in consumer staples, not discretionary. Wine is, after all, one of the main food groups.

It was left to the resource sectors to once again save the day, with energy rising another 0.4% and materials enjoying a battery-powered 0.9% gain. Graphite producer Syrah Resources rose 3.7% following its AGM, to place third on the top five leaders’ board after lithium producers Galaxy Resources ((GXY)) and Orocobre ((ORE)), which rose 8.4% and 7.1% respectively.

Those three stocks are all within the top ten most shorted stocks on the market, Syrah being in a standout first place on 21% shorted.

Reinforcing the observation that the local market is not dutifully following Wall Street at present is a 14 point rise in the futures this morning despite another dip in the US, and without any notable commodity price moves.

That would take the index back over 6100.

It’s a Small World

The second round of China-US trade negotiations began last night in Washington and when asked if he thought they would bring success, President Trump remarked “I tend to doubt it”.

The Dow fell over a hundred points.

But Wall Street recovered some of that ground by the close. The general consensus is that while it might take some time, cooler heads will ultimately prevail to prevent an internecine all-out war between the world’s two biggest economies.

At the same time, EU members have confirmed they will not be pulling out of the Iran nuclear deal despite the US' withdrawal. When announcing the US withdrawal, Trump suggested anyone not playing along with the US would also suffer ramifications. With the EU currently enjoying what is only an interim exemption from US steel and aluminium tariffs, pending a final White House decision, it is not hard to see how those ramifications may manifest.

The oil price did not fall in response to the EU announcement, given it has been known from the start the Europeans were anti-withdrawal.

While Wall Street chewed over trade war possibilities, the Russell small cap index quietly pushed its way to another new all-time high. The bulk of small caps are domestic-facing and thus not impacted by either trade wars or the rising greenback.

The Nasdaq was led down by renewed selling in Big Tech last night, following a disappointing earnings result from Cisco Systems, which is also a Dow component.

The US ten-year yield ticked up to 3.11% to mark its highest level since 2011.

While the rising ten-year yield might be causing some angst, the good news is it is rising faster than the two-year, implying the US yield curve has begun to quietly steepen again. Stock markets can handle higher rates as long as the curve is positive, given that implies a stronger economy.

US banks are thus enjoying themselves at present and resource sectors are providing support, while the bond-proxy sectors of utilities and real estate are becoming a persistent drag.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1292.20 + 2.00 0.16%
Silver (oz) 16.41 + 0.05 0.31%
Copper (lb) 3.11 + 0.03 0.84%
Aluminium (lb) 1.03 – 0.01 – 0.96%
Lead (lb) 1.06 + 0.01 0.79%
Nickel (lb) 6.61 + 0.08 1.27%
Zinc (lb) 1.40 + 0.01 0.92%
West Texas Crude (Jun) 71.59 + 0.05 0.07%
Brent Crude (Jul) 79.50 + 0.20 0.25%
Iron Ore (t) 67.25 – 0.40 – 0.59%

Again not much to report on the commodity price front overnight. Aluminium and nickel swapped 1% moves.

The Aussie is a tad lower at US$0.7510.

Today

The SPI Overnight closed up 14 points or 0.2%.

It’s a quiet Friday in terms of economic data, and corporate activity is muted today as well.

InvoCare ((IVC)) and Appen ((APX)) hold AGMs.

Rudi will connect with Sky News Business this morning, via Skype, at around 11am to discuss share market and broker calls.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Downgrade to Neutral from Buy Citi
AHG AUTOMOTIVE HOLDINGS Downgrade to Neutral from Outperform Macquarie
ALQ ALS LIMITED Downgrade to Sell from Hold Deutsche Bank
AST AUSNET SERVICES Upgrade to Add from Hold Morgans
CWN CROWN RESORTS Downgrade to Hold from Buy Ord Minnett
CYB CYBG Downgrade to Neutral from Outperform Credit Suisse
IVC INVOCARE Upgrade to Buy from Sell Citi
LNK LINK ADMINISTRATION Upgrade to Outperform from Neutral Credit Suisse
MQA MACQUARIE ATLAS ROADS Downgrade to Equal-weight from Overweight Morgan Stanley
SFH SPECIALTY FASHION Upgrade to Buy from Neutral Citi
SYD SYDNEY AIRPORT Downgrade to Equal-weight from Overweight Morgan Stanley


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The content of this information does in no way reflect the opinions of FN Arena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FN Arena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FN Arena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.

 

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