Overnight: Trade Doubt
|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%|
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.
|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.
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.
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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