|SPI Overnight (Jun)||6050.00||+ 4.00||0.07%|
|S&P ASX 200||6050.20||+ 35.00||0.58%|
|S&P500||2635.67||– 19.13||– 0.72%|
|Nasdaq Comp||7100.90||– 29.81||– 0.42%|
|DJIA||23924.98||– 174.07||– 0.72%|
|S&P500 VIX||15.97||+ 0.48||3.10%|
|US 10-year yield||2.96||– 0.01||– 0.40%|
|USD Index||92.73||+ 0.26||0.28%|
By Greg Peel
Yesterday morning the futures suggested the ASX200 should rise 7 points, but ultimately it closed up 35, despite Wall Street closing lower. We could argue that a strong result from Apple after the bell led to anticipation Wall Street would be strong tonight, but that has proven not to be the case.
We might therefore assume some give-back today for the ASX200, but the futures this morning have closed up 4 with the Dow down -174. We can only conclude that the local market is truly marching to the beat of its own drum.
Since bottoming at 5750 on April 4, having fallen in concert with Wall Street on global trade war concerns, the ASX200 has now rallied back 5%. The S&P500 has risen 0.8% in that time.
The banks have had a lot to do with it. They have led the market up this week having fallen a long way on nothing to do with Wall Street or global trade. The rally in April began with commodity price gains driving the resource sector, and while prices have now stabilised they have not fallen, meaning the resource sectors have not been contributing more recently but they’re hanging in there.
Otherwise, while every day has not brought uniform buying across sectors, every day has brought strength amongst various sectors to drive the market higher. We are currently in a period in which companies across the spectrum are providing their quarterly updates, and while there’s been the odd train crash, the net effect has been a stronger, micro-driven market, disconnected from Wall Street.
Yesterday’s case in point was Qantas ((QAN)) which took off after its quarterly update to top the ASX200 leaders’ board on the day with an 8% gain. Industrials rose 1.5%.
ARB Corp ((ARB)) chimed in with a 6% gain while speculation in the media sub-sector had Nine Entertainment ((NEC)) and Fairfax Media ((FXJ)) among the leaders, sending consumer discretionary up 1.1%, despite JB Hi-Fi ((JBH)) losing -9% following a weak update.
Healthcare and consumer staples have been seeing ups and downs through this 5% rally, but yesterday both rose 0.6%, while telcos had a rest.
At some point every sector has had a strong session, and the index is back at 6050. We were last at 6050 in early February, just before that strong wage growth number sent Wall Street into a spiral of inflation fear.
I had argued at the time that given Wall Street rallied 20% in 2017 and further into January to what many described as overblown valuations, and the ASX200 managed only 7% in 2017 and no one suggested the market multiple was steep, that there was no reason Australia should tank in unison with the US. But we did.
Global trade wars are a more legitimate concern for the Australian market to have, but the watering down of Trump tariffs and seeming level-headedness from China has tempered those fears.
Are we simply seeing the Australian market adjust back to a more realistic level?
Apple reported earnings after the close of Wall Street yesterday morning (our time) and its shares popped 3.5%. I suggested then that Wall Street should be supported in last night’s session, ceteris paribus. Well, ceteris was far from paribus.
The Dow and S&P ultimately closed down -0.7% and the Nasdaq -0.4%. Apple is America’s biggest company, and is represented in all three indices. It closed up over 4% on the session.
Which just serves to emphasise how weak the rest of the market was by the close.
Despite Apple’s immediate gain, Wall Street traded sideways all morning through to the release of the Fed statement at 2pm. Following the release the Dow jumped up over 80 points.
The Fed left its rate unchanged as expected, and suggested inflation will shortly reach the 2% target. But Jerome Powell also suggested the FOMC was happy to let inflation run a little over 2% for a while without fear of it running away.
In other words, the statement was dovish. Hence the pop in US stocks, and hence a drop in the US dollar. But that all lasted about a 15 minutes before the sellers moved in once more. The rest of the session saw a straightforward downward slide. The greenback bounced right back.
Not everyone is as sanguine about inflation as the Fed. The odds currently have a June rate rise as a given, a two-thirds chance of a third hike for 2018 and a one-third chance of a fourth. The fear is inflation is already picking up pace just as much celebrated synchronised global growth is showing signs of slowing.
The first estimate of eurozone March quarter GDP, released last night, showed a slowdown to 0.4% quarterly growth from 0.7% in the December quarter. The annual rate dropped to 2.5% from 2.8%.
The other entrenched fear remains that of peak earnings. After last night the Dow remains -10% below its January high. Earnings growth is running at net 25% for March quarter reports. Yet any stock that beats expectations is met with a flat response, and any stock that misses is trashed.
Peak earnings, slowing growth, rising inflation: Wall Street cannot shake of these fears for the time being.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1304.60||+ 1.00||0.08%|
|Silver (oz)||16.35||+ 0.21||1.30%|
|Copper (lb)||3.08||+ 0.03||1.04%|
|Aluminium (lb)||1.04||+ 0.03||2.76%|
|Lead (lb)||1.04||– 0.00||– 0.16%|
|Nickel (lb)||6.32||+ 0.12||1.99%|
|Zinc (lb)||1.39||– 0.00||– 0.04%|
|West Texas Crude (Jun)||67.68||+ 0.18||0.27%|
|Brent Crude (Jul)||73.05||– 0.24||– 0.33%|
|Iron Ore (t)||66.80||+ 1.45||2.22%|
The latest news on the steel/aluminium tariff front is that the EU, Canada and Mexico have been granted an exemption extension, Australia assumes it will enjoy an extension but hasn’t yet been told, but it looks like Brazil’s temporary exemption will come to an end.
Aluminium subsequently jumped again last night, as did iron ore.
Base metal prices were initially supported by the drop in the greenback post-Fed, before the LME closing bell rang. The greenback has since rebounded.
The Aussie is steady at US$0.7493.
The SPI Overnight closed up 4 points, with the S&P down -0.7%.
Australia will see building approvals numbers and the trade balance today.
Japan is closed.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|GNC||GRAINCORP||Downgrade to Neutral from Outperform||Credit Suisse|
|SFR||SANDFIRE||Downgrade to Hold from Buy||Deutsche Bank|
|Downgrade to Reduce from Hold||Morgans|
|XRO||XERO||Upgrade to Neutral from Sell||UBS|