|SPI Overnight (Sep)||6195.00||+ 28.00||0.45%|
|S&P ASX 200||6215.50||+ 32.10||0.52%|
|Nasdaq Comp||7586.43||+ 83.75||1.12%|
|S&P500 VIX||14.97||– 1.17||– 7.25%|
|US 10-year yield||2.84||+ 0.00||0.07%|
|USD Index||94.40||– 0.14||– 0.15%|
By Greg Peel
The ASX200 story so far…
Monday down, Tuesday up, Wednesday down, Thursday up – all by the same amount of around 30 points.
Spoiler alert: The market has no idea what it’s doing.
It’s not intended as a criticism, as there are too many uncertainties in the world today – trade, Fed, flattening US yield curve, slowing ex-US global economy – that definitive direction is currently impossible to establish.
What we can say is that the materials sector has been the only consistent mover this week by persistently falling, as base metal prices slide lower and lower on trade war fears. We can also say that the Aussie dollar is very much in the spotlight, as the week’s ups and downs appear closely correlated to moves in the currency.
Outside of that, most sectors have had their own ups and downs all week, often in contrast to the net index move. Yesterday the big winners were the banks (+1.0%), telcos (+1.7%) and utilities (+1.5%), which looks like old-fashioned defensiveness, except that in today’s world nothing is all that defensive anymore.
We can probably call Sydney Airport ((SYD)) defensive, and it topped the ASX200 leader’s board yesterday with a 3.5% gain.
Bellamy’s ((BAL)) is listed on the ASX as a consumer staple, implying defensive, because it sells milk products, and it topped the loser’s board with a -9.6% plunge. Regulatory issues plague any company exporting into China, particularly amidst a trade war. Not too defensive.
Pizza is discretionary of course. Or is it? If funds are tight, are you going to buy your family lamb at $35/kg or a family pack offer of fat and sugar from Domino’s at a giveaway price? Domino’s ((DMP)) fell -9.1% yesterday after both Credit Suisse and Citi downgraded the stock to Sell (or equivalent), pointing mostly to weakness in Japan.
But wait. On Day Five of this circus, the futures are showing up 28 points when the trend suggests they should be showing down. Base metal prices, and the Aussie, have steadied and Wall Street closed strongly. Will we break the pattern?
New US tariffs on China come into effect at midnight tonight in the US and new Chinese tariffs on the US come into effect one minute later.
Hope Springs Eternal
The reason they come into effect precisely one minute later is to indicate it is the US who is the aggressor here – China is just defending its turf. Among the tariffs to come into effect is a 25% tax on foreign-built cars imported into the US, up from a prior 2.5%.
One minute later, a 25% tariff will be applied on US built cars imported into China, on top of an existing 10% tariff, for a net 35%.
A similar play book exists with regard EU imports. European cars imported into the US currently attract a 2.5% tariff and vice versa a 10% tariff. Fair enough then, that Trump should wish to address the imbalance, except he wants to go to 25%.
Has the bravado worked? Talk last night was that an agreement between the US and Europe to actually scrap tariffs altogether on cars, on both sides of the Atlantic, is possibly on the table. European carmaker stocks, which have fallen precipitously in the past few weeks, surged on the news.
It has to be remembered that tariffs on BMWs on the one hand, say, and Chevrolets on the other, is not a simple matter of US versus Europe, or versus China. BMW builds cars in the US, and some of them are exported to China. GM used to build Chevrolets in Europe (Opels), but couldn’t make any money out of it. Chinese exports to the US are not just much maligned Cherries and Great Walls, but include Volvos, which the Chinese bought from the Swedes.
So global tariffs are not a simple equation. Everyone involved gets hit on one side or the other. It is thus no surprise that a complete truce could be in the offing.
Imagine Trump’s hubris.
But this is exactly what Wall Street has been hoping for all along. That Trump’s tactic, no matter how ham-fisted, will ultimately work, to America’s advantage.
Let us not say “The war should be over by Christmas,” as that has not proved the case in the past.
The news provided somewhat of a boost to US stocks last night, but not to the point of any great sigh of relief. Rather, the session on Wall Street, amidst low holiday week volumes, was driven by a combination of defensives (staples, utilities, REITs), high-growth Big Tech, and small caps.
We’ve seen this movie before.
Beaten down big industrials rose, but only slightly.
The Fed minutes were also out, but didn’t scare anyone. The fact China tariffs begin tonight is not an issue either, because they have long been flagged.
As the trade war rolls on, uncertainty will continue to reign. In a bit over another week, US earnings season begins.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1257.30||+ 0.80||0.06%|
|Silver (oz)||16.03||– 0.03||– 0.19%|
|Copper (lb)||2.88||– 0.02||– 0.61%|
|Aluminium (lb)||0.97||+ 0.03||2.76%|
|Lead (lb)||1.08||+ 0.02||1.46%|
|Nickel (lb)||6.41||+ 0.02||0.24%|
|Zinc (lb)||1.25||– 0.00||– 0.20%|
|West Texas Crude (Aug)||72.99||– 1.34||– 1.80%|
|Brent Crude (Sep)||77.60||– 0.63||– 0.81%|
|Iron Ore (t)||62.50||-0.85||-1.30%|
The US dollar dipped a little bit further last night, and for once base metal prices stopped falling.
However an -US85c drop in the iron ore price, while not substantial, does represent a seven-month low.
The WTI crude price fall back last night on the usual round of US weekly inventory lotteries.
The Aussie is up only slightly at US$0.7388.
The SPI Overnight closed up 28 points or 0.5%.
US job numbers tonight.
Rudi will connect with Sky News Business via Skype at around 11am to talk share market and broker calls.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|ALX||ATLAS ARTERIA||Upgrade to Add from Hold||Morgans|
|AOG||AVEO||Downgrade to Neutral from Outperform||Macquarie|
|BPT||BEACH ENERGY||Upgrade to Hold from Lighten||Ord Minnett|
|CGC||COSTA GROUP||Downgrade to Neutral from Buy||UBS|
|DMP||DOMINO’S PIZZA||Downgrade to Sell from Neutral||Citi|
|Downgrade to Underperform from Neutral||Credit Suisse|
|FXL||FLEXIGROUP||Upgrade to Outperform from Neutral||Credit Suisse|
|ILU||ILUKA RESOURCES||Upgrade to Buy from Neutral||Citi|
|MFG||MAGELLAN FINANCIAL GROUP||Downgrade to Underweight from Equal-weight||Morgan Stanley|
|NAN||NANOSONICS||Downgrade to Hold from Add||Morgans|
|SIG||SIGMA HEALTHCARE||Upgrade to Buy from Sell||Citi|
For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.