Overnight: Trade Hope?

World Overnight
SPI Overnight (Sep) 6237.00 + 19.00 0.31%
S&P ASX 200 6280.20 + 1.80 0.03%
S&P500 2816.29 13.69 0.49%
Nasdaq Comp 7671.79 + 41.78 0.55%
DJIA 25415.19 + 108.36 0.43%
S&P500 VIX 12.83 – 1.43 – 10.03%
US 10-year yield 2.96 – 0.01 – 0.37%
USD Index 94.53 + 0.17 0.18%
FTSE100 7748.76 + 47.91 0.62%
DAX30 12805.50 + 7.30 0.06%

By Greg Peel

Nasdaq-ed

A very flat session for the ASX200 yesterday belied quite a bit going on under the surface among the sectors.

Most notable was a -2.1% for IT, which we can say has been Nasdaq-ed these past couple of sessions as local investors draw a correlation with the FANGs and our own stable of high-flying (small) tech stocks. WiseTech Global ((WTC)) and Altium ((ALU)) in particular saw falls of -7.9% and -4.5% to take silver and bronze on the ASX200 top five losers’ board.

Healthcare (-0.6%) was down again as profits continue to be taken in CSL ((CSL)) and it was a not a good session for consumer discretionary (-0.9%).

Where is this money going? Well, Telstra ((TLS)) is one for the bottom fishers. It rose again yesterday to double up on Monday’s bounce on the news of a management shake-up. Telcos rose 1.0%.

The WTI oil price jumped 2% overnight to help energy to a 1.1% gain. WTI was down -2.5% last night.

But we have to take all of it with a bit of a grain of salt as it was the last day of the month, which implies book-squaring was afoot. In this case – take profits on the winners (growth) and pick up some losers (value), as has been the trend on Wall Street over the past few sessions.

At the individual stock level, a solid earnings result for Credit Corp ((CCP)) had that stock atop the winners’ board with an 8.5% gain while taking the gold on the losers’ board was Regis Resources ((RRL)), down -10.8% after the release of its quarterly report.

Data releases yesterday showed a surprise bounce in residential building approvals in June, mostly driven by Queensland, following a drop in May. Economists nevertheless continue to believe the peak has now been passed.

Non-residential approvals fell again, which is at odds with surveys suggesting companies are planning to lift investment over the next year.

Business credit growth grew 0.3% in June and housing credit grew 0.3%, down from 0.4% in May and easing to the slowest annual rate since 2014. Loans to investors fell -0.1% — the first monthly drop since February 2009. (The Fed introduced QE in March.)

Signs of the times.

In other signs of the times, China’s manufacturing PMI fell to a weaker than expected 51.2 in July from 51.5 in June. The services PMI fell to 54.0 from 55.0.

A Glimmer

Wall Street opened on the release of personal income & spending data that showed the PCE measure of inflation rose only 0.1% in June, both at the headline and at the core. A sigh of relief there.

Early in last night’s session news hit that trade negotiations between Washington and Beijing were set to begin once more. The Dow and S&P immediately shot up from the bell and traded higher to lunchtime.

But as the afternoon wore on, doubts crept in. For one, Treasury Secretary Tim Mnuchin had earlier pointed out that trade negotiations had never actually ended and remain ongoing, it’s just that no progress has been made. Economic advisor Larry Kudlow had earlier suggested that negotiations between officials had indeed shown signs of progress, but the progress was being blocked by the Chinese president.

So as Wall Street pondered whether this news had any weight, the indices lost ground. The Dow had been up 184 points at its peak before closing up 108.

Supporting the market was a bounce back for tech. After two days of rapid exit, investors went back in to find some value in the most beaten down within the sector. The FANGs didn’t bounce much but at least they stabilised.

This meant the Nasdaq was up 0.6% to the Dow’s 0.4%, which was led mostly by trade war-linked industrials. Also notable was a 1.1% bounce for the Russell small cap index after a round of profit-taking.

But ditto, we have to take some of the moves with a grain of salt given it was the last trading day of the month.

There were nevertheless two pieces of after-the-bell news.

Firstly, Apple reported earnings and its shares are up 3.6% in aftermarket trade.

Secondly, Mexico’s new president suggested a deal will likely be reached on NAFTA – at least bilaterally between the US and Mexico – this week at a scheduled meeting.

Perhaps a more robust glimmer of hope on the trade front.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1223.40 + 2.40 0.20%
Silver (oz) 15.49 + 0.03 0.19%
Copper (lb) 2.81 + 0.00 0.01%
Aluminium (lb) 0.93 – 0.01 – 0.55%
Lead (lb) 0.97 – 0.01 – 0.60%
Nickel (lb) 6.28 + 0.03 0.52%
Zinc (lb) 1.21 + 0.03 2.45%
West Texas Crude (Sep) 68.43 – 1.65 – 2.35%
Brent Crude (Sep) 74.25 – 0.58 – 0.78%
Iron Ore (t) 67.55 + 0.60 0.90%

This might provide a boost for base metal prices tonight but last night the LME seemed not to be enthused by the US-China talk. Zinc rose on speculation surrounding a large holding of warrants.

The weekly US crude inventory lottery was held last night. The winner: greater stockpiles than expected. Hence having risen 2% on Monday night, WTI fell -2.5% last night.

Despite a slightly stronger greenback, the Aussie is up 0.3% at US$0.7426, likely on trade hopes.

Today

The SPI Overnight closed up 19 points or 0.3% to kick off the new month.

Manufacturing PMIs from across the globe are due today/night.

The Fed will release a policy statement. No rate hike expected.

Rio Tinto ((RIO)) reports earnings today, along with BWP Trust ((BWP)), Genworth Mortgage Insurance ((GMA)) and Janus Henderson ((JHG)).

ALS ltd ((ALQ)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AMC AMCOR Upgrade to Overweight from Equal-weight Morgan Stanley
AMP AMP Upgrade to Accumulate from Hold Ord Minnett
BRG BREVILLE GROUP Downgrade to Neutral from Outperform Credit Suisse
FMG FORTESCUE Downgrade to Neutral from Buy Citi
HUB HUB24 Downgrade to Neutral from Outperform Credit Suisse
NCM NEWCREST MINING Upgrade to Buy from Hold Deutsche Bank
NWL NETWEALTH GROUP Downgrade to Underperform from Neutral Credit Suisse
ORA ORORA Downgrade to Hold from Accumulate Ord Minnett
SUN SUNCORP Downgrade to Hold from Accumulate Ord Minnett
WOW WOOLWORTHS Downgrade to Hold from Accumulate Ord Minnett
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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