Overnight: Ten Cents’ Worth

World Overnight
SPI Overnight (Sep) 6241.00 – 53.00 – 0.84%
S&P ASX 200 6329.00 + 29.40 0.47%
S&P500 2818.37 – 21.59 – 0.76%
Nasdaq Comp 7774.12 – 96.78 – 1.23%
DJIA 25162.41 – 137.51 – 0.54%
S&P500 VIX 14.64 + 1.33 9.99%
US 10-year yield 2.85 – 0.04 – 1.49%
USD Index 96.70 + 0.02 0.02%
FTSE100 7497.87 – 113.77 – 1.49%
DAX30 12163.01 – 195.86 – 1.58%

By Greg Peel

False Dawn

Well, yesterday it looked like we’d finally done it. The ASX200 dropped around -20 points on the open but that was due to dividends, with Commonwealth Bank ((CBA)) going ex worth a full -14 points. By 11am we were back at 6300, we wavered, and then at 2pm we kicked. The close of 6329 is a new post-GFC high.

What a shame. The futures are down -53 points this morning.

I have been saying recently that given the macro headwinds facing global markets – the last being the Turkish crisis – it would take a strong local earnings season to see the ASX200 punch through 6300 resistance. And with a little help from an easing of Turkish fears on Wall Street, that’s exactly what happened.

All hail CSL.

Blood products company CSL ((CSL)) was up 44% year to date before yesterday’s earnings result. Too rich for some. But yesterday saw the stock rally another 6.4%, taking the healthcare sector up a solid 4.6% to be the catalyst required to finally secure the break-out.

Wesfarmers ((WES)) chimed in with a 3.2% gain post-result, sending staples up 1.7%.

Financials had to cop both CBA and Suncorp ((SUN)) going ex-div along with a -5.8% plunge from Insurance Australia Group ((IAG)) but still managed only a -0.2% loss.

Seek ((SEK)) helped industrials up 0.8% in rising 3.1% post-result.

Materials (-0.9%) had to cope with commodity price falls, but also a -21% shellacking for packaging company Pact Group ((PGH)), which posted a big miss on rising input costs.

In IT (+2.3%), Computershare ((CPU)) led the way with a 3.5% gain post-result while Afterpay Touch ((APT)) surged 8.5% for no apparent reason other than today is “Afterpay Day”, akin to Amazon’s Prime Day.

In isolation, it was a cracker of a day for the earnings season, and things are only just beginning to hot up. Alas, markets movements overnight have poured cold water all over us.

All a Game?

On Tuesday China released weal monthly economic data. Commodity prices slipped as a result but stock markets here and in the US didn’t blink.

On Tuesday night the Turkish lira bounced and Wall Street posted a relief rally. Last night the lira was up again on news Qatar has come in as the white knight, offering US$15bn in investment.

But despite widespread calls that Turkey is an isolated issue, emerging market currencies from Indonesia to India and Argentina have begun to slide. Turkey has set off contagion, if only in sentiment, while there’s no denying persistent US dollar strength. China’s currency, too, is being marked further down, but of course trade is the big issue there.

Then last night brought the bombshell. Chinese internet giant Tencent posted an earnings miss for the first time in over a decade. Omigod, this is a disaster. One by one Chinese tech stocks began to tumble – your Alibabas, Baidus and so forth which are also listed in the US – and the Shanghai index had yet another bad day.

Suddenly drawing upon Tuesday’s weak Chinese data, and this shock from Tencent, the Chicken Littles ran around shouting “China is slowing! China is slowing!”

The Dow dropped -330 points early in the session. The Nasdaq fared worse. Commodity prices have tanked. See below.

A big part of Tencent’s business is gaming. The Chinese government is now clamping down on gaming for social reasons, fearing the promotion of violence and increased gambling. And fair enough too. It was weak gaming revenue that drove Tencent’s miss.

So last night the world went into a tailspin because Beijing does not like computer games.

By the afternoon, Wall Street had begun to figure this out. Hence the Dow only closed down -137. The biggest losers in average were the old guard of Boeing and Caterpillar, which are strongly linked to Chinese economic growth, and Chevron, on the oil price fall.

There is no denying China’s economy is slowing. There is no denying the strong greenback is putting a lot of pressure on emerging market economies. But in summer-thin northern hemisphere trading, this looks like one almighty overreaction.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1174.70 – 19.00 – 1.59%
Silver (oz) 14.41 – 0.62 – 4.13%
Copper (lb) 2.63 – 0.10 – 3.57%
Aluminium (lb) 0.91 – 0.00 – 0.08%
Lead (lb) 0.87 – 0.06 – 6.20%
Nickel (lb) 5.81 – 0.20 – 3.34%
Zinc (lb) 1.05 – 0.06 – 5.73%
Iron Ore (t) futures 67.72 – 1.68 – 2.42%

The table below speaks only of carnage. The US dollar index was steady last night, so that was not the issue. I’d hazard a guess that the acceleration in metals price falls probably set off stop-loss orders, and perhaps the need for commodity funds to bail.

The gold price move is telling in that respect.

The Aussie made its big move down on Tuesday night. Last night it rebounded 0.6% to US$0.7240 despite the commodity crunch.

Certainly there was nothing to impact the Aussie in yesterday’s June quarter wage price index number. It showed 2.1% year on year growth. In March it was 2.1%. In December it was 2.1%.

Today

The SPI Overnight closed down -53 points or -0.8% which, if accurate, suggests prior resistance at 6300 will not be there to offer any support as one would otherwise expect.

Australia’s July jobs numbers are out today.

Who can save us?

Maybe Telstra ((TLS)), Origin Energy ((ORG)), OZ Minerals ((OZL)), Downer EDI ((DOW)), QBE Insurance ((QBE))… just a handful of the companies reporting today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AZJ AURIZON HOLDINGS Downgrade to Neutral from Outperform Credit Suisse
    Downgrade to Neutral from Buy UBS
BPT BEACH ENERGY Downgrade to Underperform from Neutral Macquarie
CGF CHALLENGER Downgrade to Neutral from Outperform Credit Suisse
DMP DOMINO’S PIZZA Downgrade to Lighten from Hold Ord Minnett
GPT GPT Downgrade to Neutral from Buy Citi
    Downgrade to Neutral from Outperform Credit Suisse
    Downgrade to Neutral from Outperform Macquarie
    Downgrade to Hold from Accumulate Ord Minnett
IGO INDEPENDENCE GROUP Upgrade to Neutral from Underperform Macquarie
JHX JAMES HARDIE Upgrade to Hold from Lighten Ord Minnett
MMS MCMILLAN SHAKESPEARE Upgrade to Buy from Neutral Citi
NHC NEW HOPE CORP Downgrade to Hold from Add Morgans
ONT 1300 SMILES Downgrade to Hold from Add Morgans
REA REA GROUP Upgrade to Neutral from Underperform Macquarie
    Upgrade to Add from Hold Morgans
SGF SG FLEET Upgrade to Buy from Neutral Citi
SUN SUNCORP Downgrade to Neutral from Buy Citi
WTC WISETECH GLOBAL Downgrade to Neutral from Buy Citi
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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