Overnight: Rest Day

World Overnight
SPI Overnight (Sep) 6270.00 – 6.00 – 0.10%
S&P ASX 200 6304.70 + 35.80 0.57%
S&P500 2897.52 + 0.78 0.03%
Nasdaq Comp 8030.04 + 12.14 0.15%
DJIA 26064.02 + 14.38 0.06%
S&P500 VIX 12.50 + 0.34 2.80%
US 10-year yield 2.88 + 0.04 1.26%
USD Index 94.71 – 0.04 – 0.04%
FTSE100 7617.22 + 39.73 0.52%
DAX30 12527.42 – 10.89

– 0.09%

By Greg Peel

Think Globally

Now that the political turmoil has subsided and like it or not, we have a new prime minster, stock market attention can return to the current issues of global macro influences and the local earnings season.

The domestic-based relief rally was aided yesterday by the news form Washington that a trade deal had been reached with Mexico, if only an understanding at this stage, and that China had stabilised its currency, possibly hinting at a white flag.

Understandably, materials had a strong session, posting a 1.1% gain. Energy (+0.2%) might have joined in but for both Santos ((STO)) and WorleyParsons ((WOR)) going ex and Caltex ((CTX)) posting a disappointing result, subsequently falling -7.9%.

Leading Wall Street on Monday night were industrials and financials, and sure enough yesterday saw our industrials and financials up 0.8% each.

On the other side of the ledger, the initial enthusiasm regarding a possible merger between TPG Telecom ((TPG)) and Vodafone, ie Hutchison Telecom ((HTA)), continues to fade in the vacuum of no new news. Telstra ((TLS)) fell -1.6% to lead the telco sector down -2.6% and Hutchison fell -14%. Hutchison is not in the ASX200 but satellite services company Speedcast International ((SDA)) is, and it helped the telco sector down by falling -37.4% post result.

Another new world high flyer re-enters the atmosphere.

Positive moves post results yesterday were topped by Blackmores ((BKL)), which jumped 11.5%, and AI specialist Appen ((APX)), which rose 6.2%.

We might call it a case of “just as bloody well” for Appen given the stock had already jumped 30% in a week, rising on the coat tails of strong results and even stronger rallies for the likes of WiseTech and Altium, and the Nasdaq. Anything other than a “beat” may have seen Appen looking more like a Speedcast yesterday.

On that note, milk product company Bellamy’s ((BAL)) rose 8.0% yesterday, and it reports today.

With Wall Street taking a breather last night our futures are down -6 points this morning. Today will be another in which earnings reports provide most of the action, except that there are no particularly big names on today’s calendar.

Note that Telstra goes ex this morning, among others.

Feeling Good Louis

Last night’s monthly survey from the Conference Board showed US consumer confidence has reached its highest level since 2000, clocking in at 133.4 on the index. That’s up from 127.9 last month and exceeding the prior post-GFC high of 130 hit in February.

Great news? Well it surely must be in a consumer-driven economy. But what happened in February? Wall Street saw the first correction in the Trump rally. And what happened in 2000? Don’t ask.

While confidence would be high among the cohort of Americans who thinks Trump walks on water, commentators point to historically low levels of US household debt. This despite a long period of a zero cash rate that must surely have tempted excessive debt accumulation. But if a mortgage is the bulk of most household debt, we note that for some time Americans were able to obtain or refinance a mortgage at 4% or less for thirty years fixed.

Makes you cry. In Australia mortgage rates, for some reason no one ever has explained to me, are set off the overnight cash rate. The only viable reason is “so the banks make lots of money”. Okay, we don’t have a thirty year bond, and no current politician would ever dream of issuing one (deficit), and US house prices completely collapsed in the GFC while ours hiccupped. But it still makes you cry.

Beyond jubilation and fear over the confidence numbers, little else happened on Wall Street last night. It was a hundred degrees outside in New York and trading inside reflected summer lethargy. After a strong run-up the night before, Wall Street stalled.

Small moves up nevertheless meant new new highs for the S&P and Nasdaq.

An interesting piece of trivia for those who like their technicals very technical:

From February to March the Dow fell -10% — technically deemed a “correction”. Last night the Dow surpassed a 10% move back up from that low. This is then, technically, a break out of correction territory, even though 10% back from 10% down doesn’t get you back where you started. At six months, it has taken the Dow the longest time to do this since 1961.

There’s one for your dinner party on the weekend. Knock ‘em dead.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1200.50 – 10.30 – 0.85%
Silver (oz) 14.69 – 0.17 – 1.14%
Copper (lb) 2.76 + 0.03 1.12%
Aluminium (lb) 0.94 + 0.01 0.97%
Lead (lb) 0.94 – 0.00 – 0.09%
Nickel (lb) 6.10 + 0.07 1.15%
Zinc (lb) 1.15 + 0.00 0.39%
Iron Ore (t) futures 67.35 – 0.07 – 0.10%

Given the UK was closed on Monday night, last night the LME had its first chance to respond to the Mexico trade news. Base metals were mostly higher, but didn’t quite shoot the lights out.

The break-out above 1200 for gold has lost momentum.

Despite the US dollar index dipping a tad last night, the Aussie is down -0.2% at US$0.7336.

Today

The SPI Overnight closed down -6 points this morning.

The June quarter GDP first estimate will be revised tonight. Forecasts are for 4.0%, down from 4.1%.

Result reporters today include Bellamy’s, Cabcharge ((CAB)) and Independence Group ((IGO)), among another dozen or so, while Telstra, Downer EDI ((DOW)), Star Entertainment ((SGR)) and Super Retail ((SUL)) are among those stocks going ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AAD ARDENT LEISURE Upgrade to Neutral from Sell UBS
APA APA Downgrade to Hold from Add Morgans
APO APN OUTDOOR Upgrade to Neutral from Sell Citi
APT AFTERPAY TOUCH Upgrade to Add from Hold Morgans
AWC ALUMINA Upgrade to Neutral from Sell UBS
BXB BRAMBLES Downgrade to Neutral from Outperform Credit Suisse
CGC COSTA GROUP Downgrade to Neutral from Outperform Macquarie
    Downgrade to Hold from Accumulate Ord Minnett
CMW CROMWELL PROPERTY Downgrade to Lighten from Hold Ord Minnett
EBO EBOS GROUP Downgrade to Hold from Add Morgans
EPW ERM POWER Upgrade to Outperform from Neutral Macquarie
    Upgrade to Add from Hold Morgans
HPI HOTEL PROPERTY INVESTMENTS Downgrade to Hold from Accumulate Ord Minnett
ING INGHAMS GROUP Downgrade to Underweight from Equal-weight Morgan Stanley
ISD ISENTIA Downgrade to Neutral from Buy UBS
KPG KELLY PARTNERS Upgrade to Add from Hold Morgans
MQG MACQUARIE GROUP Downgrade to Neutral from Buy UBS
MYO MYOB Downgrade to Neutral from Buy Citi
NEC NINE ENTERTAINMENT Upgrade to Buy from Neutral UBS
PTM PLATINUM Upgrade to Neutral from Underperform Credit Suisse
QUB QUBE HOLDINGS Downgrade to Underperform from Neutral Credit Suisse
RWC RELIANCE WORLDWIDE Downgrade to Sell from Hold Deutsche Bank
S32 SOUTH32 Upgrade to Outperform from Neutral Credit Suisse
SGM SIMS METAL MANAGEMENT Upgrade to Neutral from Underperform Credit Suisse
    Upgrade to Buy from Hold Ord Minnett
    Upgrade to Neutral from Sell UBS
SGP STOCKLAND Downgrade to Neutral from Outperform Credit Suisse
SIQ SMARTGROUP Upgrade to Outperform from Neutral Credit Suisse
SKI SPARK INFRASTRUCTURE Downgrade to Neutral from Buy Citi
WEB WEBJET Downgrade to Neutral from Outperform Credit Suisse
    Downgrade to Hold from Add Morgans
    Downgrade to Hold from Buy Ord Minnett

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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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