Overnight: False Dawn

World Overnight
SPI Overnight (Sep) 6336.00 + 12.00 0.19%
S&P ASX 200 6351.80 – 0.40 – 0.01%
S&P500 2901.13 – 12.91 – 0.44%
Nasdaq Comp 8088.36 – 21.32 – 0.26%
DJIA 25986.92 – 137.65 – 0.53%
S&P500 VIX 13.53 + 1.28 10.45%
US 10-year yield 2.86 – 0.02 – 0.83%
USD Index 94.69 + 0.15 0.16%
FTSE100 7516.03 – 47.18 – 0.62%
DAX30 12494.24 – 67.44 – 0.54%

By Greg Peel

Consolidation

Having hit a new decade high on Wednesday, yesterday the computers tried to inspire a momentum trade from the open, pushing the ASX200 up 20 points. The market wasn’t having it though, and two more attempts in the session to rally higher failed, leading to a late sell-off and a square close.

An overriding influence were the surprisingly weak June quarter capex numbers released yesterday. Spending fell -2.5% in the quarter to mark the softest result in almost three years. Expectations for spending in FY19 have been downgraded.

The good news is it appears the long decline in mining capex is almost over, but on yesterday’s numbers, non-mining capex appears to be MIA.

At the sector level, once again there were many moving, and ultimately offsetting, parts.

The big news on Wednesday was Westpac’s ((WBC)) decision to reprice its mortgage book in light of rising offshore funding costs. This sparked a rally across the bank sector on the assumption all would follow suit.

But analysts aren’t so sure, with UBS suggesting Westpac’s move is “courageous” (apologies to Sir Humphrey) and others questioning whether peers will take the same risk in light of increased regulatory scrutiny. Westpac’s quarterly update earlier in the week indicated the bank was in the most vulnerable position of the four, and hence the others may choose to hold off until the RC dust settles.

Westpac shares thus fell back yesterday and the financials sector dropped -0.4%.

I have suggested over the week that the telcos have been dropping back in the vacuum of no new news since the initial suggestion was made TPG Telecom ((TPM)) and Hutchison Telecom ((HTA)) might merge, sending all telco stocks to the moon. Well yesterday it was announced the two had indeed agreed to merge, and it went back to the launch pad.

Hutchison (Vodafone) jumped 44% and TPG 18% while Telstra rose 2.9% because it is looking at only two competitors in mobile now, not three. The telco sector gained 3.6% on the day.

Over in earnings result land, Sandfire Resources ((SFR)) surprised and jumped 8.6% while Ramsay Healthcare ((RHC)) disappointed and fell -6.3%, having already been down -18% year to date. Ramsay could once be relied upon to guide to double-digit earnings growth. Yesterday the private hospital owner offered up to 2% for FY19.

Call a doctor.

In other news, the ACCC has approved Transurban’s ((TCL)) bid for the WestConnex, which is a relief for those fearing a knock-back on monopoly grounds would mean the toll road builder would never work in this town again. Transurban shares rose a muted 1.3%.

Wall Street has pulled back overnight on news tariffs on the next tranche of Chinese imports into the US will begin next week. Metals prices are weaker but the Aussie is down -0.6%, possibly why our futures are up 12 points this morning.

Reminder

It was months ago President Trump announced he would, in September, impose tariffs on a further US$200bn of goods imported from China if no trade resolution had been reached by then. Basking in the glow of a new NAFTA looking likely, Wall Street appears to have forgotten.

There was a glimmer of hope when earlier this month trade delegations from both countries sat down in Washington and again when Beijing moved to stabilise the renminbi, but what must have struck traders last night is that there was never any news forthcoming from those trade talks. Clearly, nothing was achieved.

It is unlikely at this stage that will change before next week.

This latest, and largest, tranche of tariffs will clearly impact on China but given it includes a lengthy laundry list of consumer goods, so will the US consumer feel the pinch. One of those items is baseball gloves – that’s really hitting where it hurts.

So, here we go again – the Dow was the worst performer among the major indices last night as the usual suspects were sold once more, while the Nasdaq managed a smaller loss, because the triple-A companies – Apple, Amazon and Alphabet – held the fort. Last night Warren Buffet informed he had bought more Apple recently, taking Berkshire Hathaway’s stake in the trillion dollar company to 5% — by far the biggest single position.

Buffet has always admitted he’s not inclined to invest in technology companies because he doesn’t understand them (he turned 80 last night), but he can see how everyone around him, himself not included, relies so heavily on their iPhones.

It was Wall Street’s first down-day since last Friday but talk around the traps is that we’ve been here before so many times, and every time Wall Street ends up heading higher. So it’s a buying opportunity, and a -0.5% drop for the Dow is pretty muted under the circumstances.

If a resolution with China seems as remote now as it has ever been, one wonders how long this blind faith can last.

In other news, the US July personal consumption & expenditure (PCE) measure of inflation, preferred by the Fed, rose to an annual rate of 2.3% from 2.2% in June, its highest level since April 2012.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1199.60 – 6.70 – 0.56%
Silver (oz) 14.52 – 0.21 – 1.43%
Copper (lb) 2.75 – 0.00 – 0.17%
Aluminium (lb) 0.95 – 0.01 – 1.04%
Lead (lb) 0.94 – 0.00 – 0.14%
Nickel (lb) 6.02 – 0.08 – 1.37%
Zinc (lb) 1.11 – 0.02 – 2.07%
Iron Ore (t) futures 67.21 – 0.07 – 0.10%

Metals prices went the same way as Wall Street last night, falling back again after a brief recovery on the NAFTA speculation. But like Wall Street, falls were not substantial.

WTI crude, on the other hand, retook the US$70/bbl mark.

The US dollar index typically rises on escalating trade fears but it was only up 0.2%. The Aussie usually goes the other way, and it fell a full -0.6%.

The weak capex numbers have served to reduce GDP forecasts.

Today

The SPI Overnight closed up 12 points. Ambitious?

Locally, private sector credit numbers are out today.

China will release its August PMIs.

It is the last day of the local earnings result season today. Highlights for today include results from Harvey Norman ((HVN)) and NextDC ((NXT)) among a handful of others. NextDC will be interesting given it has run up hard these past two sessions.

Challenger ((CGF)), Fortescue Metals ((FMG)), Mineral Resources ((MIN)) and OZ Minerals ((OZL)) are on the list of stocks going ex today.

Keep an eye out on the Chinese stock market.

Rudi will be ready to connect with Sky News Business around 11.15am, via Skype, to talk share market and reporting season, and broker calls.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BGA BEGA CHEESE Downgrade to Reduce from Hold Morgans
BKL BLACKMORES Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Reduce from Hold Morgans
Downgrade to Hold from Accumulate Ord Minnett
BXB BRAMBLES Downgrade to Neutral from Outperform Credit Suisse
CAB CABCHARGE AUSTRALIA Upgrade to Neutral from Sell UBS
CTX CALTEX AUSTRALIA Downgrade to Neutral from Outperform Credit Suisse
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
NWS NEWS CORP Upgrade to Neutral from Sell UBS
ORE OROCOBRE Downgrade to Neutral from Outperform Macquarie
RCR RCR TOMLINSON Downgrade to Neutral from Buy Citi
Downgrade to Lighten from Buy Ord Minnett
RRL REGIS RESOURCES Upgrade to Hold from Sell Deutsche Bank
Upgrade to Hold from Lighten Ord Minnett
Upgrade to Neutral from Sell UBS
RWC RELIANCE WORLDWIDE Downgrade to Sell from Hold Deutsche Bank
SDA SPEEDCAST INTERN Downgrade to Hold from Add Morgans
SIG SIGMA HEALTHCARE Downgrade to Neutral from Buy Citi
SKI SPARK INFRASTRUCTURE Upgrade to Equal-weight from Underweight Morgan Stanley
Downgrade to Neutral from Buy Citi
STO SANTOS Downgrade to Neutral from Outperform Credit Suisse
WTC WISETECH GLOBAL Downgrade to Underperform from Neutral Macquarie

 

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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