| World Overnight | |||
| SPI Overnight (Jun) | 6245.00 | + 6.00 | 0.10% |
| S&P ASX 200 | 6256.40 | – 21.00 | – 0.33% |
| S&P500 | 2900.45 | – 6.61 | – 0.23% |
| Nasdaq Comp | 7996.08 | – 4.15 | – 0.05% |
| DJIA | 26449.54 | – 3.12 | – 0.01% |
| S&P500 VIX | 12.60 | + 0.42 | 3.45% |
| US 10-year yield | 2.59 | 0.00 | 0.00% |
| USD Index | 97.01 | – 0.05 | – 0.05% |
| FTSE100 | 7471.32 | + 1.40 | 0.02% |
| DAX30 | 12153.07 | + 51.75 | 0.43% |
By Greg Peel
Ironed Out
A Brazilian court has given approval for Vale to reopen its Brucutu iron ore mine, which had been closed since the dam burst disaster earlier in the year. The reopening means around 30mt of ore will now return to the market.
It has always been inevitable that Vale would get to the point of reopening mines, thus ending the run of inflated iron ore prices, but it appears the Brucutu approval has come more swiftly than the market anticipated. Iron ore miners were sold down heavily in the local market yesterday.
It did not help that BHP Group’s ((BHP)) production report and guidance, coincidentally released yesterday, disappointed, despite reduced production guidance reflecting the impact of Cyclone Veronica just as Rio Tinto ((RIO)) had delivered earlier this week.
Suffice to say BHP fell -2.7% yesterday and Rio -4.7%, while iron ore pure-play Fortescue Metals ((FMG)), which had been the greatest beneficiary to date of higher iron ore prices, fell -8.3% to top the ASX200 losers’ board on the day.
The materials sector closed down -1.9%.
Brucutu and Veronica between them countermanded any positive response the sector may have enjoyed from better than expected Chinese data, released late morning. The ASX200 did bounce on the release but not enough to prevent a weak close.
China’s GDP grew 6.4% in the quarter when 6.3% was forecast. Industrial production rose 8.5% year on year in March to its fastest pace since July 2014, up from 5.3% in January-February and well ahead of 5.9% forecasts.
It seems stimulus is working, at least for the export sector. Retail sales also improved, but by less of a margin, rising 8.7%, up from 8.2% and beating 8.4% forecasts. Fixed asset investment grew 6.3% in the year to March, up from 6.1% and in line with expectation.
We saw an old familiar rotation yesterday — that of out of miners and into banks. The majors again had another good session (+0.9%), providing the main offset to weakness in all other sectors bar telcos. Positive(ish) US bank results appear to be providing some impetus.
Telcos jumped 1.6% on Telstra’s ((TLS)) 2.1% gain after UBS declared the market to be undervaluing 5G potential and a more rational mobile market, whether or not the NBN is written down.
The fall for the materials sector could have been worse if not for DuluxGroup ((DLX)) jumping 27% after the company accepted a takeover offer from Nippon Paints.
Outside the index, Joe Hockey’s travel agent Helloworld ((HLO)), which had lost a third of its value since reporting in February, provided a nine-month trading update which saw that stock jump 11%.
Elsewhere, US bank strength may be flowing into Australian banks but it is unclear whether a bout of weakness this week in the US healthcare sector is impacting downunder. CSL ((CSL)) fell -1.9% yesterday and healthcare -1.8%. The US sell-off is all about insurers, not plasma, but any excuse will do.
We now head into a punctuated holiday period for the local market, with only four trading sessions to come before the following weekend. Today will effectively be a half-day on the market even though the ASX long ago ceased actually closing the bourse early on this Thursday.
Ill Health
Wall Street initially rallied last night on the Chinese data but sentiment quickly waned and a choppy session followed, resulting in yet another flat close. The S&P500 dipped back to sit right on 2900 support.
With all three major indices now within one decent session of prior all-time highs, it seems Wall Street at this stage needs something more concrete to get it over the line, while still not being prepared to sell. Trade is one obvious catalyst but it looks like May will bring news on that front, so right now it’s all about earnings.
Closer scrutiny of IBM’s (Dow) result, released after-market on Tuesday, led investors to sell the stock down -4.2% last night. Netflix traded up, down and all around, but stuck with a -1.3% drop.
Morgan Stanley was the last of the big banks to report, and the numbers were good enough for a 2.6% gain.
Qualcomm, which jumped 23% on Tuesday night after settling a royalty dispute with Apple, gained a further 12%. Having been the laggards in 2018, the chip stocks are back with a vengeance in 2019.
But countering positive sector moves was healthcare, which fell -2.9%. It seems Democratic presidential aspirants are trying to outdo each other on who can pledge the most money to fund “Medicare For All”, as it’s being dubbed, by taxing the wealthy. The election is still over nineteen months away, God help us, yet Wall Street is getting nervous. The Democrats do after all hold the House.
Next week is the busiest on the US earnings calendar, with a big chunk of the S&P500 set to report. The early trend is positive but new highs, which currently are proving a bridge too far, will likely depend on next week’s tally.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1273.60 | – 2.90 | – 0.23% |
| Silver (oz) | 14.96 | – 0.02 | – 0.13% |
| Copper (lb) | 2.95 | + 0.02 | 0.73% |
| Aluminium (lb) | 0.83 | – 0.00 | – 0.07% |
| Lead (lb) | 0.88 | – 0.00 | – 0.43% |
| Nickel (lb) | 5.84 | – 0.03 | – 0.50% |
| Zinc (lb) | 1.33 | + 0.00 | 0.21% |
| West Texas Crude | 63.75 | – 0.58 | – 0.90% |
| Brent Crude | 71.64 | – 0.25 | – 0.35% |
| Iron Ore (t) futures | 92.50 | – 1.80 | – 1.91% |
The iron ore price fell close to -2%, which in the scheme of things is nothing significant in the face of the Vale mine reopening.
Base metal prices were unexcited by the Chinese data, except maybe copper to some extent.
The oils are doing a lot of to-ing and fro-ing without going anywhere much.
The US dollar is steady and so is the Aussie, at US$0.7178, but not before another rollercoaster ride. On Tuesday the Aussie dropped on the RBA minutes, only to be bought back up again offshore. Yesterday it shot up on the Chinese data, only to be sold back down offshore.
Today
The SPI Overnight closed up 6 points.
The local jobs numbers are out today. ScoMo has his fingers crossed.
US retail sales numbers are out tonight.
It’s a big day on the ASX for production reports. Fortescue Metals ((FMG)) was also Veronica-impacted so after yesterday, today’s production guidance will be critical.
Reports are also due from South32 ((S32)), Woodside Petroleum ((WPL)), Galaxy Resources ((GXY)), Sandfire Resources ((SFR)) and St Barbara ((SBM)).
Note Wall Street is closed tomorrow night but open on Monday night.
Coverage of all sessions will be provided by this Report on Tuesday morning.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| AHG | AUTOMOTIVE HOLDINGS | Upgrade to Outperform from Neutral | Macquarie |
| DXS | DEXUS PROPERTY | Upgrade to Hold from Lighten | Ord Minnett |
| GEM | G8 EDUCATION | Downgrade to Sell from Hold | Deutsche Bank |
| MGR | MIRVAC | Downgrade to Hold from Buy | Deutsche Bank |
| PDL | PENDAL GROUP | Downgrade to Sell from Neutral | UBS |
| PPT | PERPETUAL | Downgrade to Underperform from Neutral | Macquarie |
| PTM | PLATINUM | Upgrade to Neutral from Underperform | Macquarie |
| RRL | REGIS RESOURCES | Upgrade to Outperform from Neutral | Macquarie |
| SCG | SCENTRE GROUP | Downgrade to Sell from Hold | Deutsche Bank |
| TCL | TRANSURBAN GROUP | Downgrade to Underperform from Neutral | Credit Suisse |
| TLS | TELSTRA CORP | Upgrade to Buy from Neutral | UBS |
| WHC | WHITEHAVEN COAL | Upgrade to Outperform from Neutral | Macquarie |
