Overnight: Not Convincing

World Overnight
SPI Overnight (Jun) 6251.00 + 25.00 0.40%
S&P ASX 200 6239.90 – 57.70 – 0.92%
S&P500 2834.41 + 22.54 0.80%
Nasdaq Comp 7734.49 + 87.47 1.14%
DJIA 25532.05 + 207.06 0.82%
S&P500 VIX 18.06 – 2.49 – 12.12%
US 10-year yield 2.42 + 0.01 0.58%
USD Index 97.53 + 0.16 0.16%
FTSE100 7241.60 + 77.92 1.09%
DAX30 11991.62 + 114.97 0.97%

By Greg Peel

Holding Support

With Wall Street down -2.4% overnight the scene was set yesterday morning for a local market whitewash and indeed the ASX200 dropped to be down over -90 points in the first 45 minutes, almost to 6200. But there lies solid technical support.

Thereafter the index spent all day slowly recovering a lot of that loss, and even fended off last minute selling to close on a high for the day of down -57, or less than -1%. Not a bad effort.

The financials sector was the worst performer on the day, falling -1.8%. Part of that was National Bank ((NAB)) going ex but weakness lingered across the Big Four in the wake of Commonwealth Bank’s ((CBA)) update on Monday. IOOF ((IFL)) also came in for a -6% hit as brokers pointed out they simply do not believe the fund manager’s own RC-related remediation forecasts.

Consumer staples (+0.2%) offered a small island of safety on a day when international issues were the prime driver, but across all other sectors bar one, falls were relatively uniform and of the market-wide variety.

The exception was materials, which rallied 0.2% seemingly at odds with the day’s theme. The gold miners were always going to offer some resistance on the flight to safety move up for the gold price and indeed three of the top five ASX200 winners on the day were gold miners. But the star of the day was Fortescue Metals ((FMG)).

Fortescue picked a good day to pull a 60c special dividend out of its hat and that was worth an index topping 7.4% rally.

On the downside, it was déjà vu all over again as Mayne Pharma ((MYX)) issued another profit warning, which for the drug maker is becoming somewhat “generic”. It fell -15%. Reliance Worldwide ((RWC)) continued to leak after its own profit warning on Monday and dropped -6.9%. IOOF took the bronze.

Yesterday morning the futures suggested a -54 point drop and got it pretty right, other than the fact we were down -90 early on. With Wall Street enjoying somewhat of a bounce last night, our futures are up 25 points this morning.

Dead Cat?

Wall Street’s bounce last night after Monday night’s trashing came with as no surprise to most. Monday night saw widespread selling across sectors, suggesting investors took the opportunity to take money off the table and reduce risk at this time. The worst hit sectors and stocks were of course those most exposed to China.

That latter group was considered “oversold” on Monday night. And indeed it was that group that led the rally back last night, with a little help from the president.

US trade delegates will be off to Beijing, again, and Trump last night suggested it should be clear in “three or four weeks” if the trip was successful. “I have a feeling it’s going to be very successful,” he said, without the slightest hint of irony. Not like we haven’t heard that before.

Trump was also railing at the Fed again, tweeting “China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!”

The case for the Fed to cut rates, trade war notwithstanding, did strengthen slightly last night when the US April PPI came out at a mere 0.2% increase when 0.7% was forecast.

But three elements of last night’s bounce signal to commentators that it was more of an automatic response than a clear reversal of sentiment.

Firstly, China-facing stocks were considered very oversold, so a bounce there was not a shock. Secondly, Wall Street fell on heavy volume on Monday night and bounced on very light volume last night. Thirdly, The Dow was up 360 points earlier in the session and faded to close up 207 – a trend matched by the other indices.

Conclusion? No fat lady.

It’s become yet another waiting game. One thing can be considered a given, and that is volatility will continue to run rife at the touch of a few presidential keys. Wall Street is beholden to “headline risk”.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1296.30 – 3.30 – 0.25%
Silver (oz) 14.76 + 0.01 0.07%
Copper (lb) 2.75 + 0.01 0.46%
Aluminium (lb) 0.80 + 0.00 0.59%
Lead (lb) 0.81 + 0.00 0.25%
Nickel (lb) 5.32 + 0.00 0.01%
Zinc (lb) 1.23 + 0.01 0.55%
West Texas Crude 61.34 + 0.50 0.82%
Brent Crude 70.86 + 0.95 1.36%
Iron Ore (t) futures 93.45 – 0.95 – 1.01%

The table above is almost a mirror image of yesterday’s table, other than that iron ore slipped again having fallen on Monday night.

Otherwise, base metals and the oils all rebounded having all fallen the night before, albeit by lesser percentages, while gold slipped back a tad after having been the star in the commodity sell-off.

The greenback ticked up 0.16% but the Aussie went nowhere, steady at US$0.6942 as the swinging sixties appear here to stay for the time being.

Today

The SPI Overnight closed up 25 points or 0.4%.

China will release April industrial production, retail sales and fixed asset investment data today. We’re now far enough away from the New Year holiday impact for the numbers to be more meaningful, if indeed Chinese numbers ever are.

The US will match with industrial production and retail sales numbers tonight, albeit for March.

Westpac will publish its consumer confidence survey today. How are we all feeling going into Saturday, with promises reigning from the heavens?

The first element of March quarter GDP – the wage price index – is due today. Someone will be hoping for a good number, and praying that tomorrow’s jobs data do not show an increase in unemployment.

DuluxGroup ((DLX)) reports earnings today. Goodman Group ((GMG)) provides a quarterly update.

Coca-Cola Amatil ((CCL)), GPT Group ((GPT)) and Sigma Healthcare ((SIG)) hold AGMs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC ADELAIDE BRIGHTON Upgrade to Hold from Sell Deutsche Bank
Downgrade to Sell from Neutral Citi
Downgrade to Neutral from Outperform Credit Suisse
AGL AGL ENERGY Downgrade to Sell from Neutral Citi
ANN ANSELL Downgrade to Hold from Buy Deutsche Bank
CBA COMMBANK Downgrade to Hold from Add Morgans
COH COCHLEAR Downgrade to Neutral from Buy Citi
EVN EVOLUTION MINING Upgrade to Add from Hold Morgans
Upgrade to Accumulate from Hold Ord Minnett
FXL FLEXIGROUP Upgrade to Outperform from Neutral Macquarie
GNC GRAINCORP Upgrade to Hold from Reduce Morgans
IDX INTEGRAL DIAGNOSTICS Upgrade to Buy from Accumulate Ord Minnett
ORI ORICA Upgrade to Neutral from Sell Citi
Downgrade to Neutral from Outperform Credit Suisse
OSH OIL SEARCH Downgrade to Hold from Buy Deutsche Bank
QAN QANTAS AIRWAYS Downgrade to Neutral from Outperform Macquarie
QBE QBE INSURANCE Downgrade to Sell from Hold Deutsche Bank
RWC RELIANCE WORLDWIDE Downgrade to Hold from Add Morgans
SGM SIMS METAL MANAGEMENT Downgrade to Equal-weight from Overweight Morgan Stanley
SXY SENEX ENERGY Downgrade to Neutral from Outperform Credit Suisse
SYD SYDNEY AIRPORT Downgrade to Sell from Neutral UBS
TPM TPG TELECOM Upgrade to Accumulate from Hold Ord Minnett
URW UNIBAIL-RODAMCO-WESTFIELD Downgrade to Sell from Neutral 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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