|SPI Overnight (Sep)||6571.00||– 17.00||– 0.26%|
|S&P ASX 200||6650.80||– 36.60||– 0.55%|
|S&P500||2950.46||– 3.72||– 0.13%|
|Nasdaq Comp||8031.71||– 19.63||– 0.24%|
|DJIA||26719.13||– 34.04||– 0.13%|
|S&P500 VIX||15.40||+ 0.65||4.41%|
|US 10-year yield||2.07||+ 0.07||3.35%|
|USD Index||96.22||– 0.42||– 0.43%|
|FTSE100||7407.50||– 16.94||– 0.23%|
|DAX30||12339.92||– 15.47||– 0.13%|
By Greg Peel
There was a certain inevitability that investors would choose a Friday to take some profits after a solid week which saw the ASX200 reach fresh highs, and after the S&P500 hit an all-time high on Thursday night. The air has become somewhat rarefied.
Helping to trigger the selling was a downbeat update from healthcare leader CSL ((CSL)), in which the company warned of a one-off hit as it transforms to an owner-distributor model in China and guided to lower albumin sales in FY20. CSL fell -3.2% and the sector fell -2.4% to be the biggest drag on the index.
Selling fed on itself as the day progressed and by the close all sectors closed lower bar two.
An overnight spike in the oil price, after Iran shot down a US drone, led energy stocks up 1.8%. Resources stocks had not much participated in the run-up for the index for the week – up 133 points before Friday – largely because they had already had a solid run previously and investors were looking for opportunities elsewhere.
The higher the iron ore price rises, and it did again in a big leap on Thursday, the smaller the subsequent moves up in the big miners, probably because there is now an air of “how long can this go on for?” The gold price has also had a strong move up but buying in gold stocks was also more muted on Friday as the Aussie tempered gains for AUD gold.
Materials closed up 0.4%.
Outside of resources, sector losses were relatively uniform. In individual stock moves, the top five gainers were mostly stocks that have been beaten down for one reason or other of late, suggesting bargain hunting, but the top five losers painted a similar picture, suggesting tax-loss selling.
Outside of the index, the big mover on the day was furniture retailer Adairs ((ADH)). The company tightened its sales guidance range to $340-345m from a prior $340-355m. Nothing major? The stock fell -31.3%. Blimey. The higher they fly the further they fall. Adairs noted a drop off in sales from the beginning of June.
As we head into the last week of the month, the quarter and the year, we may see some argy-bargy between profit-takers, tax loss sellers and window dressers as portfolios are tweaked. Interestingly, the critical G20 meeting begins on Friday night, just after we rule the books off downunder.
We also have an OPEC meeting this week, and who knows what might happen in the Middle East?
The futures are down -17 points this morning after Wall Street, too, saw profit-taking on Friday night.
To the Moon in June
Wall Street did not seem at all fazed to learn on Friday night the US came within a whisker of launching a retaliatory military attack on Iran before the president called it off, deciding 150 dead Iranians for one unmanned drone was a tad “disproportionate”. The Dow rallied 150 points to its high of the day.
If the US indices can hang on to the rally booked to date this month it will be the best June for the Dow since 1938, the best for the later established S&P500 since 1955, and the best for the Nasdaq since 2000.
Assuming nothing untoward during the course of the week, Wall Street is unlikely to do much ahead of Friday’s G20 meeting.
One wonders what the response might have been had the attack on Iran gone ahead. Apparently Washington has elected to go with a cyber attack instead. Why they’re telling us this is unclear.
It looked like the S&P was heading for another new all-time high when selling appeared in the afternoon. All indices retreated to post small losses for the day, but profit-taking was most evident in US bonds, with the ten-year yield bouncing back 7 basis points to 2.07%.
It was also a quadruple witching expiry of equity derivatives on Friday night which leads to heavy volumes and possible distortion of fundamental trade. There was no doubt traders were thrilled to see flash estimates of US manufacturing and services PMIs for June.
The Manufacturing PMI dropped to 50.1 from 50.5 in May to mark its lowest level since 2009, and the services PMI dropped to 50.7 from 50.9 to its worst since 2016.
In the wake of last week’s Fed meeting, we learned on Friday night that the St Louis Fed president voted for a rate cut at the time but the Minneapolis president advocated for a full -50 point cut.
Now that Wall Street has peaked and pulled back slightly, we are probably set for a quieter week ahead of the critical G20. There are some important economic data releases this week nonetheless, and the OPEC meeting.
Wall Street is not expecting the G20 to bring a resolution in the trade war, but is expecting the outcome to be a restart of discussions between the US and China which stalled after the Huawei ban.
At least, that’s what’s priced in.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1399.00||+ 11.10||0.80%|
|Silver (oz)||15.32||– 0.07||– 0.45%|
|Copper (lb)||2.70||– 0.00||– 0.16%|
|Aluminium (lb)||0.79||– 0.00||– 0.54%|
|Lead (lb)||0.86||+ 0.00||0.50%|
|Nickel (lb)||5.47||– 0.02||– 0.45%|
|Zinc (lb)||1.15||– 0.02||– 1.47%|
|West Texas Crude||56.88||– 0.03||– 0.05%|
|Brent Crude||65.34||+ 0.81||1.26%|
|Iron Ore (t) futures||116.40||– 1.15||– 0.98%|
After a solid jump on Thursday night, base metal prices eased off a bit on Friday night, as did iron ore.
Not so gold, which responded not only to geopolitical issues but another -0.4% drop in the US dollar index as the US manufacturing sector heads for contraction and rate cut talk intensifies.
Brent crude, which these days is seen as the “global” benchmark rather than WTI, is more impacted by potential issues with Iran.
The Aussie is up 0.1% at US$0.6930.
The SPI Overnight closed down -17 points or -0.3% on Saturday morning.
The Week Ahead
The US will see numbers for house prices, new home sales and consumer confidence on Tuesday, durable goods on Wednesday and pending home sales on Thursday, along with the second revision of the March quarter GDP. Friday brings PCE inflation.
The G20 meeting begins on Friday in Osaka.
The OPEC production meeting is on Wednesday night in Vienna.
The RBNZ meets on Wednesday.
China posts industrial profits on Thursday and its June PMIs on Friday.
The RBA governor speaks again today, but I doubt has more to add. Private sector credit numbers are due on Friday.
Note that Thursday is the day just about every REIT, infra fund and other bond proxy-type stock goes ex dividend all at once, ahead of financial year end on Friday.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|BXB||BRAMBLES||Downgrade to Neutral from Outperform||Credit Suisse|
|CCL||COCA-COLA AMATIL||Downgrade to Underperform from Neutral||Credit Suisse|
|CTX||CALTEX AUSTRALIA||Downgrade to Neutral from Buy||UBS|
|NAN||NANOSONICS||Downgrade to Hold from Add||Morgans|
|SYD||SYDNEY AIRPORT||Upgrade to Neutral from Underperform||Macquarie|
|VEA||VIVA ENERGY GROUP||Downgrade to Hold from Add||Morgans|
|WPL||WOODSIDE PETROLEUM||Upgrade to Buy from Hold||Deutsche Bank|
|WTC||WISETECH GLOBAL||Downgrade to Lighten from Hold||Ord Minnett|