Overnight: Eyes On Osaka

By Greg Peel

Excitement Builds I

The ASX200 opened -34 points lower in the first half hour yesterday, spun around, and rallied 59 points. Anyone would think a trade deal had just been signed.

The opening fall was representative of most high-yield “bond proxy” stocks all going ex-dividend on the same day so we can dismiss that as not being fundamentally-driven, despite the futures suggesting a mildly weak opening.

Had the index rallied back to square by day’s end we could have called that a strong session. To then kick on a further 25 points seems like a risky trade ahead of a rather important meeting.

Why the excitement?

The suggestion is the market is looking ahead to a “trade truce”. Presumably a “trade truce” simply implies Trump will not put the trigger on the last tranche of tariffs, as there is no way all US-China tit-for-tat tariffs are going to pulled on Monday. Commentary suggests talk coming out of the White House is positive.

Talk coming out of the White House has been positive for two years.

So far we have Xi agreeing to meet Trump, which was in doubt for some time, and we have the White House confirming talks are now continuing after the recent hiatus – the same talks that have been going on since early 2018. We have Mnuchin suggesting that there can’t too much further to go, because that’s where they were back in April.

We actually have nothing new. What we do actually have is not positive at all. See below.

If there is a “trade truce”, one would have to assume it is now priced in, although the computers probably won’t see it that way.

I’d suggest yesterday’s trade on the ASX had more to do with trying to beat the traffic ahead of a long weekend. Today is the end of the month, quarter and financial year. If everyone is going to dress up their portfolio returns on the last day, best to get in a day early. There was also a stock option expiry, whether or not that had anything to do with it.

Oil prices rose on Wednesday night and the energy sector gained 1.1%. Fair enough. The iron ore price didn’t do much but materials rallied 1.5%, led by the big iron ore miners. Fortescue Metals ((FMG)) made the top five leaders’ board. If we discount a -1.5% fall for utilities as ex-dividends and ditto a -0.6% fall for industrials given therein lay the big toll road and airport operators that also went ex, the only weak sector was healthcare, down -0.2%.

Everything else went up.

At the individual stock level, Pact Group ((PGH)) jumped 11.4% after successfully refinancing. Pact Group has been a serial underperformer of late, as have Mayne Pharma ((MYX)) and Ardent Leisure ((ALG)), which funnily enough rose 9.4% and 7.0% respectively for reasons unclear.

On the downside, Cromwell Property ((CMW)) raised new capital and fell -7.6%, Fletcher Building ((FBU)) fell -5.1% in the wake of its investor day and the rest of the top five were ex-divs.

Wall Street was a little higher last night but whether we’ll see a repeat performance of yesterday in today’s local trade is doubtful. Unless there are more windows left to dress.

Excitement Builds II

It’s not the end of the financial year in the US but it is the end of the month, quarter and half, so I could just say “see above”.

We can dismiss the Dow as being out of step with a rally for the S&P and a solid move up for the Nasdaq given -70 Dow points are attributable to Boeing alone. So we could otherwise say the Dow rallied 60 points.

Boeing is facing new software issues, and has confirmed that the 737 Max upgrade won’t be ready until September, when previously July was the call.

The South China Morning Post yesterday reported that ahead of the G20, a tentative trade truce had already been achieved. Interesting. The WSJ reported that Xi will present Trump with a set of terms which would resolve the trade war. Sounds promising.

The war will end if Trump drops the Huawei ban, drops the tarrifs and stops asking China to buy more US goods.

Simples.

Back on Planet Earth, the US March quarter GDP result was left unchanged at 3.1% after another revision. The steady down-trend in US weekly jobless claims that took numbers to multi-decade lows has now turned and is starting back the other way.

Little more to say now other than keep an eye on the weekend news.

Commodities

Metal markets appear to be jostling for position.

Not much going on elsewhere.

The Aussie, nonetheless, has jumped another 0.3%, to US$0.7006, despite the US dollar again being steady. Is it foreigners buying up our stock market?

Today

The SPI Overnight closed down -9 points.

Locally we’ll see private sector credit numbers today.

PCE inflation will be out in the US.

There’s a meeting on on Saturday.

The Australian share market over the past thirty days…