Overnight: Trade Hopes Fade

By Greg Peel

Mission Accomplished

The intraday high for the ASX200 in 2007? 6873. The intraday high yesterday? 6875. For the past two weeks or so it has appeared traders were simply hell bent on pushing the index to the all-time high, if just for the sake of it.

To hit the mark, the index had to rally 50 points without any catalysts. It took only half an hour. Less than an hour later, the index was only up 22 points. Mission accomplished, withdraw the troops.

The momentum trade is over.

The futures are down -28 points this morning, or -0.4%. Wall Street was down -0.26%. The iron ore price is up, the gold price is up and the oil price is up.

The IT sector posted the highest percentage loss yesterday in falling -1.6%. Up and down with the Nasdaq. Industrials were flat, leaving consumer discretionary (-0.6%) the only other sector to finish meaningfully in the red. Crown Resorts ((CWN)) is a heavyweight in that sector. Under attack from all sides, it fell -1.9%.

Elsewhere, telcos and utilities were the best performers with gains of around 1%, while materials and healthcare provided support with 0.5% increases. Banks, staples and energy were all a little quieter.

Not a lot stood out on the individual stock front, other than Credit Corp ((CCP)). The company’s guidance provided with its result release on Monday  sent the stock down -6% on the day but yesterday analysts screamed “conservative!” and ratings upgrades followed, hence Credit Corp was up 4.1% yesterday to top the leaders’ board.

In economic news, building approvals fell -1.2% in June to mark the third fall in four months. Approvals for houses rose 0.4% so in the residential sector it was all about apartments (-6.5%). Apartment approvals are now down -39% year on year.

After falling a surprising -6.8% in May, non-residential approvals bounced back 9.6%, which likely reflects election fears going in and election relief coming out. As ANZ’s economists note, there has not yet been time for APRA regulation easing and two RBA rate cuts to make their mark on the approval numbers.

The question now for the stock market is how much profit-taking will we see from here until the left-behind buyers consider the right opportunity has emerged? The Fed decision tonight will be critical on a global basis.

The Long Game

“China is doing very badly, worst year in 27 — was supposed to start buying our agricultural product now — no signs that they are doing so. That is the problem with China, they just don’t come through.”

No prizes.

There were no expectations a trade deal would be reached in Beijing this week but most on Wall Street continue to assume a deal will be reached in time. But will it be “in time” for Trump to head into his re-election campaign triumphant as the Great Trade War Victor?

The current stand-off appears unmoveable. China will buy US agriculture and accede to demands on intellectual property and ownership demands only if the tariffs in place and the ban on Huawei are immediately lifted. While Huawei might be negotiable, the US will not move on its insistence tariffs will remain in place and only gradually wound back when there is clear evidence China is actually sticking to the deal.

It never has before.

So Trump now has to change tack. He warned last night that if he is re-elected without a deal the terms of a new deal will be much tougher. “We’re either going to make a great deal or we’re not going to make a deal at all,” he reiterated.

On those comments, the Dow fell -150 points. But amidst earnings results and Fed anticipation, the major US indices clawed back most of their early losses.

When trade tensions escalated in June, US consumer confidence took a hit. All has been forgiven in July, with the Conference Board’s monthly confidence index surging to 135.7 from 124.3. On a 100-neutral measure, that is very confident.

Quick! We need a rate cut!

The personal consumption & expenditure (PCE) measure for June nevertheless came in at a 0.1% gain to mark an unchanged 1.4% year on year rate of inflation, well below the Fed’s 2% target.

On the earnings front, consumer staples stalwart Proctor & Gamble (Dow) surprised with its result and jumped 3.8%, which is near unheard of for this dull old plodder. In sportswear land, Under Armour posted a miss and plunged -12%.

As did Beyond Meat, recently listed producer of laboratory-created vegan delights. But never mind, the stock did rally 800% beforehand, despite being yet to show a profit.

Consensus suggests the Fed will tonight announce a -25 basis point cut. That news alone will not move the market. What will move the market is what Powell says at the press conference. Is it “one and done”? Will it be one cut then back to data-dependent? Or will there be a clear hint another cut will follow in September?

Note there is no Fed meeting in August.

Commodities

The usual story for oil prices last night – the first of the two weekly (and often contradicting) weekly US inventory forecasts suggests a drawdown.

Volatility continues in iron ore.

Gold is ticking up ahead of the Fed despite the US dollar remaining poised.

And despite the greenback being steady, the Aussie is down another -0.5% to US$0.6874, blamed on Trump’s trade tweets. Okay, I think you can get out the tie-dye.

Today

The SPI Overnight closed down -28 points or -0.4%.

It’s inflation day in Australia today, with the release of the June quarter CPI numbers. Monthly private sector credit data are also due.

China will release July PMIs.

The first estimate of eurozone June quarter GDP is out tonight.

The US will see private sector jobs numbers.

There’s something else, but I’ve forgotten.

Locally, earnings numbers are expected from Genworth Mortgage Insurance ((GMA)), Janus Henderson ((JHG)) and UR-Westfield ((URW)).

Production reports are due from Independence Group ((IGO)) and Origin Energy ((ORG)).

ALS ((ALQ)) holds its AGM.

The Australian share market over the past thirty days…