Overnight: A Glimmer

By Greg Peel

Apologies for the delay in publishing today’s report. NBN. Enough said.

Dullsville

The ASX200 meandered around without direction yesterday before closing mildly higher. The local market appeared to shrug off a rally on Wall Street that was more squaring up ahead of month’s end by buying beaten down sectors and trimming outperforming sectors.

The economic news of the day was June quarter private sector capex and capex intentions.

Capital expenditure contracted for the second quarter in a row, falling -0.5% after having fallen -1.3% in March. Investment in building and structures fell -3.3%, having fallen -1.9% in March, offset by investment in machinery and equipment, which rose 2.5% having fallen -0.5% in march.

But it wasn’t all bad news. Mining investment grew 1.7% — its fastest pace in five years. Have we finally cycled out of the mining investment bust that followed the boom earlier in the decade? Manufacturing (what’s left of it) posted an increase after two quarters of contraction, rising 8.5%.

Capex intentions for FY20, which are not a commitment, were upgraded to 10.7% growth. Non-mining is planning 6% growth and mining 20%. Coal and iron investment continues while gas is expected to soon bottom out.

As for the stock market, a lack of macro movement left the micro of the day’s earnings reports to be the main driver.

On the winners’ list were Link Administration ((LNK)), which rose 9.4% on announced buyback, while Ausdrill ((ASL)) rose 7.7% on good numbers.

Leading the losers was AI company Appen ((APX)), which posted a 60% increase in revenues and an 81% increase in earnings, so of course fell -11.3%. The stock jumped 9% on Wednesday in anticipation of a good result and initially traded higher on the release before the profit-takers moved in, possibly inspired by a slow performance at recently acquired Figure 8.

NextDC ((NXT)) was another to perform poorly, down -6.7%.

Among the biggies on the day, Woolworths offset an increased dividend with a gloomy outlook and rose 0.5%, while Ramsay Health Care ((RHC)) appeared to beat consensus but fell -0.6% on a less-inspiring outlook.

Today is mercifully the last day of earnings season. The macro is back nevertheless, with some dispatches from the front overnight. The futures are up 47.

Real News

Earlier in the week Wall Street was tentatively positive about Trump’s claim that, post-G7, he had received calls from China that suggested they want to make a deal. He later wavered on whether these were actual phone calls, and Beijing said it didn’t know what he was talking about.

One wondered whether this was, dare I say, fake news.

But last night’s news was concrete. The Chinese Department of Commerce said it was not planning to immediately retaliate to Trump’s tariff increase.

To recap, when trade negotiations appeared to have again stalled early in the month, Trump announced the long-threatened tariffs on the final tranche of US$300bn of mostly consumer goods would apply from September 1, at 10%. Under pressure from US retailers, he split off half to be delayed to December 15, by which time everyone would have had to have finished their Christmas shopping.

Then China retaliated by announcing new tariffs of its own, and so Trump retaliated to the retaliation by lifting the September tariffs to 15%.

Last night Beijing said it would not immediately retaliate to the retaliation of the retaliation. “The question that should be discussed now is about removing the new tariffs to prevent escalation,” Bloomberg reported a spokesman as saying. The two sides are discussing meeting once more early in September.

And so Wall Street took off, led by the usual suspects on the trade front, while the outperformers of recent months – consumer staples for example – sat it out.

The morning also saw a revision of the US June quarter GDP result down to 2.0% from an initial estimate of 2.1%, but this beat 1.9% forecasts. Within that number, the consumer spending component of GDP was revised up to 3.1% from 2.9%.

All hail the US consumer.

Last night’s rally takes the S&P500 back within 2% of the level from which it fell when Trump’s final tariffs were first announced. Assuming nothing untoward tonight, Wall Street should mark its first up-week in four.

Commodities

The pullback in the iron ore price continues.

The rebound in oil prices continues, with Hurricane Dorian heading towards Florida.

The trade news has lifted both the greenback and the Aussie, the latter up 0.2% at US$0.6746.

Today

The SPI Overnight closed up 47 points or 0.7%.

Locally today we’ll see numbers for July building approvals and private sector credit.

China will release August PMIs.

The US will see PCE inflation data.

Harvey Norman ((HVN)) is among today’s reporters.

Boral ((BLD)), Challenger ((CGF)) and Wesfarmers ((WES)) are among today’s ex-divs.

The Australian share market over the past thirty days…