|SPI Overnight (Sep)||6632.00||– 9.00||– 0.14%|
|S&P ASX 200||6648.00||+ 0.70||0.01%|
|S&P500||2978.43||– 0.28||– 0.01%|
|Nasdaq Comp||8087.44||– 15.64||– 0.19%|
|S&P500 VIX||15.27||+ 0.27||1.80%|
|US 10-year yield||1.62||+ 0.07||4.65%|
|USD Index||98.32||– 0.06||– 0.06%|
|FTSE100||7235.81||– 46.53||– 0.64%|
By Greg Peel
You don’t see an ASX200 close much flatter than it did yesterday but it was a different picture among sectors. It was a bit of a mixed bag, with no clear theme apparent in sector rotation.
The banks (+0.5%) and utilities (+0.6%) were the best performers on the day, which suggests a search for yield, although last week the banks were also popular but utilities were being sold.
The banks would have been buoyed yesterday by data showing Australia’s Major Housing Crisis was all just a bad dream. After RBA rate cuts in June and July, mortgage demand rose 5.1% in July, with owner-occupier loans rising 5.3% and investor loans 4.7%.
Here we go again.
The RBA will no doubt be frustrated as it lines up to give a repeat housing bubble another shot of adrenalin when it cuts again next month to save an overall economy from the government.
Yesterday was not a switch into defensives, given consumer staples fell -0.5% and healthcare -0.8%, although I noted yesterday that the rebounding Aussie was not having its usual effect on the big healthcare names – but maybe yesterday it did.
I also suggested yesterday that the big miners had stopped following every day’s movement in the iron ore price so closely, rather riding out the volatility. Yesterday materials did fall -0.7% as the iron ore price fell, but also because of the gold price. Potentially more influential were China’s August trade data.
China’s exports fell -1.0% year on year in August, down from +3.3% in July and missing forecasts of +2.0%. Imports fell -5.6% when -6.0% was forecast. Within those numbers, exports to the US fell -16%, having fallen -6.5% in July. Imports from the US fell -22.4%.
You’d be forgiven for thinking there’s a trade war going on.
Among individual stocks there were no major standouts. Volatile Orocobre ((ORE)) led the index winners with a 5.6% gain, TPG Telecom ((TPG)) rose 5.5% on an upgrade to Neutral from UBS, Adelaide Brighton ((ABC)) clawed back 5.4% after its result season disaster while Western Areas ((WSA)) snuck in at fifth with another 3.9% as the nickel price keeps rising.
Of the top five losers, four were goldminers.
US bond yields popped overnight but US stock markets also went into rotation mode, resulting in little net index movement. Our futures are showing down -9 points this morning.
Today’s NAB business confidence survey will be about the only market highlight.
Weak Chinese trade data were not lost on Wall Street but China is now seen under the “bad news is good news” banner given such numbers only fuel expectations of further stimulus. And Beijing has now said it will buy US agricultural products in exchange for either concessions on the Huawei ban or a delay in the next round of tariffs.
China agreed to buy more US agricultural products months ago and never did, but with talks set to resume next month this is seen as incrementally positive.
More positive was the shock news German exports grew by a seasonally adjusted 0.7% in July when forecasts were for a -0.6% decline. This is the first bright spot after a string of negative German data. Could we be seeing a bottom?
The US ten-year bond yield shot up 7 basis points to 1.62%. As such an overcrowded trade, any little sign of global economic improvement can trigger a scramble. US yields were led by German yields which also traded higher, despite the assumption the ECB will cut this week, further into the negative, and perhaps reinstate QE.
But that assumption has long been priced in.
If this was still mid-August, such a jump in US yields would have sent US stock indices surging. But instead the S&P500 closed flat. This is not because the stock market has abandoned its follow-the-leader attitude to bond yields, but because the move triggered substantial sector rotation that cancelled itself out.
US banks were big winners, not just because of the jump in yields but because a couple of the bigger banks last night updated the market, suggesting margin compression due to low yields will not have as bad an impact as the market is assuming.
Energy was another winner, as oil prices rose on further Saudi commitment to production cuts.
Industrials and chip-makers were in the green, highlighting a shift into knocked down cyclicals and trade-related stocks. To fund this cyclical shift, investors sold defensives – utilities, REITs and consumer staples – which had become another crowded trade as bond yields fell – along with high growth software companies that have had a solid run.
Wall Street is now looking ahead to the ECB meeting on Thursday night and the Fed meeting next week, following the release of US CPI data this week.
Barring any further news on trade or out-of-the-box tweets, Wall Street should see further lower volatility ahead of those events.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1498.60||– 7.90||– 0.52%|
|Silver (oz)||17.99||– 0.23||– 1.26%|
|Copper (lb)||2.62||+ 0.00||0.10%|
|Aluminium (lb)||0.80||+ 0.01||0.70%|
|Lead (lb)||0.94||– 0.00||– 0.30%|
|Nickel (lb)||8.21||+ 0.17||2.17%|
|Zinc (lb)||1.05||– 0.01||– 1.04%|
|West Texas Crude||58.05||+ 1.53||2.71%|
|Brent Crude||62.69||+ 1.15||1.87%|
|Iron Ore (t) futures||91.95||+ 3.85||4.37%|
Nickel again stole the show on the LME.
You can see why traders in our big miners have begun to let iron ore prices bounce around.
Gold’s retreat, as risk-off abates, continues.
Saudi Arabia has a new oil minister, and his first act was to confirm a commitment to OPEC+ production cuts. The new minister is one of the King’s sons – thanks Dad – but apparently has extensive oil market experience.
The Aussie continues to regain lost ground, up another 0.3% to US$0.6864, even as the greenback slumbers.
The SPI Overnight closed down -9 points.
The NAB business confidence survey is out today and China releases inflation data.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|3PL||3P LEARNING||Downgrade to Neutral from Outperform||Macquarie|
|BPT||BEACH ENERGY||Downgrade to Neutral from Buy||Citi|
|MGR||MIRVAC||Upgrade to Buy from Neutral||Citi|
|SXY||SENEX ENERGY||Downgrade to Neutral from Buy/High Risk||Citi|
|TPM||TPG TELECOM||Upgrade to Neutral from Sell||UBS|