|SPI Overnight (Sep)||6634.00||+ 17.00||0.26%|
|S&P ASX 200||6614.10||– 33.90||– 0.51%|
|Nasdaq Comp||8084.16||– 3.28||– 0.04%|
|S&P500 VIX||15.20||– 0.07||– 0.46%|
|US 10-year yield||1.70||+ 0.08||4.93%|
|USD Index||98.37||+ 0.05||0.05%|
By Greg Peel
Loss of Confidence
The ASX200 opened lower yesterday and just kept falling, albeit at a slowing pace as the day wore on. Triggering the sombre mood was the release of NAB’s business conditions & confidence survey for August.
NAB’s index of businesses conditions – the “now” – plunged to 0.5 in August from 2.6 in July and 3.7 in June, to its lowest level in five years. In the breakdown, profitability fell to its lowest level in six years following very soft (+0.3%) growth in non-mining profits in the June quarter.
Retail conditions improved, but it remains the weakest sector at -16.3. Ditto manufacturing, but it’s stuck at -6.5. All other sectors recorded declines in conditions during the month, and only mining and finance sit above their long term averages, as noted by ANZ Bank economists.
We recall that August was a wild month in stock markets, with the trade war escalating at the time, the UK looking like crashing out of the EU, Hong Kong looking like it might be invaded by the PLA at any moment, and tensions rising in the Gulf. As to whether we see any improvement in September remains to be seen. But it was this month when the weak June quarter GDP result was released.
The surprise election result, tax cuts and rate cuts seem now but distant memories and, perhaps, lost causes. NAB’s confidence index – looking ahead – fell to 1.4 in August from 3.8 in July.
Only two sectors closed in the green yesterday – energy, up 2.4% on the overnight oil price move and financials, up 0.3% on rising bond yields. Otherwise, there were some big moves down.
IT (-3.1%) provided the worst performance, following down the Nasdaq, but not representing a lot of index points. Unlike healthcare (-2.6%), but we note that’s net of CSL ((CSL)) going ex-dividend.
After a muddled day of sector switching on Monday, yesterday was more a case of “just sell”. This is in contrast to the emerging mood on Wall Street for the week, where “risk on” is back in town.
What has changed since August?
Well, the protest-triggering extradition bill has been withdrawn in Hong Kong, it appears the UK won’t be allowed to crash out of the EU, and suddenly things look a lot more promising on the trade front, if anything at all can be believed. It is for these reasons the S&P500 has this month been able to break up out of the steady, albeit day-to-day very volatile, August trading range.
There had also been a growing belief US defensive sectors had become overbought, cyclical sectors had become oversold, and bonds had become well-overbought. That little break-up for the S&P has since triggered a reversal. The rotation trade that began in earnest on Monday night turned into a rush last night.
The US ten-year yield jumped another 8 basis points to 1.70%. The gold price fell another -US$13/oz. The VIX volatility index, which ran above 20 in August, is back at 15.
The US REITs sector fell -1.4% and staples fell -0.6%, albeit utilities hung in there. Industrials and materials both jumped 1.0% and energy 1.3%, and financials rose 0.4% after a strong run on Monday night. These sectors were the worst performers in August, and indeed for most of the year.
Outside of a pure defensives-to-cyclicals switch there was more selling in IT (-0.5%), reflecting a rush to get out of high-flying software growth stories, which had outperformed, and into hardware (eg chip makers), which had underperformed.
And the June quarter had brought a solid rebound rally for US retail stocks – at least for those embracing the twenty-first century – so consumer discretionary fell -0.4%.
All the above netted out to a flat close for the S&P and Nasdaq, while the Dow benefited from being an “industrial” average.
“The risk is that we get half-way through this rotation, stall out and are left with no momentum anywhere,” one market strategist told Dow Jones last night. I think this sums things up.
Despite this sudden burst of risk-on, which smacks of FOMO anyway, we are still just one tweet away from disaster.
Or glory. That’s the conundrum.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1485.60||– 13.00||– 0.87%|
|Silver (oz)||18.00||+ 0.01||0.06%|
|Copper (lb)||2.61||– 0.00||– 0.17%|
|Aluminium (lb)||0.80||– 0.00||– 0.04%|
|Lead (lb)||0.95||+ 0.01||1.32%|
|Nickel (lb)||8.19||– 0.02||– 0.22%|
|Zinc (lb)||1.06||+ 0.01||0.67%|
|West Texas Crude||57.87||– 0.18||– 0.31%|
|Brent Crude||62.77||+ 0.08||0.13%|
|Iron Ore (t) futures||93.20||+ 1.25||1.36%|
Nothing to see here really, other than to note another fall for the gold price.
We might note, nevertheless, that solid gains of 1.0%-plus in the US materials and energy sectors last night were value-driven, not commodity price-driven.
The Aussie is steady at US$0.6861.
The SPI Overnight closed up 17 points or 0.3%. A bit too sullen yesterday?
Businesses in Australia are feeling down in the dumps. How about consumers? We find out from Westpac today.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|BPT||BEACH ENERGY||Downgrade to Neutral from Buy||Citi|
|MGR||MIRVAC||Upgrade to Buy from Neutral||Citi|
|RHC||RAMSAY HEALTH CARE||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|
|VCX||VICINITY CENTRES||Downgrade to Underperform from Neutral||Macquarie|