Overnight: Buy It Anyway

By Greg Peel

Ho Ho Ho

The ASX200 had rallied only tentatively on Friday on news of a phase one trade deal being agreed upon, despite significant rallies in Asian centres on the day. At that stage Trump had not actually signed off and the details were not confirmed.

But Trump signed and the details were known by yesterday morning so despite Wall Street closing flat as a tack on Friday night, Australia was off to the races. Seems any hint of arresting the slowdown in our biggest trading partner is enough to bring investors flooding back in.

To utilities.

This sector – the most defensive in the index – put daylight second with a 3.4% rally. All sectors closed in the green, most by around the 1.5% mark, but utilities stood out. Go figure. Healthcare gained 2.5%, on another green light to pile into CSL ((CSL)), and consumer discretionary scored 2.1% because suddenly it’s going to be a great Christmas, apparently.

But consumer staples rose only 0.3%, looking like the wood duck on the day. Woolworths ((WOW)) held its AGM yesterday but rose 0.6% so no drag there, while Coles ((COL)) gained 0.9%.

So it was a funny mix. Friday’s trade was clearly “risk on” as defensive positions were trimmed and cyclicals accumulated. Yesterday was a Buy Everything session, but a tad distorted.

At the individual stock level, Virgin Money UK ((VUK)) surged for a second session post UK election, up another 8.8%, while it was a buy-day for volatile Nearmap ((NEA)), up 8.7%.

Perenti Global ((PRN)), the artist formerly known as Ausdrill, announced a profit warning after a Ghanaian manganese company terminated a contract with the company. It fell -18.9%. Employee management specialist Smartgroup Corp ((SIQ)) also downgraded guidance, due to a change of insurance underwriter, and fell -15.2%.

Outside the index, Sigma Healthcare ((SIG)) fell -9.9% after Australian Pharmaceutical Industries ((API)) sold down its stake, having decided a merger wasn’t worth it.

But clearly it was the trade deal that drove the enthusiasm yesterday, despite suggestions phase one is rather toothless. Volumes were solid, and we can assume momo and FOMO are back (the momentum trade from computers and fear of missing out from humans).

Just how hard has the Chinese economy been hit by the trade war? Yesterday Beijing announced industrial production in November rose 6.2% year on year, up from 4.7% in October and beating estimates of 5.0%. Retail sales rose 8.0% when 7.6% was expected.

The only dullard was fixed asset investment, which remained steady at 5.2% year to date, as forecast.

So let’s see how the post trade deal numbers look next year.

Meanwhile, Wall Street also picked up last night after a tentative Friday night session, and this morning our futures are up another 28 points.

The ASX200 closed at 6849 yesterday. The all-time closing high in early December was 6862 and the intraday high was 6893. We’ve probably got about three and a half sessions to hit a new high before volumes drop off. At this rate it should be a doddle.

We’ll Take It

It appeared on Friday night that Wall Street was either “selling the fact”, given a phase one deal had already been priced in, or disappointed with phase one, as it doesn’t really achieve that much. And it still has to be signed, suggesting there’s still a risk it won’t be.

“Totally done,” said US trade representative Lighthizer last night, when asked. And Beijing has said it will “put off” a planned tariff hike on US autos and other goods because of the deal.

So Wall Street decided last night it can be confident, and so rallied accordingly. It’s not the “fly me to the moon” stuff long ago anticipated if a trade deal was agreed upon, but then this is only phase one. Given how long it’s taken to get this far, we might assume phases two and three will take an eternity.

All three major indices hit new all-time highs last night. The Dow only managed to scrape over the line, underperforming due to a drag from Boeing – the most influential stock in the average.

Boeing has still been building new 737 Maxes at the rate of 42 a month in anticipation of a return to service early in the new year. But the FAA has other ideas, and it now looks like February at the earliest. The company must now decide if it should suspend production altogether, because there’s only so much room in the Seattle parking lot. Boeing shares fell -4.3%.

On the flipside, US chipmakers are the bellwether for US-China trade and they all took off last night, leading the Nasdaq to outperform.

In economic news, a flash estimate of US manufacturing PMI showed a slight dip to 52.5 from 52.6 but hey, that’s pre-deal.

Drawing more attention was the December index of housing market sentiment, which jumped to 76 from 71 in November, when 70 was forecast. That’s the highest reading since 1999.

Commodities

The response in commodity markets continues to be relatively muted.

The Aussie is still tracking the greenback, down -0.1% at US$0.6888.

Today

The SPI Overnight closed up 28 points or 0.4%. All aboard!

The minutes of the December RBA meeting are out today but it will not be until February the RBA meets again. Yesterday’s MYEFO update from the Treasurer included a trimming of expectations for GDP and wage growth, tax receipts and the surplus. Several spending initiatives were announced.

2020 will be the year the government must step in to support the central bank.

Housing finance numbers are out today.

ANZ Bank ((ANZ)) and Orica ((ORI)) hold AGMs while Metcash ((MTS)) goes ex.

The Australian share market over the past thirty days…