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Overnight: It's Off

World Overnight
SPI Overnight (Jun) 6016.00 – 27.00 – 0.45%
S&P ASX 200 6037.10 + 4.60 0.08%
S&P500 2727.76 – 5.53 – 0.20%
Nasdaq Comp 7424.43 – 1.53 – 0.02%
DJIA 24811.76 – 75.05 – 0.30%
S&P500 VIX 12.53 – 0.05 – 0.40%
US 10-year yield 2.98 – 0.02 – 0.73%
USD Index 93.77 – 0.20 – 0.21%
FTSE100 7716.74 – 71.70 – 0.92%
DAX30 12855.09 – 121.75 – 0.94%

By Greg Peel

Conspicuous Consumption

It was another choppy session on the local market yesterday in a relatively small range, resulting in a flattish close. With no definitive macro drivers to inform sentiment at present, it was again up to individual stock and sector stories to steer the session.

The standouts on the day were two sectors that usually aren’t. Consumer discretionary rose 1.4% and consumer staples 1.1%.

Pokie and digital games manufacturer Aristocrat Leisure ((ALL)) was the big mover in discretionary following a strong earnings result and led the ASX200 with an 8.0% gain. Aristocrat is the biggest stock by market cap in that sector by a margin.

Ord Minnett (JP Morgan) yesterday did an about-face on its rating for consumer staple Metcash ((MTS)), flipping the grocer to an Accumulate rating from a prior Lighten (bypassing Hold). The broker acknowledged easing food deflation as that other trade war seems to be in a ceasefire. Metcash is heavily shorted, and yesterday rose 7.7% to take second place on the ASX200 leaders’ board.

It seems the bargain hunters have decided enough milk has been spilt in the big infant formula sell-off. Former market darling a2 Milk ((A2M)) had dropped -24% following its disappointing update, but yesterday bounced back 5.7% to take the bronze.

Bear in mind a2 rose around 300% in twelve months.

Elsewhere, sector moves were less remarkable, although these days it’s remarkable when telcos (+0.3%) don’t fall. Commodity prices were behind falls for energy (-0.6%) and materials (-0.4%), while the Royal Commission simply has to open its doors and financials will fall -0.4%.

IT stocks traded blows, with a cloudy TechnologyOne ((TNE)) falling another -5.9% post-result to top the ASX200 losers’ board, and those exiting funds finding their way into the tech stock du jour, the cloudy WiseTech Global ((WTC)), which rose 4.0% to square off the sector.

WiseTech is up 45% in a month.

Wall Street was a bit weaker last night but not alarmingly so, oil prices have taken a hit, but iron ore has rebounded. The futures are down a pessimistic -27 points this morning which implies 6000 support won’t be far away.

Just Noise

Feedback from the South Koreans is that Kim Jong-un is desperate to save the North Korean economy and to ensure his own survival. To that end he is willing to bow to any demand, they say, including denuclearisation.

Feedback from US officials trying to set up the planned June 12 summit is that they are getting nothing from the North Koreans. This is why Trump pondered calling off the meeting, rather than waiting to see whether Kim would do so after he surprisingly called off his meeting with the South Korean president.

Last night an NK official released a statement warning that if the meeting did not go ahead, the US would be met with a “nuclear to nuclear showdown”.

So Trump called it off.

The Dow immediately plunged -280 points on the news. But there it V-bounced, before grafting gradually higher through the afternoon.

The suggestion is the initial response was not one of investor panic but was a result of algos testing the market’s resolve. A reignition of tensions with North Korea would likely disrupt US-China trade talks, making the potential outcome worse. But when the humans failed to go on with it, the computers gave up and retreated.

It’s all just noise, commentators believe. It’s Art of the Deal stuff from Trump and grandstanding from Kim Jong-un. Even Trump has suggested the meeting may still go ahead on June 12, despite calling it off, or at least postponing it for now.

The announcement nevertheless prompted a hint of “flight to safety”. The yen rose, the US ten-year yield fell back below 3% and gold jumped ten bucks, having sat idle for a week or more.

More influential last night, nevertheless, was a -1.6% fall in the West Texas crude price.

Last night OPEC commented that an increase in production from current quotas will be discussed at the upcoming scheduled meeting in June due to possible declines in production from Iran and Venezuela. This possibility has been hovering over the oil market ever since Trump upped the sanction talk.

While increasing production makes sense, given it would only bring the level back to where it was, oil watchers believe Saudi Arabia wants to stick with the production cuts come what may. The Saudis want US$80/bbl at the time they IPO 5% of state-owned Aramco.

The energy sector nonetheless proved the main drag on Wall Street last night, along with financials, which responded to the fall in bond yields.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1304.10 + 11.10 0.86%
Silver (oz) 16.63 + 0.19 1.16%
Copper (lb) 3.11 + 0.01 0.19%
Aluminium (lb) 1.03 + 0.01 0.52%
Lead (lb) 1.13 + 0.01 0.85%
Nickel (lb) 6.72 + 0.11 1.72%
Zinc (lb) 1.37 + 0.00 0.15%
West Texas Crude (Jul) 70.66 – 1.17 – 1.63%
Brent Crude (Jul) 78.78 – 0.92 – 1.15%
Iron Ore (t) 65.15 + 1.75 2.76%

Nickel bounced back somewhat last night while most base metals slept.

Just when it looks like iron ore’s about to surge/plunge it always seems to reverse.

Gold has been awakened by renewed tensions, with the US dollar index falling only -0.2%.

The Aussie has responded with a 0.2% gain to US$0.7576.


The SPI Overnight closed down -27 points or -0.5%.

Data on durable goods orders are due in the US tonight. It’s a long weekend, so Wall Street will empty after lunchtime.

Sydney Airport ((SYD)) and Gold Road Resources ((GOR)) hold AGMs today.

Rudi will connect with Sky News Business around 11am to talk share market and broker calls.

The Australian share market over the past thirty days…


AIZ AIR NEW ZEALAND Downgrade to Underperform from Neutral Credit Suisse
AMP AMP Upgrade to Overweight from Equal-weight Morgan Stanley
FBU FLETCHER BUILDING Upgrade to Neutral from Underperform Macquarie
MTS METCASH Upgrade to Accumulate from Lighten Ord Minnett
OFX OZFOREX GROUP Downgrade to Neutral from Outperform Macquarie
PNI PINNACLE INVESTMENT Downgrade to Hold from Buy Ord Minnett
STO SANTOS Downgrade to Sell from Neutral Citi
TNE TECHNOLOGY ONE Downgrade to Neutral from Outperform Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

View More Articles By FNArena News

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Key movements in the Australian ETF market

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