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Overnight: Plenty Going On

World Overnight
SPI Overnight (Jun) 6002.00 – 14.00 – 0.23%
S&P ASX 200 6004.00 – 28.80 – 0.48%
S&P500 2721.33 – 6.43 – 0.24%
Nasdaq Comp 7433.85 + 9.42 0.13%
DJIA 24753.09 – 58.67 – 0.24%
S&P500 VIX 13.22 + 0.69 5.51%
US 10-year yield 2.93 – 0.05 – 1.68%
USD Index 94.42 + 0.16 0.17%
FTSE100 7730.28 + 13.54 0.18%
DAX30 12863.46 – 74.55 – 0.58%

By Greg Peel

Oil Leak

A -4.5% drop in the oil price on Friday night was never going to be good news for Australia’s energy sector and thus the ASX200 yesterday. With the Saudis and Russia now confirming they may increase production, the energy sector lost -2.9% to be the major market mover.

The big boys were hit and so too were the minors, more extensively. Beach Energy ((BPT)) came in second on yesterday’s ASX200 loser’s board with a -9.6% drop.

The iron ore price also fell, helping materials down -1.3% at a time the sector in general has seen profit-taking for several sessions after a solid run up.

Beyond that, there were several individual stock stories driving notable moves yesterday.

Just when Telstra ((TLS)) looked like it may have sufficiently de-rated to a level of value, Standard & Poor’s went and downgraded its credit rating for the company for the first time in twelve years. Telcos fell -1.0%.

Just when perennial “three’s a crowd” grocer Metcash ((MTS)) was showing more positive signs, the company issued a profit warning due to a sales decline and revealed distributor Drakes would not be re-signing its contract in South Australia. Metcash is planning to build its own distribution centre in the state. Its shares fell -17.1% yesterday to top the losers’ board.

The consumer sectors had been making a comeback of late but yesterday staples fell -1.2%.

Plumbing fittings manufacturer/distributor Reliance Worldwide ((RWC)) made a big acquisition in the UK last week and set about raising the capital through a rights issue, the institutional component of which has been well subscribed. Reliance came back on yesterday after a trading halt and shot up 26.6% to top the winners’ board – more than the acquisition’s potential earnings accretion implies.

The industrials sector rose a reliable 1.2% against the tide.

Investa Office Fund ((IOF)) stirred up a REIT sector struggling with rising bond rates after receiving a takeover offer from US private equity investor Blackstone. It rose 11.2%.

The ASX200 declined steadily from the open yesterday to fall through 6000 after midday. Buyers did then appear to provide some relief when the index reached 5994, ensuring a close back above 6000.

But oil is down another -1.5% overnight with US and UK markets closed.


Italy has a long history of requiring tenuous coalitions of disparate parties to be formed to provide any sort of majority government, which then usually don’t last very long. The recent election typically delivered no result, and investors began to quietly slip out of Italian bonds.

When two populist parties then agreed to coalition, a prime minister was sworn in. The trickle of bond sellers turned into a flood, because populist parties are anti-EU. But that prime minister lasted only four days after the president rejected its nomination for finance minister, given his strident anti-EU stance. The president made the executive call that leaving the EU was not in Italy’s best interests.

So, back to square one. Except that the president has now incensed the populist movement by overriding their democratic vote.

Brexit was a catalyst for major concern given anti-EU sentiment was simmering in Europe in general and the UK showed an exit was possible. Grave fears were held when France went to the polls, but Macrons’ victory suggested eurocentrics maintained the upper hand and everyone relaxed again.

Italy’s is the third biggest economy in both the EU and the eurozone. Brexit has no implications for the euro but were Italy to exit, it’s a whole different story. Suffice to say, fears of an EU break-up have resurfaced to haunt global financial markets.

On the other side of the world, it appears the US-North Korea summit will go ahead, and the South Korean president has indicated he and his North Korean counterpart are now set to communicate on a regular basis.

Geopolitical risk is, as ever, a constantly swinging pendulum.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1297.20 – 4.00 – 0.31%
Silver (oz) 16.43 – 0.04 – 0.24%
Copper (lb) 3.11 0.00 0.00%
Aluminium (lb) 1.02 0.00 0.00%
Lead (lb) 1.10 0.00 0.00%
Nickel (lb) 6.68 0.00 0.00%
Zinc (lb) 1.38 0.00 0.00%
West Texas Crude (Jul) 66.47 – 1.04 – 1.54%
Brent Crude (Jul) 75.26 – 1.00 – 1.31%
Iron Ore (t) 63.25 – 0.50 – 0.78%

The London Metals Exchange was closed last night.

Selling in oil continues and iron ore is again modestly lower.

The US dollar index continues to creep higher and thus the Aussie lower, to US$0.7545.


The SPI Overnight closed down -14 points or -0.2%, suggesting a tough test for the 6000 mark today.

It’s fairly quiet on both the global economic data front and the local stock front today/night.

Challenger ((CGF)) hosts an investor day.

Rudi will connect with Sky News Business via Skype to talk share markets and broker calls at around 11.15am.

The Australian share market over the past thirty days…

AIZ AIR NEW ZEALAND Downgrade to Underperform from Neutral Credit Suisse
ALL ARISTOCRAT LEISURE Upgrade to Outperform from Neutral Credit Suisse
EPW ERM POWER Downgrade to Underperform from Neutral Macquarie
    Downgrade to Hold from Add Morgans
    Downgrade to Hold from Buy Ord Minnett
MTS METCASH Upgrade to Accumulate from Lighten Ord Minnett
RWC RELIANCE WORLDWIDE Upgrade to Hold from Sell Deutsche Bank
    Upgrade to Add from Hold Morgans
SPK SPARK NEW ZEALAND Upgrade to Neutral from Underperform Macquarie
TLS TELSTRA CORP Upgrade to Buy from Neutral UBS
TNE TECHNOLOGY ONE Downgrade to Neutral from Outperform Macquarie
WES WESFARMERS Downgrade to Sell from Neutral Citi


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