Overnight: Tick One Box
|SPI Overnight (Jun)||6047.00||– 8.00||– 0.13%|
|S&P ASX 200||6054.40||+ 9.20||0.15%|
|Nasdaq Comp||7703.79||+ 43.87||0.57%|
|DJIA||25320.73||– 1.58||– 0.01%|
|S&P500 VIX||12.34||– 0.01||– 0.08%|
|US 10-year yield||2.96||0.00||0.00%|
|USD Index||93.82||+ 0.23||0.25%|
|FTSE100||7703.81||– 33.62||– 0.43%|
|DAX30||12842.30||– 0.61||– 0.00%|
By Greg Peel
Waiting Game I
On face value it appeared as if it was another dull old session on the local market yesterday, akin to Friday, as investors looked ahead to the various events of this week, beginning with yesterday’s historic summit. While the meeting began at 11am Sydney time, it wasn’t until after 6pm that Donald Trump revealed what had been negotiated and what agreement had been signed.
In short, the response has been, on the part of North Korea, “Full denuclearisation? We won’t count our chickens, and it will take a long time to achieve anyway”. And on the part of the US, abandoning future military exercises with South Korea is seen as too much of a concession, and a very bad idea.
To the last point, it appears the decision on military exercises is actually not final.
From a market perspective, there’s no bad news to come of the summit but nothing to move the dial to the upside either. A long process awaits. At the very least, it is assumed that for now, North Korea no longer poses a geopolitical threat to markets – no nuclear “black swan”.
But while a gain of 9 points for the ASX200, following a loss of -12 on Friday, suggests not a lot happened yesterday, beneath the surface there were some sizeable offsetting sector moves.
The resources sectors have been polarised these past couple of sessions, with energy rising yesterday (+0.9%) and materials falling (-1.0%) despite any notable moves in underlying commodity prices. We may note that jury is still out on why Fortescue Metals ((FMG)) would want to acquire Atlas Iron ((AGO)), but then all three big iron ore miners fell over -1% yesterday.
Not so top 20 is resource sector contractor Ausdrill ((ASL)), which fell -20% following a project update and put a dampener on all of that subsector.
The consumer sectors continue to be positive for the moment, and falls in the banks have slowed, but the star sector of the day was IT (+2.4%), led yet again by WiseTech Global ((WTC)), which continues to bare its fangs.
Still more to come in an event-packed week.
Waiting Game II
Those watching US markets live as Trump conducted his press conference would have noticed US stock futures and bonds doing absolutely nothing. That theme carried through Wall Street’s session last night. No one expected the summit to be market-moving anyway.
But there is still much to await.
With the summit box ticked we note that last night UK prime minister Theresa May scored a win in the House of Commons as a proposal that would have given parliament the final say on terms of the UK's exit from the European Union, if no deal could be reached with European Union negotiators, was rejected. For markets, the outcome suggests less potential volatility ahead.
We also note that a US court has approved the merger of telco giant AT&T with media giant Time Warner, or rather, not blocked it on antitrust grounds. Donald Trump vowed, during his election campaign, he would not allow the merger as it represented too much of a concentration of power.
The two companies argued that as the merger represented vertical integration, being content plus carriage, rather than horizontal integration, such as media-media or telco-telco, there is no antitrust issue. The move is both justifiable and necessary to compete in today’s online world in which, for example, watching a TV show on your iPhone rather blurs the traditional lines of media and telco.
The decision is important, not just for other media/telco companies who may be looking to tie up but more generally in terms of whether vertical integration can be blocked on antitrust grounds. More such M&A is now anticipated, unless the decision is appealed. The decision was announced after the close of trade.
We now move on to tonight’s event, being the Fed meeting and press conference. This, too, has the potential to be market non-moving, given the odds of a rate hike are currently assumed by the market to be 100%. As to whether there will be one more or two more this year, the market is split down the middle. Perhaps tonight will provide a clue, perhaps it won’t.
We do note nonetheless that last night’s data showed the US headline CPI rose 0.2% in May to an annual rate of 2.8% — the highest in six years. Higher gasoline prices were a large component. The core rate, without gasoline, also rose 0.2%, to 2.2% annual.
It was a middling sort of result.
What most likely won’t be market non-moving is tomorrow night’s ECB meeting, which may or may not signal the beginning of the end of QE.
So Wall Street is still in waiting mode.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1295.20||– 4.80||– 0.37%|
|Silver (oz)||16.84||– 0.06||– 0.36%|
|Copper (lb)||3.27||– 0.01||– 0.25%|
|Aluminium (lb)||1.04||+ 0.00||0.05%|
|Lead (lb)||1.12||– 0.00||– 0.38%|
|Nickel (lb)||6.87||– 0.03||– 0.48%|
|Zinc (lb)||1.46||– 0.00||– 0.12%|
|West Texas Crude (Jul)||66.02||– 0.05||– 0.08%|
|Brent Crude (Aug)||75.53||– 0.87||– 1.14%|
|Iron Ore (t)||65.70||0.00||0.00%|
Also in waiting mode are commodities markets.
We might note, at least, that the -US$4.80 drop in gold, possibly a reflection of diminished geopolitical risk, or simply reflective of a stronger greenback, is the biggest move seen in that metal for a while.
And a -1% drop in the Brent price slightly reduces the yawning gap to WTI.
The Aussie is down -0.5% at US$0.7573, with the dollar index up 0.3%.
The SPI Overnight closed down -8 points. Not sure what drugs the futures traders were on over the long weekend.
Ahead of tonight’s Fed meeting we’ll see the Westpac consumer confidence survey locally, and US wholesale inflation.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|AST||AUSNET SERVICES||Upgrade to Neutral from Sell||Citi|
|AX1||ACCENT GROUP||Downgrade to Reduce from Hold||Morgans|
|BHP||BHP BILLITON||Upgrade to Accumulate from Hold||Ord Minnett|
|CWY||CLEANAWAY WASTE MANAGEMENT||Downgrade to Hold from Add||Morgans|
|ING||INGHAMS GROUP||Downgrade to Neutral from Outperform||Macquarie|
|RIO||RIO TINTO||Upgrade to Accumulate from Hold||Ord Minnett|
|WES||WESFARMERS||Downgrade to Neutral from Outperform||Credit Suisse|
|Downgrade to Lighten from Hold||Ord Minnett|
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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