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Overnight: Tariffs Be Damned

World Overnight
SPI Overnight (Sep) 6267.00 + 27.00 0.43%
S&P ASX 200 6286.00 + 13.70 0.22%
S&P500 2784.17 + 24.35 0.88%
Nasdaq Comp 7756.20 + 67.81 0.88%
DJIA 24776.59 + 320.11 1.31%
S&P500 VIX 12.69 – 0.68 – 5.09%
US 10-year yield 2.86 + 0.03 1.02%
USD Index 94.06 + 0.10 0.11%
FTSE100 7687.99 + 70.29 0.92%
DAX30 12543.89 + 47.72 0.38%

By Greg Peel

New Resistance

After a surprisingly solid session on Friday, the ASX200 kicked on again from the open yesterday in the wake of a strong response on Wall Street to the US jobs report. But at 10.50am the index slammed into 6300, and hurt its head.

Traders clearly decided that this was a sufficient level to take profits, for now, in this blue sky run. The index fell back to be up only modestly by lunchtime and in thin volume, there it remained.

Had it not been for BHP ((BHP)), the index would have likely closed flat. Sector moves were mostly small and cancelled each other out.

The materials sector stood out with a 1.1% gain, helped by a 2% rally for BHP. Rumour has it BP has now joined Shell and Chevron in an increasingly global race to secure the Big Australian’s US shale assets, and the price being touted is better than analysts had earlier estimated. The greater the price, the more handouts for BHP shareholders.

Beyond materials, healthcare fell -0.4%, likely on the stronger Aussie, and utilities by a similar amount, having enjoyed a good rally on Friday. Other sector moves were minimal.

Wall Street has posted a solid gain overnight and commodity prices are more up than down, hence the futures are suggesting up 27 this morning. If accurate, that would take us through 6300 and into further post-GFC blue sky.

Value is Back

I noted yesterday that Friday’s big rally for the ASX200 was driven mostly by the large cap names, all of which for different reasons have been having a bad time of late – the banks, telcos, and materials. Meanwhile growth names, particularly in IT, stood still, suggesting value was back in focus.

Friday night on Wall Street brought the opposite. In response to the strong jobs report, traders piled into Big Tech and small caps once more and eschewed trade war-impacted industrials and yield curve-affected banks. But it was a holiday week and few traders were actually about. Fewer still, after the jobs report release.

Last night saw Wall Street refill with participants after their break. They had a look at the jobs report, and said “Wow”.

Looking ahead to earnings season, which begins on Friday, the market decided the big industrials, banks and others that have been hammered down lately had now become value, given strong earnings results are expected.

To that end, on Friday night we saw the Nasdaq and Russell outperform the Dow, with the S&P in the middle, and last night saw the complete opposite, albeit still with a strong positive bias. The Dow rose 1.3% when the Nasdaq could only manage 0.9% and the Russell 0.6%.

Your trade war flag wavers – Boeings, Caterpillars et al – were suddenly winners. With the Fed hinting it would not want to tip the US yield curve into inversion with overly aggressive hikes, the beaten down banks found buyers.

Energy also had a good session despite only a small rise in the WTI price, and for that we might look to the shale oil story above.

Wall Street continues to hang on to the notion that even as the trade war escalates, escalation is surely the path to resolution. Ever increasing tariffs and subsequent retaliation that simply cancels one another out achieves little, other than to pass costs on to consumers. Yet, to date a resolution seems distant.

US earnings, on the other hand, should again be solid. Although energy prices and the stronger US dollar may well be dragged out more often than not as excuses for guidance disappointment. All shall soon be revealed.

Another positive for Wall Street last night, somewhat left of field, is that the four nominees to replace the retiring US Supreme Court justice have been announced and they’re all seen as business-friendly. Thus for Wall Street, it doesn’t matter who is chosen. With the last Democrat nominee off the bench, the Court will boast a quintet of business-friendly conservatives.

Alongside stock traders, bond traders who had been lying on a beach also returned to respond to the strong jobs report, and sent the US ten-year yield up 3 basis points to 2.86%.

The dollar was also stronger, having fallen on Friday, but that was largely due to weakness in the pound following the resignation of the UK Brexit Secretary and foreign minister, good old Boris.

The resignations come as Theresa May offers up a “soft” Brexit deal to the EU, which is clearly untenable for the strident Brexiteers like Johnson. Now it’s up to the EU.

Trade war? Not an issue for now. Bring on earnings.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1257.20 + 2.70 0.22%
Silver (oz) 16.07 + 0.06 0.37%
Copper (lb) 2.90 + 0.05 1.69%
Aluminium (lb) 0.96 + 0.02 2.63%
Lead (lb) 1.06 – 0.01 – 0.50%
Nickel (lb) 6.40 + 0.12 1.93%
Zinc (lb) 1.24 – 0.02 – 1.82%
West Texas Crude (Aug) 74.01 + 0.10 0.14%
Brent Crude (Sep) 78.22 + 1.12 1.45%
Iron Ore (t) 63.25 + 0.60 0.96%

If Wall Street traders decided last night enough was enough for beaten down Boeings and friends, it seems the same sentiment was alive and well in commodities markets.

Aluminium, copper, nickel and iron ore all had solid sessions. Zinc is the ongoing laggard at the present time.

A reversal of fortune, thus, for the Aussie. It’s up 0.4% at US$0.7462 despite a slightly stronger greenback.


The SPI Overnight closed up 27 points or 0.4%.

China will release June inflation numbers today.

Locally we’ll see the monthly NAB business confidence survey.

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

The Australian share market over the past thirty days…

ASX ASX Downgrade to Sell from Neutral Citi
DMP DOMINO'S PIZZA Downgrade to Sell from Neutral Citi
    Downgrade to Underperform from Neutral Credit Suisse
IDX INTEGRAL DIAGNOSTICS Upgrade to Equal-weight from Underweight Morgan Stanley
ING INGHAMS GROUP Downgrade to Neutral from Outperform Credit Suisse
NAN NANOSONICS Downgrade to Hold from Add Morgans
WOW WOOLWORTHS Downgrade to Neutral from Buy Citi
WSA WESTERN AREAS Upgrade to Hold from Sell Ord Minnett

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

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The content of this information does in no way reflect the opinions of FN Arena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FN Arena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FN Arena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.



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