Overnight: Weighing Up The Ramifications

By Greg Peel

Buyers Dig In

Friday’s trade on the ASX represented the seventh consecutive down-day for the ASX200 but it was the last three days of that run which brought about significant falls. Friday provided the turnaround as traders decided enough was enough for now, albeit the index still closed lower.

The futures suggested down -23 ahead of yesterday’s trade and were on the money, for all of about ten minutes. The index swiftly returned to the flatline before drifting around through the afternoon and going nowhere much. It was still a down-day, which gives us eight, and that hasn’t happened for two years, but by all of -2 points.

Looking at the sectors we see evidence of those stocks most heavily sold off in the run finding buyers. IT was one of the hardest hit sectors but yesterday we saw Afterpay Touch ((APT)) top the leaders’ board with a 7.4% reversal, while the likes of WiseTech Global ((WTC)), Appen ((APX)), Altium ((ALU)) and Xero ((XRO)) chimed in as well to drive the sector up 0.7%.

CSL ((CSL)) rose 0.7% after its sharp pullback from all-time highs. Healthcare rose 0.6%.

The news in bank land was that National Bank ((NAB)) was not going to play sheep and follow the other three with mortgage rate repricing. We can look at this from two sides. Now offering cheaper comparative rates, NAB should pick up more business. By not stretching existing mortgage holders, NAB has lower default risk. But by not compensating for rising offshore funding costs, NAB’s margin will be comparatively lower and thus so too earnings growth.

NAB fell -0.7% and financials fell -0.1%.

After providing the contrary trade during the bulk of the index fall, yesterday Telstra ((TLS)) fell -0.6% and telcos -0.8%. Commodity prices had been mixed overnight which meant materials fell -0.3% but energy bounced back 0.7%.

A balance of ups and downs among sectors with no standout moves led to the flat close.

And with the futures up one point this morning, at this stage it looks like further consolidation is ahead. There have been no new despatches from the trade war. Wall Street continues to consolidate as well.

It will be interesting to learn today whether Australian businesses remain as exuberantly confident as they have been in recent months.

Bring it Home

Is Australia leading Wall Street? After a few sessions of swoon, the US tech sector also found some buyers last night, leading the Nasdaq up 0.3%. Chip-makers in particular had a good session after some sharp falls.

Aside from having been considered overbought and overvalued, US tech stocks are also now well and truly in the firing line of the trade war if Trump goes ahead with his tariffs on everything plan. But the president is not without helpful suggestions in the circumstances. Last night he used his thumb to urge Apple to bring its manufacturing operations back to the US from China.

The president clearly has no clue as to the extent of Apple’s manufacturing base and supply chain in China, and the extent of the comparatively lowly paid Chinese workforce across that spectrum. To replicate that in the US from scratch would take years, cost billions and require significant investment in robotics given the equivalent wage bill and healthcare costs would be staggering.

It would be simpler for Apple to raise its prices by 25% and hope its disciples remain loyal at any cost. It’s not like Apple would be alone. Apple shares fell -1.3% last night and helped contribute to another weak session for the Dow Industrials. The S&P split the Dow-Nasdaq difference and for the first time in several sessions did not mark a lower low.

The Dow Transports, on the other hand, hit a new intraday all-time high in the session. Why? Because the bulk of that sector is about delivering goods by road, rail and air all around a nation boasting the world’s strongest domestic economy.

How strong? Well the president was elated to point out last night by thumb that US GDP growth is 4.2% and unemployment is 3.9% and it’s the first time the former has exceeded the latter in 100 years! (His exclamation)

Actually it’s ten, but let’s not quibble over a zero.

There’s a lot for Wall Street to absorb this week on the economic calendar including local inflation data, policy meetings for both the ECB and Bank of England, along with industrial production and retail sales numbers for both the US and China both due on Friday (albeit July for the US and August for those rapid-counting Chinese).

And still the trade war, that isn’t one yet, rolls on. They said it would be over by Christmas.

Commodities

In August, China’s trade surplus with the US rose to a record level. Trump would have steam coming out of his ears. Except that a simple explanation is Chinese exporters and their US importer customers are rushing to get as much across the Pacific as they can before the tariffs bite, if that is to be the case.

To that end, even if the US and China reached a resolution tomorrow, those numbers will fall in subsequent months.

But raw material prices continue to lead the fear. It was another weak session for all base metals in London last night except for copper, which is bucking the trend a little after a solid fall.

Other commodities did not move much with the US dollar index down -0.2%. Hurricane Florence is about to slam into the US but on the east coast, where the Carolinas are not oil states.

The Aussie is up 0.1% at US$0.7114.

Today

The SPI Overnight closed up one point.

The monthly NAB business confidence survey is out locally today.

Be warned, CSL and WiseTech are in for a rough session today, but only because they both go ex, as does News Corp ((NWS)) and a handful of other lesser-lights.

Rudi will not make his usual appearance on Sky News Business this morning. He’ll be standing in front of investors in Wollongong instead, explaining why CSL still is the beez neez, among other things.

The Australian share market over the past thirty days…