Overnight: News From The Front

By Greg Peel

Mixed Bag

The futures had suggested the ASX200 would open down -23 points yesterday and indeed it did, for reasons unclear. Half an hour later the index recovered most of the loss before chopping higher towards a soggy but insignificant close.

Sector moves ultimately proved to be insubstantial for all but three sectors.

Energy (+0.7%) was the best performer on the day after OPEC and friends decided not to make any change to production quotas to make up for lost export barrels from Iran. It was somewhat of a two-fingered salute to the US president who believes he can control the world with a tweet, earlier insisting OPEC “must get prices down now”.

Saudi Arabia has made no secret of the fact it’s happy with oil at US$80/bbl, and indeed last night saw Brent, which is more relevant in this instance, leap over 3% to US$81.44/bbl.

It should have also been a good day for the materials sector given big moves up in copper and nickel on Friday night, but it wasn’t (-0.6%). BHP ((BHP)) moved higher but there was a lot going on behind the scenes.

Firstly, the new round of US-China tariffs kicked off yesterday, being US$200bn worth on one side and US$60bn on the other. There has been no progress on a trade resolution, and indeed yesterday the Chinese ignored a day off and accused the US of “trade bullyism” and pushing an “America first” agenda. A planned visit to the US by the Chinese vice-premier was also cancelled.

On an individual stock basis, every one of the ASX200 top five losers yesterday was a miner – three of them gold miners.

Rare earth miner Lynas Corp ((LYC)) dropped -18.3% as fears reignited around the Lynas Advanced Minerals Plant (LAMP) in Malaysia as a new review is touted. LAMP nearly brought Lynas undone a few years ago when the Malaysian government responded to environmental concerns regarding radioactive bi-product. Lynas has since complied with all environmental requirements but it could be a case of here we go again. Lynas shares fell -18.3%, just as the stock had been enjoying a revival.

Sims Metal Management ((SGM)) provided a trading update, including profit warning, and fell -11.7%.

Regis Resources ((RRL)) has made a bid for Capricorn Metals ((CMM)) which saw Regis shares down -6.8% and Capricorn up 50%. Evolution Mining ((EVN)) fell -5.2% and St Barbara ((SBM)) -10.5%. Don’t know why, other than gold stocks have been running lately on the currency. The USD gold price is little changed.

Healthcare (-0.9%) was the biggest loser on the day as the selling in CSL ((CSL)) appears to now be more of a case of retreating from a stretched valuation rather than simply a currency proxy.

Recalling that trade talks between the US and Canada, after Wall Street’s close on Friday night, delivered no result, and the US-China trade war basically escalated further yesterday, it was probably right for the local market to take a cautious stance.

Good move.

T-Day

China and Japan were closed yesterday but the Hang Seng was open and it fell -1.7% along with other Asian markets on trade war escalation. Weakness then spread into Europe and despite perennial optimism, Wall Street, too, succumbed.

There was also yet another White House brouhaha mid-morning when it was revealed the president would this week meet the deputy attorney general he appointed to probably fire him over something to do with the Russia probe Trump is trying so desperately to undermine.

And women are now queuing up to accuse Trump’s choice for Supreme Court justice of sexual misconduct back in his frat boy days.

This sort of stuff has been washing over Wall Street for two years – initially revelations caused Wall Street wobbles but ultimately the market became tired of the charade and simply ignored any further steps towards possible impeachment. But there can still be some signs of concern.

One might argue that trade war escalation on the day the tariffs came into force was the major driver of Wall Street weakness last night but the general feeling is that having run up to new new highs, it was time for some consolidation.

Energy unsurprisingly led the stock market and technology turned around yet again after another brief round of selling last week.

On the subject of technology, Friday’s quarterly rebalancing of the S&P500 featured a major rejig of sectors – the biggest since real estate was pulled out of financials to become a new sector on its own. S&P/Dow Jones has decided it’s time to catch up with the new world.

What was the telecoms sector – an anachronism from the days of the land line – has now become “communication services” in order to respond to the communications revolution in which phone companies are now into everything from cable to streaming and beyond. It also captures those technology sector companies that are more realistically communication services and are now so entrenched it’s hard to call them “tech”, and also stocks previously in consumer discretionary that are selling communication services.

Call it a FANG reshuffle. The likes of Facebook and Google move from tech to the new sector as does Netflix, which was in discretionary. Apple stays in tech and Amazon in discretionary.

The change required index-based fund managers to do a lot of rejigging based on prior sector weight allocations, and probably a lot of rethinking about what those weights should now be.

Commodities

It was a mixed bag for base metals last night with China closed and the US dollar steady. Lots of shuffling about in the shadows of war.

The oils were clearly the focus, with the Brent-WTI spread blowing out ever further.

Despite the steady greenback, the Aussie is down -0.2% as it usually is on trade war escalation.

Today

The SPI Overnight closed down a mere -6 points – quite a reversal of sentiment compared to yesterday’s opening call.

US consumer confidence will be in focus on the data front tonight.

On the local stock front, just a few small ex-divs.

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

The Australian share market over the past thirty days…