Overnight: Left, Right And Centre

By Greg Peel

Safe Haven?

It took five months for the Australian unemployment rate to fall from 5.6% to 5.3%, and one month to fall to 5.0% with the addition of a mere 5,600 jobs. Granted, the participation rate fell to 65.4% in September from 65.7%, but really?

Anyway, the Aussie dollar may have managed to hold up against the greenback on the “strength” of that result but local jobs number are not the primary concern facing the local stock market at present.

Yesterday the ASX200 dropped -25 points to mid-morning as Wall Street pared back the gains achieved on Tuesday night. It then chopped around for a while, fairly quickly dismissing the jobs number, and then a funny thing happened. The Chinese market opened, dropped -2.9%, and we rallied back to flat just as steadily as China fell.

The fall in China was likely an expression of nervousness ahead of today’s September quarter GDP result and monthly data on industrial production, retail sales and fixed asset investment, reflecting concerns over tariff impact. But China has been falling steadily all year and is now down -25%. The renminbi, too, has been dropping, and dropped again yesterday. The rally in Australia yesterday afternoon reflects, it has been suggested, global investors switching out of Asian emerging markets and into the safer haven of Australia.

Australia – China’s biggest trading partner.

This seems about as bizarre as an Australian jobs result and realistically, one thing we can glean from yesterday’s trade is that traders in the Australian stock market currently have no idea what they’re doing.

Witness: The star sector of the rebound on Wednesday was healthcare, rising 2.6%. It fell -1.5% yesterday to be the worst performer. Left behind in the rally on Wednesday were telcos. They rose 2.3% yesterday. Afterpay Touch ((APT)) was the worst individual stock performer in the ASX200 on Wednesday, down 19%. Yesterday it was the best, up 14%. Bellamy’s ((BAL)) was the best performer on Wednesday, up 12.5%, and yesterday the worst, down -7.5%.

Managing not to do a complete reversal yesterday were financials (+0.5%), IT (+1.1%) and materials (-0.7%). A drop in materials, when Chinese weakness is feared, is about the only move that makes clear sense.

The rest of it is headless chook stuff, but, in reality, not the least surprising in the wake of a sharp pullback. Wall Street’s also trying to work it out.

What we do know is the futures are down -51 points this morning, so here we go again.

Barrage

China was not lost as an issue of concern on Wall Street last night, as the market continued to digest what the Fed meant by “modestly restrictive”. The US ten-year bond yield leapt up 5 basis points to 3.23% intraday, and that didn’t help either.

Last night ECB president Mario Draghi, without naming names, warned all EU members must play by the rules – a reference to the Italian budget that the EU will reject. He also hinted that were Italy to get itself into trouble there’s no point turning to the ECB for help.

At this stage, it appears Theresa May’s latest attempt to reach a Brexit deal with the EU is also destined to fail.

US Treasury Secretary Tim Mnuchin was due to attend an investment conference in Saudi Arabia this week. Last night he said he wasn’t going, due to the Khashoggi affair.

The Dow was down -470 points by early afternoon. Why? Take your pick.

All of the above comes amidst a time when Wall Street is trying to find a bottom following its pullback. Nerves are frayed. Earnings reports were meant to be a saviour and as they continue to roll in, they continue to beat. But not by enough to save the day.

Only the strongest of beats are being rewarded. A slight beat is enough to spark selling. A miss, well, you can guess. What is concerning Wall Street is accompanying commentary and outlooks, warning of tariff impacts, currency impacts and rising input cost impacts.

At early afternoon the S&P500 was again testing its 200-day moving average. As a close of down -327 in the Dow suggests, it held. How long it can keep holding will come down to all of the above. Any one of the above factors could finally tip the balance.

In either direction. Again I ask: what if China waves a white flag?

Commodities

Base metals mostly fell in London on China concerns and a stronger greenback. Iron ore continues to hang in there.

The oils continued to fall even as Mnuchin’s pull-out suggests trouble with the Saudis. Given US inventories continue to build, as weekly data are showing, oil traders do not see as much of a problem if the Saudis are hit with sanctions.

The Aussie has not matched the greenback’s rise of 0.3%, down less than -0.1% to US$0.7107 thanks to those fabulous jobs numbers.

Today

The SPI Overnight closed down -51 points or -0.9%.

The Chinese data will be out around lunchtime.

Regis Resources ((RRL)) releases a production report today, Sydney Airport ((SYD)) releases traffic data and APN Outdoor ((APO)) goes ex-div.

The Australian share market over the past thirty days…