Overnight: Confidence Jolt

World Overnight
SPI Overnight (Dec) 6663.00 – 72.00 – 1.07%
S&P ASX 200 6748.90 – 0.80 – 0.01%
S&P500 2966.60 – 25.18 – 0.84%
Nasdaq Comp 7993.63 – 118.83 – 1.46%
DJIA 26807.77 – 142.22 – 0.53%
S&P500 VIX 17.05 + 2.14 14.35%
US 10-year yield 1.64 – 0.07 – 4.27%
USD Index 98.35 – 0.29 – 0.29%
FTSE100 7291.43 – 34.65 – 0.47%
DAX30 12307.15 – 35.18 – 0.29%

By Greg Peel

Shuffling the Deck Chairs?

The ASX200 may have closed flat yesterday and activity throughout the day did appear muted but this belies another session of shuffling about in sectors with no clear theme.

We can largely put a flat close down to the banks being up 0.3% and materials down -0.4%, following a drop in bond yields overnight and a 2% jump in the iron ore price.

Go figure.

Energy fell -0.3% on a higher oil price and IT dropped -1.1% because the Nasdaq was lower.

A swap between consumer discretionary (+0.6%) and staples (-0.5%) looks like a switch out of defensives, backed up by falls in telcos (-0.9%) and the toll road/airport sector (-0.5%) but utilities closed flat.

That just leaves healthcare, up 0.5% on a stronger Aussie.

Go figure.

It’s all a bit academic given Wall Street fell -0.8% overnight and our futures are down -72 points this morning, or a full -1%. That seems excessive, given we tend to be a little less dramatic than Wall Street.

Aside from specific US factors, we could also point to Philip Lowe’s speech last night not confirming an October rate cut, despite mass media reports suggesting he did. Australia’s economy is at a “gentle turning point,” said the RBA governor, and reiterated he’s prepared to cut interest rates if needed to support the recovery, but he did not, on the Westpac economists’ interpretation, signal an imminent move which some in the market had been hoping for.

Really he just repeated the September statement.

This might be why the Aussie is 0.3% higher this morning, although the greenback is down -0.3%, so that’s zero sum.

Then there was ScoMo’s “swipe” at China, as he spoke in Chicago, suggesting “As nations progress and develop then the obligations, and how the rules apply to them, also shift”.

We also have iron ore down -4% overnight and oil down -3% so that would feed into a -1% drop for the index.

So strap in.

All Happening

Before the open on Wall Street last night, the Conference Board released its monthly consumer confidence index which showed a fall to 125.1 from 133.3. In isolation, 125 is pretty damned confident on a 100-neutral scale but the big drop – blamed on new tariffs hitting consumer goods – did rather disturb Wall Street.

There was no panic from the open, but things did rather go downhill when Trump spoke at the UN.

Arguing that China’s admittance to the WTO in 2001 had been a mistake, the president declared “Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property — and also trade secrets — on a grand scale”.

Not exactly new news, but nor is measured diplomacy at a delicate time, coming in the wake of “productive” and “constructive” trade talks last week that had raised hopes on Wall Street.

Then came the news that House Speaker Nancy Pelosi had flagged a move to begin impeachment proceedings against Trump. As I write, the Democrats are expected to make a formal announcement at any moment.

US presidential candidate Joe Biden is pressing for impeachment, and specifically for the release of the transcript of a phone conversation between Trump and the Ukraine president. Reports allege the president used the threat of withholding economic aid to Ukraine to pressure officials in Kiev to produce information damaging to candidate Biden, whose son Hunter Biden has had business dealings in Ukraine.

Later in the session Trump said he was prepared to release said transcript, which provided for a brief Wall Street bounce, but that didn’t last long.

While -0.8% for the S&P500 is not a major bearish move, uncertainty again reigns. Uncertainty with regard the US consumer, trade, and politics. The S&P fell on a balance of cyclicals being sold and defensives being bought.

Again.

The US ten-year yield fell -7 basis points to 1.64% and gold jumped another ten bucks.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1531.50 + 9.90 0.65%
Silver (oz) 18.58 – 0.04 – 0.21%
Copper (lb) 2.60 + 0.02 0.92%
Aluminium (lb) 0.79 – 0.00 – 0.30%
Lead (lb) 0.93 – 0.01 – 0.70%
Nickel (lb) 7.93 – 0.11 – 1.38%
Zinc (lb) 1.04 – 0.01 – 1.38%
West Texas Crude 56.80 – 1.69 – 2.89%
Brent Crude 62.40 – 2.02 – 3.14%
Iron Ore (t) futures 89.60 – 4.05 – 4.32%

That uncertainty clearly spilled over into commodities markets, although copper bucked the trend.

Oil price falls were exacerbated by the Iranian president saying he was open to discuss small changes to the 2015 nuclear deal if the US lifted sanctions on his country.

The Aussie is up 0.3% at US$0.6797.

Today

The SPI Overnight closed down -72 points or -1.1%.

The RBNZ meets this morning.

Nufarm ((NUF)) will release its earnings result.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Downgrade to Sell from Neutral Citi
CLV CLOVER CORP Downgrade to Neutral from Buy UBS
CMA CENTURIA METROPOLITAN REIT Downgrade to Neutral from Buy UBS
FMG FORTESCUE Downgrade to Underweight from Equal-weight Morgan Stanley
IFL IOOF HOLDINGS Upgrade to Outperform from Neutral Macquarie
MFG MAGELLAN FINANCIAL GROUP Upgrade to Neutral from Underperform Macquarie
PMV PREMIER INVESTMENTS Upgrade to Outperform from Neutral Macquarie
Downgrade to Sell from Neutral Citi
RRL REGIS RESOURCES Upgrade to Equal-weight from Underweight Morgan Stanley

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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