Overnight: Bank On It

By Greg Peel

Resilient

The futures had suggested down -32 points for the ASX200 yesterday, which would have wiped out Friday’s gains, and the index did indeed fall -20 points from the open. But there it spun on its heels before grinding its way back to a modestly positive close.

A close of down -32 points would have suggested investors did not see the trade “truce” as any great breakthrough but the ultimate result suggests confidence remains. And resilience was also evident in the face of an IMF cut to Australia’s growth forecasts and a hint from the RBA that there won’t be a Cup Day cut.

The IMF cut its GDP growth forecast to 1.7% from 2.1% in 2019 and to 2.3% from 2.8% in 2020. Typically IMF forecasts run about six months behind reality, so we can say these forecasts are chasing the three RBA rate cuts we’ve had rather than pre-empting anything.

The RBA would likely agree, given the hints provided in the nuance of language in recent minutes.

ANZ Bank’s economists point out the minutes of the June meeting, which brought the first cut for some time, noted “members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”.  The RBA cut again in July.

The September minutes said the board “would ease monetary policy further if needed to support sustainable growth in the economy.” The RBA did not cut in September but cut in October.

The minutes of the meeting that brought the October cut said the board “was prepared to ease monetary policy further if needed to support sustainable growth in the economy”.

So “would” has become “prepared to”, which suggests November will not bring another cut. The three we’ve had need time to have their impact, if any. If not – and so far the data suggest not – then another cut will come. ANZ Bank is tipping early 2020.

In isolation, this could either have disappointed the market or pleased the market (no Cup Day cut but another one still likely), and it seems to have pleased.

All bar three sectors closed in the green. Materials (-1.0%) was hit by a dip in the iron ore price and some substantial drops in base metal prices on weak Chinese trade data. Oil prices were also weaker on the same basis, so energy fell -0.9%.

The lack of impact of rate cuts was evident in consumer discretionary falling -0.6%. This followed an -18.6% tanking of radio ad-driven Southern Cross Media ((SXL)), which issued a profit warning, that spilt over into Nine Entertainment ((NEC)), which has just acquired Macquarie Radio. Nine fell -6.4%.

Furniture retailer Nick Scali ((NCK)) also issued a profit warning and fell -13.7%. It’s not in the index but Harvey Norman ((HVN)), which sells furniture, is, and it dropped -5.9% to wrap up the top three index losers on the day.

No one particularly stood out among the winners, and sector-wise it was a bit of a mixed bag. Healthcare (+1.4%) won the day as CSL ((CSL)) ground higher, while selling in defensives on Friday switched to buying of defensives yesterday, with utilities (+1.1%), staples (+0.5%) and bond proxies within industrials (+1.0%) all back in favour on the day, presumably because the RBA remains ready.

And the banks (+0.3%) continue to defy Josh, while Scott spent the day shrugging off IMF credibility.

The futures are up 52 points this morning, largely because of a strong result from JP Morgan.

And they’re off

US earnings season effectively kicked off last night with reports from JP Morgan (Dow), Citi, Wells Fargo and Goldman Sachs (Dow), as well as United Health (Dow) and embattled Johnson & Johnson (Dow).  All posted beats.

JP Morgan was the standout (+3%) among the banks, while Goldman’s small gain at the other end of the scale was as much about write-downs in its underwriting business clearing the air.

United Health won the day (+8%) – a big move for a big company. J&J has had to deal with law suits left right and centre from its opioid products, so a 1.6% gain was a bit of a fightback.

Possibly the most important news of the day was no news. No new news on trade or Trump. That allowed Wall Street to do what it much prefers to do – focus on the real numbers and guidance coming out of individual companies and not on trade wars, impeachment or geopolitics.

Although there was some good news on geopolitics, supposedly, ahead of the open, as it looks like Boris may have a deal the EU can live with. But Theresa had three the EU could live with yet could not overcome a split-down-the-middle UK parliament. Can Boris? The bookies now have a deal at 75%.

There was also some relief taken from the Empire State manufacturing index for October, which rose to 4 from 2. Whacko. Buy this is a zero-neutral index and economists had predicted 0.8%, taking a lead from the weak September manufacturing PMI. So maybe things aren’t quite so bad. These Fed district series tend to be volatile.

Otherwise, it’s all about earnings, which just about everyone agrees analysts had been too pessimistic about heading into the season. Guidance for the December quarter will be more important.

Commodities

Slight rebounds for nickel and iron ore, while gold has slipped again, possibly on light at the end of the Brexit tunnel, given the US dollar fell -0.2%.

The Aussie also fell -0.2% to US$0.6755, probably on the RBA minutes.

The IMF downgraded its global growth forecast, not just Australia, weighing on oil prices.

Today

The SPI Overnight closed up 52 points or 0.8%, chasing the S&P500.

Retail sales will be the important data release tonight in the US, as earnings season gets into full swing.

In a busy day on the local market, AGMs will be held by Commonwealth Bank ((CBA)), CSL, Origin Energy ((ORG)) and Treasury Wine Estates ((TWE)) while production reports are due from Alumina ltd ((AWC)), OZ Minerals ((OZL)) and Rio Tinto ((RIO)) along with a quarterly update from Challenger ((CGF)).

The Australian share market over the past thirty days…