Overnight: Happy New Year

By Greg Peel

Just when you thought…

Here a tip: don’t start writing a wrap of bank earnings season results and implications on the same day more unforeseen bombshells are lobbed on the banking sector. Before yesterday, at least one silver lining of the dark clouds hovering over the outlook for Australian banks was an assumed lack of further remediation provisions being required in FY20, having dominated FY19 results.

It now seems that may not be the case.

The futures were already suggesting down -35 points at the open yesterday on the back of Trump’s latest threat to raise tariffs on China if a deal can’t be agreed upon. The news didn’t faze Wall Street but whereas it used to be the case of if Wall Street sneezes we get a cold, it’s now if Wall Street does nothing we panic in either direction.

AUSTRAC’s commencement of proceedings against Westpac ((WBC)) for facilitating money laundering had that stock down -3.3% yesterday, while National Bank ((NAB)) fell -3.1% after agreeing to settle a class action regarding its fraudulent sale of insurance products.

Of the two, one presumes NAB had already included such an outcome within its provisioning to date, while it is unclear whether Westpac knew just how hard it would be hit. Westpac is the only Big Bank to have raised capital post FY19.

It was a case of shoot first and ask questions later yesterday, as all banks were sold and the financial sector dropped -2.2% to provide the bulk of the ASX200’s -1.4% plunge.

Beyond that, it was another strange session of sell everything we bought the day before when we had rejoiced in the possibility of another RBA cut. Utilities, telcos, industrials and staples were all heroes on Tuesday, and trashed yesterday. Can’t have been anything to do with banks, and by rights these sectors are what you buy in a trade war, not sell, so it’s all just about sentiment. Sell everything.

Except pokies. Aristocrat Leisure ((ALL)) posted its earnings result yesterday and jumped 6.0%, taking consumer discretionary up 0.5% against the tide.

Typically, the first sector to be jettisoned on trade war concerns is IT but it also outperformed yesterday, closing flat with some help from an 11.1% post-result pop by TechnologyOne ((TNE)).

But winning the day was mineral testing/life sciences company ALS ltd ((ALQ)), an industrial, which also reported earnings and jumped 12.1%.

So, the volatility continues unabated. Yesterday’s drop took us back to last Thursday’s close, so we could all have had the week off and avoided the motion sickness.

Wall Street finally wobbled a little last night as trade deal hopes finally showed signs of straining, but with the S&P500 down -0.5% our futures are only down -10 this morning, suggesting yesterday’s panic may have been a bit overdone.

Not that the futures have been much of a guide lately.

There may be a slight delay…

Last night the US Senate approved a bill supporting human rights in Hong Kong. The White House was quick to point out that under a democratic system, the executive does not control the legislature, thus the views of Congress are not by default the views of the White House, but try telling that to a communist regime.

Passage of the bill will be met with “strong countermeasures,” Beijing warned.

Oh and a phase one trade deal may now be pushed into next year.

The two are not necessarily linked but it sure doesn’t help. It is the White House flagging the delay. The phase one deal started out as “you buy soybeans we won’t increase tariffs”, but has now become “you roll back tariffs we think about buying soybeans” from the other side.

The White House has no intention, it appears, of rolling back any tariffs until progress is made on IP and technology transfer, which were never part of phase one to begin with. Indeed, this whole “phase” business seems now a bit of a joke.

So chances are we get to December 15 without a deal. There is no news yet on whether Trump plans to go ahead with his planned final round of tariffs, but it might come down to what Tim Cook can negotiate.

As I write, Trump is being shown around the factory which makes Apple Mac Pro computers by Apple CEO Tim Cook. It’s not actually an Apple factory – it’s a third party supplier – but the point is Apple is doing its bit to bring manufacturing home to America, as is Trump’s goal, by building a new campus there in Texas.

Psst…don’t tell the president the factory has been making Mac Pros for years, and Mac Pros represent 1% of Apple revenue compared to 60% from iPhones, which are exclusively assembled in China.

Cook has been a staunch advocate for not implementing this last round of tariffs, which specifically target consumer goods, iPhones among them. Can he butter up the president? We shall see.

Meanwhile, US retail sector earnings results roll on. On Tuesday night Home Depot dragged down the Dow with an uninspiring result, sending rival Lowe’s shares down with it. Last night Lowe’s reported, and the stock shot up 4%. No pattern there.

While department stores sink slowly in the west, last night Target reported its earnings and jumped 14%. Target US is the same discount outlet as Target Oz, only far more expansive in product lines and not pronounced in the French. It has also embraced online commerce with success, thus not been left in the museum with other large retail chains.

The minutes of the October Fed meeting were out last night, and suggested rates are on hold, but we knew that anyway.

In the wash up, a -0.5% decline seems tepid in the context of a trade deal being delayed and December tariffs still on the table. Given Wall Street has remained stoic through these past few days of deteriorating trade news, last night was probably just a sign of weariness of a market going nowhere fast, despite incremental new highs, rather than the beginning of another December wipe-out.

But it’s early days.

Commodities

The Indonesian president said yesterday the government’s policy of processing natural resources at home would end the country’s current account deficit problem within three years. Nickel fell -2.4%.

It was not another case of across the board weakness in base metals however, despite more negative trade news, given China cut its interest rate (one year in this case) to 4.15% from 4.20%. Whacko.

As for oil, well Tuesday night’s -3% falls were completely reversed last night when the US weekly crude inventory lottery came up with a much smaller build than feared, and Russia said it was prepared to help OPEC maintain a viable oil price.

Was it foreigners abandoning this wild west frontier yesterday? The Aussie is down -0.4% at US$0.6799.

Today

The SPI Overnight closed down -10 points.

APA Group ((APA)) will host an investor day today while today’s list of AGMs include those of BlueScope Steel ((BSL)), Hansen Technology ((HSN)), News Corp ((NWS)), Pilbara Minerals ((PLS)) and Western Areas ((WSA)).

The Australian share market over the past thirty days…