Overnight: Lacking Direction

By Greg Peel

Ups and Downs

It was an unusual day on the local market yesterday, albeit on the back of low volume. Victorians tend to turn the Cup into a four-day long weekend.

The ASX200 opened lower and fell to -30 points down by late morning. By lunchtime it was back to be modestly in the green, and then by the close it was back to down -30 once more. There were no particular news events that might explain the sudden changes in direction.

It smacks of a big buy order coming in late morning and being filled by lunchtime, after which no more buyers followed through. In the wider scheme we simply saw general sogginess. Only the banks (+0.2%) closed in the green among the sectors, following Westpac’s ((WBC)) result release.

Energy (-1.3%) continued its bad run as oil prices continued to pull back. Having enjoyed some positive sessions last week, all of consumer discretionary (-1.2%), healthcare (-2.2%), IT (-1.2%) and telcos (-0.8%) headed south. Materials (-0.5%) was a mixed bag, while staples was a reusable bag, closing flat.

At the individual stock level, Greencross ((GXL)) finally revealed a choice of suitor, being private equity company TPG, and jumped 19%. Note to a certain media outlet: TPG is a US-based private equity company and not a local telco.

There were a couple of data releases of note yesterday. ANZ job ads series showed the slowest annual growth since April 2015. New vehicle sales fell -5.3% year on year in October.

Caixin’s independent Chines service sector PMI fell to a 13-month low in October of 50.8 from 53.1 the month before. A sub-sector 50.1 reading for new business orders was the lowest since 2008.

President Xi spoke at a trade expo in Shanghai yesterday, which involved 3600 companies from 172 countries, with very few from the US. Xi took an indirect swing at the US, vowing to import US$30trn of goods over the next 15 years, up from a prior pledge of US$24trn, and suggesting a “winner takes all” attitude to global trade is a “dead end”.

Trump is trying his darndest not to import anything.

Is this representative of an escalation in the trade war, or a suggestion Xi is the adult in the room prepared to negotiate? Hard to tell. Xi is clearly playing the long game. Trump is trying to play a long game, but with an elevated sense of urgency. He has to be re-elected, Xi does not.

Investors may be showing signs of caution ahead of tonight’s US elections, although consensus already has the Democrats taking the House and Wall Street has already priced in that outcome, it is assumed. There’s also a Fed meeting this week.

Today officially marks the beginning of the local Silly Season, and if volumes were low yesterday they’re hardly likely to pick up today.

Bad Apple

A report in a Japanese newspaper yesterday declared sales of the iPhone XR – the cheap one – were disappointing. Having fallen sharply last week on disappointing guidance, Apple shares were down another -2.8% last night. Tim Cook said in his result address that sales of the iPhone XS – the expensive one – had exceeded expectations. So you can make your own mind up on the balance of the two.

Apple’s decline was again a big influence on Nasdaq weakness. Facebook and Google continue to slide on fears of what new regulations will be introduced in Europe, and ultimately in the US.

Meanwhile, trade remains the overriding factor, as more and more negative numbers are published with regard the impact tariffs are having. Yet there seems to be sufficient hope Trump is not simply full of it when he suggests a deal will be done with China, as a result of a quick chat at the G20.

Quite frankly, Wall Street has no idea. Last night’s 200 point rally in the Dow could only be attributed to trade optimism, alongside an acceptance of a split Congress resulting from the election. But as is often the case, just a couple of stocks made up most of the Dow points.

Interestingly, Wall Street has posted its greatest gains on average since 1950 when there is a split Congress, rather than a majority Congress. And Democrat presidents fare better than Republicans in these circumstances.

Another issue is that given the election is likely to be close, it could be days before a final result is known.

So Wall Street could well meander for the rest of the week, assuming the Fed drops no bombshells on Thursday night.

Commodities

Sanctions were reinstated on Iran last night. Oil prices did little, knowing this was coming. But while it was the threat of new sanctions that drove WTI to US$75/bbl, that price has done nothing but come off ever since on a combination of factors.

One was buying up supplies ahead of lost Iranian exports, thus inflating inventory data. But just how much will be lost? Trump is granting exemptions to US allies who rely on Iranian oil. Other signatories to Obama’s original deal, such as the EU, do not intend to side with the US. Iran will always find other buyers anyway.

What impact will the sanctions actually have, other than to upset Iran?

Base metal prices jumped on Friday night, and mostly fell back last night.

The Aussie is up 0.4% at US$7214 with the US dollar down -0.3%.

Today

The SPI Overnight closed down -1 point.

The RBA meets today, just in case no one notices.

The US midterms are tonight.

No scheduled corporate events today on the local market, as one might expect.

The Australian share market over the past thirty days…