Overnight: Trade Tremors

By Greg Peel

Bargain Hunting

It was a stumbling start on the local bourse yesterday as the ASX200 took Wall Street’s lead and opened up 40 points, as the overnight futures had suggested. But it lasted all of ten minutes. There was no follow-through.

Perhaps investors had thought they’d missed the boat from the open and held off, because by late morning the index was right back where it closed on Monday. Only then did the real buyers appear. There followed a 45 degree straight line all the way to the close.

Leading the charge in percentage terms was the IT sector. It had been a good session for the Nasdaq overnight and a lot of the high-flying names have been beaten down. IT gained 3.0%, led by flagbearer Afterpay Touch ((APT)) with an 8.6% gain. The tone of this sector recently is such that it could all go the other way at the blink of an eye.

That suggests the tech sector is more of a playground for traders presently than a value play for investors.

Leading the market in terms of index points were the banks, up 1.5%. Bargain hunting began in the banks last week as a contrarian play and has kicked on this week as more investors start to chase the sector back. Undeniably solid yields would have started the run, and strength in US banks overnight, for the first time in a while, added to the story yesterday.

It is still a mystery as to why our banks follow US banks. Particularly now the media is warning of the great interest-only to P&I wave about to hit.

The coin came up heads for Telstra ((TLS)), which after having been left behind in this latest attempt to recover suddenly leapt into action with a 2.8% gain, taking the telco sector up 2.4%.

The Federal Court yesterday waved through the Fairfax Media ((FXJ))-Nine Entertainment ((NEC)) merger and both stocks enjoyed rallies, but the standout performance came from rival Seven West Media ((SWM)), which rose 7.4%. Consumer discretionary gained 1.1%.

There were also solid gains for industrials (+1.1%) and staples (+0.8%) while energy (+0.7%) enjoyed a comeback and bargain hunting in the big miners saw materials up 0.5% despite mixed metals prices.

The jury appears to still be out for healthcare (+0.1%). Buyers are not flocking back to CSL ((CSL)) and Healthscope ((HSO)) is under fire in Frenchs Forest.

It was the first session for some time that saw a full set of green on screen. The index is back over 5700 and now poised, one might assume, for the Fed chair’s comments tonight, the minutes of the last Fed meeting and this week’s US-China trade talks.

The futures are up five this morning.

Trade Tension

In an interview published late Monday the president said about his trade talks with President Xi, which apparently are to be held on Thursday ahead of the G20, he would not accept a request to hold off on tariff increases set for January and is still ready to place tariffs on the remaining US$267bn of imports.

The Dow opened down over -200 points.

Of course we can’t believe anything that comes out of Trump’s mouth. When tariffs on the most recent tranche were implemented Trump vowed any retaliation from China would mean the last US$267bn would be triggered “automatically”. China retaliated, and nothing happened. Probably because the mid-terms were approaching.

Which played into China’s hands. Beijing sees Trump as weakened, having lost the House, thus the chances of meek capitulation have lessened. While it is acknowledged even the tiniest hint of a breakthrough in Buenos Aires would be a major positive for Wall Street, no one is prepared to be optimistic. Tariffs are likely here to stay for a while, so just get on with it.

The Dow came all the way back, and then ran another hundred points higher.

It was nevertheless the defensive sectors that led the fightback, not the risk sectors as had been the case on Monday night. Trade is one issue, the Fed is another.

The president is also fighting a personal battle with General Motors at the moment. GM is set to shut down its factories in Ohio and lay off 14,000 workers because no one is buying the Chevy Cruze. The iconic automaker, which would have been bankrupt in 2008 but for a taxpayer-funded bail-out, wants to focus attention on EVs and build them in China.

You can just see the steam coming out of Trump’s ears. EVs receive government subsidies in the US. Trump is now threatening to take any subsidies away from GM. Or maybe remove all subsidies on EVs. It’s surprising he hasn’t done so already.

The Dow was the outperformer on the day with the S&P500 (+0.2%) less enthusiastic and the Nasdaq flat.

Trade and the Fed will dominate the rest of the week and anything could happen from here.

Commodities

The US dollar index continues to push higher amidst trade concerns and thus metal prices continue to drift lower.

Gold is now succumbing to the currency once more.

Oil has reached a stalemate.

The Aussie is down slightly at US$0.7223.

Today

The SPI Overnight closed up 5 points.

Fed chair Jay Powell will speak tonight. Another revision of US September quarter GDP will be released.

Australia will see September quarter numbers for construction work done.

Collins Foods ((CKF)) reports earnings today. TechnologyOne ((TNE)) hosts an investor day.

Afterpay Touch holds its AGM today, as does IOOF Holdings ((IFL)), among others.

Graincorp ((GNC)) goes ex.

The Australian share market over the past thirty days…