Overnight: A New Front

With US-China talks supposedly in the final straight, Trump has swung his attentions back to Europe. Dow down -190.

By Greg Peel

No Wynn

In a flat session for the ASX200 yesterday, the talk of the town was a takeover bid for Crown Resorts ((CWN)) by America’s Wynn Resorts which sent Crown shares surging 19.7%. Wynn confirmed it had made a “confidential” offer.

Those numbers were leaked to the media, forcing Crown, under an Australian law that differs to US law, to confirm the details to the market. Overnight, Wynn has spat the dummy over the disclosure and withdrawn its offer.

One US analyst noted Wynn is not very experienced at acquisitions. But the question downunder remains, will Jamie only ever get one Wynn Resorts in his lifetime?

The other news of the day was a surprise bounce in housing finance demand. Total housing finance rose 2.7% in February to mark the first increase since falling precipitously from July. Owner-occupiers led the charge, up 3.4%, but even investment loans increased by 0.9%.

We note that total finance remains down -18.6% year on year, with owner-occupier down -13.9% and investment down -29.1%. Given the extent of those falls, ANZ economists suggest a bounce at some point was always on the cards, but not necessarily a sign of a bottom just yet.

At least from the investor standpoint, the opportunity for negative gearing will expire at the end of this year, if we see a change in government. From the owner-occupier point of view, competition among the banks amidst dwindling mortgage demand is intensifying, with Commonwealth Bank ((CBA)) the latest to drop its rates.

That news had CBA shares falling yesterday, and the financials sector down -0.3% in a session for which a flat net result belied some sizeable offsetting moves among the sectors.

Energy stood out with a 2.0% gain on a higher oil price, now being driven by escalating MENA tensions, while telcos, which missed out in Monday’s rebound rally, rose 0.5%. With healthcare up 0.3%, it took the banks, consumer staples (-0.4%) and utilities (-0.5%) to balance out energy’s gain.

The only other individual stock move worth noting is that of Crown rival Star Entertainment ((SGR)), which jumped 5.4% on Jamie’s coat tails.

There will have been a few hopeful punters choking on their corn flakes this morning.

Then we take Berlin

Just when we thought the war would be over by Christmas, Trump has opened up a new Western Front. With US-China talks supposedly in their late stages, and a resolution being baked into Wall Street pricing, Trump has once again taken aim at Europe.

The issue of tariffs on European autos is yet to be resolved, probably because all the focus of late has been on China, with the EU waiting in the queue. Auto tariffs clearly hit Germany hard, but last night Trump turned his attention to a long running dispute regarding subsidies provided to aircraft manufacturer Airbus that are unfair to US rival Boeing. Indeed, the case has been in litigation for 14 years.

It’s as if Boeing had come under some sort of recent pressure that might spark the president into action.

The total value of Airbus subsidies is calculated at US$11bn. In retaliation, Trump is now proposing US$11bn in tariffs on imported European aircraft parts, helicopters, bicycles and because Airbus is French, wine and cheese.

The response was all too familiar on Wall Street, as the usual suspects among the big multinational industrial companies, Boeing being one, took another tumble.

Meanwhile, IMF forecasters once again dragged out their Time Machine, went back three months, and on return decided to cut their 2019 global growth forecast to 3.3% from 3.5%. Weakness in Germany was the main influence, although the IMF did make note of a possible bottoming in China.

The downgrade has been shrugged off as old news on Wall Street, but it is notable that the IMF still expects 2019 to be the nadir, with growth improving in 2020.

Fresh trade threats were the primary driver of Wall Street’s fall last night, but no one was surprised that after a 20% rebound from the December low and an eight-day winning streak for the S&P500, ahead of earnings season, some selling should emerge. The banks were among the weakest sectors last night, and it is not untypical for traders to take profits ahead of bank earnings results. JP Morgan and Wells Fargo report on Friday night.

Also hit last night were the chip stocks, which, like the big industrials, are primary victims of international trade wars. The chips had run up very hard from the December bottom, having suffered through late 2018 on China trade tensions, so no surprise profits were taken in that sector as well.

The oil price also fell back last night after a solid run. The suggestion here is not one of renewed trade fears but of caution ahead of the week’s US crude inventory lottery and signs Russia may not decide to extend production cuts beyond the next reset in June.

Energy was thus also a losing sector last night, having been another enjoying a healthy rally of late.

Add it all up and Wall Street suffered a pullback no one is surprised about ahead of earnings season.

Commodities

Zinc smelters and miners agreed last night to a sharp rise in treatment and refining charges, which is expected to push smelters to increase their utilisation rates, which suggests a new surge in supply. Hence zinc’s -2% fall stands out in another otherwise quiet night on the LME.

Iron ore continues to play a two steps forward, one step back game.

With the US dollar steady last night, a jump back over 1300 for gold likely reflects increased trade tensions.

The Aussie is steady at US$0.7121.

Today

The SPI Overnight closed down -12 points or -0.2%.

Westpac will release its monthly consumer confidence survey today which I assume will take in the budget.

The ECB holds a policy meeting tonight.

The US sees CPI inflation numbers tonight and the minutes of the last Fed meeting will be released.

Whitehaven Coal ((WHC)) publishes its quarterly production report today while Rio Tinto ((RIO)) holds its AGM in London tonight.

The Australian share market over the past thirty days…