Overnight: A Little Jittery

By Greg Peel

Posturing

It was a bit of a nothing day on the ASX yesterday as investors fiddled about with portfolios ahead of year-end and the unfortunately timed G20 meeting. The ASX200 was at best up 15 points and at worst down -18 before closing down -7.

There were no standout moves among sectors and ups and downs were evenly distributed.

If anything there was a slight bias towards defensives, with consumer staples, healthcare and telcos finishing in the green along with materials, which continue to climb the golden ladder – also a defensive trade by any other name.

Staples managed a 0.5% gain despite Metcash ((MTS)) falling another -6.3% on top of Monday’s near -10% drop as brokers mostly turn bearish on the stock.

High-flying aerial photographer Nearmap ((NEA)) dropped -7.3% in what appears to be ongoing profit-taking following an earlier three-week rally of 36% as brokers initiated coverage with Buy ratings.

RBC Capital advised its clientele to take profits, downgrading the stock to Sector Perform, while upping the price target to $4.20.

Domino’s Pizza ((DMP)) had probably been waiting for a class action to be taken against it on staff underpayment but the market nevertheless punished the stock -7.2% on “the fact”.

Copper miner Sandfire Resources ((SFR)) fell -11.2% after announcing a takeover of copper explorer MOD Resources ((MOD)). Given MOD shares jumped 29% it was a typical buy the target, sell the suitor play.

Three of the five top performers were gold miners.

It had looked like we might be in for this same sort of pattern all week although last night started to become a little more nervous ahead of the G20. Dow futures were trending down as our market closed and the iron ore price was slipping.

The futures are down -36 points this morning so perhaps today won’t be quite as dull.

Mixed Signals

US consumer confidence has fallen to its lowest level since September 2017 according to the Conference Board’s monthly survey. At an index level of 121.5, confidence is weaker than forecast but still well above neutral.

Sales of new homes fell a much greater than expected -7.8% in May to be down -3.7% year on year.

These weak data points should be fodder for those assuming the Fed is about to starting cutting like an upholsterer but last night two board members slightly hosed down those expectations.

Fed chair Jay Powell was slightly ambiguous in saying the Fed would be watching the economy closely but wanted to avoid a knee-jerk reaction in monetary policy, while at the same time admitting pre-emptive moves are preferable to leaving it too long. The unsaid problem is that the Fed remains hamstrung by trade uncertainty. Powell said a rate cut in July is “not a done-deal”.

St Louis Fed president James Bullard scoffed at the notion of a full -50 basis point rate cut in July, as opposed to the usual -25bp, if at all.

On the trade front, it has now been agreed Trump and Xi will meet on Saturday. The top US negotiators have been on the phone to the Chinese premier and both parties have agreed to at least keep talking.

While no one expects an actual deal to be signed in Osaka, there is hope of a trade war truce that would avert Trump’s last US$300bn round of tariffs.

As the day approaches, Wall Street is becoming just a little bit jittery.

This was evident in a return to selling in US chip stocks, which are considered one of the most direct bellwethers of US-China trade. However, after the bell, major player Micron posted a solid earnings beat, relieving some of the fear the chip-makers have been hard hit by tariff fallout and the Huawei ban. Micron shares are up over 8% in the aftermarket.

Otherwise it was Fed commentary that led to selling on Wall Street.

Now that the Trump-Xi meeting is confirmed for Saturday, it means Wall Street will have to close its books for the quarter while still in a state of uncertainty.

Australia will have to close books for the year (FY19).

Commodities

Chilean copper mine workers have been on strike since mid-June – strikes in Chile are an almost annual event – and last night they rejected a peace offering. This boosted the copper price. The shutting down of a Chinese lead smelter for maintenance helped the lead price rise, and the other base metals all fell into line.

Gold continues to rise but is now stalling. If the price is too high, demand from the likes of China and India will evaporate and recycling activity will be stepped up.

The OPEC meeting, scheduled to begin last night, has now been postponed to July 1. Members want to see what happens at the G20. Otherwise, US-Iran tensions continue to support oil prices.

The reality is, nevertheless, that Iran is already under sanctions that prevent it from exporting much oil, hence any escalation in tensions will not threaten a large loss of global oil supply as would otherwise be the case.

The Aussie is relatively steady at US$0.6958 as the greenback bounced back a little last night.

Today

The SPI Overnight closed down -36 points or -0.6%.

The RBNZ has held a policy meeting this morning.

US durable goods orders are an important data point tonight.

CSR ((CSR)) holds its AGM today and Fletcher Building ((FBU)) hosts an investor day.

The Australian share market over the past thirty days…