Overnight: What To Believe?

By Greg Peel

Step-Down

It was a relatively orderly session on the local market yesterday. The ASX200 fell in the opening minutes and that was that. A mild recovery was apparent up until early afternoon before the selling won out again, to take the index over -100 points down with twenty minutes to go before a late rally, likely on US futures-watching, saved some face.

The day was all about the macro, with falls quite uniform across sectors. The standout was energy, down -3.1%, but that included Woodside Petroleum ((WPL)) going ex. Healthcare fell -2.0%, being a “global” sector, while only a -2.0% fall for IT seemed quite tame.

Other sectors all fell around -1%.

Underneath there remained a micro focus as the final week of earnings season plays out. Earlier in the season it looked like being a shocker in historical terms, based on misses exceeding beats for the first time since FNArena’s season monitor began (Aug ’13). With results all in and assessed up to this final week, misses still exceed beats, by 26% to 21%. Misses have pulled back in from over 30% prior, but judging by yesterday’s results, a last-week redemption seems unlikely.

We have to take yesterday’s market responses to individual results in the context of the macro overlay, but a -20.1% plunge for Boral ((BLD)) is not just a macro story. The same can be said for G8 Education ((GEM)), which fell -16.1%.

Almost all of yesterday’s reporters marked falls in response yesterday, but given the macro effect we will need to assess today’s broker analysis to confirm whether these were all indeed “misses” or just a bad day to report.

We might note Adairs ((ADH)) bucked the trend in rising 11.8% but it is outside the index. Inside the index, no one made the top five leaders’ board that wasn’t a gold miner, thus no one beat a 6.9% jump for St Barbara ((SBM)) which put that stock in fifth place to Resolute Mining’s ((RSG)) 10.3%.

There were many more individual stories and too many to cover in this Report, but the FNArena Corporate Results Monitor will have all the details later today.

There’s another solid round of result releases today although by now the biggies are becoming less prevalent amongst smaller names. Today’s exception is Wesfarmers ((WES)).

Otherwise we remain in the grip of the macro, and in particular, one man’s thumb.

Grain of Salt

As I noted yesterday, Friday night’s trade saw Wall Street fall initially on the news of Chinese tariff retaliation but then really tank on Trump’s subsequent tweets, attacking both China and the Fed. US markets closed before Trump announced his own tariff retaliation.

Hence after a fall of -600 in the Friday session, the futures had the Dow down another -300 Then came the Biarritz breakfast comment from Trump that he could have “second thoughts” about tariffs. Despite the White House scrambling to water down this suggestion, the futures did start to tentatively rally back. The futures then jumped further, regaining all of the 300 points lost, on what happened next.

Speaking at a news conference as the G7 wrapped up in France, Trump said trade negotiations were set to begin again in the wake of “two very good calls” from Beijing.

“China called last night our top trade people and said let’s get back to the table,” said Trump. He said China wants to make a deal and believes one will finally be reached.

There are two slight problems with this revelation. Why, having just escalated the trade war, would China suddenly turn around and want to make a deal? Just because Trump threatened to fight back? I think they probably assumed he would.

The other problem is the calls were news to Beijing.

China’s vice premier and top negotiator did make a speech calling for calm on the trade front, but the Chinese government denies any calls.

Later Trump switched his story to a Chinese headline suggesting Beijing wanted to make a deal, before switching back again to insist calls were made.

Trump also called President Xi a “great leader”. On Friday night he was America’s “enemy”.

I don’t suppose Wall Street’s plunge on Friday night might have rattled Trump somewhat? All we’ve ever heard from the White House since early 2017 is that a deal is “close”, and it never is. But Trump knows how to throw Wall Street a bone.

The Dow did rally from the open last night, faded a little during the session and kicked to the close. Volume was nevertheless much weaker than it was in the sell-down on Friday night, albeit it must be noted the UK was on holiday and that does make a difference. The general assessment was one of lack of conviction. The algos were doing the buying, without much enthusiasm from the humans.

In economic news, US durable goods orders rose 2.1% in July when 0.9% was forecast, but strip out defence and aircraft and that rise is 0.4%, which indicates an ongoing slowdown in capital expenditure since May’s 0.9% gain.

In Germany, the monthly IFO business sentiment survey registered its lowest level since 2012.

Commodities

The LME was closed last night.

Gold markets were open, but no change.

Iron ore fell -US$2.95 to US$86.00/t, but that puts it a dollar higher than Thursday night’s close.

The oils continued to slide, this time one hopes for a resolution with Iran, which no doubt has something to do with Macron inviting the Iranian oil minister to be his “and guest” at the Biarritz bash.

The Aussie has rebounded 0.6% to US$0.6777 to appear to be unchanged throughout this latest volatility, except that it did briefly trade under 67 at one point on the roller coaster. Last night looks like typical short-covering, and we note the Aussie has spent the last few sessions following the greenback rather than opposing it as is normal.

Today

The SPI Overnight closed up 19 points or 0.3%, suggesting a similar lack of conviction.

Another round of earnings reports today with, as noted, Wesfarmers the standout.

There’s a spread of sizeable ex-divs today. See the FNArena Calendar.

The Australian share market over the past thirty days…