Overnight: Bogging Down

By Greg Peel

Déjà vu?

Wall Street has done little more than tread water these past few sessions but for some reason the Australian market has become exceptionally volatile. Earlier this week it appeared the ASX200 might be headed for another new high just for the sake of it, on momentum, as was the case in July before a -7% correction.

That momentum nonetheless evaporated, and after yesterday it looks like we might be repeating the pattern without actually reaching a high.

If yesterday was a response to renewed trade uncertainty, as Trump was unable to reveal any progress in negotiations in his speech on Tuesday night, then the fact our futures closed up 10 points before the opening bell yesterday, with Wall Street flat, suggests it wasn’t a concern. But sell we did, right from the open, all day long.

Momentum did indeed return – just in the wrong direction. Selling was relatively even across all sectors, implying a Sell Australia trade, but there are couple of exceptions.

Healthcare (-0.1%) outperformed, with CSL ((CSL)) hanging in there. But the main exception was IT, which rose 0.8% against the trend, and in contrast to the usual pattern that sees high risk/high growth stocks the first to be jettisoned in any sign of weakness.

Appen ((APX)) dragged the WAAAX stocks higher in rising 5.9%. Afterpay Touch ((APT)) rose 0.6% following a trading update.

Bingo Industries ((BIN)) also provided an update, and jumped 10.7% to win the day. The company provided better than expected FY20 guidance, and the CEO announced he was buying stock. Industrials (-0.4%) also slightly outperformed the rest of the market.

The banks that were in favour earlier in the week, with the bad news all out of the way, were once again villains yesterday (-1.2%).

Late morning we learned wage growth in the September quarter came in at 0.5%, taking annual growth down to 2.2% from the June quarter’s 2.3%, noting that the June quarter was distorted by a one-of public service wage rise in Victoria. The result was as expected, but hardly great news. With the market already in selling mode, the consumer sectors, which had been popular as recently as Tuesday, got thumped.

Bank selling may also have been exacerbated by a low wage growth result as well.

The iron ore price rose overnight, and the iron ore miners were all sold down yesterday, again. Fortescue Metals ((FMG)) has now fallen -9% in less than a week. With iron ore prices now well off their Vale-driven highs, all that candy Fortescue, and the biggies, were previously handing out to shareholders now seems but a dream.

If the fact Trump could provide nothing positive on the trade front on Tuesday night upset our market, if not Wall Street, news last night that the two sides may have again reached a stalemate should have both markets retreating in panic.

The Dow closed up a close to hundred points and our futures are up 23.

Funny Old World

Yes…trade negotiations look like they have again reached a stalemate and last night the Fed Chair all but said “no more rate cuts” and the Dow rose 92 points.

Of more relevance is the 0.1% gain for the S&P500, after briefly hitting a new all-time high in the session, to the Dow’s 0.4% gain, which was mostly to do with Disney.

Disney announced it had signed up ten million subscribers to its new streaming service on day one. The stock jumped 7.4%.

Wall Street did open lower on the day, on news that while Trump has claimed China will buy US$50bn of US soybeans, pork and other agri-products, Beijing is refusing to commit to an actual figure. Chinese officials have also resisted US demands for a strong enforcement mechanism for the deal and curbs on the forced transfer of technology for companies seeking to do business in China, the WSJ reported.

And the two sides are at odds over when and by how much US tariffs would be lifted in return for a phase one deal.

I’ve said it before and I’ll say it again: this is exactly the point we reach every time. China has previously committed to buying agri-products, but has never followed through. Thus Washington wants the commitment in writing. Beijing has constantly resisted reforms with regard intellectual property, which weren’t originally part of “phase one” anyway, and seems unmovable.

Simply, Beijing will only sign a deal if tariffs are lifted, and Washington will only lift tariffs once it’s clear Beijing is sticking to the deal.

Get ready for the December round of tariffs, and likely tariff increases. For China not to walk away, as it has done at this point every time, would require a significant breakthrough. Which side will budge?

On any other day, this sort of news would have Wall Street tumbling. But no.

In earlier days, implicit confirmation from the Fed that there will be no more rate cuts would also have Wall Street tumbling. However, given recent bouts of recession fear, the suggestion from Jay Powell that the US economy is still expanding and monetary policy is in a good position has proven more soothing than disappointing, vis-à-vis further stimulus.

All up Wall Street continues to tread water, seemingly expecting that there can be a breakthrough, or at least not discounting the possibility.

Commodities

As the trade situation continues to look more dicey, base metal prices continue to fall.

By rights oil prices should have followed suit, except that the EIA has increased its 2019 and 2020 price forecasts by 0.3%.

Gold has made a little bit of a comeback on uncertainty.

The Aussie is slightly lower at US$0.6842.

Today

The SPI Overnight closed up 17 points or 0.3%.

The local jobs numbers are out today.

China releases industrial production, retail sales and fixed asset investment data.

Japan releases its GDP result.

There’s a decent list of AGMs for the local market today, including those of Ansell ((ANN)), Nearmap ((NEA)), Ramsay Health Care ((RHC)), Sims Metal Management ((SGM)) and Wesfarmers ((WES)).

National Bank ((NAB)) goes ex-div.

The Australian share market over the past thirty days…