|SPI Overnight (Jun)||6066.00||– 30.00||– 0.49%|
|S&P ASX 200||6087.40||– 6.90||– 0.11%|
|S&P500||2712.97||– 7.16||– 0.26%|
|Nasdaq Comp||7354.34||– 28.13||– 0.38%|
|S&P500 VIX||13.42||– 0.01||– 0.07%|
|US 10-year yield||3.07||– 0.04||– 1.35%|
|USD Index||93.67||+ 0.19||0.20%|
|FTSE100||7778.79||– 9.18||– 0.12%|
|DAX30||13077.72||– 36.89||– 0.28%|
Hold the Phone
The news this morning is the US-China trade war is “on hold”. Following last week’s negotiations in Washington, Treasury Secretary Mnuchin announced last night the US will suspend its threat to impose US$150bn of tariffs on Chinese imports. Beijing has agreed to “significantly increase” its purchases of US imports, particularly agriculture and energy.
The details will be sorted out forthwith.
The news will come as a relief to global financial markets, which entered the weekend uncertain as to whether negotiations could lead to any resolution. A US delegation had previously travelled to Beijing and returned with no progress being made. Ahead of talks in Washington late last week, President Trump expressed his doubts that a resolution would be reached.
There was a glimmer of hope late on Friday as economic advisor Larry Kudlow stepped out of the meeting to tell reporters China is “here to talk” and it looks like negotiations might be progressing. But with less than an hour to go before the closing bell, Wall Street remained, itself, on Hold.
In the Blood
I suggested on Friday that the Australian corporate “confession session”, which runs from now to June 30 ahead of the pre-result season blackout, typically features profit warnings. Positive profit updates are much rarer, given everyone’s upset when companies miss their guidance come reporting time but no one is put out if they beat it.
Well on Friday, mega-cap CSL ((CSL)) warned its FY18 profit would be some 8.3-10% higher than previously guided, thanks to strong sales of its Idelvion and Haegarda products and a not as bad as feared performance for its flu vaccine. CSL shares jumped 4.1%, lifting the healthcare index by a standout 2.5%.
Energy rose 0.6% for the session as oil prices continue to trade at lofty geopolitical heights, and was the only other sector to finish in the green.
It was otherwise a very Friday sort of Friday on the local market. An attempt to rally back through 6100 was made on the opening bell but lasted but a heartbeat. By late morning the ASX200 had basically fallen back to the level it would ultimately close at. Volumes were low.
The local market joined world markets on Friday in wondering and worrying about what would come of the US-China trade negotiations. There was little encouragement to carry positions over the weekend.
The materials sector eased -1.1% on a bit of a dip in the iron ore price, having run pretty hard of late. Telcos (-0.7%) are supposedly in their own “trade war”, and continued to fall. Financials slipped -0.4% ahead of the recommencement of the Royal Commission today, at which tales of small business woe are anticipated.
Weakness in financials came despite a 7.1% jump for Challenger ((CGF)) to top the ASX200 leaders’ board ahead of CSL. Brokers are assuming the company’s annuity offerings will receive a boost in demand from the government’s new policies with regard super.
Countering Challenger in the financials sector was a -5.3% drop in nib Holdings ((NHF)) after brokers suggested the insurer will be forced to raise capital to meet new prudential requirements set by the regulator. Nib topped the ASX200 losers’ board, followed by a2 Milk ((A2M)), which fell another -4.6% following last week’s disappointing trading update.
Watching and Waiting
Activity on Wall Street was subdued on Friday night as traders awaited news of any breakthrough in the trade talks. The Dow closed flat while the S&P dipped and the Nasdaq dipped a bit more by the close, yet the Russell small cap index pushed on to a third consecutive all-time high.
Most small caps are not the least affected by international trade.
The energy sector fell on the session as profits were taken ahead of the weekend following a solid week. The US ten-year yield hit 3.12% before it fell back to be -4 basis points down on the session at 3.07%, ensuring financials also fell on the session.
Among a handful of late season earnings reports the numbers were not as flash as those delivered by 80% of the S&P500 throughout the season. Campbell Soup dropped -12.4% on weak guidance, chipmaker Applied Materials fell -8.3% on a weak sales outlook, and department store chain Nordstrom fell -10.9% on weak reported sales.
Earlier in the week things were looking a little brighter for America’s beleaguered department store sector when Macy’s surprised with a Street-beating result, but since then both JC Penney and Nordstrom have reinforced the “death by Amazon” theme.
Wall Street closed with trade negotiations still underway.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1291.90||– 0.30||– 0.02%|
|Silver (oz)||16.43||+ 0.02||0.12%|
|Copper (lb)||3.10||– 0.01||– 0.32%|
|Aluminium (lb)||1.02||– 0.01||– 1.03%|
|Lead (lb)||1.04||– 0.02||– 1.82%|
|Nickel (lb)||6.66||+ 0.06||0.84%|
|Zinc (lb)||1.40||+ 0.00||0.29%|
|West Texas Crude (Jun)||71.35||– 0.24||– 0.34%|
|Brent Crude (Jul)||78.71||– 0.79||– 0.99%|
|Iron Ore (t)||66.70||– 0.55||– 0.82%|
As did commodity markets.
The Aussie, too, was on hold at US$0.7510.
The Week Ahead
The SPI Overnight closed down -30 points or -0.5% on Saturday morning which, in isolation seemed like a lot given the S&P fell only -0.3% and there was as yet no news out of Washington. But we can now likely dismiss that move.
Relief over global trade should be a positive for Australian markets today. The only point of concern might be that pledge by Beijing to buy more US energy. If that is the case, from whom will China not buy as much?
Before a backdrop of trade relief, the US will see the Chicago Fed national activity index tonight and Richmond Fed index tomorrow. Wednesday brings new home sales, a flash estimate of the May manufacturing PMI and the minutes of the last Fed meeting.
Thursday it’s existing home sales and FHFA house prices, and Friday it’s durable goods and fortnightly consumer sentiment.
Japan and the eurozone will also flash PMIs on Wednesday.
The highlight of this week’s Australian economic calendar will be Wednesday’s release of March quarter construction work done, in the lead up to next month’s GDP result.
The RBA governor will speak on Wednesday, coincidentally at the Australia-China Relations Institute.
On the local stock front, Seven Group Holdings ((SVW)) will host an investor day today and TechnologyOne ((TNE)) will release its earnings result tomorrow.
Blackmores ((BKL)) holds an analysts meeting on Wednesday and Woodside Petroleum ((WPL)) an investor day, while Thursday brings earnings from Aristocrat Leisure ((ALL)) and AGMs for Alumina ltd ((AWC)), Beadell Resources ((BDR)) and Westfield ((WFD)).
Sydney Airport ((SYD)) holds its AGM on Friday.
Rudi will appear on Sky Business on Tuesday via Skype around 11.15am; again on Thursday from midday ’til 2pm; and again on Friday via Skype, probably around 11am.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|A2M||A2 MILK||Downgrade to Neutral from Buy||Citi|
|AHG||AUTOMOTIVE HOLDINGS||Downgrade to Neutral from Outperform||Macquarie|
|ALQ||ALS LIMITED||Downgrade to Sell from Hold||Deutsche Bank|
|CWN||CROWN RESORTS||Downgrade to Hold from Buy||Ord Minnett|
|CYB||CYBG||Downgrade to Neutral from Outperform||Credit Suisse|
|IVC||INVOCARE||Upgrade to Buy from Sell||Citi|
|LNK||LINK ADMINISTRATION||Upgrade to Buy from Neutral||Citi|
|Upgrade to Outperform from Neutral||Credit Suisse|
|MQA||MACQUARIE ATLAS ROADS||Downgrade to Equal-weight from Overweight||Morgan Stanley|
|SYD||SYDNEY AIRPORT||Downgrade to Equal-weight from Overweight||Morgan Stanley|
|TWE||TREASURY WINE ESTATES||Upgrade to Neutral from Underperform||Credit Suisse|
This article provided by NewsEdge.