The Monday Report

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World Overnight
SPI Overnight (Jun)	6133.00	– 50.00	– 0.81%
S&P ASX 200	6195.20	+ 28.00	0.45%
S&P500	2800.71	– 54.17	– 1.90%
Nasdaq Comp	7642.67	– 196.29	– 2.50%
DJIA	25502.32	– 460.19	– 1.77%
S&P500 VIX	16.48	+ 2.85	20.91%
US 10-year yield	2.46	– 0.08	– 3.23%
USD Index	96.65	+ 0.26	0.27%
FTSE100	7207.59	– 147.72	– 2.01%
DAX30	11364.17	– 185.79	– 1.61%

By Greg Peel

Euphoria

After drifting in choppy seas with a total lack of direction up to Thursday, the ASX200 finally decided on Friday which way it wanted to move, being back up over 6200 with some help from the Fed. Wall Street put in a solid Thursday night session after digesting increased Fed dovishness.

Alas, the futures are down -50 points this morning.

Not everyone jumped on Friday’s local bandwagon nonetheless. The index opened strongly and traded as high as 60 points up by lunchtime, no doubt aided by momentum algos, before common sense prevailed and an afternoon sell-off ahead of the weekend left the ASX200 up a less impressive 28 points.

That put the index up just 20 points for the week.

It was mostly green-on-screen among the sectors, with big hitters financials (+0.5%) and healthcare (+1.2%) providing a lot of the points. Telcos sat it out this time, while the materials sector (-0.1%) was spooked by a -29% fall for goldminer St Barbara ((SBM)) after a feasibility study on extending the life of the company’s Gwalia mine came in negative.

This was the only standout individual stock move on the day, with the winners and losers boards looking otherwise nondescript in a market-wide buying session.

Not much point in pulling Friday apart any further. Things look a bit different today.

Inversion

A flash estimate of Japan’s March manufacturing PMI, released on Friday, showed an unchanged 48.9 from February. Still in contraction.

Next off the mark to flash its PMI was the eurozone. Economists had expected a tick up to 49.5 from February’s 49.3 but the estimate came in at 47.6. The culprit was Germany. Europe’s biggest manufacturer saw its PMI fall to 44.7 from 47.6 when economists had forecasts 48.0.

On that news, the German ten-year bond yield fell to -0.01%.

The US PMI estimate came in at 52.5, down from 53.0 in February and below expectations of an increase to 53.6. Still in expansion, but heading the wrong way.

We recall that China’s official February PMI was 49.2.

Is there a trend here? US bond traders seem to think so. The US ten-year yield fell to be down -10 basis points late in Wall Street’s session at 2.44%. The US three-month yield fell to 2.46%. It is this three-month to ten-year curve that is most closely watched by those looking for inversion. And here it is.

US stock market went into free-fall in the morning, with the Dow down -450 mid-session. It is assumed there were algos primed to start selling as soon as the yield curve inverts. Some buying appeared in the final hour but the sellers again took over towards the death.

Not helping matters, in Dow terms, was news that Indonesian airline Garuda was looking to pull an order for new Boeing 737 Maxes worth some US$5bn. A -2.8% drop for Boeing was worth around -50 Dow points.

Nike posted an earnings result that wasn’t good enough for pumped up investors. It fell -6.6% and was also a major contributor to Dow weakness.

But selling in the S&P500 was largely market-wide, with the banks copping the brunt while utilities and staples played safe havens. The Russell small cap index, which is overweight regional banks, fell a full -3%.

The R-word is back in play. And once again the world is asking, is this time different? Recessions tend to lag yield curve inversion by 12-18 months. The last time the US yield curve inverted was in January 2006. Eighteen months later Wall Street was experiencing a Credit Crunch. A year later, well…

One difference last time was that the Fed hiked rates four times in 2006, despite an inverted curve. The Fed has hiked nine times from zero to this point but is now on hold. Last time there were not negative rates in Japan and Germany.

So the debate rages. Given it is inevitable that in every economic cycle, a recession will always eventually follow a boom, the point of discussion is not “if” there’s going to be a recession in the US, but “when”. Opinions are divided as to whether it will be some time yet, or soon.

Not helping is US corporate earnings growth, forecasts for which continue to trend down. Nor is the US dollar a saviour, given a “lesser of the evils” in global economic terms is leading to greenback strength despite falling yields.

Then there’s Brexit, the details of which seem to change every hour. The bottom line is this Friday will no longer be D-Day, given the EU has backed down and granted an extension to May 22 to get a deal through UK parliament. May might have won that reprieve, but the latest news is she herself may not make it past Friday.

Calls for a second referendum mount.

So what’s left? Oh yes, trade. Can Donald and Jinping save the day?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1313.40	+ 4.70	0.36%
Silver (oz)	15.41	– 0.03	– 0.19%
Copper (lb)	2.91	– 0.04	– 1.39%
Aluminium (lb)	0.85	– 0.01	– 1.28%
Lead (lb)	0.92	– 0.01	– 0.70%
Nickel (lb)	5.83	– 0.15	– 2.45%
Zinc (lb)	1.30	+ 0.00	0.15%
West Texas Crude	58.96	– 0.90	– 1.50%
Brent Crude	66.92	– 0.76	– 1.12%
Iron Ore (t) futures	86.20	+ 2.10	2.50%

The table above has slowing global growth written all over it, including a gain for gold on yield curve inversion.

But not iron ore, which is pivoting presently on Brazilian production, or lack thereof.

The Aussie is down -0.3% at US$0.7086 on greenback strength.

The SPI Overnight closed down -50 points or -0.8% on Saturday morning.

The Week Ahead

I haven’t made mention of Germany’s monthly IFO business sentiment survey lately, but tonight’s March release might be interesting.

US data releases this week are again a mix of fresh and catch-up. To that end we’ll see consumer confidence, house prices and housing starts tomorrow night, the January trade balance on Wednesday, pending home sales on Thursday and new home sales along with the January PCE inflation measure on Friday.

Friday also brings a revision of December quarter GDP.

A quiet data week for Australia culminates in the release of private sector credit numbers on Friday.

The RBNZ holds a policy meeting on Thursday.

In the local stock market, the ex-divs continue to roll this week although we’re now past the peak in terms of numbers of stocks going ex each day. Today is not insubstantial nonetheless, as all of Cochlear ((COH)), Seek ((SEK)) and Seven Group ((SVW)) go ex.

Kidman Resources ((KDR)) releases an earnings result tomorrow.

Rudi will appear on Your Money today, noon-2pm.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BKW	BRICKWORKS	Downgrade to Hold from Buy	Deutsche Bank
COH	COCHLEAR	Downgrade to Sell from Hold	Deutsche Bank
ECX	ECLIPX GROUP	Upgrade to Buy from Neutral	Citi
EPW	ERM POWER	Downgrade to Hold from Add	Morgans
HLS	HEALIUS	Upgrade to Buy from Hold	Deutsche Bank
NHC	NEW HOPE CORP	Downgrade to Neutral from Outperform	Credit Suisse
NUF	NUFARM	Upgrade to Add from Hold	Morgans
		Downgrade to Hold from Buy	Ord Minnett
RMD	RESMED	Upgrade to Buy from Hold	Deutsche Bank
SGF	SG FLEET	Upgrade to Equal-weight from Underweight	Morgan Stanley
SIG	SIGMA HEALTHCARE	Downgrade to Sell from Neutral	Citi
		Downgrade to Sell from Neutral	UBS
WGN	WAGNERS HOLDING	Downgrade to Hold from Add	Morgans

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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