The Monday Report

This story features RESOLUTE MINING LIMITED, and other companies. For more info SHARE ANALYSIS: RSG

By Greg Peel

All the way with Jay

On Thursday night New York Fed president John Williams provided what Wall Street took to be a big hint that on July 31, the Fed won’t just cut by -25 basis points but by a whole -50 points. It was enough to spin US stock indices around from their depths to close flat on the session, and by the close of trade on Friday locally, the Dow futures were up a hundred points.

The local market did not need to wait for that indicator. In fact, traders could have left the building at 11am for an extended weekend, given by that time the ASX200 was up around 50 points and there it stayed for the rest of the session.

A Fed cut of -25 points makes Australia’s high dividend-paying stock market look attractive to foreign buyers, so -50 is even better. A big Fed rate cut puts further pressure on the RBA to come into line, so yield is again the target for local investors as well. So on Friday, all the yield-paying sectors rallied.

Indeed, all sectors rallied. Not really chiming in though were energy, which closed only slightly higher given lower oil prices, and healthcare, which also just fell over the line, likely because the Aussie shot up and CSL ((CSL) has run very hard of late.

Materials (+1.1%) is these days a yield-payer but it were the gold miners leading the charge on Friday on another twenty dollar-odd jump in the gold price. The top four ASX200 leaders on the day were all gold stocks, with Resolute Mining ((RSG)) winning the stage with a 7.1% gain.

The banks (+1.1%) provided the bulk of the 50 index points as they too are yield payers but also because National Bank ((NAB)) announced the appointment of a new CEO, who, judging by a 2.2% pop for NAB shares, is a good choice.

Utilities posted the biggest percentage move on the day (+1.6%). See above.

But alas, it was all just a dream.

US stocks, the US dollar and gold all went back from whence they came on Friday night. Our futures were down -26 points on Saturday morning.

Lack of Tranquillity

Well I had to get a moon reference in eventually. Clear memories as a seven year-old sitting cross-legged and wide-eyed on the classroom floor. The time between “The Eagle has landed” and “One small step” is two hours of my life I’ll never get back.

On Friday night New York Fed president John Williams poured cold water on assumptions the Fed was ready to deliver a -50 point cut, suggesting the comments he made on Thursday night were merely “academic” and not necessarily appropriate in this case.

So, as you were.

The S&P fell -0.6%, the US dollar jumped 0.5% and gold fell back twenty dollars.

The US two-year bond yield jumped back 4 basis points to 2.04%, and the ten-year is at 2.05%.

On Thursday night the chance of the Fed cutting by -50 points popped up to 60%, according to the futures. By the close of Friday, the chance of a rate cut of some degree sat at 100%, with 75% expecting -25 points and only 25% still hanging on to -50 points.

The reason the Dow managed to hold up better than the S&P was down to Boeing – the highest share price stock in the average and thus its greatest points influence. Boeing announced a charge of -US$4.9bn with regard its 737 Max groundings, thus removing uncertainty from the share price and leading to a 4.5% jump.

Meanwhile, Microsoft, also in the Dow, rose over 2% on the open to a new all-time high, matching its aftermarket move on Thursday post result release, and cementing the company in the trillion dollar market cap club. Then it fell back to close up only 0.2%.

Oil prices initially jumped on Friday night on the news of the Iranian seizure of a British tanker, and the usual threats from Trump regarding what his warships in the Persian Gulf could do if necessary. Prices did begin to fade back later in the day.

US and Chinese trade delegates had further conversations on Friday night. No progress. Several large US semi-conductor companies are lobbying the White House for permission to supply Huawei.

And as has become the norm, the government is set to run out of money come September unless the debt ceiling is lifted, which requires the endorsement of the Democrat-led House. The two sides have reportedly agreed on defence and welfare spending increases, but are yet to agree on other elements.

What happened to The Wall?

In earnings news, American Express (Dow) reported a slight beat on earnings and revenue and was punished -2.8%.

Perhaps the most influential event of Friday night was a CNBC interview with Boston Fed president and FOMC member Eric Rosengren, after the bell. He implied, quite clearly without a formal confirmation, that he saw no reason to cut rates at all.

He was also quick to say that his opinions are his, and he can’t speak for other FOMC members.

And he also suggested that the clincher will be the first estimate of US June quarter GDP, due this Friday, which he expects to confirm his views.

Roll the dice.

Commodities

Metal traders cited Fed rate cut expectations as the reason for copper jumping 2% on the LME. Why didn’t all metal prices jump then? I’d suggest traders who enjoyed the big week for nickel switched their attention, belying a 0.5% jump for the greenback.

The iron ore price never falls back far.

Two steps forward and one step back for gold.

The initial oil price rally faded.

The Aussie is back down at US$0.7045 after falling -0.4%.

The SPI Overnight closed down -26 points or -0.4% on Saturday morning.

The Week Ahead

There are not a lot of data releases this week but what there is will matter, particularly for Mr Rosengren.

The US will see an estimate of July manufacturing PMI on Wednesday, durable goods orders on Thursday and the GDP on Friday.

The ECB will hold a policy meeting on Thursday and the RBNZ on Friday.

Nothing much of note locally. Rather, the resource sector will again take centre stage on the stock market.

Evolution Mining ((EVN)) releases its June quarter production report today, followed by OZ Minerals ((OZL)) tomorrow, Beach Energy ((BPT)), Iluka Resources ((ILU)) and St Barbara ((SBM)) on Wednesday , Fortescue Metals ((FMG)) and Newcrest Mining ((NCM)) on Thursday, and OceanaGold ((OGC)) on Friday.

Atlas Arteria ((ALX)) provides a quarterly report on Wednesday and Macquarie Group ((MQG)) holds its AGM.

ResMed ((RMD)) reports earnings on Friday.

The Australian share market over the past thirty days…

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms