The Overnight Report: More Soap Opera

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            [3] => ((NVT))
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This story features FORTESCUE LIMITED, and other companies.
For more info SHARE ANALYSIS: FMG
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 60 points or 0.3% while the S&P fell -0.1% to 2470 and the Nasdaq lost -0.4%.

Resourceful

The ASX200 got off to a very slow start yesterday before finally getting its act together and rallying to be up 43 points by mid-afternoon. It then faded into the close. There was a lull around noon when the Chinese PMI data were released.

China’s manufacturing PMI for July came in at 51.4, short of forecasts of 51.6 and down from 51.7 in June. The services PMI fell to 54.5 from 54.9.

It was not these numbers that caused the market to fade however. Indeed, following the lull the index took off towards its intraday high. There was talk that the weaker July manufacturing number was a result of flooding in some parts of China as well as scheduled maintenance shutdowns in some industries, but what caught the market’s attention was unrelated talk of Beijing now turning its environmental scrutiny towards China’s domestic iron ore mines.

Bang. Iron ore futures went “limit up”, rising almost 8%. That is why yesterday’s leaders’ board was topped by Fortescue Metals ((FMG)) and solid gains were posted by BHP ((BHP)) and Rio Tinto ((RIO)). The materials sector closed up 1.5%, and as the WTI oil price approached US$50/bbl, energy closed up 1.0%.

Therein lies yesterday’s 17 point gain for the index. The banks were flat, while positive sessions for consumer discretionary and utilities were offset by weak sessions for healthcare and telcos.

Overnight, the WTI price has breached 50. Spot iron ore is up 6% at US$73.10/t but that race was run yesterday. There’s been more upheaval in the White House and the US dollar continues to plummet. Forex traders have nevertheless been reluctant to push the Aussie above US80c in lock-step with the falling greenback until today’s RBA policy statement is released.

All and sundry expect Philip Lowe to “talk down” the currency. If he doesn’t, stand back.

The Aussie is thus poised at 80. The local earnings season begins in earnest today, and a full month of reports lies ahead. Futures traders also appear poised, with the SPI down one point this morning.

The ASX200 is sitting at 5720, somewhat of a no man’s land in the middle of the well-entrenched range, looking, no doubt, for the next catalyst.

Do the Fandango

I see a little silhouetto of a man, who was shown the door this morning by the President after only ten days as White House communications director. It was a turbulent few days featuring threats and expletives, and supposedly Scaramucci “stood aside” to let the newly appointed chief of staff have a clean slate to work with.

But as usual, Wall Street shrugged. If anything, it was seen as a positive, and a step closer to filling the Oval Office with adults, but then there was no negative reaction when Scaramucci was appointed.

The US dollar index is nevertheless down another -0.5% at 92.80. It’s now lost around -10% from Trump euphoria highs at the beginning of the year. As each day passes, the soap opera becomes more dramatic but nothing of any substance is achieved. The Treasury Secretary this morning spoke of attention now turning to tax reform, given no success with healthcare, but nothing concrete has been offered on that front either.

And there is no guarantee tax reform will not prove as difficult as healthcare in terms of finding common ground amongst Republicans.

Meanwhile, the White House has called the Venezuelan election a sham, in not so many words, and imposed sanctions on the Venezuelan president. The oil market assumed last night there would also be sanctions placed on Venezuelan oil exports, although the White House appears not to be keen. Oil is about Venezuela’s only source of income, and most of its exports flow to the US which is already now seeing reduced exports from Saudi Arabia.

WTI crude is up another 0.9% and that takes it over the US$50/bbl mark. The energy sector was strong on Wall Street last night, particularly as the strong result from Chevron continued to resonate. The big caps on the Dow were again in favour over Big Tech, although Apple is poised ahead of tonight’s earnings result.

And investors continue to play catch-up in Boeing. Because Boeing now is the highest price stock in the Dow price average, every gain is disproportionately influential. The Dow has again hit a new all-time high while the S&P continues to balance out the rotation trade away from Big Tech.

Wall Street continues to focus on earnings, of which there are still plenty more to come. Running at 11% growth, the score card remains healthy.

Commodities

West Texas crude is up US44c at US$50.20/bbl. Last week was oil’s best this year, July was its best month since April 2016.

Iron ore rose US$4.10 to US$73.10/t.

Base metals prices all rose in concert last night by around 0.5%.

Gold made its big move on Friday night, hence another -0.5% drop in the greenback has had no impact. Gold is steady at US$1268.80/oz.

The Aussie is up 0.3% at US$0.8002.

Today

The SPI Overnight closed down one point.

Over to you, Dr Lowe. Can you bring this Aussie down?

It’s the first of the month hence the rest of the world will post manufacturing PMIs over the next 24 hours, and Caixin will provide its own take on China.

The eurozone will see a first estimate of June quarter GDP tonight.

US data releases include personal income & spending, which brings the personal expenditure & consumption (PCE) measure of inflation favoured by a Fed that is worried about inflation.

Navitas ((NVT)) and CYBG ((CYB)) are among those stocks kicking off the local earnings season today.
 

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