Daily Market Reports | Mar 26 2018
This story features SEEK LIMITED.
For more info SHARE ANALYSIS: SEK
The company is included in ASX100, ASX200, ASX300, ALL-ORDS and ALL-TECH
| World Overnight | |||
| SPI Overnight (Jun) | 5743.00 | – 51.00 | – 0.88% |
| S&P ASX 200 | 5820.70 | – 116.50 | – 1.96% |
| S&P500 | 2588.26 | – 55.43 | – 2.10% |
| Nasdaq Comp | 6992.67 | – 174.01 | – 2.43% |
| DJIA | 23533.20 | – 424.69 | – 1.77% |
| S&P500 VIX | 24.87 | + 1.53 | 6.56% |
| US 10-year yield | 2.83 | – 0.00 | – 0.07% |
| USD Index | 89.50 | – 0.37 | – 0.41% |
| FTSE100 | 6921.94 | – 30.65 | – 0.44% |
| DAX30 | 11886.31 | – 213.77 | – 1.77% |
By Greg Peel
Collateral Damage
A pretty straightforward session for the local market on Friday – the S&P500 fell -2.5% on Thursday night on the announcement of US$60bn of tariffs to be placed on Chinese exports to the US, and the ASX200 fell -2%. War is not healthy for markets and other living things.
It was a “risk off” session featuring largely uniform selling market-wide. Most sectors fell by around -1.5 to 2%, with banks providing the greatest negative influence with a -2.2% fall.
Materials clocked the biggest decline, falling -2.7%, with metals and minerals in the trade war spotlight, while energy outperformed with -1.3%. Normally we would expect energy to trade alongside materials in such a context but the counter of geopolitical risk – being potential reimposition of sanctions on Iran – ensured the oil price was higher overnight.
Utilities drew on their defensiveness to fall only -0.8%.
Just when it’s all looking good it isn’t, with Trump’s tariffs set to take any gloss off the potential for the Turnbull government to get the numbers for a corporate tax cut this week.
The ASX200 did not quite close on its low. Lunchtime saw the index trade down as far as 5808 at which point some bold buying appeared, likely playing on the technical support of the 5800 mark. Unfortunately the SPI futures closed down -51 points on Saturday morning, implying an index opening this morning around 5770 if that call proves accurate.
Technically there’s a bit of an abyss below 5800, with 5650 probably the next level of support. Friday saw the 200-day moving average taken out comprehensively.
The only notable winners on the market on Friday were the gold miners, with gold in focus as the greenback slides. The top three ASX200 winners were all gold miners, and they were also the only three stocks to make it to a single digit percentage gain.
One saving grace is that despite the greenback continuing its slide, the Aussie is relatively steady thanks to movements in the cross-rates. Any risk-off period sees money flowing into the yen as carry trades are unwound, which reduces the competitiveness of Japan’s exports before one even gets to tariffs.
Japan has not yet been mentioned in any exemptions from Trump’s tariffs and already the Japanese government is talking retaliatory tariffs on US exports. The Nikkei fell -4% on Friday.
Hey Big Spender
Trade war fears were still resounding as Wall Street opened on Friday night but having fallen -700 point on Thursday night, the open saw some buying emerge to send the Dow up around 100.
The latest list of exemptions from the steel and aluminium tariffs that started this whole correction now includes Canada, Mexico, Australia, Brazil, Argentina, South Korea and, importantly, the EU. The EU, too, had been preparing its own retaliation plans.
This provided some relief for protectionism critics, but not so for the US steel industry, whose initial joy has been gradually undermined ever since. China will simply back-door its steel exports to the US via an exempted country, upset steel makers have suggested.
China has fired back by threatening tariffs on US$3bn worth of US goods, but not on imports it clearly can’t do without, such as soybeans, sorghum and Boeing aeroplanes. The exemptions suggest to observers Beijing may be prepared to negotiate rather than simply retaliate. It could be that this is Trump’s plan all along – scare everyone into submission, and then back away to secure a “deal”.
Ttrade was not the only story on Wall Street on Friday.
The early recovery began to fail as news emerged Trump was set to sign a massive US$1.3bn spending deal, with about half of that ear-marked for defence. It was good news for companies in the defence game, but not so for a market generally concerned about a deficit blow-out.
But it was okay. Given the bill was wrapped up with all sorts of other bits and pieces, and excluding such things as spending on The Wall, Trump was not going to sign it.
By 2pm the Dow was up over 150 points. Still, a day is a very long time in Trump politics, and indeed he announced he had signed the bill, in the interests of “national security”, which is likely code for “the government will shut down if you don’t”. The president insisted he signed under protest.
In other news, Trump has appointed known hawk John Bolton as his national security advisor. Bolton is expected to go hard on North Korea – greater geopolitical risk – and go hard on Iran – meaning the likely reimposition of sanctions. Those sanctions previously included oil exports, which is why in the face of trade war fears, the WTI price was up another 2.5% on Friday night. Brent closed over US$70/bbl.
Add it all up and traders decide by late afternoon to sell up ahead of a weekend that might bring who knows what further developments. The indices slid fast late in the session to close on their lows.
Lost in the wash was the early release of US durable goods orders data for February. Orders jumped 3.1% when 1.8% was forecast. Take out lumpy transport and defence segments, and orders still rose a very healthy 1.2%.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1347.50 | + 18.90 | 1.42% |
| Silver (oz) | 16.54 | + 0.18 | 1.10% |
| Copper (lb) | 3.00 | – 0.02 | – 0.50% |
| Aluminium (lb) | 0.92 | – 0.01 | – 1.15% |
| Lead (lb) | 1.06 | – 0.01 | – 0.87% |
| Nickel (lb) | 5.81 | – 0.14 | – 2.30% |
| Zinc (lb) | 1.46 | + 0.00 | 0.05% |
| West Texas Crude (May) | 65.98 | + 1.70 | 2.64% |
| Brent Crude (May) | 70.52 | + 1.61 | 2.34% |
| Iron Ore (t) | 64.05 | -3.65 | -5.39% |
That metals prices should be falling even as the US dollar is falling suggests trade war fears are reverberating around the LME.
Iron ore has taken a turn for the worse.
Why is it that gold always moves the day after some potentially price-moving event, and not on the day, is anyone’s guess. But on Friday night the gold price jumped as one might expect, aided by the weaker dollar, but also geopolitics, trade war fears….
Oil was stronger once more as noted.
The Aussie is steady around the US$0.77 mark.
The SPI Overnight closed down -51 points or -0.9%.
The Week Ahead
It’s a shortened week ahead as all western markets close for Good Friday.
With trade fears abounding, Wall Street’s focus can again turn to Fed policy this week as personal income and spending data are released on Thursday, including the Fed’s preferred PCE measure of inflation.
Other US releases this week include the Chicago Fed national index tonight, house prices, monthly consumer confidence and the Richmond Fed index tomorrow and pending home sales and trade on Wednesday. Fortnightly consumer sentiment is out on Thursday along with the PCE.
It’s a quiet economic week for Australia in the lead-up to Easter, with Thursday private sector credit numbers the highlight.
The Turnbull government is hoping to get its tax cut through before the break.
On the local stock front, quarterly options on individual stocks will expire on Wednesday. Otherwise, it’s all about ex-dividends once more.
A long list for the week begins with Seek ((SEK)) and Seven Group Holdings ((SVW)) today.
Rudi will make his appearance on Sky News Business once this week; on Thursday, noon-2pm.
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