The Overnight Report: Trade Confusion

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            [6] => ((CKF))
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This story features ANZ GROUP HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: ANZ
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Yesterday’s Hero

On Friday the banks were the big winners on the local market, following ANZ’s Bank ((ANZ)) increased buyback announcement, providing a market-saving rally in a sea of red. Yesterday the story was different.

The ASX200 shot up over 20 points from the opening bell, following Wall Street’s lead, but then Commonwealth Bank ((CBA)) announced its intentions to demerge its wealth management and mortgage broking businesses into a separate entity. CBA dropped -2.3%, and the other banks reversed in sympathy.

The financials sector closed down -1.0%, having risen by that amount on Friday. On Friday the banks saved what might have been a more substantial down-day, and yesterday they scuppered what might have been a positive session.

Balancing the banks yesterday was energy, up 1.6% on the 5.5% jump in the oil price. Materials rose 0.9% with help from a stronger nickel price.

Telcos continue to let the side down, falling another -0.9%.

Individual stock movers on the day included HT&E ((HT1)), which rose 8% after agreeing to sell its Adshel business to oOh!media ((OML)), who pipped rival APN Outdoor ((APO)) but they might still be purchased by JCDecaux.

Kathmandu ((KMD)) posted a positive trading update that saw its stock climb 14%.

Today is another day. Escalating trade tensions had markets falling heavily across the globe, and this morning the futures are down -56 points. Given the reasons for that selling, detailed below, it’s hard to see where Australia fits in. But psychology is at play and with end of year on Friday, book squaring after the rally to this point will begin early, it appears.

Plan or No Plan

News came out of the White House last night that the president intends to announce plans to prevent many Chinese companies from investing in US technology firms and to block additional US tech exports to China. The Dow fell -500 points.

Worst hit early on was the Nasdaq, which is dominated by such tech companies.

But with an hour to go the buyers emerged, pushing the Dow back up to be down only -400. Then Trump’s senior trade advisor, Peter Navarro, appeared on CNBC.

There are “no plans” to restrict Chinese investment, Navarro insisted. Wall Street is “overreacting”.

That was worth around another 100 point recovery in the Dow, but the final close of down -300 was indicative of the confusion Navarro created. Earlier the Treasury Secretary had said he had been asked by the president to look into the tech situation with a mind to implementing restrictions if deemed necessary, on any country, not just China. Navarro then says there are no plans to do such.

But will there be a plan after Secretary Mnuchin reports to the president at week’s end? Navarro could not provide a straight answer. He also implied no other country is in the sights, beyond China.

So plans or no plans? Nobody knows. Presumably we’ll find out by the end of the week. IP theft is one of Trump’s biggest bugbears, which should be a clue.

The end of the week happens to be the end of the quarter. Last week the Nasdaq was posting new all-time highs. What began as a tech sell-off, related to trade, became a rush to lock in profits a couple of days earlier than might otherwise have been the case. Netflix, for example, fell -6%. Netflix has no business in China. The stock is up 100% year to date.

The chip stocks were all hammered, which we can directly associate with investment restriction fears, but FANGs and friends all saw selling, whether or not they are impacted by restrictions.

Moreover, the Russell small cap index fell -1.7% when for the past month it has been the trade war safe haven, rising to ever higher new highs. Clear evidence of a sharp down-day in the market in general generating premature profit-taking ahead of quarter end.

That is not to suggest trade confusion did not at all spook the market. The VIX jumped 25% to 17. The US ten-year yield fell -3 basis points to 2.87%. Money flowed into the yen, sending the US dollar index down -0.2%.

This may to some extent support the local futures move of -56 points this morning: escalation in global macro fear. But at the micro level, a tech investment battle between the US and China might as well be going on on Mars, to the extent Australia is directly impacted.

Base metal and oil prices were nevertheless lower overnight and our market, too, is in for some profit-taking as we approach not only quarter-end, but EOFY.

Commodities

Nobody likes a trade war. Base metal prices reflect such.

In the case of oil, a retreat after Friday night’s surge is not a shock, but confusion is the case in this market as well as it remains unclear as to just how much production is set to come back on line from OPEC and friends. Is it only 600,000 barrels per day, or is it really one million?

By rights the Aussie should be up with the greenback down but it tends to fall on any escalation in trade war fears as well, and is down -0.4% at US$0.7413.

Today

The SPI Overnight closed down -56 points or -0.9%.

Collins Foods ((CKF)) reports earnings today in an otherwise limited calendar.

Rudi will appear on Sky News Business via Skype at around 10.30am this morning to discuss share markets and broker calls.

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.

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