The Overnight Report: Trade War Hits Tech

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By Greg Peel

Immaterial

Yesterday morning, a 23 point gain for the ASX200 suggested by the futures seemed ambitious given falls across the board in commodity prices and only a modest gain on Wall Street. As it was, the materials sector did fall -1.4%.

But it was a very lonely day for the sector. Every other sector closed in the green, and judging by the uniformity of moves, market-buying was afoot. It’s hard to call it market-buying when the big miners miss out, but they have been the prime drivers of the index’s rally to above 6200, so perhaps time for a change.

Notwithstanding, the resource sectors are exposed to a global trade war that may yet escalate further.

But they are also beneficiaries of a weaker currency, and a big fall in the Aussie on Monday night perhaps provided impetus for buying in the Australian market yesterday.

The RBA is clearly relieved, given yesterday’s policy statement contained, for the first time in two years’ worth of statements, no warning of the threat posed by a too-high Aussie.

The central bank is, nevertheless, worried about rising wholesale funding costs, meaning rising US rates, and their potential impact on mortgages. The RBA would be looking to raise too if not for the risk posed by historically high levels of household debt.

Yet the financials rose 0.9% yesterday.

Where to put those profits taken in materials? The weakest performing sector this year looks like a good bet. Telcos were up 2.1% to win the day. IT was the only other sector not to post a gain of around the 1% mark, likely because it has been one of the best performing sectors of late, mimicking the Nasdaq. IT managed only 0.3%.

So a little bit of rotation, but otherwise a pretty solid bet on Australia as we enter the new year.

That said, the futures are down -26 points this morning, the Aussie has bounced, and metals prices are again weaker.

Independent

A shortened session on the NYSE ahead of the holiday began well last night following strength in Europe, which was attributed to further agreement on migrant policy. But a triple gain for the Dow early on soon gave way to selling, accelerating in the last half hour to the 1pm bell.

Triple digit gains turned into triple digit losses, albeit on low volume.

The high-flying Nasdaq was the weakest performer on the day, down -0.9%, initially prompted by Facebook. The investigation into Cambridge Analytica has widened, with more US federal agencies joining in with the FBI and SEC to get to the bottom of the issue which, as we recall, led to supposed election interference.

Facebook shares closed down -2.4% but earlier it looked like initial gains would simply fade away to a flat close, with the Nasdaq a little weaker, when news hit the wires regarding chipmaker Micron.

That stock ultimately closed down -5.5% after a Chinese provincial court announced a temporary block on sales of Micron chips due to alleged patent breaches.

Wall Street’s immediate assumption was that a “patent breach” smacked very much of retaliation against the White House’s attack on Chinese theft of US intellectual property, and as such potentially represents yet another escalation in the trade war. Chip stocks, including 2018 star Nvidia and Dow component Intel were sold heavily in the last half hour.

Also turning tail were the usual trade war suspects among the big industrials, including Dow names Boeing, Caterpillar and also Nike.

Another stock leading “tech” names lower was Tesla, which fell -7.2% on accusations the carmaker managed to reach its ambitious daily production run-rate last month by skimping on safety testing – an accusation Tesla firmly denies. The stock had already lost some steam on the earlier announcement the head engineer was resigning.

Commentators point to heightened volatility on the day being all down to minimal volumes, with most of Wall Street on vacation for at the least the punctuated week.

But there is no doubt that as the fireworks explode tonight, the trade war and its growing consequences will be in the back of investors’ minds.

It nevertheless fitting the US should celebrate Independence Day, given it appears to boast the only remaining strong economy in 2018 following the lauded “synchronised global growth” of 2017.

Commodities

The US dollar index slipped back a bit last night which provided a boost for gold, but the industrial metals closed mostly weaker once more.

There are now oil production disruptions in both Libya and Canada, balancing out against production increases from Saudi Arabia and Russia of an as yet unknown quantum, offsetting export losses from Iran and Venezuela.

Suffice to say, oil markets are in somewhat of a state of confusion right now.

After falling heavily on Monday night, the Aussie is back up 0.7% to US$0.7387.

Today

The SPI Overnight closed down -26 points.

No US markets tonight.

Locally we’ll see retail sales and trade data for May.

The Australian share market over the past thirty days…

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