The Overnight Report: Upping The Ante

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This story features WESTPAC BANKING CORPORATION, and other companies.
For more info SHARE ANALYSIS: WBC
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Ups and Downs

It was a second flat session in a row for the ASX200 yesterday, but while there was quite a bit going on among the sectors on Tuesday, yesterday only two made any mark.

Materials were up 0.7% and financials were down -0.7%. Beyond that, nothing much else moved the dial, except perhaps a 0.4% rebound for healthcare after a period of profit-taking.

The banks were down because the Australian national average was reported to have fallen -1.6% year on year, to mark the largest decline since 2012. Falls were greater in the major capitals, but then considering house prices have risen around 70% in Sydney and 50% in Melbourne over the past five years, there’s not a lot to cry over.

It comes down to just how stretched household budgets are vis a vis mortgage obligations, at a time of an historically low cash rate for which the RBA has warned the only way is up from here. Westpac ((WBC)) has now tightened its credit controls once again – for the fourth time in six months – citing concerns over loan servicing capability.

The materials sector rose because commodity prices rose, and they rose because there seemed to be a glimmer of hope that trade negotiations between the US and China would resume once more, even though they apparently have never ceased.

All that went out the window last night.

At the individual stock level, minerals and food testing service ALS ltd ((ALQ)) clearly said all the right things at its AGM, as that stock won the day with an 11.4% gain. Trying to catch up were Credit Corp ((CCP)), kicking on another 6.4% on its strong earnings result, and ditto GUD Holdings ((GUD)), up another 5.4% having reported last Friday.

On the flipside, Janus Henderson ((JHG)) revealed money flowed out of the asset manager like a broken pipe last quarter, as well as announcing the sudden resignation of its CEO, who is rumoured to have been offered the thankless task of saving AMP ((AMP)).

Janus shares fell -7.8%.

Another flat market is likely not on the cards today, with trade war hope having given way to escalation fear once more overnight. Commodity prices have all been thumped and the two big miners are both down over -3% in London.

The futures are down -26.

Meanwhile, back at the war…

Wall Street’s session began on a strong note last night, led by Apple, which features in all three major indices. Apple shares rose 6% following its after-the-bell result release on Tuesday night, not only serving to lift the Nasdaq in particular but going further to quell fears around the FANGs in general, or FAANGs in this case.

There was also positive news on the economic front, unless you fear an over-excited Fed. The ADP private sector report for July showed 219,000 jobs added when 178,000 was forecast. In terms of a reliable lead indicator for Friday night’s non-farm payrolls number, the ADP report isn’t.

But the mood on Wall Street soured mid-morning when news broke that the White House was planning to increase the tariff level on the planned further US$200bn worth of Chinese imports to 25% from the 10% originally intended. The new tranche was set to be imposed at end-August, assuming no resolution was reached with China in the meantime, after a period of industry consultation. Given the tariff increase, the deadline has been extended to September 5.

On Tuesday night the mood was buoyed by talk China was prepared to come back to the table, even though the Treasury Secretary pointed out that in fact they’d never left, it’s just that no progress had been made. It is no doubt the fact that no progress has been made which has riled Trump, who likely assumed US$200bn would have Beijing begging on its knees. Hence the increase.

The increase, which was confirmed by the White House after the bell, is cited as being in retaliation for the Chinese retaliation to the first US$35bn tranche of tariffs, now in place, which the administration deems to be “illegal”. Not sure why it’s legal one way but not the other.

Will it work this time? Who knows? The usual suspects were duly sold down on Wall Street once more on the news, being your Boeings and Cats et al, and were it not for Apple’s contribution, the Dow would have fallen by about twice as much. Yet this would still not be a real “panic”, so we have to assume Wall Street still believes a resolution can be reached, eventually.

Trump has always warned of short term pain for long term gain.

The FOMC statement then came out in the afternoon, and in a nutshell suggested the rate rise program will continue as suggested after lifting its evaluation of the US economy to “strong” from “solid”, likely reflecting last week’s GDP result.

But there was no mention of a trade war or its impact.

The indices did manage to rally back somewhat after the statement release. The US ten-year yield jumped 4 basis points to 3.00%.

Commodities

The US dollar index rose only a modest 0.2% but there was blood on the streets in commodity markets. Big falls on the LME were matched by iron ore and even gold, with the oils also taking a hit.

The Aussie is down -0.3% at US$0.7403.

Today

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

Australia’s June trade numbers are out today.

The Bank of England meets tonight.

It’s a rest day for scheduled corporate reports.

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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