The Monday Report

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

By Greg Peel

Not Over Yet?

Friday saw the seventh consecutive down-day for the ASX200 as the reversion from overstretched valuations in some areas and trade war fears for others continued to pull the index rapidly back from its August high. By lunch-time it was shaping up to be the third consecutive fall of -50 points or more.

But the bugles finally sounded at that point and the cavalry came over the hill, as bargain hunters prompted what was likely a sharp reversal for the momentum trade as high frequency swung the other way. The index held 6100 and retraced to 6143 by day’s end.

From a technical perspective, chartists had made the call that a pullback towards 6150 was necessary from the recent high if the index were to push on to 6500. Tick that box. However today’s session is not shaping up to be the commencement of that revival. Trump has threatened tariffs on another US$267bn of Chinese imports since the local market closed and the futures closed down -23 points on Saturday morning.

The experience from last week is that -25 will get you -50.

The year’s previous high-flyers were again getting crunched on Friday in the rush to lock in remaining profits. IT fell another -0.8% as it continues to track the Nasdaq’s FANG-led misfortunes while CSL ((CSL)) fell another -3.0% to take healthcare down a further -1.7% — standout worst performing sector on the day – while Macquarie Group ((MQG)) lost another -1.5%.

The financials sector fell only -0.1% nonetheless as buyers returned to the banks in the wake of mortgage repricing announced last week.

Commodity prices had been mixed on Thursday night which led to the energy sector falling -1.0% on a lower oil price and materials rising 0.1% on a bounce in the iron ore price. Telcos (+0.5%) won the session as the return to Telstra ((TLS)) continues, for now, while Wesfarmers ((WES)) led consumer staples to a 0.4% gain as the Coles spin-off approaches.

Friday’s housing finance data were hardly helpful, if not inevitable. The value of housing loans fell -0.8% in July to be down -8% year on year – the lowest annual rate since April 2016. Loans to investors notched up a fifth month of declines to be down -13% over that period and -15.7% over a year. Owner occupier loans also fell, by -0.4%, to be down -2.3% over a year.

The numbers clearly reflect the impact of the credit access screws being tightened. And they are yet to take into account last week’s mortgage repricing by the major banks, seen in some quarters as “courageous” in the face of high levels of household debt.

We open the new week with another soggy lead from Wall Street, mixed commodity prices, trade war escalation and a suggestion from the futures this is not over yet.

All In

The US jobs numbers for August were again applauded by Wall Street despite being less spectacular than those of July. At 201,000 jobs added the result matched expectation, albeit June and July results were revised downward. The unemployment rate remained steady at 3.9%.

The big news was a 0.4% increase in wages to take annual wage growth to 2.9% from 2.7% to mark its highest level since 2009.

The irony here is that Wall Street cheered this number – higher wages, stronger consumer in a consumer-driven economy. Back in January the same wages growth number sparked a -10% stock market correction on inflation fears. Those fears proved to be temporarily overblown, but eight months later we can say this time it’s for real. Clearly there is sufficient confidence in the Fed remaining cautious in its gradual monetary policy tightening.

Back in January the trade war was yet to begin.

And on that subject, US tariffs on another US$200bn of Chinese goods are ready to go. Trump flagged this tranche months ago and initially set a deadline for August, clearly assuming US$200bn would be enough, on top of the US$50bn prior total, to bring the Chinese to the table. And to the table they came, prompting Trump to delay the deadline to early September. But early September has now passed, negotiations have proven futile, and the US$200bn is ready to go.

Trump is effectively saying “Don’t make me count to three. One, two…” And with silence from Beijing, an obviously frustrated Trump is now threatening to go all-in. Tariffs will be imposed on every Chinses import, implying another US$267bn on top of the US$200bn and the president’s last hurrah before the mid-terms.

That news prompted the usual early Wall Street sell-off followed by the usual recovery. Still commentators believe whole-heartedly that Trump must eventually win, reflected in Wall Street’s nervous faith. But as to what might transpire if the Democrats take the House is looming as the most decisive issue on the path to the full-blown trade war that supposedly is yet to begin.

There is little doubting the strength of the US economy – a factor clearly to Trump’s advantage. Mexico has waved the white flag, Canada is still expected to do the same, and the EU remains on a promise to try to do so despite no new news from the western front lately.

Wall Street remains quietly confident. As for the rest of the world…

Commodities

The US dollar index rose 0.4% on Friday night. As for the rest of the world, well, the Aussie is down -1.3% at US$0.7104 and counting.

Copper most reflected continuing trade war fear, while the oils consolidate following their pullback.

The SPI Overnight closed down -23 points.

The Week Ahead

The ASX200 will again be handicapped this week by a long list of companies going ex-dividend. Today’s exes include Caltex Australia ((CTX)), Orora ((ORA)), Sandfire Resources ((SFR)) and Reliance Worldwide ((RWC)).

Locally we’ll see the NAB business confidence survey tomorrow and Westpac’s consumer equivalent on Wednesday. Thursday it’s our own August jobs report. On Friday the announced rebalancing of S&P/ASX indices comes into effect.

China releases inflation data today and industrial production, retail sales and fixed asset investment numbers on Friday.

The ECB and Bank of England both hold policy meetings on Thursday.

The Fed Beige Book is out on Wednesday along with the US PPI, followed by the CPI on Thursday. Friday sees industrial production, retail sales and consumer sentiment.

Rudi will appear on Sky Business on Thursday from midday 'til 2pm; and again on Friday via Skype, probably around 11am. On Tuesday he'll get up on stage in Wollongong to share his market analysis and insights with the local chapter of the Australian Shareholders Association (ASA).

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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