The Monday Report

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This story features OREZONE GOLD CORPORATION CDI, and other companies.
For more info SHARE ANALYSIS: ORE

By Greg Peel

Late Mail

Trading on the Australian market on Friday was a tale of two sessions – everything that happened before 3.15pm and what happened in the last 45 minutes.

Up until that time it was a soggy Friday. The ASX200 opened lower and then chopped around before sagging towards the last hour. At 3.15 the index was down -40 points. Forty five minutes later it closed up 8.

Sentiment swung on a 2.15am New York time tweet from The Man, in which he suggested progress was being made with China on trade and an agreement was being drafted. The US futures shot up, and so did we.

Did you know there’s an election on in the US tomorrow?

There is little point in following through on this theme because the suggestion was later shot down during Wall Street’s session.

Suffice to say materials (+1.1%) was among the winning sectors on the day, as one might expect on the trade news. But most notably there is a short squeeze underway among the lithium producers, all of which feature high on the list of most shorted stocks on the ASX. Galaxy Resources ((GXY)) and Orocobre ((ORE)) rose 13% each while Pilbara Minerals ((PLS)) jumped 8% and Kidman Resources ((KDR)) 14%.

The banks (-0.4%) provided a counterbalance despite the usual “beat” from Macquarie Group ((MQG)), which rose 3.9% post result.

Healthcare (+1.5%) continued its post-correction comeback, and Sigma Healthcare ((SIG)) stood out with a 6.8% gain. Orica ((ORI)) jumped 6.4% post-result but industrials (+0.2%) were otherwise quiet.

Consumer discretionary (+0.6%) seemed to like the fact retail sales rose 0.2% in September for the third month running, while telcos (+1.0%) are once more a coin toss.

Before the tweet in question, it is likely traders were taking profits on the week’s recovery rather than holding positions through the weekend when US jobs numbers were due. Post the tweet in question, well it still remains a question.

Deal or No Deal?

Apple, jobs and trade. These were the three factors impacting on Wall Street on Friday night.

Apple had reported in the aftermarket on Thursday night and fallen -7%, given beats on the top and bottom lines were accompanied by disappointing guidance. Apple closed down -7% in Friday night’s session. That’s worth -100 Dow points alone, a big chunk of the Nasdaq’s ultimate -1% drop, and a weight on the S&P500.

The US added 250,000 jobs in October, beating a forecast of 190,000. The number is likely inflated to some extent by casual workers returning post hurricanes, but this number, and an unchanged unemployment rate of 3.7%, are not the main focus. The main focus is wage growth, and that rose 0.2% to 3.1% annual.

We recall that In February this year, a January wage growth number of 2.9% sparked a -10% correction.

If this had been the only news in isolation, we might presume Wall Street would have tumbled from the open on elevated Fed fear. But the Dow opened up over 200 points. All because of Trump’s tweet. Trade trumps rates, despite the US ten-year yield surging 7 basis points to 3.21%.

But the market had not been open very long before Trump’s senior economic advisor Larry Kudlow appeared on CNBC and not so much watered down the president’s suggestion as threw a bucket right over it. Trump’s team may have prepared for negotiation, but no negotiation had yet occurred and thus no progress has been made. Preparing a draft? News to me.

By early afternoon the Dow was down -300 points. That’s a 500 point swing on contradicting trade news. If we take out Apple’s one hundred points, we might say the jobs numbers were worth -200.

But wait, there’s more.

As Trump strode across the White House lawn at about 2.30pm to jump into his helicopter, he reiterated to reporters that yes, China wants to make a deal and yes, a deal is going to be done. As the chopper fired up, the answer to the question of when was not forthcoming.

It was still good for a 200 point recovery in the Dow, to a close of down -100 and a complete sense of confusion on Wall Street.

Did you know there’s an election tomorrow night?

On that front, if we consider that the Republicans (R) and the Democrats (D) are fighting for a majority in the House and the Senate then the possible outcomes are R/R, R/D, D/R and D/D.

R/D is considered impossible. The polls are all pointing to D/R, and Wall Street has priced in that expectation, so this result would not be market moving, it is assumed.

R/R is still possible, and this would send Wall Street surging. D/D is considered a remote possibility – a full-on Trump backlash – but if it comes to pass would send Wall Street crashing. So say the tipsters.

We shall see.

Commodities

It would appear metals traders were prepared to take the risk and back Trump’s perceptions, given the bounce-back in base metal prices despite a 0.3% gain in the greenback. Probably short-covering.

The oils continue to slide on increasing supply and the potential for exemptions to be granted with regard Iranian sanctions.

Gold doesn’t know what to do.

The Aussie is down -0.3% at US$0.7186.

The SPI Overnight closed down -5 points on Saturday morning.

The Week Ahead

As to whether there’ll be any more clarification, and actual evidence, of trade progress tonight is anyone’s guess. The bulk of the market assumes Trump is simply engaging in a bit of desperate, last minute politicking.

It is in China’s interests to await the outcome of the midterms, before responding either to a Trump who is strengthened or a Trump who is weakened. We shall know some time after tomorrow night.

Services PMIs will be out across the globe split across today and tomorrow.

A quiet week economically in the US culminates with the PPI on Friday. But a Fed rate decision is due on Thursday. No change is expected, but Friday’s jobs numbers only cement expectations for another hike in December.

China will report trade numbers on Thursday and inflation data on Friday.

The UK reports its GDP result on Friday. Last Friday saw some apparent potential progress on the Brexit front.

Locally we’ll see the ANZ job ads series today before the RBA board meets tomorrow to pick a winner and fire up the photocopier. We’ll also see the services PMI today and construction PMI on Wednesday along with housing finance and the RBA’s quarterly Statement on Monetary Policy on Friday.

Tomorrow is a holiday in Victoria and an afternoon off elsewhere.

On the local stock front, Westpac ((WBC)) reports earnings today. We’ll also see earnings results from EclipX ((ECX)), James Hardie ((JHX)), Pendal Group ((PDL)) and Xero ((XRO)) on Thursday and News Corp ((NWS)) and REA Group ((REA)) on Friday.

There is another smattering of AGMs across the week, which I’ll update daily. Today sees a quarterly update from Goodman Group ((GMG)).

Note that the US went off summer time on the weekend so as of tomorrow morning, the NYSE will close at 8am Sydney time and so will the SPI Overnight.

Rudi will appear on Your Money today, 1-2pm.

The Australian share market over the past thirty days…

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