The Overnight Report: That Sinking Feeling

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This story features INSIGNIA FINANCIAL LIMITED, and other companies.
For more info SHARE ANALYSIS: IFL

By Greg Peel

Trying Hard

For the third session in a row, the ASX200 opened strongly to the upside yesterday before fading to the close. This time the fade was not so pronounced – up 40 at the open, closing up 18 – so maybe the buyers are beginning to make some headway.

We can’t take any lead from the futures at present, given each day they have suggested only small moves.

Yet there remains no clear pattern. Wall Street continues to play the defensive side over cyclicals but here we’re seeing a mix. Yesterday utilities, telcos and industrials sat on the bench while REITs and consumer staples were bought. Energy (+0.7%) posted the biggest gain as oil prices stabilise, joined by healthcare (+0.7%), which last week was being sold.

Materials also had the day off while the banks (+0.2%) keep grafting higher. What began as a yield play on the back of the Fed rate cut and expectations of the same from the RBA has given way to a lot of shuffling about.

IOOF Holdings ((IFL)) had a big session on Friday, after the Federal Court found the fund manager had not contravened the Superannuation Act, and jumped another 12.0% yesterday after Macquarie upgraded to Outperform, citing the removal of a major impediment. I noted yesterday the stock is, or was, well shorted.

Premier Investments ((PMV)) was a similar story, rising another 5.8% after its strong profit release on Friday.

The only other movement of note among individual stocks was Webjet ((WEB)), down -3.5% on news European partner Thomas Cook has collapsed. Stockbroking analysts have been busy overnight trying to assess the potential impact.

The RBA governor will speak tonight, so perhaps tomorrow we can look out for any renewed fervour on the yield front, although one has to assume an October rate cut is pretty well priced in by now. Wall Street has closed flat, again, and our futures are showing down -6, but that means nothing at the moment.

Gott im Himmel

Germany’s manufacturing PMI fell to 41.4 in September from 43.5 in August – the lowest number in ten years. The eurozone net manufacturing PMI fell to 45.6 from 47.0 – worst in seven years – when economists had forecast 47.3.

Last month there was a brief spurt of slightly positive data out of Germany, prompting suggestions a bottom may be forming, but now the R-word is very much back, with a sense of inevitability.

The news was enough to have the Dow down -100 points from the open but as soon as the Europeans stopped selling, when markets there closed, Wall Street recovered back to largely flat. Why? Well TINA of course. Who cares if Germany’s down the gurgler?

That said, the US ten-year yield is continuing to slip back again, down -5 basis points to 1.71% last night, and gold is continuing to rally back, recovering the US$1520/oz level.

Defensives remain the winners in the stock market. So it’s hardly up, up and away, and there seems little near-term chance of the S&P500 making up the 1% odd it needs to reclaim the all-time high.

Unless something happens on the trade front.

On that subject, it has been revealed the Chinese did not “cut short” their US visit, deciding not to visit farms as planned, but rather the White House asked them to postpone. It is not exactly clear why, although given the Chinese have offered to buy US agri-products, but Trump has rejected this offer unless it is part pf a wider deal, then maybe the White House didn’t want the Chinese running off and making their own deals with farmers.

Otherwise, last week’s junior level trade talks were “productive” according to the White House. And “constructive”, according to Beijing.

Yeah, yeah.

Commodities

The weak European manufacturing data have not had too much impact on base metal prices, and clearly none on iron ore.

Oil prices continue to tick back up the longer it takes Saudi Arabia to get production back on line, with their “end of the month” pledge looking more and more ambitious.

Having basically de-rated a cent against the greenback on the “race to the bottom” for rates, the Aussie looks like it’s going to have another rest for a while (US$0.6776)

Today

The SPI Overnight closed down -6 points.

Philip Lowe speaks tonight while monthly consumer confidence will be closely watched in the US.

Germany’s monthly business sentiment survey is out tonight. Should be a cracker.

ASX ((ASX)) holds its AGM today and Treasury Wine Estates ((TWE)) hosts an investor day (I recommend the grenache), while Carsales ((CAR)) goes ex-div.

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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