The Monday Report – 14 October 2019

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

By Greg Peel

Optimistic

There's no point on dwelling on what transpired on the ASX on Friday as the rally in the ASX200 was all about anticipation of what we subsequently know. Wall Street was optimistic overnight about at least a partial or interim trade deal being agreed upon on Friday night and we joined in the optimism.

For it would have been foolish not to, were Wall Street to skyrocket on Friday night.

Buying was largely market-wide, with all of financials, healthcare, telcos, materials, energy and IT posting gains in excess of 1%, while consumer discretionary lagged on 0.8% and the defensives of utilities (0.6%) and staples (0.5%) underperformed.

Industrials actually fell -0.1% following selling in defensives pin-ups Transurban ((TCL)) and Sydney Airport ((SYD)).

Nothing particularly stood out among individual index stocks. Outside the index, struggling Michael Hill International ((MHJ)) jumped 19.3% after delivering a positive trading update.

The most exciting move was in the Australian ten-year bond rate, up 12% to just over 1%.

It was all about trade anticipation.

Not Exactly Thrilling

Wall Street opened higher and positioned itself for positive news. While US-China dominated excitement, what was at that stage positive news on Brexit – a potential deal being reached – also added to the mood, as did a positive surprise in the fortnightly Michigan Uni consumer sentiment index.

Ahead of any news flowing from the Oval Office, the Dow was positioned just under a 500 point gain. When news trickled out that the hike in tariffs on the US$250bn tranche of goods to 30% from 25% planned for tonight had been put off, the Dow was up 520 points.

That's when the excitement began to wane.

There was no mention of the new tranche of goods set for tariffs in December. The tariff increase may be off the table for now, but all tariffs otherwise remain in place.

There was no move to remove Huawei restrictions.

Most fundamentally, a deal was not actually signed. China has agreed to buy US$40-50bn more in US agricultural products in exchange for the tariff increase not going ahead, but the details still need to be settled and a signing is planned for three weeks' time.

We recall that a similar deal was struck in May but fell apart ahead of actual signatures. Trump then upped the ante on tariffs.

Trump described it as a "substantial, phase one" deal.

Thereafter it gets a bit foggy. "Phase two" is set to start immediately and will include "certain intellectual property measures" and other promises with regard Chinese currency "manipulation", which will take negotiations out to five weeks.

Then there'll be a phase three.

Call me a stick in the mud, but I can't see any "progress". We're just back at May, still without any signatures. Trump is doing a good job of talking it all up, as usual.

Wall Street optimism faltered towards the close, leading the Dow to close up only 319, compared to the 520 high, although there may also be an element here of not wanting to carry risk over the weekend.

The bond market was nevertheless happy to hold onto a 9 basis point jump in the ten-year yield to 1.75%.

Investors will at least have the time over the weekend to weigh up what Friday's developments really imply. And in the meantime, Johnson's Brexit deal appears to be faltering.

Commodities

As hopes rise for trade, the US dollar falls back. Both are positive for metals prices, although not all joined in on Friday night.

Both are positive for oil prices, but not so much for gold.

The Aussie matched the greenback's -0.4% fall with a 0.4% gain to US$0.6786. Mind you, a chunk of that greenback fall can be attributed to a jump in the pound at the time a Brexit deal looked possible.

The SPI Overnight closed up 34 points or 0.5% on Saturday morning (half an hour after the close on Wall Street). It remains to be seen whether such sentiment will hold this morning.

The Week Ahead

Needless to say, the world will be following the progress towards an actual signature on this "phase one" deal, or whether the wheels will again fall off over the next three weeks.

In the meantime, the US September quarter earnings season kicks off in earnest tomorrow night with four of the big six US banks set to report. Earnings will draw Wall Street's focus for the time being.

US economic data releases this week include retail sales on Wednesday, along with the Fed Beige Book, and industrial production and housing starts on Thursday.

China will release inflation numbers tomorrow ahead of its September quarter GDP result on Friday. Forecasts are for 6.1%, down from 6.2% in June.

Monthly industrial production, retail sales and fixed asset investment numbers are also due on Friday.

Locally we'll see the minutes of the October RBA meeting tomorrow, and jobs numbers on Thursday.

In the local stock market, ex-dividends are now beginning to fade but AGM season kicks into second gear this week and quarterly reports from the resource sectors ramp up. There are too many to highlight for the whole week, so I'll do it on a daily basis.

Today sees production reports from Evolution Mining ((EVN)) and Cooper Energy ((COE)).

The Australian share market over the past thirty days…

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