ASX Weekly Wrap 09/07 - 13/07

First up I need to again apologise for not getting an ‘ASX Weekly Wrap’ out last week. As you are all aware, last Monday, we had the transition from the ANZ trading platform to the new CMC one occur. Unfortunately it was a bit of a disaster with many clients not being able to log in to view accounts and even myself not having the ‘Pro’ version of the platform available to me for most of the week. A lot of the features promised for day one were also not available as well which was disappointing. Rest assure I have expressed my disappointment in the platform’s performance to CMC and have been assured they are looking to rectify it as quickly as possible. I will give them a little while to fix things up, but if the platform doesn’t improve then I do have the option of transferring clients across to Commsec, whose platform is of a high quality. Hence the CMC platform problems kept me busy most of the week and unable to write up my usual report.

The XJO had a fairly dull week losing 4.00 points of just 0.06%. Trade war fears continued to cap any upside, plus the market is waiting on a multitude of important data from China this week. Our high was 6,306.10 on Tuesday and our low was 6,209.60 on Wednesday.

Quiet week for macro news with just a few data points out from China and the US. The first from China being their inflation numbers which were softer than expected. CPI came in at -0.1% MoM and 1.9% YoY. The MoM figure was below the expected flat forecast, but the yearly figure came in on forecast. Their producer price index did come in stronger at +4.7% YoY, which was above the +4.5% expected, however it seems that higher producer prices are not yet being passed onto consumers in China as inflation remains subdued.

Sticking with the inflation theme we saw CPI figures for June released in the US as well. Again these were slightly below expected with MoM figures coming in at +0.1%, after a +0.2% read was expected but YoY figures hit the mark with a +2.9% figure. Whilst the +2.9% figure remains well above the Fed’s 2% target they have once again reiterated that they are happy for it to stay well above that target rate for some time due to the fact it sat well below it for an extended period. Again it shows inflation is well under control and not to be concerned with at the moment.

Finally Chinese trade figures for June were released last Friday in what were a very strong set of numbers. Their overall surplus came in at $US41.61bill, well above the $27.61bill expected. Imports grew 14.1%, which was below the +20.8% expected and exports grew 11.3% after a +10.0% figure was expected. Once again, despite some trade war fears, these figures point to a still very robust Chinese economy, which usually does have a stronger second half to the year than the first. The third quarter is when some of the US tariffs start to kick in so we will have to wait and see until those GDP figures are out if they had a material effect on the economy.

There is literally no corporate news worth touching on this week in relation to the Australian market. We may have quarterly reports and earnings updates to speak of next week, but for this week it’s very dull. I wanted to quickly discuss Copper with you all. It was a market darling only a few months ago and looked as if it may head to new multi- year highs if it were to trade above $US3.30lb. Obviously as you can see from the chart above this is not the case and it has tumbled to around $US2.78lb and sits a very key support levels. Sentiment around copper has changed with investors factoring in a slowing global manufacturing sector due to the possible US/China trade war. On the flip side fundamentals around copper have only improved with strong macro data from the US and even China, also the supply and demand scenario around copper sees a possible deficit in supply as early as this year. These all should point to a higher price, but it is that sentiment that is weighing heavily on the industrial metal. If copper can’t hold these levels $US2.50 is the next stop which is another 10% down. Global markets will want to see continued strength in the Chinese economy or progress in trade negotiations between China and the US before copper is bid up again in my opinion. Obviously any further downside would weigh on the share prices of resource stocks such as BHP, RIO, OZL & SFR the heaviest. This means there could be another buying opportunity around the corner.

With very little movement on the XJO came smaller moves at a sector level. The worst performer was the utilities sector as the Government looks to implement new legislation to help curb rising electricity prices. Gold also saw significant downside as the underlying metal plunged as investors looked to move money away from Gold and into bonds. Health care was the best performer as the AUD fell having a positive impact on ASX listed USD denominated stocks. It is also a very defensive sector hence many investors sought the safety of it.

The XJO remains in a very bullish uptrend, albeit with a short term downside bias. Now when I say downside I feel we could see the 6,150 level (red line) again before our next move up. This could occur in the next couple of weeks whilst the globe digests the trade war fears. Last time I charted the XJO I suggested we would head towards the top of the band (blue line), which did play out, and we hit a high around 6,300. The XJO has become somewhat of a safe haven for international funds due to our lower AUD, high yield and the possibility of benefiting from any fallout from the US/China trade spat. My bias still remains to the upside to finish the year with a target of 6,400-6,600 still intact.

This week we have big data coming from China with Q2 GDP, retail sales, industrial production and fixed asset investment being revealed. Australian jobs figures for June are also out later in the week. At a company level we have quarterly production reports from BHP, RIO, OSH, NST, EVN, AWC, STO, WPL and S32. Should give us lots to talk about in next week’s newsletter. On a personal level it was my wife’s birthday last week. We spent the day at a play café with our kids and then went out for dinner that night. It was a wonderful day and we made sure to spoil her rotten. I hope you all have a wonderful week and stay safe. Speak to you all soon. Go Crows!

heath@hlminvestments.com.au

0413 799 315

Important Notice

Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.