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Morning Market Wrap: Soft results and comments by Trump result in mixed close

20 Nov 2019
By Thomas Brunton
Weaker-than-expected results by major retailers and questionable comments by President Trump offset strong housing data and resulted in a mixed end to the trading session…

US

US markets ended the night mixed with the NASDAQ closing in positive territory, the S&P500 ending the session flat and the Dow Jones retracing 102 points to close at 27,933. The move by the Dow came as retail heavyweights Kohl’s (KSS) and Home Depot (HD) reported weaker-than-expected earnings and cut full-year guidance, as a result of increased competition, lower demand and the possible influence of trade tariffs. Following the announcements KSS shares plummeted 19.46% to $US47.02 while HD shares declined 5.44% to $US225.86.

Comments by President Trump stoked concerns that phase one of a trade deal might not be finalised anytime soon as he told reporters that “China is going to have to make a deal that I like. If they don’t, that’s it, I’ll just raise the tariffs even higher”. While President Trump is known to be hard negotiator, it appears markets remain resilient to threats of inaction and are betting he would like to see an end to the trade dispute within the next few months.

With soft reports by major retailers and negative trade rhetoric directing headlines it appeared markets overlooked strong economic data that was released. Data from the US Census Bureau indicated that the US housing market had responded well to interest rate cuts, with housing starts increasing by 3.8%, single-family construction rising for a fifth-straight month and building permits surging 5% to 1.461 million units in October, which is the highest level since May 2007.

ASX

As a result of RBA commentary, the ASX 200 rose 47 points to close at 6,814 and experienced broad gains across all sectors, except Information Technology, with Telcos leading the advance with a 1.27% gain.

The Reserve Bank indicated that it was a lot closer to cutting the official cash rate at its November meeting than markets had predicted, but had decided not to make the adjustments out of concern it may have the wrong impact on consumer confidence. A 25 basis point cut had been considered, which would have lowered the cash rate to 0.50%, however it was decided against after the RBA determined a ‘wait and assess’ approach would be more supportive of consumer confidence.

The RBA minutes indicated the board felt the most appropriate approach would be to maintain the current stance on monetary policy and reassess once there was more evidence that previous adjustments had had an impact.

Markets also gained additional support from major miners as Fortescue Metals (FMG), BHP group (BHP) and Rio Tinto (RIO) advanced 2.65%, 0.29% and 0.90% respectively, as a result of advancing iron ore prices.

Significant movers on the day included The A2 Milk Company (A2M), which rose 11.2% on the back of improved margin guidance, Woolworths Group (WOW) with a 1.2% gain and Telstra Corporation (TLS), which climbed 1.4% to $3.60 a share.

Moving in the opposite direction was WiseTech Global (WTC), which declined 7.8% to $26.65 a share after JCAP initiated another attack. Consequently, as a result of WTC’s decline, other components of the Information Technology sector, such as Afterpay Touch (APT) and Technology One Ltd (TNE), declined 2.8% and 4.6% respectively.

Commodities and Currencies

Iron ore prices closed flat at $US85.80 a tonne in the overnight session as the advance that had been seen over the previous week appeared to pause.
Gold prices stagnated overnight only advancing 0.11% to $US1,472.70 an ounce. Despite the negative trade rhetoric released overnight, gold appears to be stable and not yet experiencing an influx in buying pressure that might suggest markets are turning bearish or defensive in nature.

This article was written by Thomas Brunton – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.

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