Yesterday afternoon we wrote…What Trump Slump? Markets regain their mojo – however the red across the tape today clearly shows that said mojo has come and gone pretty quickly. All was looking reasonable for a good day today, futures were slightly higher, a major broker has upgraded CBA and a weaker $US had prompted some buying in the material stocks overnight, however the resignation of Gary Cohn, Trumps Economic Adviser sent US Futures sharply lower and we followed suit. That suggests the market's knee-jerk interpretation of Gary Cohn's resignation is that neither he, nor anyone else, was able to convince Trump that unfocused tariffs on steel and aluminium imports are a bad idea. The follow-up headline saying the U.S. is considering broad curbs on Chinese imports and takeovers will add to concerns the apparent easing of trade tensions on Tuesday was a mirage.
From an investment standpoint, there is now the obvious struggle in determining whether or not Trump is more interested in U.S. stocks escaping their recent volatility and returning to record highs, or levelling what Trump has long considered an uneven playing field for global trade. Cohn's resignation suggests the president's priorities may have shifted decisively from the former to the latter.
Interesting to see Trumps approval ratings are now on the slide – he’d hate that I would have thought!!!
That interpretation of Cohn’s resignation will get tested tonight in the states with US Futures trading down -1.25% at time of writing pricing a negative start at least, while Asian markets were also weaker today, but not by as much. Our market was sold off early, bounced up around midday then tracked lower into the close. It seemed no one wanted to go home long today!
Overall, the S&P/ASX 200 Index finished -60 points lower giving back most of yesterday’s gains – this index now at 5902 points - a drop of -1.01% - red right across the sector landscape today! ASX 200 Chart
ASX 200 Chart
CATHCING OUR EYE
1. Aussie GDP; Was out today and missed expectations for Q4 however there was some upward revisions on prior numbers which helped to offset the miss. The main issue was around non-dwelling construction , so the building of stuff that you don’t live in which took 0.5% off the GDP number. All in all, Real GDP rose 0.4pc over the quarter, but stepped down 2.4pc over the year, well below the long-term average of closer to 2.9pc. A rise in consumer spending helped offset a drag of net exports and slowing construction.
Total wage growth over the quarter rose 1.1pc, reflecting strong jobs growth, while average earnings flat lined.
This is a good chart highlighting household savings (orange line) versus movement in wages
2. Commonwealth Bank (CBA) $75.14 / -0.73%; Was weaker today however outperformed the banks after Bank of America raised it to a buy. He reckons that the ~7% underperformance to peers NAB and ANZ since June last year is too much and concerns around a potential money laundering case are now reflected in the price. They now have the most bullish call on the street with a PT of $87.50. In terms of the wider sector, they share our view saying that the Australian banking sector is closer to oversold than overbought!! That sounds a bit ‘grey’ but that’s about as high conviction in terms of language you’re ever likely to get.
Commonwealth Bank (CBA) Chart
Have a great night
James & the Market Matters Team
The above is an extract from the Market Matters Weekend Report. For a free 14 day trial of our service CLICK HERE
James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.