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Protrader – November 2018 Market Wrap

//Protrader – November 2018 Market Wrap

XJO
Trade War worries continue
Down 163 points for November

The month of November initially supported by positive Chinese Trade data began strongly with a 114 point rally, however, this rally petered out, and in the process formed a double top around the 5940 level.

Once again despite basically strong domestic data, the shadow of International issues, particularly surrounding a largely unsuccessful APEC & G20 meetings and continued US/ China Trade War concerns enveloped any domestic factors, resulting with a 272 point drop from the 13th of November to the 21st, followed by modest buying, with the XJO closing out the month 5667.

In addition, some legitimate domestic banking sector issues did contribute to the lack of buying appetite.

  • Fed court knocked back WBC settlement offer.
  • Concerns about NAB’s Chief Andrew Thorburn actions, leading to a police investigation.

KEY ECONOMIC DATA

  • The unemployment rate stayed @ 5%, beating market expectations, the lowest level since 2012.
  • RBA kept interest Rates Steady.
  • Australian Consumer Confidence Rose.
  • WBC, ANZ & NAB profit reports all finished in the green.

DOW JONES IND AVG 25,115 – 25,538 : UP 423 Points

 

DJI 12 MONTH CHART

The month of November saw extreme volatility with nearly a 2000 point fluctuation, with the market being battered between the posts of optimism and fear, with the first signs of disappointing economic data, and continued anxiety regarding the US/ China trade War impacting the market.

In addition, there were other existential issues such as the Nov 6 midterms, and the G20 Summit, contributing to a contorted market view and overall uncertainty, which culminated with the Thanksgiving drop, being the largest since 2011.

The market battled several headwinds at the same time, with sentiment oscillating from risk-off to risk-on, with the array of following issues highlighting the fragility of the markets.

  • Peaked Earnings
  • Rising borrowing costs
  • slow growth in China, Car sales dropping for a fourth consecutive month.
  • Reduction in global demand
  • Italy’s budget woes
  • Brexit Jitters

In addition, the tech-heavy nature of the US market saw some US-specific volatility, with the FANG stocks (Facebook, Amazon, Netflix & Google) underperformed the S&P500 BY 6.25%

Key Developments in the Month of November

  • US 3rd QTR GDP remained @ 3.5%
  • Big drop in US Durable goods orders
  • US unemployment rate steady @ 3.7%
  • Increased US Industrial Production
  • First-time jobless claims declined
  • US Fed left interest rates unchanged
  • US Retail Sales beat expectations

OIL STOCK UPDATES: The new paradigm

WTI Crude – Dropped $13.87 from$64.80 – $50.93

With continued US record production, coupled with Iranian cuts being dramatically less than expected, in conjunction with concerns surrounding world economic growth and demand in 2019, oil was hammered virtually throughout the entire month of November, with the biggest one day drop of 6.6% on November the 20th.

Overall a perfect storm of factors has seen the Oil price fall 25% since reaching 4yr highs of $86.74 on October the 3rd with practically one-way price direction since.

We finally saw some relief and stabilization in the Oil price on the 27th with US inventories, finally dropping.

Key Oil Price Influences

  • Russia & Saudi Arabia ramped production to11.5 mbpd.
  • 8 countries received a tempory Iranian sanction waiver from the US.
  • Canada structurally restricted from increasing production.
  • US crude output hit 11.6mbpd, an all-time record.
  • US crude Inventories had 9 consecutive increases, the longest streak since March 2017.

QRE: BetaShares S&P 500/ASX 200 Resource ETF’s

QRE BetaShares Resource ETF: $5.50
The fund aims to track the performance of the XJR Index, providing exposure to the largest companies involved in the resource sectors listed on the ASX.

The cloud of anxiety surrounding the present trade skirmish, between China and the US, which may blow out to a war, has hung over the resource sector for 6 months.

Although one has to take into account the very real impact of weakening world resource demand moving into 2019. Many of these companies are extremely cash rich, (as can be seen by share buybacks), have advanced operations and are exceptionally operationally efficient.

At some point, this trade issue will be resolved, presenting an opportunity to benefit from the expected resource demand bounce, and lifting of the sector anxiety presently draping the resource stocks.