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Protrader – September 2019 Market Wrap

//Protrader – September 2019 Market Wrap

  XJO Up 84 month of Consolidation

 

The month of September started on a negative footing and looked to to be challenging the 6500 level on the the 4th. However a combination of positive domestic economic data, an earnings season that had a few surprises, some better than expected Chinese manufacturing results and a hopeful, more positive tone from both countries regarding the US- China trade negotiations propelled the market to a rally from the 5th of September to the 23rd.
The high of the month was reached on the 22nd, when the XJO touched 6,775 only 70 points below the all time high reached in July.

The final week saw a mild consolidation, as the market digested multiple factors such as geopolitical concerns compounded by world recession anxiety which resulted with the XJO finishing the month at 6,688.

What has been interesting throughout the month of September, and to some degree the entire calendar year has been the possible sector transition suggesting an element of economic and market maturity in Australia, as we disconnect from purely a materials/mining sector, and the big four banks.

XDJ : Consumer Discretionary is up 23% so far for 2019 and is challenging decade highs.
XHJ: Health Care is up 24% for the year, and achieved all time index highs in September.
XIJ : information Technology also hit an 18 yr high, and is up an impressive 32% for the calendar year, with many stocks in this index also achieving all time highs.

In addition more traditional Australian sectors such as the XGD Gold Index fluctuated greatly as it swung between on/off geopolitical concerns, and comments by Alan Greenspan regarding the future of world interest rates which pushed the underlying commodity to a 6 year high. Finally the XFJ financials (UP 19% for 2019) have had a bit of a stealth rally with both WBC and NAB achieving 12 month highs in September.

 

KEY ECONOMIC DATA

  • China PMI better than expected
  • Aus manufacturing beat market expectations
  • RBA kept interest rates unchanged
  • 44yr Record Australian current Acc surplus-first current account surplus in 44yrs- highest in History.
  • Unemployment rate rose to 5.3%

DOW JONES IND AVG 26,198 – 26,916:UP 718
Fear gives way to Hope

 

 

DJI 12 MONTH CHART

The month of September started with a long weekend for Wall St, and with a combination of poor US manufacturing data, and 15% US tariffs on Chinese goods coming into effect the market opened down nearly 400 points on September 3rd.
However with both China and US starring into the abyss, it appears a conscious decision to step back was made by both parties, and a more conciliatory tone of announcements was issued on the 4th of September, resulting in an immediate market reversal closing up over 200 points, followed by a 400 point jump on the 5th.

The positive trend was then reinforced by a slew of affirmative economic events such as US yield curve “uninverted” (10 yr bond above 2yr bonds), and US unemployment remaining steady at 3.7%, which pushed the DJI back above the 27,000 for the first time since July.

On the 13th after an 8 day winning streak (the first in 12 months) the DJI closed within 200 points of the all time high set on July 16th. The US Fed Reserve as expected cut interest rates for the second time this year by a further 25 points. Unfortunately uncertainty still surrounding the outcome of the US-China trade negotiation, coupled with the re-emergence of Trump impeachment talk, headed off the rally, and for the remainder of of the month the Dow Jones consolidated and traded in a 400 point range, often being directed more by Trumps tweets than actually anything concrete, before finally settling the month a 26,916.

Key Economic Events and Indicators

  • US GDP steady @ 2%
  • US New Home sales blew away expectations-surged by 7.1%
  • US Manufacturing hit 5 month high-beat market expectations
  • Eurozone Manufacturing now in technical recession
  • US Fed Reserve cut Interest rates for 2nd time this yr

US / China Trade War : Trump’s Tweets = Volatility

Regardless of what one thinks both of the legitimacy behind the issues that created the US-China trade War, and or the final outcome, what has now been confirmed, and many of you may have thought, is that Trumps Tweets regarding the issue, has an immediate impact on the market, leading to extraordinary market volatility the likes of which has never been seen.

 

What can be seen by the above graph, and was also evident both on September the 5th and 25th, is that a single Tweet from Trump can cause a 1% reaction on the market, often to only correct within a few days.

Trump has created a new form and style of communication that the market has never experienced before, and until the Trump era comes to an end, Tweet induced volatility is now the new normal.

 

OIL PRICE UPDATES: Actions of War create History

WTI Crude – Dropped .63c : $54.92 – $54.29

A mixed bag of positive economic data created a rally at the start of the month to $58 USD a barrel. However a perceived easing surrounding geopolitical concerns pushed oil back towards the $54 mark by Friday the 13th, with many analyst predicting oil would re test the $52 level due to the new reality of burgeoning US production.

Then over the weekend of the 14th, the threat of an all out middle eastern war following Yemeni Houthi rebel drone attack upon the worlds biggest Oil processing plant, in Abqaiq , Saudi Arabia created history when the markets reopened on the Monday, jumping 20%.

Following this initial knee jerk reaction, and with no sign of a counter attack, geo political price risk slowly eased out of the price, and crude final settled at $54.29  USD.

 

Key Oil Price Influences

  • China Crude Oil imports rose 3%
  • US oil Rig numbers dropped to lowest level in 2 yrs
  • US crude Oil inventories fell 6.9 m barrels compared with expected 2.7 mb
  • Tropical Storm Imelda forced some major US refineries to close
  • IAEA announced US to over take Saudi Arabia as world’s largest oil producer