Protrader – October 2019 Market Wrap

XJO down 25

Is the market ready to pounce?

October began much like August with the market dropping over 250 points in the first three days settling at 6,492 on October the 3rd. However after the US/China trade talk anxiety passed, the market refocused on fundamentals, and with strong support from international commodities helping the resources sector with XMJ, XMM, & XJR Indices, all contributing to a solid 5 session rally from the 10th to 16th of October with the market gaining 191 points.

The possibility of the US/China trade deal collapsing coupled with poor Chinese economic data (lowest GDP in 27 years) tested the markets resolve once again, and the XJO lost 86 points over 2 sessions, before a unified announcement from both China and the US legitimising Phase 1 of the trade deal propelled the market to a 7 day straight run reaching a high of 6,764 on the 28th, before profit taking came in, with the market consolidating for the last few days to close out the month just below where it started, at 6,663.

XHJ Health care has been a standout sector for 2019, and once again October was no exception, with the Index gaining another 7.6 % for the month alone.  The sector has been powered by four key themes that has benefited virtually every stock in the sector.

• Reliable and improved earnings
• Institutional Confidence
• Safe legislative Environment (Unlike Finance/Mining Sectors)
• Perceived defensive Investment, void of US/China trade War risk

As can be seen by the chart below year to date XHJ Index has gained 36%.

XHJ Health Care Index

KEY ECONOMIC DATA

• RBA cut interest rates by 25 basis points.
• Australian Home loans lift to 3.2%
• China Imports decrease for 5th consecutive month
• Australian Unemployment rate drops to 5.2%
• China GDP dropped to 6% (lowest in 27 years)
• Australia maintains AAA Sovereign rating

DOW JONES IND AVG 26,962 – 27,046:UP

Stella Earnings once again

DJI 12 MONTH CHART

A trifecta of bad news (Formal Impeachment inquiry, Manufacturing Data hitting 5 month low, trade anxiety) rattled the US markets at the start of October resulting with a 2 day bloodbath 885 point loss, and the chicken littles squawking about another “87” crash.

Unfortunately for the doomsday preppers the market had a 450 point day reversal on the 3rd of October when US September unemployment figures were released, hitting a 50 yr low of 3.5% coupled with rising US exports, which allowed bargain hunters to come into the market with confidence.

The market didn’t look back after the 3rd with a series of positive economic reports and the first stage of a concrete trade deal announcement, leading to a 300 point day gain on the 11th, and inspiring the DOW to a 7 session rally.

The good news surrounding the US/China trade deal was further supported by a fantastic earnings season that kicked off in the middle of the month and propelled the markets to re test new highs, with the S&P 500 hitting a new all time high on the 29th, and the DOW challenging the previous high set in September, before pre Fed Reserve Interest rate decision anxiety pulled the market back a touch on the final day to close at 27,046.

Key Economic Events and Indicators

• US Manufacturing Slumped to a 10yr Low
• US GDP 3rd QTR- 1.9% Beating Market expectations
• US Fed Reserve cut Interest rates for 3rd time this yr
• US August Exports Increased $207.9 B
• US Home Sales dropped Y/Y 2.2%

US Earnings season 14th October

The US earnings season kicked off with a bang on the 14th of October and from day one with a host of companies beating market expectations, it appears that this will the 4th consecutive quarter with company earnings surpassing broker reports/valuations.

So far this season 74% of company earnings have surpassed expectations.

• JP Morgan- Hit all time revenue record
• United Health
• Johnson & Johnson
• Netflix
• Bank of America
• Morgan Stanley

  OIL PRICE UPDATES: International Oil market holding its breath.

WTI Crude – Gained 0.56c : $53.62 – $54.18

The month of October initially saw Oil focus on demand factors, fluctuating between positive and negative sentiment regarding the world economy with the price forming a channel between $52- $ 54 USD/barrel.

However, once again as we have seen throughout the year geopolitical anxiety emanating from the Middle East, this time with an Iranian Oil tanker coming under missile attack, propelled prices up to $55, before retracing and focusing on international reserves and production data. As the month drew to a close and the likelihood of a US-China trade deal became tangible, hopes of a world recession appeared to be averted and Oil finished the month strongly with an overall gain of 0.56c.

Key Oil Price Influences

• China Sept Crude Oil imports rose 10.8% yr on yr
• OPEC expected to extend production cuts
• Domestic Unrest in Iraq intensifies, return to civil war in 2020 possibility.
• Venezuela exports continue to be crippled.
• Two rockets fired from Saudi Arabia hit Iranian Oil tanker.
• Russian Oil Output declined to 11.24 mbpd
• OPEC Oil production lowest level in 8 yrs
• US Rig numbers dropped for 7th week, lowest level since 2017.