Overnight: Cracks Appear
The Dow closed down -204 points or -0.9% while the S&P fell -1.5% to 2438 and the Nasdaq dropped -2.1%.
Can’t Be Ignored
Sentiment for the local market appears now set to be determined by the macro of global tensions as the micro of the earnings season, yet to hit it straps, is overwhelmed. Yesterday the ASX200 managed a 30 point gain to late morning as results rolled in but by the afternoon that sentiment began to take hold.
Wall Street had looked vulnerable on Wednesday night but still the broad market S&P500 had managed to regain early losses to yet another flat close. The Australian market took this as a sign there was to be no panic over “fire & fury” and turned its attention domestically. But as Asian markets slid away in the afternoon, the mood changed.
This morning the futures are down -68 points or -1.2% , following a -1.5% capitulation on Wall Street. Beats and misses, at least for the time being, are not much going to matter.
In the wash-up yesterday we saw industrials, info tech, materials (net of Rio’s dividend) and telcos providing resistance. All other sectors fell for a balanced close.
Among the winners on the day, Orora’s ((ORA)) result was good enough for a 9% gain. Carsales.com ((CAR)) enjoyed ongoing momentum following its result on Wednesday in rising another 4%. The most shorted stock and the fifth most shorted stock on the ASX saw 6% and 5% gains respectively on the rising nickel price, being Western Areas ((WSA)) and Independence Group ((IGO)).
Gold miners unsurprisingly had a solid session.
Magellan Financial ((MFG)) reported yesterday and featured among the losers with a -3.6% drop. Nick Scali ((NCK)) posted a beat but warned of a challenging retail environment, and that was enough to prompt a -2.7% fall for rival furniture retailer Harvey Norman ((HVN)) which, incidentally, is the fifteenth most shorted stock on the market.
Results season begins to hot up from next week but attention now turns to the macro, and the potential of a downside break of the long running index range. A -68 point drop would take the index to below 5700 once more, and a break of 5680 could open up an abyss.
Attention will also focus on the RBA governor today as he provides a scheduled Senate testimony.
The recent run of sessions in which the S&P500 had failed to move up or down by more than 0.5% — the longest since 1965 — came to an abrupt end last night with a -1.5% tumble. Selling in the FANG and other big tech names resurfaced in style, as evident by the -2.1% drop in the Nasdaq. But selling was otherwise widespread.
The Dow had posted a ten-day winning streak up until Wednesday night, and last night pretty much gave all of it back. There was a brief attempt to turn around late afternoon, but selling then accelerated to ensure a close on the low of the day. It was the biggest fall in the US indices since May.
The question being asked last night was: Is North Korea the catalyst or the excuse?
For so long Wall Street traders have been expecting, even praying for, a decent pullback to less lofty valuations. It had never come, despite stagnation in the White House. Had any progress been made on Trump policies then that would have been seen as “an excuse to buy”. Otherwise there was no reason to sell.
Now there is. So is Wall Street genuinely afraid or is the war of words simply the trigger long hoped for? I suppose we’ll find out one way or the other. In the former case the pullback could well be severe. In the latter it will be dampened by demand for stocks at more attractive levels.
At this point I’d pose the question: How many wars begin with the antagonist telling his enemy exactly what he plans to do? Did Gustav Pricep give Arch Duke Ferdinand a heads up? Did Hitler give Poland a month’s notice?
There is nevertheless no doubt money continues to move into safe havens. Gold is up again, the US ten-year yield is down again, and last night the VIX jumped 44% to 16.
Oil was also being bought as a safe haven on Wednesday night but last night we had Russia suggesting it would increase production as soon as the current OPEC agreement expired. West Texas crude is down -US$1.21 at US$48.50/bbl.
The US dollar index is down -0.1% as the Swiss franc and yen continue to rise and gold is up another US$8.90 to US$1285.80/oz.
Base metal price moves were mostly small and mixed in London but for nickel, which rose another 2%.
Iron ore rose US$1.20 to US$76.10/t.
The Aussie is down -0.2% at US$0.7872.
As noted, the SPI Overnight closed down -68 points or -1.2%.
Note that Japanese markets are closed today.
The US will see CPI data tonight.
Philip Lowe will front the Senate, and forex traders will be tuned in.
Rudi will connect with Sky Business this morning through Skype and discuss broker calls around 11.15am, probably.
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