Overnight: Rebound

By Greg Peel

Materially Weak

This time it was not about following the FANGs for reasons unknown. This time it was about another plunge in oil prices and weakness across the board in metals prices, which rather hits to the heart of what we do down here. The ASX200 closed down -0.78% yesterday with the energy and materials sectors both down -2.5%.

The futures had been on the money on Saturday morning given the index opened down around -40 points yesterday. There followed an attempted rebound, halving that loss, but then it was just a long, slow slide through the afternoon. One ray of hope was provided by a last half hour bounce from a session bottom of down -60 points, almost back at 5650, to close down -44.

Another ray of hope is the fact the futures are up 46 this morning.

The late bounce was no doubt technically driven but it is clear our market remains in “sell first, ask questions later” mode. If we take out the resource sectors it was a soft day in general rather than a weak one. Industrials was the only sector to tick into the green but both the banks and IT largely held up and the consumer sectors weren’t trashed either.

Healthcare fell -1.0% on news of a rival to CSL ((CSL)) making a move into China while telcos fell -1.2% because that’s what they do.

At the individual stock level, all top five ASX200 losers were resource sector stocks representing a full spectrum of production – nickel, lithium (and iron ore), steel ,copper and mineral sands.

Gainers on the day to some extent reflected what looks like perhaps a bottom for IT high-flyers, given gains for the likes of Afterpay Touch ((APT)), Appen ((APX)) and WiseTech Global ((WTC)). The Nasdaq is up 1.9% overnight.

This looks like bargain hunting, as did top five gains for Viva Energy REIT ((VEA)), Super Retail ((SUL)) and IPH ltd ((IPH)), which have all suffered of late for different reasons.

That bargain hunting will presumably continue today with Wall Street enjoying a solid rebound, oil bouncing back 2% and copper and nickel recovering some lost ground.

Buy first, ask questions later.

Cyber’s Pace

Black Friday sales were down -9% from a year ago. But that’s in actual shops. The period Wednesday to Friday saw online sales surge 26%.

Given Black Friday is now more of a week-long rather than one-day affair, it’s not a direct comparison, but I think we get the gist. Last night was the biggie – Cyber Monday – and early tallies suggest records will be broken.

So no surprise consumer discretionary led Wall Street higher last night, followed by consumer staples.

Next came energy, thanks to a 2% bounce in oil prices after Friday night’s -6% plunge. Talk of Saudi Arabia and Russia getting together for a chat this week, ahead of next week’s OPEC meeting, raised hopes of production cuts.

Then came the banks. This was put down to the US ten-year yield rising a whole 2 basis points to 3.07%, but it’s better than going the other way and the US banks have been serially poor performers for the bulk of the year on a flattening yield curve and weakness in European counterparty banks, such as Deutsche.

Speaking of Europe, Wall Street also had its first chance last night to respond to the UK-EU Brexit deal, for what it’s worth, and also the fact Italy is showing signs it might be prepared to cut its budget to appease Brussels. Looks a lot like a bit of Italian bravado to see just how far Germany can be pushed. Greece tried that, and failed.

So again we see a sharp bounce on Wall Street in what is otherwise a “bear market” for a lot of sectors, if one takes the -20% mark as representing such. Have we seen the bottom? One swallow does not a summer make.

The S&P500 has now pulled back to a net PE of around 14-15x which for many suggests there is value to be had. But that’s as long as E behaves itself going into 2019 and the Fed doesn’t spoil the party. To date, S&P earnings forecasts for next year are hanging in around the 8% growth level, which is well below the 25% numbers seen this year but 2019 will cycle the tax cut boost, so 8% is still a strong number in anyone’s books.

On Wednesday night the Fed chair will speak and were he to sound even the slightest bit dovish – wind back rate rise expectations evenly minutely –Wall Street could seriously take off. Then the weekend brings the trade talks. Again, even the slightest hint China might be prepared to make concessions would be a big positive.

But we are asking a lot.

Commodities

The US dollar index was up again but metals prices managed at last to be mixed rather than uniformly down as they were on Friday night. Copper and nickel clawed back a bit, but iron ore is down again.

Oil will no doubt remain volatile around any Saudi-Russia meeting, followed by the OPEC meeting.

The Aussie is steady at US$0.7230.

Today

The SPI Overnight closed up 46 points or 0.8%.

US consumer confidence data are out tonight, but Black-Cyber sales probably give us an early clue.

Fortescue Metals ((FMG)) provides an investor update today while Harvey Norman ((HVN)), Lynas Corp ((LYC)) and Seek ((SEK)) are among those holding AGMs.

The Australian share market over the past thirty days…