Overnight: Go Slow

As world markets followed the slowing global growth story, Wall Street began to stabilise last night. Dow up 14.

By Greg Peel

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Australia was unsurprisingly not spared the rolling global sell-off yesterday, triggered on Friday night by a stunningly weak German PMI, which led to the German ten-year yield turning negative, which sparked a plunge in the US ten-year yield, which led to yield curve inversion, which rekindled recession fears.

Big falls on European stock markets were repeated in the US and on into Asia yesterday, with the -1.1% fall in the ASX200 looking not too bad against China (-2%) and Japan (-3%). There was even a slight burst of bargain hunting late in the session when the index was down over -80 points.

The resource sectors took the brunt of the hit as well they might in a slowing global growth environment. A -3.4% plunge for the energy sector well exceeded the fall in the oil price on Friday night but this sector has had a good run of late. Materials (-1.0%) looked to have fared relatively well but that’s because the gold price is rising as global yields fall. Offsetting solid performances for the goldminers yesterday were the iron ore miners, exacerbated by shipment shutdowns due to Cyclone Veronica.

The banks (-1.3%) also had their own issues, with Westpac ((WBC)) announcing another -$260m will be put aside for customer remediation and National Bank ((NAB)) pulling its controversial Introducer Program, which paid commissions to members of the public who referred new home loan customers to the bank.

In percentage terms, IT was the worst performer with a -4.0% fall. The harder you run up on “risk on” the harder you fall on “risk off”.

Defensive yield payers managed to buck the trend to some extent and telcos were the standout on the day, closing slightly in the green.

Among individual stocks, four of the five ASX200 winners on the day were goldminers, while the losers included tech names, coal and nickel miners, and a further fall for embattled EclipX Group ((ECX)), down another -13%.

The dust has settled somewhat overnight, with only minor falls in Europe and an ultimately flattish session on Wall Street. Our futures are showing up 12 this morning, but I’d say that would be a tentative 12.

All Yield

Brexit? I can’t keep up. Theresa May has decided putting a third deal to parliament is pointless as it will be defeated. The EU provided an extension on the assumption a deal would be put, and a greater extension if it’s passed. Where are we now? Dunno.

I assume that if there is a “no deal” Brexit, the resulting economic calamity in the UK would not do a lot to improve the current global growth story. I also assume that the EU would be happy to support a growing push for a second referendum. Maybe the UK will simply wake up from a long nightmare.

I suggested yesterday Germany’s monthly IFO survey of business sentiment might be interesting this month. Well, it actually rose to 99.6 from 98.5 in February, but would pre-date the PMI release.

Over on Wall Street, the US ten-year yield ticked back up a few basis points in the morning before turning tail and falling as low as 2.38%, ahead of a late recovery to 2.42%, down -3 basis points on the session.

Hence the Dow rallied a hundred points in the morning, fell to down a hundred points in the early afternoon, and closed square. All three major indices closed as good as square, while the Russell small cap rose 0.5% having fallen -3% yesterday.

Follow the bonds.

Most notably, US banks were being hit again last night but they, too, recovered to post only small falls. The question being asked now is whether the sudden rush into bonds has been overdone, and thus whether buying opportunities are presenting in stocks.

There is still the possibility of Wall Street being turned back on its head by a successful trade outcome, but assuming a resolution is still some time off, we will next turn to US March quarter earnings, the results of which will begin to flow next month.

Current forecasts suggest a -4% fall in S&P500 earnings from the March quarter last year, but that quarter was the first tax cut quarter. Taking that into account, -4% has no one worried, unless it’s a lot worse.

Commodities

Oil saw a little bit of a reprieve last night but otherwise the story was the same – weaker base metal prices and rising gold.

Iron ore is always an enigma. When all other commodities were falling on Friday night on the global slowdown story, iron ore rose. Last night it fell along with other industrials metals, despite a halt to WA shipments. Go figure.

The US dollar index dipped last night after Friday’s rally, so the Aussie is back up 0.3% at US$0.7109.

Today

The SPI Overnight closed up 12 points.

There are quite a few data releases in the US tonight, including consumer confidence.

Locally, Kidman Resources ((KDR)) posts an earnings result.

The Australian share market over the past thirty days…