Overnight: Inversion Holds

By Greg Peel

One for the Shorts

The ASX200 stepped down from the open on Monday on Wall Street’s fall and stayed there but on Wall Street’s tentative recovery on Monday night, the ASX00 did not step up. Rather the index appeared uncertain to begin with yesterday before finally tracking a jagged rally to be up 40 points at 2.30pm.

Some afternoon selling brought that back -10 points.

As to whether we can expect some positive news soon on trade, as Trump suggested on Monday night, is a matter of contention. Sector moves yesterday suggested a level of risk-back-on after Monday’s trashing. Only two sectors closed in the red.

Earnings season had much to do with it.

It was a day for the shorters. As of last week, Inghams Group ((ING)) was the most shorted stock in the market at 19.5%. The share price had been tracking down slowly over the last six months with the drought having some impact, but yesterday the stock plunged -17.1% on its result. Consumers staples closed down -0.1%.

Inghams was not the biggest train wreck of the day nonetheless. Satellite telco Speedcast International ((SDA)) lost around half its value back in May when the company issued a second profit warning that clearly didn’t go far enough. Yesterday Speedcast shares fell -38.9%, to date the biggest one-day loss on result this season.

The stock had been double-digit shorted not so long ago but clearly profits had already been taken as shorts had fallen to 8.4% by last week. Some gun-jumpers there.

Nanosonics ((NAN)) had also not that long ago been double-digit shorted, but fortunately for the short-side players they had closed those out in the interim. Nanosonics jumped 32.7% on its result. Healthcare rose 0.7%. Nanosonics does not have the clout to overcome the heavyweights in that sector.

The IT sector had the biggest gain on the day (+3.2%), to some extent aided by a rebound in the Nasdaq but also by a 7.8% rally for Afterpay Touch ((APT)), which reports today and 6.7% for Bravura Solutions ((BVS)), which has already reported.

Plumbing part purveyor Reliance Worldwide ((RWC)) rose 5.8%. It was 10.3% shorted, so not all were winners.

More earnings reports are due today after a session on Wall Street that saw bond yields in focus.

Tweet-Free

It wasn’t strictly a tweet-free session on Wall Street last night, just one in which The Master himself was absent. There was this tweet from the editor of a Chinese state-owned newspaper:

“China on Tuesday issued 20 directives to boost consumption, in an effort to further tap domestic market, not putting so much emphasis on trade talks. China’s economy is increasingly driven internally, it’s more and more difficult for the US to press China to make concessions.”

The Chinese government also reiterated it knows of no such phone call to Washington to which Trump referred on Monday night.

The Dow opened up 150 points then immediately began falling steadily to be down -150 points at lunchtime before recovering to be flat with an hour to go before closing down -120. Does the market have any idea what’s going on?

Of course not, who could? But what was driving stock market gyrations were movements in US bond yields. The low point coincided with the two-year to ten-year spread falling into inversion more emphatically than it has before now, and the rally back to square followed some stabilisation. The late sell-off coincided with the two-year ultimately closing at 1.53% to the ten-year’s 1.49%.

Yet it seems it’s the computers that are more afraid of recession than the humans, with commentators lining up to point at negative German yields as the culprit. How could the US have a recession when the monthly Conference Board measure of consumer confidence marked 135.1 for the month? That’s a dip from July’s 135.8 but barely noticeable. Forecasts were for 127.8. This is a 100-neutral index.

Consumer confidence is nevertheless no salve for US banks. They were the bigger losers on Wall Street last night, again, on curve inversion, while the Russell small cap fell -1.4% given the index is heavily weighted towards regional banks.

Commodities

Base metal trading came back on line last night after the break, unspectacularly.

Iron ore had another bad session but these sorts of percentage moves are currently common day to day, both down and up.

Any pullback in the gold price is proving short-lived.

The oils saw relief from a report suggesting OPEC members are sticking to their production cut quotas and the usual speculation regarding weekly US crude inventories, which are predicted to show a drawdown. Plus short-covering one might assume.

The Aussie probably also saw short-covering on Monday night given it is back down -0.4% at US$0.6750 with the greenback unmoved.

Today

The SPI Overnight closed down -10 points.

Locally today we’ll see the release of an important GDP constituent, June quarter construction work done.

There is a decent list of stocks reporting today with no standout biggies, but there are one or two there that could be big movers on the day – Afterpay Touch being one of them.

Bellamy’s ((BAL)) is another. It was 15.8% shorted last week.

The Australian share market over the past thirty days…