Overnight: Oversold

By Greg Peel

Another Quiet Day

For the second day in a row the ASX200 plunged in the first half hour, after which the market might as well have closed for the day. The index did fall as low as -160 points down by mid-morning and closed down -146, but when the numbers are this big, no point in calling it a comeback. It’s not that often we lose -2% in a session.

Once again most sectors lined up to match the index fall in percentage terms. The standouts were energy, down -2.9% with help from further oil price weakness, and telcos, down -3.0% for no particular reason.

One outperformer on the day was utilities, down only -1.0%, but while this might be seen as “defensive” it’s out of line with telcos and also consumer staples (-2.1%) and the fact the other “outperformer” was consumer discretionary (-1.3%), which by rights should have been one of the worst performers on a cyclical basis.

The market-wide sell-off has seen sectors that had been supported recently on a defensive theme the first to be dumped.

The banks had been a solid outperformer on the way up to recent highs, and they lost another -2.6%. ScoMo has pulled out the Coalition’s ragged old copy of The Populist’s Guide to Bank Bashing – plays well with the focus groups – but this had nothing to do with it. Specifically investors are concerned there may be more remediation cost hikes announced following National Bank’s ((NAB)) lead on Wednesday. For in isolation, mortgage re-pricing after two months of a strong house price rebound should be well received by shareholders.

And we’re all shareholders. But yesterday was simply a day to sell.

There were no standout moves among individual ASX200 stocks. The top five winners on the day were all gold miners, which is unsurprising. Yet materials fell -2.1% with no change in the iron ore price overnight and not much movement in base metals.

Just sell.

And today, just buy. Wall Street hit oversold and bottomed out overnight and our futures are up 35 points this morning. Gotta love October.

At Your Service

Funnily enough, Wall Street has never really paid that much attention to the services PMI, despite services representing 85% of the US economy. The manufacturing PMI has always been seen as the bellwether, and realistically as much as a throwback to ancient times as Dow Theory.

Last night traders were on tenterhooks ahead of the 10am services PMI release. The stock market went nowhere from the 9.30 open, until the services PMI showed a plunge to 52.6 for September from 56.4 in August. The Dow fell -335 points, taking the three-day rout to over -1200 points.

Then turned. Hard. Half an hour later the Dow was back to square.

Commentators were already talking “oversold” on Wednesday night. Thursday night’s opening plunge sealed the deal. A week ago the market had a Fed rate cut this month at 50%. Last night it hit 90%. And the odds of Trump making concessions to get a trade deal moving next week have also firmed considerably. Impeachment? Just noise.

Tech stocks led the rally back, as evident in the Nasdaq’s 1.1% rally to the Dow’s 0.5%. Investors love such dips for the big tech names as it provides the opportunity to load up again in what we might call “the future is now”.

The US ten-year yield fell to 1.51% on the PMI release before creeping back to 1.54%, while gold traded close to US$1520/oz before falling back to US$1504/oz.

Is it all over? No, it’s October. Tonight brings the non-farm payroll numbers for September and these are again critical, although the services PMI has now stolen the thunder. At this stage it’s hard to determine exactly what response a good, bad or indifferent result might engender.

Wouldn’t like to be the Fed right now, but remember, the FOMC meeting is on October 30, the US-EU trade talks are on October 14 and the US-China trade talks are on October 10. And US results season begins next week.

So anything could happen.

Commodities

China picked a good week for a holiday.

The Aussie has leapt up 0.6% to US$0.6743, all of it overnight, with the US dollar index down only -0.1%. China proxy?

Today

The SPI Overnight closed up 35 points or 0.5%.

The RBA will release its Financial Stability Review today. What stability?

Our August retail sales numbers are due.

And it’s jobs night in the US.

Note that this weekend is a long one in NSW, the ACT and South Australia. While the ASX will be open on Monday, FNArena will not be, given there will be virtually no broker research to share. It’s back to business on Tuesday, with updates of all in between.

And also note that daylight savings begins in relevant states on Sunday, thus from Tuesday morning the NYSE will close at 7am Sydney time.

The Australian share market over the past thirty days…