Overnight: And Down Again

By Greg Peel

All for Nought

The ASX200 marked its high for the session in the first ten minutes of trade yesterday, up 122 points or 1.9%. It was a less exuberant opening than Wall Street’s rally might have suggested, and the index proceeded to slide back all session to close up only 70.

That 122 points was net of a long list of ex-divs on the day, including the big diversified miners, so count that back and the opening would have been more spectacular, but clearly conviction faded as the day progressed. And it was the right call. Our futures are down -136 this morning.

Which renders yesterday’s action somewhat moot.

For the record, investors came screaming back into healthcare (+2.7%), and the sector leader in particular, followed by telcos (+2.3%). Telcos were nonetheless boosted by a chart-topping 9.6% gain for TPG Telecom ((TPM)) on both a solid earnings result and news the ACCC will not challenge the company’s merger with Vodafone Australia.

Staples followed with +2.0%, as some investigative reporting discovered that the loo roll shelf at my local supermarket was completely empty yesterday. Lucky I read the Herald in hard copy. I have learned that the loo roll run all began because some minor US media outlet suggested early in the piece that virus-related supply chain disruption may lead to a shortage.

Chaos theory did the rest.

Gains in other sectors were less impressive. The banks only managed 0.5% with the local ten-year bond yield now at 0.77%. Materials managed to scrape across the line with 0.3%, battling all those big dividends. Fortescue Metals ((FMG)), which did not go ex, rose 5.2% on a bounce in the iron ore price.

Coming in behind TPG Telecom on the winners’ list were Elders ((ELD)) and Graincorp ((GNC)), as the heavens open out west.

One and two on the losers’ went ex-div, being Jumbo Interactive ((JIN)) and Corporate Travel Management ((CTD)), although the latter has other problems. Flight Centre ((FLT)) was on there too, and a fall for G8 Education ((GEM)) is no doubt a bet on child care centres either being forcibly closed or empty anyway.

Australia’s trade numbers for January were out yesterday. The $5.2bn surplus was slightly lower than December’s $5.4bn but beat expectations of $4.8bn. Commodity exports fell as expected, but this was offset by a fall in imports. It’s all academic nonetheless, as the next set of numbers will show the big hit to travel & tourism.

Anyway, strap in, we’re heading south again.

If the futures are accurate, we will retest the Monday low today.

Inside Trade

Which is not the case on Wall Street. Despite all the volatility, the S&P500 is still a full 5% above its low as of last night’s close. The index has not traded at a lower low and only just hit a higher high on Wednesday night, before turning tail again last night.

There was no specific trigger for yet another turnaround. The US ten-year yield did trade below 0.90% last night before rebounding to 0.93%, down -7 points, and US stocks tracked a similar path, with the Dow down over -1100 in the last hour.

So far, the correction play book is intact. There will no doubt be more volatility to come.

The excitement over global stimulus, particularly from the Fed, seen on Wednesday night, was once again overwhelmed by virus uncertainty last night. The case count continues to grow outside China, including in the US. US companies continue to queue up to issue profit warnings, either cutting forecasts with a caveat of little conviction in the numbers or simply withdrawing guidance altogether.

Plunging US bond yields continue to weigh on US banks, which are now mostly down -20% from the top. The big names all fell another -5-6% last night.

Closely following financials is energy, suffering similar losses as oil prices continues to tank.

Let’s not even mention cruise ship companies, airlines and anything else “travel”.

Not much more to say. It’s not over yet.

Commodities

OPEC met last night and proposed a production cut of an additional -1.5m barrels per day on top of the -2.1mbpd cut ratified in December. The market was hoping for -1mbpd, so should have been thrilled. But oil prices closed down another -3%.

The problem is it’s only a proposal at this stage, and will only be enforced if Russia comes on board. Russia has not been as committed of late to production cuts as it was earlier in the piece. OPEC-Plus meets tonight. If Russia says no, oil prices are expected to begin with a three by tonight.

And then Russia’s economy would be crippled.

Lower oil prices combined with a weaker US dollar are probably what are keeping metal prices buoyed at present.

Lower bond yields and a subsequently lower US dollar continue to boost gold.

The Aussie has slipped just below US66c once more.

Today

The SPI Overnight closed down -136 points or -2.1%.

Australia’s January retail sales data are out today.

The US sees January trade numbers tonight, and February jobs numbers, while China releases February trade numbers tomorrow.

Today’s ex-div list is much shorter and less impactful than yesterday’s. One standout is Bendigo & Adelaide Bank ((BEN)).

The Australian share market over the past thirty days…