Overnight: Cashing Out

By Greg Peel

US Benchmark

Having rallied on Tuesday, the local market was not overwhelmed by an even bigger rally on Wall Street on Tuesday night, opening -200 points lower yesterday morning. The initial fall wiped out Tuesday’s gains.

While many an analyst is highlighting the longer term buying opportunity this bear market represents, the common theme is one of not yet knowing where the bottom might be. There are still notes going out suggesting investors “fade” any rally, implying any rally will be short lived. This has been the case to date, as neither the ASX200 or S&P500 has been able to put together two consecutive up-days since the correction began.

And the ASX200 remains beholden to the S&P500. Whatever measures are being taken by the Australian government and RBA, the focus is squarely on what’s happening in the US, as represented by the overnight S&P500 futures which trade during Australian time. Yesterday they started heading south again, and thus so did we.

The bad news: the ASX200 closed under the magic number of 5000 yesterday. I call it the magic number, as it proved brick wall resistance from the period 2010-13 as Australia tried to recover the from the GFC. Having finally been penetrated, 5000 then became the support level the index bounced off in 2016.

The good news: Yesterday’s intraday low of 4888 is still a whisper higher than the prior 4879 low of this correction, and we closed at 4953, although these last minute rallies are usually misleading.

Sector activity yesterday was a bit of a hotch-potch. Utilities completely bucked the trend with a 2.2% rally. It may be the most defensive sector, but on every other day it gets slammed down too. Staples (-0.9%) understandably hung in there. The supermarkets actually do have stuff to sell, you’ve just got to be there at the right time.

Telcos, on the other hand, fell -7.5%, despite internet traffic surging due to so many work-from-homers. Telstra ((TLS)) was a safe haven only a couple of days ago, but now has its own issues as its own staff can’t congregate.

Materials (+3.3%) was an “outperformer” as gold miners continue to be hot property despite more selling in sold, and after that it got ugly as usual among the sectors.

Train wreck of the day was Afterpay ((APT)), which fell -33% as it dawned BNPL is not very helpful when the shops are closed. EML Payments ((EML)) fell -24%.

National Storage REIT ((NSR)) has become an unlikely victim, but only because its suitor pulled its bid. The stock went into a trading halt down -28%.

Beyond that, oil services companies were next on the list with -20%-plus falls.

On the flipside, KFC has shut its in-house service and will only operate drive-thru and online delivery services. Collins Foods ((CKF)) rallied 15%. Gold miners then dominated on the upside, before ResMed’s ((RMD)) respirator products had that stock up 7.7%.

Wall Street has tanked again as the futures suggested, albeit did turn slowly in the afternoon before an accelerated comeback. Our futures are down -80 points this morning, which in the scheme of things is a quiet day.

The RBA is set to make a policy announcement at a time yet unknown today. Economists are forecasting a -25 point cut to 0.25%, not -50 to zero because the RBA believes anything below 0.25% is meaningless, and unconventional measures, although probably yield curve control (as well as setting a cash rate target, setting a five-year bond rate target for example) rather than outright QE at this stage.

We await the news. Of course, not helping yesterday’s market was pretty much a doubling of cases of the virus in Australia in a day, but as health authorities are quick to point out, the case-count is jumping because the testing rate has accelerated, which is exactly what happened earlier in China.

Annie Get Your Gun

It seems now almost inevitable any sharp rally on Wall Street in one session will be met with selling the next day. Then the day before’s buyers turn and sell once more. Having rallied a thousand points on Tuesday night, last night the Dow was down -2300 at its low, officially wiping out all of the gains since Trump’s inauguration.

The biggest fear now is businesses closing their doors and then going to the wall. And it’s not just SMEs. Boeing has begged for a US$60bn bail-out while the Big Three automakers will shut their factories tonight. The City of New York is contemplating a full lockdown.

Critical to the above not triggering a Great Depression is Trump’s fiscal stimulus injections, and part of the problem has been resistance in getting the various elements through Congress. Last night a bill was finally passed covering paid leave for workers and free virus testing.

The Treasury Department is working on US$1.3trn of emergency funding, and other measures, for businesses and workers “right away”. It proposes to deliver US$500bn in cash handouts to all Americans beginning in April.

The news was enough to turn Wall Street around, not quite halving the day’s fall by the close.

Monetary and fiscal stimulus is one thing, but fear will not abate until there is evidence growth in the case-count in the US is easing. Right now, as in Australia, it’s rising, but, as in Australia, that’s down to accelerated testing more than accelerating contagion.

As the queues outside US gun shops grow, preparing for the Apocalypse and the collapse of civil order, one commentator on CNBC this morning made what I though was a very good suggestion.

Tom and his wife have recovered and been sent home. Get Tom in front of national television to share his experience of being a bit sick and then getting over it. I would also get Woody to do one for kids.

The US ten-year bond yield rose 27 basis points last night to 1.27%. Only a week ago, I think – time is distorting at the moment – it hit 0.32%. Aside from value being undermined by infinite stimulus, investors are selling everything to cash up ahead of the worst. Infinite stimulus should have the gold price soaring. It was down forty bucks last night.

And it should have the greenback collapsing, except that the whole world’s at it. The dollar index is up 1.4%.

West Texas crude was down another -16%, which is another kick in the teeth for the US stock market.

The S&P500 has now fallen below the prior December 2018 low.

Commodities

Add base metals to the sell everything list, but not iron ore. It really is unchanged.

WTI was down -23% at its low, almost with a one in front of it.

Australia is a Banana Republic. The Aussie is down -3.5% at US$0.5785. The all-time post-Nasdaq meltdown low, albeit briefly, is US47c.

Today

The SPI Overnight closed down -80 points or -1.6% which, if accurate, would imply a new correction low.

Australia’s February jobs numbers are out today, but will be consigned to history. An RBA bulletin is due, but will be superseded by whatever policy announcement is made today.

The Bank of Japan holds a policy meeting, but scheduled meetings are now a thing of the past.

The March quarter SPI contract and ASX options expire today.

Synlait Milk ((SM1)) is scheduled to release its earnings result.

The Australian share market over the past thirty days…