Overnight: Thank God That’s Over

By Greg Peel

Not with a Whimper

I said yesterday that being the last day of the quarter, anything could happen. And it did. The ASX200 shot out of the blocks from the open to be up 185 points late morning, before arcing to the downside and picking up selling momentum to the close of down -104. We can posit a few reasons why we saw such an arc.

Firstly, end-of-quarters are typically a battle between the window-dressers – fund managers looking to push up prices in one last spree to make their quarterly returns look better, or in this case, less worse – and the book-squarers – those simply looking to close out for the quarter and start again. Yesterday we may have seen profit-taking from those who jumped on the relief rally.

Secondly, there had been much talk of large balanced funds needing to rebalance for the quarter – buy equities and sell bonds – to get their ratios back in whack. Early buying may have reflected anticipation of such, and late selling disappointment that not much was evident.

Then there was the simple matter of the Dow futures being down -140 points by the close, although in the current market, that’s a negligible move.

And then were a few “alpha” events thrown in.

Wesfarmers ((WES)) sold down a 5.2% stake in Coles ((COL)), leaving 4.9%, sending Wesfarmers shares down -4.5%, Coles ((COL)) shares down -9.9% and the consumer staples sector down -5.9% to be the worst performer on the day. This was aided by Woolworths ((WOW)) falling -8.0% on signs of peak toilet paper.

Or we might just call it profit-taking in an “outperforming” sector through the month, given another outperformer, healthcare, saw a drop of -3.8%, with CSL ((CSL)) down -5.1%, and ditto telcos, falling -4.3% with Telstra ((TLS)) down -5.5%.

EML Payments ((EML)) came out of a trading halt to announce it had negotiated a better deal for its acquisition. It rose 23%, pipped by Credit Corp ((CCP)), which rose 25% as Macquarie increased its stake.

Signs of the times: Virgin Australia ((VAH)) has stuck its hand out for a $1.4bn government loan, which may convert to equity if  not repaid in time, while regional airline Regional Express Holdings, otherwise known as Rex ((REX)) will shut its Queensland operations from today, with no sign of help from the state government. Virgin rose 18.8% and Rex fell -18.9%.

The Queensland government was generous to LiveHire ((LVH)), awarding it a contract, to redeploy state 15,000 public servants in response to the virus. The stock jumped, 38.6%.

Otherwise, we saw a mix of some heavily beaten down stocks being snapped up (G8 Education ((GEM)) rose 19.3%) and not so beaten down stocks being sold, such as CSL and Telstra.

There were gasps mid-session when the Chinese PMIs for March were released. The manufacturing PMI rebounded to 52.0 from 35.7 in February and the services PMI to 52.3 from 29.6. China is back in business!

No it’s not. These are “second derivative” numbers, measuring the pace of expansion or contraction and not the quantum of output. Record contractions in February reflected a Chinese economy that was shut down. Low 50s readings for March suggest mild expansion from those lows, as China reopens, not a startlingly swift recovery. To get back China would have to post equally big numbers as February’s were small.

As the Bubble sang, it’s a new dawn, it’s a new day, it’s a new life. We now bid farewell to a March quarter which saw the ASX200 down a net -24%, wondering, from the safety of our caves, what the June quarter might bring.

Recession.

Not with a Bang

It was up, down and all around for US indices last night, ending with the Dow down -400 points, which in the scheme of things is not worth getting out of bed for. There was no shock news or event or statistic to drive the market, just an end of quarter.

The Dow posted its worst first quarter in history in falling -23%. The S&P500 posted its worst quarter since 2008 in falling -20%. The Nasdaq recorded its worst quarter in – gosh – two years, in falling -14% (Microsoft closed up for the quarter.) The Russell small cap index posted its worst quarter since 1979, falling -31%.

In virus news last night, Spain recorded 849 deaths in one day, the biggest jump to date, while New York City reported a 16% increase in deaths in six hours. Peak virus still alludes.

In response news, Congress is now working on Phase 4 of the US government’s relief package, reportedly yet another US$2trn, with a focus on infrastructure as well as more support measures, while the Fed opened up yet another new window of monetary support, offering to buy US Treasuries from foreign central banks rather than have them sell in the market.

Current forecasts have the Fed balance sheet reaching US$10trn by the end of this. It’s all just play money.

Goldman Sachs had stood out up until last night in forecasting a full -24% drop in US GDP in the June quarter – streets ahead of next worse. Last night Goldman revised that to -34%.

The bottom line is forecasts are being thrown around – they have to be, because this is what these people do for a living – but basically nobody knows, and nobody is pretending they do. It will all come down to when the US, and the world, hits peak virus, and that is in the lap of the gods.

Commodities

Only really one big price move last night, that of gold, but even that was only -2.8%, and likely reflects the same theme of taking profits for quarter-end on those assets that have outperformed. The US dollar was steady.

That didn’t stop the Aussie falling back -0.5% to US$0.6142.

Today

The SPI Overnight closed up 71 points or 1.4%, further underscoring the assumption yesterday’s trade cannot be considered indicative.

The minutes of the March “shock & awe” RBA meeting are out today.

China’s PMIs may have rebounded but they are a month ahead in virus terms. Today brings March manufacturing PMI data from across the globe, in a litany of woe.

Locally we’ll see some more ancient history – February building approvals.

Tonight Wall Street will be braced for the ADP private sector jobs report for March. It, along with this week’s jobless claims number and Friday’s non-farm payrolls, is expected to be shocking, but yet not fully representative of the unemployment crisis to come.

The Australian share market over the past thirty days…