Overnight: Stage Three

By Greg Peel

Fooled

It was a very choppy session on the ASX200 yesterday, all played on the positive side of the ledger but very indecisively as to just how relieved we should be the March quarter is now past. And to top it off we once again saw a 100 point leap on the post-bell “match-out”, driven by a person or persons unknown (the Future Fund).

Late buying offset a market that appeared set to freefall back down from around 2.30pm, led by US futures heading south again. And a near thousand point drop for the Dow overnight suggests Wall Street’s text book snap-back rally had reached the point of exhaustion.

We’ll be back in selling mode today, with the futures down -3% this morning, so yesterday is largely irrelevant, and to a great extent simply reversed a lot of the end of quarter selling we saw on Tuesday afternoon.

Energy was the best performing sector, up 7.5% because oil prices improved slightly. Worley ((WOR)) was the best performing stock in the index, up 14.5%, and Oil Search ((OSH)) was not far behind on 12.6%, but with stock prices now flying back and forward day by day, such moves are far from indicative.

Retail landlord Scentre Group ((SCG)) announced it had secured some backstop liquidity, so it jumped 12.5%.

Ardent Leisure ((ALG)), previously slammed on shuttered amusement parks, leapt 33% after updating on its Main Event business in the US.

Telstra ((TLS)) rebounded 4.2% after falling -5.5% on Tuesday. Not sure what’s changed, except the calendar.

The banking sector was supposedly rattled by news UK, European and Asian banks have cancelled dividends, as well as buybacks, but financials still rose 2.8%.

You get the picture – volatility is rife, sentiment changes by the day or by the hour, and computers are moving so fast you’d be lucky to get on in either direction. Madness will continue to ensue until we get a clearer picture, and that may be some time.

“Members endorsed the continuation of close policy coordination that had been taking place among the Bank, the federal and state governments and government agencies. They expressed the view that, in the Bank’s communication, it would be important to emphasise that the Bank expected a recovery once the COVID-19 outbreak has been contained, and that the recovery would be supported by the low cost of funding across the economy.”

The critical line from yesterday RBA minutes: “once the COVID-19 outbreak has been contained”.

While the minutes went to great length to explain why the RBA took the extraordinary steps it did in March, they provided no insight, as how could they?

“In time, following containment of COVID-19, the economy is expected to recover, but the timing of this was uncertain.”

“…it was considered likely that the cash rate would remain at a very low level for an extended period.”

The Australian ten-year bond yield fell -8 basis points to 0.65%.

Roll Over

It was only a week or so ago when a smug Donald Trump insisted America would be back at work by Easter. Last night a very sombre Trump warned “This is going to be a painful two weeks. Our strength will be tested, our endurance will be tried. We’re going through the worst thing that the country’s probably ever seen.”

The New York Governor said modelling suggested the case-count in America’s epicentre state may not peak until the end of April. Forecasts have the number of ultimate US fatalities at anywhere from 100,000-240,000.

It was all a reminder to Wall Street that this is not your common or garden variety bear market. This bear has its own agenda, and no one knows what that is.

Hence last night we saw Wall Street open the June quarter in a similar mood to that of most of March – not quite as panicked as March 23, as these days a thousand Dow point moves are pretty much the average, but back into selling mode nonetheless.

One “bright” spot was that buying returned to bonds and gold, as should be the case with equities falling, as opposed to the March 23 week when everything was being sold in a frenzy. This suggests a less dysfunctional market.

If the bear market continues to play to script, which it has not wavered from so far, Wall Street will now head back down. As to how far back down remains the unknown, as that depends entirely on the fundamental unknown of the virus.

Meanwhile the challenge for the US government is to get its fiscal support package out to the masses with expedience. Some US$350bn in business support loans, to be forgiven if businesses retain employees, is set to be ready for take-up on Friday, via the banks. Suggestions are that by end Friday, all of that US$350bn will be gone, assuming the banks, and their websites (online applications only) can handle the rush.

Meaning Congress will have to go again.

One slightly alarming factor in last night’s selling was that the biggest sector falls, by a margin, were utilities and REITs. Not sure why utilities were so slammed, unless power demand will crash due to shuttered factories and shops (offset by home office demand, one presumes), but for REITs it’s clear. If there’s no rent moratorium, tenants will not be paying anyway.

These are your stock market safe havens, particularly in times of crisis.

Last night the US manufacturing PMI for March raised some eyebrows in falling to only 49.1 from 50.1. However, the complier admitted the number is inaccurate due to supply chain disruptions causing distortion in the data.

Commodities

Last night Trump revealed he had spoken to Putin, and will try to initiate a three-way hook-up with the Saudis, and will also meet with the CEOs of major US oil producers to discuss what to do about the industry.

The latest weekly data from the Energy Information Administration shows the US oil industry was still pumping 13m barrels of crude oil per day, just under record production highs.

Last night Whiting Petroleum filed for bankruptcy – the first “high profile” oil company to do so.

Presumably “the cash rate would remain at a very low level for an extended period” is why the Aussie is down -1.2% at US$0.6069.

Today

The SPI Overnight closed down -169 points or -3.2%.

Nothing else to note today.

The Australian share market over the past thirty days…