Overnight: Flattening Curve?

By Greg Peel

Blessed Relief

In order to prove that Friday’s selling was simply a safety play ahead of a weekend that might bring God knows what, the ASX200 needed to rally around 160 points to square up again, and within half an hour that was locked in yesterday. At that point the week began.

And the news was good. The trend of case growth in New South Wales, which is leading virus state by a margin (See: Ruby Princess), appears to have rolled over.

As stock markets plummeted in March as the severity of the pandemic began to hit home, all along the cry has been “flatten the curve”, and all along it was assumed any sign of flattening would be the catalyst to spin the market on a dime.

Are we there yet?

The hardest hit nations of Italy and Spain have also, mercifully, seen evidence of flattening. Last night New York City declared, tenuously, the curve was flattening, which sent Wall Street on a tear. The US stock futures were already rising in the afternoon our time yesterday, aiding the local rally.

In other news, the case-count in the “model” virus-containing country of Singapore is back on the rise. The case-count at the original source – China, where business is quietly getting back to normal – is rising again.

Having been admitted to hospital as a mere precaution, Boris Johnson has now been moved to intensive care.

All along the experts have warned against easing the shackles of lockdowns and social distancing too early. The US did exactly that – twice – in 1918, with fatal consequences. And a flattening of the curve does not mean rumours of a recession are greatly exaggerated. The recession is already well underway, and will last at least until the all-clear is sounded.

But yesterday was a matter of sounding the clarion call. Buy everything.

Buying across all sectors was relatively uniform, with the exception of energy jumping a leading 6.0% on the oil price surge, and the defensives of staples, telcos and utilities slightly lagging on 2-3% gains to an average 4-5%. It was an orderly move higher after the initial jump, which meant humans could actually get on.

Meanwhile, Oil Search ((OSH)) and Reece ((REH)) have joined the likes of Flight Centre ((FLT)) and Southern Cross Media ((SXL)) in seeking new capital. G8 Education ((GEM)) remains in a trading halt as it seeks further clarification of the government’s “free child care” policy. Seek ((SEK)) joined a growing list of companies either scrapping, or as in Seek’s case, deferring payment of, their dividend.

As Jack Palance once said, day ain’t over yet.

On yesterday’s rally the ASX200 was still a little short of the prior snap-back rally high which peaked on March 31 intraday at 5366, but with the futures up 124 this morning, that target should be tested.

Thereafter, the March 13 closing high of 5539 was the peak of a big intraday snap-back rally that lasted all of half a session, and became the jump-off point for when the proverbial really hit the fan.

Stuck in the Middle with You

“The U.S. will reach a horrific point in terms of death, but it will be a point where things will start changing for the better.”

We are all now well aware Donald Trump is omniscient, so this news from the president’s now regular Sunday night address was enough to set US stock futures off in our time zone yesterday, and ensure a step-jump opening on Wall Street.

But news that the New York City case count appears to have rolled over is what really set the market rolling higher. It was also an orderly run up from the initial move, with a late spurt thrown in thanks to market-on-close orders.

As was the case downunder, it was a Buy Everything session, with the biggest moves reserved for the hardest hit sectors and stocks. The list of 20%-plus individual stock gains in the S&P500 was extensive, with the likes of retailers, airlines and cruise lines leading the charge.

The Saudi sovereign wealth fund revealed it had taken an 8.2% stake in the Carnival cruise line. The Saudis probably know where to get their hands on some fuel when this all blows over.

But will it blow over anytime soon for the cruise lines? What will a post-corona world look like? Consensus has it that the world will change dramatically now that everything from video conferencing to home delivered groceries have proven successful during the lockdowns. We are yet to see who will survive, who will thrive and who will vanish into the annuls of history, only to become a “back in my day” story for millennials.

Last night’s surge took the S&P500 past the prior snap-back rally high. From the bottom to last night, the S&P500 is up 21%, and down -21% from the February all-time high.

But don’t be misled into thinking Wall Street has made it half way back. The S&P bottomed out down -35%, not -42%. In points terms, the index has recovered 39% of the fall.

Commodities

The Saudis and Russia had a chat last night but decided to schedule an official OPEC-Plus meeting for Thursday night. This news had oil prices slipping back a bit, but hope still springs eternal.

It’s been a while since we’ve seen all base metal prices in the green together but the real standout here is gold.

The US dollar is up 0.2%, the US ten-year bond yield is up 9 basis points to 0.68% and US stock indices are up 7%. And gold is up forty bucks?

Perhaps a good hedge to take while sentiment is temporarily buoyant.

The Aussie, meanwhile, is up 1.3% at US$0.6085.

Today

The SPI Overnight closed up 124 points or 2.4%.

The RBA meets today, but I suspect it will be more a case of a progress update than any change in policy. Nothing much is left in the box.

We’ll also see February trade data today, which will mean little.

Charter Hall Retail ((CQR)) is scheduled to hold an EGM today. These are, after all, E times.

The Australian share market over the past thirty days…