Overnight: What Goes Up

By Greg Peel

When Wall Street Coughs

Perhaps the most surprising aspect of yesterday’s sell-off on the local market is that it didn’t happen on Wednesday. Wednesday was set up for a pullback as the S&P500 wobbled in the US and our futures called it down, but the FOMOs saw an initial dip as an opportunity.

They were at it again yesterday morning. The ASX200 opened down -110 points in the first ten minutes but by 11am that had been pared back to down -60. Then someone pointed out the Dow futures.

The Dow futures began falling from the open and by the close of trade here yesterday were down over -400 points. That was enough – the FOMOs no longer needed to F MO. It quickly became FONGO – fear of not getting out. There was a minor attempt of a bounce at 2pm but it was soon stomped on.

And just as well if you did get out, given Wall Street finally succumbed last night and our futures suggest another -181 point fall for the ASX200 today.

Unsurprisingly, the sectors and stocks that led the recent “reopening rally” led the market down.

Hardest hit were energy (-5.4%) and the banks (-5.0%) which had been the rally leaders. Consumer discretionary was next with (-4.0%) followed by industrials (-3.6%), which saw a reversal of sentiment for toll roads and airports.

While every sector closed in the red, defensives fared much better in relative terms, having been left behind in the reopening rally. Healthcare fell only -0.3%. Materials, supported by a jump in the gold price and resilience in iron ore, fell -1.3%.

Telcos and utilities fell -2.1% and staples -2.5% and IT – call the Ausdaq – fell -2.5%.

The biggest losers among individual stocks were again the prior winners, travel agents, consumer lenders and retail landlords. Flight Centre ((FLT)) fell -10.4% and Webjet ((WEB)) -10.1%, Credit Corp ((CCP)) fell -10.3%, and UR Westfield ((URW)) -9.8%.

The top four winners were all gold miners, with gains in a range of 4-7%.

Outside the index, stay-at-home beneficiary Kogan ((KGN)) rose 6.7% on its oversubscribed capital raising while the footy went flat for Seven West Media ((SWM)), down -11.4% ahead of the season reopening with a draw.

With the futures down -181 this morning, one has to ask just why we have to dutifully follow Wall Street, particularly considering the S&P500 got back to square for the year when the ASX200 was still -7% short. Sure, Fed policy impacts across the globe, but Australia has successfully contained the virus and a bumbling US administration has clearly failed to do so.

But as they say, c’est la vie. Now and forever amen.

Might as well just sit it out today.

Moving Wave

It required three elements to come together to tip Wall Street over last night.

First, the US stock market had returned to square for the year amidst the greatest recession since the thirties. Second, on Wednesday night the Fed indirectly implied there might be something wrong with the first picture. And third, finally someone pointed out the rising US case-count.

Second wave? No. To have a second wave, a first wave must pass.

In Australia, we can say with some degree of confidence that we have seen a first wave pass, while we cross our fingers as the economy slowly – and I mean slowly compared to many US states – reopens.

In the US, the case-count is now rising across the south, from Florida to Texas and Arizona. The original epicentre in March and April was New York, and then on to next door New Jersey, with most other states wondering what all the fuss was about. Now the wave has rolled on, and continues to sweep across the country. The complacent states had shrugged, and quickly reopened their economies.

One CNBC commentator this week described a bar in Arizona she had stopped into as “packed”, with no one wearing a mask.

But last night at least, the impact was if this is a second wave…, which health authorities fear is yet to come in “the fall”. The most obvious bellwether for reopening exuberance are US airlines, which last night were trashed. This flows on to Boeing, which had led the Dow back up in the recent rally. It fell -16%.

The S&P500 is now back near its 200-day moving average – a level that was breached without a care on the way up. Will it hold?

Commodities

Base metals and oil reflected Fed caution and Wall Street panic.

Iron ore reflected the second worst virus-impacted country (that we know of), Brazil.

The US ten-year bond yield fell another -10 basis points to 0.65%, having been dropping all week. No one on Wall Street had paid attention. But why, then, is gold down overnight when under the circumstances it should be up?

Looks like a lot of the FOMOs levered up. As margin calls come in, something has to be sold to cover.

Any good news? The Aussie has dropped -2.1% to US$0.6854. Makes no sense whatsoever on an economic comparison, but we’ll take it.

Today

The SPI Overnight closed down -181 points or -3.0%.

Again, nothing of much interest on the calendar today, unless you’re keen to know how European industrial production fared in April or how US consumers were feeling before last night.

The Australian share market over the past thirty days…