Overnight: Got Your Back

By Greg Peel

As You Were

The Dow futures were down -850 points by the close of trade on the ASX yesterday. That’s about all you need to know about yesterday. The Dow closed higher overnight, wiping out those losses. Our futures are up 141 this morning. That’s about all you need to know about today.

It’s getting a bit tedious.

But in the director’s cut, the No Idea trade was alive and well yesterday morning as the ASX200 saw-toothed its way to be little changed by lunchtime, despite swinging back and forward 50 points.

The mid-session release of Chinese data for May then impacted on the afternoon. Industrial production rose 4.4% year on year compared to 3.9% in April, below 5% forecasts. Retail sales fell -2.8% compared to -7.5% in April, when -2.4% was expected. Fixed asset investment fell -6.3% year to date, compared to -10.0% to April.

Bottom line is Chinese factories are back in business but consumers remain cautious, despite the Chinese economy having reopened well ahead of the West.

But was that a good idea? More worrying than slight misses on forecasts was news Beijing has locked down ten residential compounds in north western Haidian district yesterday after finding virus cases at the nearby Yuquandong seafood market.

Great. Now the fish are eating bats. Vice Premier Sun Chunlan said at a meeting Sunday that the risks are high for Beijing’s virus resurgence to spread.

This news, and the ongoing rise in case-counts in new US hotspots, are what tipped the Dow futures over when they opened, and sent the ASX200 down -2%.

For once, selling was rather uniform across sectors yesterday, exhibiting only a slightly defensive bias. All sectors closed in the red, in a range from utilities (-1.3%) to energy (-3.4%). The bias was evident in our consumer gauge – discretionary fell -3.3% to staples’ -2.1%.

Second wave fear gripped.

Among individual stocks, the top five losers consisted of lithium miners, travel agents and a fund manager. No surprises there.

Not much going on among the winners other than an out-of-the-box 19% jump for medical services provider Healius ((HLS)), the artist formerly known as Primary Health Care, after selling its medical centres to private equity.

Super Retail ((SUL)) – as of last week the second most shorted stock on the market (10.6%) after Myer (13.4%) – has announced a capital raising via rights issue. The owner of Supercheap Auto, Rebel Sports and BCF saw sales plunge -26.2% in April and rebound 26.5% in May. Looks like the shorters were anticipating the raise.

And in a another sign of the retail times, City Chic Collective ((CCX)), the artist formerly known as Specialty Fashion, rose 5.6% after revealing it had reached agreement with landlords for reduced rent over the lockdown period and “market appropriate” rents going forward. No agreement could be reached with the landlords of 14 stores, so they will be shut.

City Chic has performed well over the lockdowns due to its online presence, so no dramas there.

Anyhoo, today should see us back where we were.

Virus v. Fed

The UK government has decided that as of last night, anyone returning home from overseas (aside from Ireland or France) must go into quarantine. Absolutely mind-boggling.

Aside from the Ruby Princess debacle, for which someone is yet to be publically flayed, Australia moved swiftly early on to introduce such measures. Months later, our near-negligible case-count rate mostly reflects those in quarantine.

It was nevertheless the virus news out of China and domestically that sent the Dow down -760 points from the open last night. But as ever, those missing out on the spoils on the way up stood ready to snap up bargains, particularly in Big Tech (if there remain any bargains to be had).

One common argument now, as case-counts across the south continue to accelerate, is that this is being offset by case-counts in the north-east equivalently decelerating, leaving the daily count at a relatively flat 20,000-odd.

Not that it’s anything to be proud of, but it does shoot down second wave fears, and Wall Street will take it. The increase in cases is also being put out down to a massive increase in testing compared to the bumbling efforts early in the game.

The Dow (and particularly the Nasdaq) were thus on the way back up when in the afternoon, the Fed announced it would now extend its QE package to the direct purchase of individual corporate bonds. Previously the Fed had supported corporate lending through purchases of bond ETFs. That was another kicker, and the Dow was up almost 300 points in the last hour.

There followed market-on-close volatility, which saw the Dow square with half an hour to go before bouncing up and down to an ultimate 157 point gain.

The winner was nonetheless the Nasdaq, which rose 1.4% to the Dow’s 0.6% and the S&P500’s 0.8%.

Once again it is clear one can’t fight the Fed. The more downbeat the FOMC is – which is what helped Wall Street roll over last Thursday – the more it will step in to right the ship.

What’s next? Equities?

Commodities

A bit of a wobble in metals prices on the news from Beijing.

The oils are hanging in there though, despite the case-count in the south possibly threatening the US summer driving season.

As our new case-count was yesterday 13 compared to the numbers in the US, we just can’t keep the Aussie down. As the dollar index fell -0.7%, the Aussie is up 1.1% at US$0.6913 despite initially falling below 68c yesterday on the Chinese news.

Today

The SPI Overnight closed up 141 points or 2.5%.

Today we’ll see the minutes of the June RBA meeting, and March quarter house prices, which are ancient history.

Orora ((ORA)) holds an EGM.

The Australian share market over the past thirty days…