Overnight: More Of The Same

By Greg Peel

Irrational Optimism

It had nothing to do with the retail sales and trade data, or the RBA. Indeed, it had nothing to do within anything occurring during yesterday’s session. Despite the S&P500 only rising 0.7% overnight, the futures decided before the bell we’d be up 1.4%. They were wrong. Within ten minutes the ASX200 was up 2%.

At that point you might as well have gone home, if you weren’t home already. The index went largely nowhere for the rest of the day.

CommSec chief economist Craig James told the Oz yesterday there was a “degree of irrational optimism” but the strong overseas leads were a good basis for the rise. Indeed, European markets had been strong, and US markets had been strong, but in the latter case it was very much distorted by gains in two mega-caps, Apple and Microsoft.

And if everything is so tickety-boo, what was everyone up to last Friday, when the index fell -120 after the announcement of the stage 4 Melbourne lockdown? Have we decided that 25% of Australia’s economy coming to a dead stop for at least six weeks is nothing to worry about?

Witness the banks. They fell over -2% as late as Monday, when the market closed flat, yet jumped +2.0% yesterday. Ditto consumer discretionary. Down -1.6% on Monday and up 2.2% yesterday. Both are clear lockdown losers.

Car dealer AP Eagers ((APE)) was one of the worst performers in the index on Monday. Yesterday it rose 6.0%.

My guess? Big offshore fund manager switching some allocation into Australia. And they cleverly bought the futures first, knowing they were going to move share prices, because clearly the sellers dived out of the way on the open. This was not Australian buying, not under the circumstances.

One exception might be IT, which outperformed on a 3.2% gain. Apple and Microsoft drove the Nasdaq to a new high, so of course we all should pile into Afterpay ((APT)) and friends. Otherwise, six sectors rose by a pretty uniform 2%-ish. Slight laggards were materials (+1.3% despite a big iron ore price gain), industrials (+1.4%) and utilities (+0.8%).

Even property rose 2.3%, despite landlords being huge losers in Melbourne, and UR Westfield ((URW)) falling -3.0% to be the day’s worst index performer.

In the bigger picture, whatever happened yesterday did no more than recover Friday’s lockdown losses. The index blew straight through 6000 on the open, and closed about -30 points shy of last Thursday’s intraday high.

So, with that out of the way, now what? The S&P500 rose 0.4% last night but our futures are down -14 points this morning.

For the record, Mesoblast ((MSB)), Aristocrat Leisure ((ALL)) and Afterpay ((APT)) topped the charts with 6.5-7% gains. Outside of UR Westfield, three of the top five losers were gold miners.

Gold smashed through US$2000/oz last night.

Australian retail sales rose 2.7% in June, as previously estimated by the ABS, and fell -3.4% in the June quarter. Australia reported another solid increase in trade surplus thanks to iron ore, as the ABS had previously estimated.

The RBA is buying a few more three-year bonds to keep the curve at 0.25%, but other than that is doing nothing new to account for the Melbourne factor.

Your Turn

After pushing to a new all-time high, the Nasdaq decided to take a breather last night, while still closing at a new all-time high. It was actually in the red with about fifteen minutes to go.

The S&P was flat and the Dow only slightly up, but a late buying surge made it look like another solid day on Wall Street. As Big Tech sat back, investors returned to buying the beaten-downs, notably energy, materials and REITs.

The Dow was helped by a 3.1% jump for Dow post-result. That’s chemical giant Dow Inc, in the Dow Jones. Ford (Dow) jumped 3.5% after announcing its CEO would be “retiring”.

Last night White House chief of staff Mark Meadows was quoted by the WSJ as saying, with regard Congressional agreement on a stimulus package, “We’re a long ways away from striking any kind of a deal”. Yet Wall Street seems adamant that given the election is getting closer every day, a deal will be done.

And a vaccine will be found. Just about every day now there is new news coming out of the medical sector regarding vaccines and/or treatments. Including from Australia yesterday. Most is still early-day, incremental stuff, and is becoming hard to keep up with.

One is reminded of the old infinite number of monkeys in a room typing Shakespeare.

On Monday night WHO warned a vaccine may never be found. SARS Cov-2 is what the boffins like to call covid-19. A vaccine has never been found for SARS Cov-1.

While hope springs eternal in US stock markets, the US ten-year yield fell -5 basis points to 0.52%, the US dollar fell again, and gold shot through the 2000 mark and into clear blue sky.

Wall Street is nonetheless buoyed by an earnings result beat-rate now exceeding 80%, while at the same time acknowledging analyst estimates were just way too low.

Disney (Dow) just reported after the bell, and is up 4.5%.

Commodities

Shades of 1980 for gold. And the Hunt Brothers for silver.

Iron ore is not far behind.

Base metals prices are suddenly as volatile as an Australian share market.

Strong trade numbers, which we knew about, and a weaker greenback have the Aussie up 0.5% at US$0.7163.

Today

The SPI Overnight closed down -14 points.

It’s July services PMI day across the globe today, and we’ll also see local June housing finance numbers.

The US will see July private sector jobs data.

Centuria Industrial REIT ((CIP)), Centuria Office REIT ((COF)) and ALE Property ((LEP)) report earnings.

The Australian share market over the past thirty days…