Overnight: What Goes Up

By Greg Peel

Lustre Lost

The USD gold price had dipped back a bit on Monday night and yesterday the selling continued into Asian markets, then European markets, then US markets. End result: gold is down well over -US$100/oz this morning.

That was one factor turning a 76 point gain for the ASX200 by midday yesterday into only a 28 point gain on the close.

Another factor was NAB’s business confidence survey for July, which featured a recovery in business conditions (today) from -8 to zero, but a plunge in business confidence (tomorrow) from zero to -14. The survey period captured Melbourne’s stage 3 lockdown, but not the move to stage 4 in August. Victoria and NSW suffered the biggest falls in confidence.

When the dust settled at 4pm, the remaining gain in the index was mostly down to the banks (+1.1%). This follows buying on Monday – quite bold ahead of today’s Commonwealth Bank ((CBA)) result.

The Ausdaq fell -2.0% to mimic selling in the Nasdaq overnight while every other sector posted insignificant moves.

Materials closed flat, as gains for iron ore miners, on iron ore forecast upgrades from brokers, balanced out selling in gold miners.

The action was more notable among individual stocks.

James Hardie ((JHX)) won the day on its earnings report (+6.8%), which also helped to support the materials sector. NRW Holdings ((NWH)) for reasons unknown bounces back and forth every other day (+6.8%).

The short covering scramble continued for travel agents, with Flight Centre ((FLT)) up 6.0% and Webjet ((WEB)) up 5.6%. Notwithstanding bulky short positions, why investors are excited about flying again is a mystery. Even New Zealand has suffered a new outbreak. Germany clocked up 1220 new cases yesterday. Finland will now quarantine international travellers.

The global-case count has reached 20 million. It took six months to get to 10 million, and six weeks to add another 10 million.

Mesoblast ((MSB)) copped some disappointing news from the US FDA yesterday. Having rallied 330% from its March low, the biotech plunged -31% yesterday. That’s biotechs for you.

Challenger ((CGF)) reported earnings and fell -7.6%.

Gold miners copped a hiding.

Wall Street performed a similar, but more aggressive turnaround last night. Our futures are nonetheless up 9 points this morning.

Good Bye High

Russia has approved a vaccine for distribution. Putin was sufficiently satisfied with trials on “a few dozen” people, with phase 3 yet to proceed. The Philippines has placed the first order. Duterte has offered to take the first jab.

Global health experts are highly sceptical.

Wall Street picked up yesterday where it had left off, pushing a rotation out of growth and into value into a rare third session. The Dow was up over 360 points in the morning with the Nasdaq in the red.

The S&P500 reached within 2 points of its all-time high.

But then investors noticed the sellers lined up atop the hill, and ran away. Not in panic – the indices merely slipped back somewhat. Then in the last hour, two pieces of news spooked the market.

The first was that the college football season, due to begin shortly, has been cancelled, along with all other college sports. The news is not so much a direct hit to Wall Street but rather a kick in the guts for sentiment, when the market is pricing in a V-shaped economic recovery. It highlights that the virus is still alive and well and having an impact, despite the growth in total US cases now trending down.

The second was an announcement from the Republican Senate majority leader that stimulus negotiations had reached a complete stalemate. After seven straight days of gains for the S&P, Wall Street dropped like a rock, with the Dow falling -460 from the high.

Ahead of the plunge, US bond yields had been suddenly on the climb. The ten-year yield spiked up 8 basis points to 0.66%, which goes a long way to explaining why gold, and silver, crashed after parabolic moves.

Bond selling had US banks outperforming during the session, before the spin around. The financials sector still managed to close 1.3% in the green, but every other sector closed down, led by the Big Tech names.

Ahead of last night it had been acknowledged by most that US bonds, gold and silver had reached overbought levels, and by plenty that Big Tech had too. All that was required was a trigger. That is not to say it’s all over, but parabolic moves do require occasional pullbacks to reality.

Tonight will be interesting. Was it just a healthy blip, or is Wall Street now spooked?

Commodities

Copper is another metal that’s run fairly hard lately, on a balance of increased demand from China and production shutdowns in Chile. But it is possible that last night’s price fall was not absolute, but rather relative.

The same may be true for oil. Investors long gold futures would have last night been hit with margin calls. In order to cover those obligations, they would need to reduce other commodity positions, and perhaps stock positions as well.

Which begs the question of how commodity funds will react, as they are not run on a day-trading basis, and like index-tracking funds are sentiment agnostic.

All of the above occurred with the US dollar hardly moving a muscle. A drop in the Aussie offers some relief for AUD gold, but at only -0.4% to US$0.7144 it’s cold comfort.

Today

The SPI Overnight closed up 9 points. We do note iron ore rose 2%.

The RBNZ meets this morning.

The UK releases its June quarter GDP result tonight.

The July CPI is due in the US.

Following on from yesterday’s July business confidence survey, today we’ll see Westpac’s consumer confidence survey for August, which will capture Melbourne stage 4.

We’ll also see the June quarter wage price index.

CBA reports today as noted, along with Computershare ((CPU)), Downer EDI ((DOW)), Magellan Financial ((MFG)), Seek ((SEK)) and Transurban ((TCL)), among others.

The Australian share market over the past thirty days…