Overnight: Play It Again Sam

By Greg Peel

Stand Aside

The Australian market was back to the old “When Wall Street sneezes…” theme yesterday, falling from the open as the futures had suggested and kicking on with it as the momentum algos sparked into life. The fact the day’s volume was below average suggests it was more a case of lack of buyers than determined selling.

We had managed to shake off the Wall Street connection earlier in the month, fuelled by the budget, and fuelled by the reality that we have a budget, which the US doesn’t, and direct stimulus, which the US doesn’t, and a case-count heading in the right direction, in stark contrast. But the Australian economy does not act in pure isolation.

While things look okay, covid-wise, in our biggest Asian trading partners, Europe, the US and South America are all basket cases where re-lockdowns will have a direct impact on Australian corporate earnings. The obvious one is tourism, but Australia’s multi-national exposure spreads far wider, to mining, plasma, medical devices, toll roads, pokies and into cyberspace.

Selling was relatively even across sectors yesterday, with a couple of exceptions. Outside of the “sell everything” theme energy stood out with a -2.9% fall, on assumed lower oil/gas demand, while IT took a -3.3% hit on a lower Nasdaq and ongoing selling in the BNPL space.

Corporate Travel Management ((CTD)) was not unsurprisingly the worst performing index stock, down -7.3%. Lower commodities prices impacted across the materials sector (-2.1%), highlighted by a -5.4% fall for IGO ((IGO)) and ongoing selling (-5.6%) in the infant Deterra Royalties ((DRR)), which is a pure iron ore price exposure.

Zip Co ((Z1P)) again waved the flag for BNPL in falling -5.3%, while rounding out the top five losers was IOOF Holdings ((IFL)), because at the end of the day fund managers are just market proxies.

Winners were thin on the ground, although Bendigo & Adelaide Bank ((BEN)) stood out (+2.2%) after its AGM revealed loan growth well above “system”, ie other banks. Coles ((COL)) came in fourth with a mere 0.6% gain to help staples post the “best” sector result of -0.9%.

Having hit a low of -155 points mid-afternoon the ASX200 did see a slight comeback late in the day, but with the futures down another -24 this morning, the chances of a spirited fight-back by the humans seem remote this morning.

Wall Street has the jitters and there’s really not much we can do about it.

You must remember this

The Dow fell -0.8% last night while the S&P fell only -0.3% as the Nasdaq rose 0.6%.

Only three S&P500 sectors closed in the green – technology, communication services and consumer discretionary. Worst performing sectors were industrial, financials and energy.

Take me back to the sweet sounds, hot nights, everything’s gonna be alright in the summertime…

Well no it’s not actually. Last night’s trade on Wall Street distinctly resembles the theme of the US summer, being surging technology stocks and crumbling traditional cyclicals as the country endured lockdowns. When the lockdowns were lifted, mostly under duress of civil unrest, the warning from health experts was winter is coming.

It’s still only the “fall”, but last night it was announced indoor dining will be banned in Chicago, again. Case-counts are now above first wave levels in 20 US states.

At this stage the US economy appears still to be doing okay, with durable goods orders up a stronger than expected 1.9% in September, Case-Shiller home prices up 5.2% year on year in August, and consumer confidence dipping this month to 100.3 from 101.3, but still in the positive.

Can it last?

Earnings reports have not been of much help. As was the case with Australia’s August reporting season, the number of “beats” looks impressive but this is against a total lack of guidance, and even now companies are mostly refraining from offering 2020 guidance. Stocks that have seen their share prices surge since March are copping a widespread “sell the fact” response.

A case in point last night was at-home internet learning company Chegg, which, like many such companies had rallied a few hundred percent from the low. It shot the lights out with its earnings report and promptly fell -11%.

It was a familiar case of the FAAMGs leading the charge last night, reinforcing their strength in a stay-at-home environment. With winter coming, and the case-count rising, Wall Street is anticipating that may again be the backdrop.

And this time, for now anyway, without government stimulus. No JobKeepers this time around and probably not until next year.

Which is also when it is hoped a vaccine is ready. Last night Eli Lilly announced it had ceased its trial of an antibody treatment for hospitalised patients, conceding it doesn’t work. The company still hopes it could be effective if administered earlier.

But amidst it all last night, leading chip-maker Advanced Micro Devices announced an agreed takeover of rival Xilinx worth US$35bn. Another theme of 2020 has been market consolidation.

It’s now one week to the election, and a VIX sitting above 30 indicates investors are shoring up their downside risk on the potential for an uncertain result and drawn out counting process, as well as watching the case-count and vaccine progress.

The next two weeks could well be volatile.

Commodities

Which was not evident in last night’s commodity price moves. With most everything having closed in the red the night before, last night everything closed in the green.

It can’t have simply been a -0.1% fall in the US dollar, so we may look to last night’s US-China trade data.

The monthly value of US goods that China bought under the trade agreement reached a monthly record high of $9.9bn in September as oil, soybean and car imports surged.

The Aussie is up 0.1% at US$0.7135.

Today

The SPI Overnight closed down -24 points or -0.4%.

Australia’s September quarter CPI numbers are out today.

Coles ((COL)) will report quarterly sales.

Today’s AGM list includes Netwealth ((NWL)), Steadfast Group ((SDF)) and Super Retail ((SUL)).

The Australian share market over the past thirty days…