Overnight: Rebound

By Greg Peel

Amped Down

There’s not a lot to be said about yesterday’s trade on the ASX other than why? I did suggest yesterday morning that futures down only -1.6% looked a little optimistic, but I would not have predicted -2.8%.

For a decade the Australian market has underperformed Wall Street substantially. Yet every time Wall Street has a correction or pullback, so do we. The past two years on Wall Street have been the years of the FANGs, which had become overvalued by all accounts and needed to come back to earth. This past couple of weeks they have, particularly on Wednesday night, been leading the rout on Wall Street in general. We have no FANGs. What’s the connection?

Mindless fear is the only answer, but that’s a market. Foreign investors dumping out of Australia yesterday to cover losses in their own markets? No doubt. It was certainly an unequivocal market-wide sell-off. Sell Australia writ large. The best performing sector was utilities, down -2.1%. The worst healthcare, down -3.6%. Every other sector had a -2 or -3 in front of it.

From general perspective, fundamentals had absolutely nothing to do with it. There were a few exceptions at the individual stock level, the most notable being an OMG session for AMP ((AMP)). There would have been some very red-faced analysts drowning their sorrows in the bars of Sydney and Melbourne last night. Deep value? Doesn’t look like it.

I’ve been in this game for 30 years and I have never before heard of a company taking provisions for “dis-synergies”. But that’s what the acquirer of AMP’s wealth management business has done, suggesting that AMP’s wealth management revenues were internally sourced from a model unable to be replicated in a post-RC world. AMP now wants to sell its life insurance business, which is what Australian Mutual Provident began as in 1849, founded by a bloke called David Jones.

The writing appears to be on the wall.

AMP’s -24.5% loss was clearly a standout at the top of yesterday’s ASX200 losers’ board. Also alarming was a second -10% fall for Super Retail ((SUL)), which appears to have done nothing wrong other than recognise a more cautious consumer, and have its CEO retire. With -20% just wiped off his nest egg, maybe that CEO will change his mind.

There were some winners. Lynas Corp ((LYC)) has been beaten down lately on Malaysian issues but its production report was worth a 7% pop yesterday to top the leaders’ board. Cleanaway Waste’s ((CWY)) AGM was worth 5%. (Waste: The industry of the future? Discuss) The next three of the top five were gold miners.

I noted yesterday, referencing the calls of technical analysts, that if the ASX200 breaks 5800 then technically 5650 is the next support level. I can’t say we held that yesterday because the index closed on it’s low at 5664. Wall Street has bounced, the local futures are up 73 this morning and 5650 was not breached.

I’d be prepared to say 73 again looks underdone, but it depends on just how shell-shocked investors are today.

Relief

As the Wall Street session headed towards the last hour of trade on Wednesday night, what to that point had looked like a relatively orderly second wave of selling in the pullback turned into a stampede when the prior low was breached. That stampede took the major US indices into the red for the year, and into technical “correction” (-10%) territory.

Last night Wall Street returned to that tipping point, recovering the stampede losses. There was a bit of late selling – enough to turn a 500 point Dow gain into 400 – but bargain hunting won the day.

Star of the session was Microsoft (Dow), often seen as a tech dinosaur in the twenty-first century when compared to the FANGs. But while Microsoft still sells Windows software, its real business these days is in the cloud. The stock closed up 5.8%.

Ford (Dow) has been seen as being left behind in the new world of auto manufacturing, but its result was worth 10%. Tesla posted an actual profit. That was worth 11%. Many had declared Twitter a dying fad. Its result was worth 15.5% (while still losing users hand over fist). American Airlines is looking at much higher fuel costs. It raised guidance, and jumped 6.7%.

All year earnings results have halted pullbacks on Wall Street – in April (March quarter), and in July (June quarter). We’re nearly in November. Will it happen again?

First, the volatility has to subside. The Nasdaq was down -4% on Wednesday night and up 3% last night. The FANGs led the Nasdaq down and the FANGs led the Nasdaq back up. Amazon, for example, rose 7% last night and Google 4%.

Unfortunately, both have reported after the bell and Amazon is down -9% and Google -5%. That does not bode well for tonight, but then Intel (Dow) also reported after the bell and it’s up 3%, having closed up 4%, and there are a lot more earnings results yet to flow.

Tonight brings the first estimate of US September quarter GDP growth, forecast to come in at 3.3% (annual), down from June’s standout 4.2%. This will be an interesting one, given the most predominant fear on Wall Street at present, beyond trade, the dollar, Italy, Saudi Arabia, Brexit et al, is a too-fast Fed.

Commodities

Iron ore and oil up slightly, base metals and gold all down, but not by that much.

The US dollar index rose another 0.3% last night yet the Aussie is also up 0.3%, at US$0.7081.

Today

The SPI Overnight closed up 73 points or 1.3%. On Wednesday night the S&P500 fell -3.1%, and yesterday the ASX200 fell -2.8%. Last night the S&P bounced 1.9%, and we’re predicting 1.3%.

Frustrating stuff.

The US GDP result will be the highlight tonight, among further US earnings releases.

Locally, there’s another long list of AGMs today – Insurance Australia Group ((IAG)) stands out, along with Qantas ((QAN)).

Quarterly earnings reports will be posted by ResMed ((RMD)) and Unibail etc ((URW)).

Production reports are due from OceanaGold ((OGC)) and Resolute Mining ((RSG)) and investor days will be held by Mirvac ((MGR)) and Newcrest Mining ((NCM)).

The Australian share market over the past thirty days…