Overnight: Fading Health

By Greg Peel

Feeling Ill

The ASX200 saw an inevitable coronavirus-led step-down from the open yesterday, falling -120 points initially before quickly recovering to be down around the -100 mark. There was a brief attempt to rally at midday when the Chinese stock market opened, taking the loss to only -75, but it wasn’t to last.

The Shanghai index fell only -8%. Having been closed for a week over the new year break, it was feared the Chinese market would fall much further under the circumstances. But this is a communist stock market. The government banned short selling and banned major shareholders (+5%) from selling for six months. Many stocks were suspended at a -10% downside limit, so today will again be telling.

The PBoC announced a US$174bn injection into financial markets and once again cut the bank reserve requirement ratio.

In Australia, sector losses were exacerbated by unrelated bad news on what one might consider an unfortunate day.

The energy sector stood out with a -4.0% fall. While oil prices are now down -18% since the virus appeared, the news yesterday is that the PNG government has put any thought of a P’nyang gas agreement on hold, sending Oil Search ((OSH)) down -7.2%. Oil Search was pipped in the index only by energy contractor Worley ((WOR)), which fell -8.5% after the CEO announced his retirement.

Next worst sector was materials, down an understandable -2.2%. A fall in the banks of -1.4% seemed disproportionate to any virus connection, but a US law firm has announced a class action against Westpac ((WBC)).

Utilities managed just to scrape into the green as the day’s defensive play while healthcare (-0.5%) and consumer staples (-0.7%) posted the smallest losses. The healthcare fall was all about ResMed ((RMD)), which dropped -4.6% after (some) brokers called the stock fully valued.

So all up it was not a market-wide, Sell Australia session as we have seen on a few occasions lately. It was sector specific both on lost business due to the virus and on unrelated company news.

In other news, Australia just can’t stop building apartments. There was a big surge in approvals in NSW in November and yesterday showed a similar surge in Victoria in December, despite national approvals netting a -0.2% drop following November’s 10.9% gain. And house prices surged again in January.

Pause for thought for the RBA. Yesterday’s data, and an Aussie at its lowest level since the GFC, should stay the board’s hand as it meets today.

Wall Street has posted somewhat of a rebound overnight but locally we can’t get excited. Our futures are down -3 points this morning.

Feeling Better

The US manufacturing PMI for January showed a rebound back into expansion at 50.9 against expectations of 48.5. This six-month high result is blessed relief for a US economy reeling on Friday night from a shock Chicago area PMI plunge.

One US biotech company has trialled a treatment that had one coronavirus test patient improving. Trials will begin in China. Health experts continue to play down the coronavirus in comparison to SARS, despite the number of cases (17,000 and counting) now exceeding the 2002 outbreak. The mortality rate is holding around 2% compared to 10% with SARS.

The general feeling is that the virus will be contained and markets will ultimately recover, although no one is prepared to say when. News that China’s oil consumption has fallen -20% had oil prices tumbling again last night. OPEC is calling an emergency meeting.

It is not often that a big fall in oil prices coincides with falls in airline and cruise liner stocks, but they continue to suffer, along with casinos and other obvious suspects.

Last night saw a second attempt to rally back after a coronavirus-inspired fall. Last week’s initial drop on Wall Street was met with a net rally the next day, but then Friday brought the big scare. Last night the Dow was up by as much as 375 early in the session before fading away to the close.

It’s not over yet.

Also weighing on Wall Street sensibilities is the US presidential race. Nervousness is creeping in as far left candidate Bernie Sanders rises in the polls. Much hinges on the result of the Iowa caucuses, which will be revealed during our session today.

Iowa is seen as a bellwether in terms of candidate momentum.

Google posted a result after the bell that beat on earnings and missed on revenue. It’s down -4.2% in the aftermarket, but was up 3.5% during the session beforehand.

Tesla has gone parabolic. After jumping another 16% last night after one little known broking firm issued a positive report, the stock is up 80% year to date. Watch out – a car crash may be forthcoming.

Commodities

For base metal prices, it’s a slow motion car crash. Copper has fallen -9% since the outbreak.

Stability for iron ore has proven fleeting.

Gold is bouncing around hard but going nowhere as each day brings positive or negative news.

WTI crude is at risk of falling back into the 40s.

The Aussie is down -0.1% at US$0.6690.

Today

The SPI Overnight closed down -3 points.

No one expects the RBA to cut today.

Earnings results are due today from BWP Trust ((BWP)), Cimic Group ((CIM)), Janus Henderson ((JHG)) and Shopping Centres Australasia ((SCP)).

The Australian share market over the past thirty days…