Overnight: Pandemic

By Greg Peel

Follow the Leader

President Trump met with the heads of the major US banks last night and just after the close of trade in New York, as the press were allowed in, the bankers were congratulating the president on his swift action on fiscal stimulus. I’d wager this was less a case of sycophancy and more a clear prod. For as yet no specific stimulus package has been forthcoming.

Since a cut in payroll tax to zero was touted the night before, there’s been no new news. Hence when the US futures markets opened for overnight trade, the rally that had been driven on Tuesday night by the promise of that stimulus faded away as the sellers moved in once more.

This was all happening in Australian market time, hence an initial 32 point pop for the ASX200, as the futures had predicted, lasted all of four minutes. Within half an hour the index was down -100, and down -200 at the close.

The bad news is the index closed below (5725) Monday’s previous low close (5816). The good news is it closed above Tuesday’s intraday low (5553). Yesterday’s close is as good as smack on a -20% correction from the high close on February 20. This level often signals the end of a correction. But, and here we go again, the futures are showing down -200 again this morning. That would mean a retest of that Tuesday intraday low.

Can it hold? It is notable that despite another big drop on Wall Street last night, the S&P500 has closed just above Monday night’s low close, and just above the -20% mark. If we are going to follow Wall Street, it would appear today we will go too far.

We might also note, nonetheless, that energy is a greater proportion of the ASX200 than it is of the S&P500, as are our banks, and we don’t have any market cap-dominating FANGs.

We’re also still waiting on specifics on our own government’s fiscal stimulus package, which should be delivered today.

Meanwhile, the banks led the ASX200 down yesterday (-5.3%). While recent sessions have seen a clear distinction between movements in cyclical sectors and defensive sectors, yesterday was closer to another round of “sell everything”. Banks aside, there was not a lot of spread across sector moves. Healthcare outperformed in only falling -2.2%, and that’s net of CSL ((CSL)) going ex-dividend, but other sectors all saw roughly -3-4% moves.

Industrials fell -4.0%. Those investors parked in the defensive pin-up stocks of Sydney Airport ((SYD)) and Transurban ((TCL)) must be banging their heads against the wall. Not defensive when no one’s flying and pretty soon everyone will be off the roads, staying at home.

Westpac’s consumer confidence survey out yesterday showed a fall to 91.9 from 95.5 in February. Westpac points out that while this is the lowest reading since the GFC, it is still nowhere near the GFC low (79) or average across the GFC period (86.8). In the sub-segments, confidence in “family finances” registered 82.7 yesterday and 63.7 in the GFC, while “time to buy a major household item” is 111.4 compared to 88.2.

The RBA cash rate bottomed out at (a historical low) 3.0% in the GFC before being raised to 4.75% in 2011.

Fully Sick

Epidemic: a widespread occurrence of an infectious disease in a community at a particular time.

Pandemic: a disease prevalent over a whole country or the world.

Am I missing something here? I would have though China was the epidemic and we hit global pandemic weeks ago. If WHO was trying to keep the world calm by waiting until last night to make the declaration, it hasn’t worked.

Wall Street was already set to open sharply lower last night on the lack of any stimulus detail from the White House, which it did, and then the WHO news only served to ensure that the drop continued, in an orderly fashion mind, to late in the session. The Dow bottomed out at 3.30pm down -1687 before closing down -1464.

The S&P500 briefly traded below Monday’s close at around 3.30pm before rebounding back to just above, which is also just above the -20% correction.

Adding to the fear last night was a Reuters report suggesting the White House has taken an unusual step in ordering federal health officials to treat top-level coronavirus meetings as classified. Unconfirmed, but not great for market confidence.

The general opinion now in the US is Wall Street cannot find a bottom until enough test kits are out there to test enough people to provide for a truer picture of the level of infection, which most fear is far greater in the US than limited testing has so far determined. Not only has the test kit rollout been slow, there is talk now of the primary chemical used in the kit being at risk of running out.

And it is becoming clear there are simply not enough masks available for everyone. Across the globe, governments are now banning the export of masks, to the extent trucks are being stopped at borders. It’s every man for himself.

One notable factor is last night’s trade on Wall Street was a 7 basis point rally in the US ten-year yield to 0.82%. This is the first time since the crisis began that stocks and bonds have been sold simultaneously. It may be that equity investors now have to liquidate bond positions to cover equity losses. It may be that yields just fell too far, too fast (0.32% on Monday night). It may be due to data showing a surge in mortgage financing.

It may signal the bottom. But I’m not going to go there.

Commodities

Samo, samo.

The oil price bounce has not held up.

Both the US dollar and Aussie took a breather last night. The Aussie’s at US$0.6588.

Today

The SPI Overnight closed down -200 points or -3.5%.

I’ve spotted a headline that Morrison’s stimulus package details are out. They will surely be pulled apart today.

The Bank of England cut its cash rate last night. The ECB meets tonight.

The Australian share market over the past thirty days