Overnight: God Save America

By Greg Peel

Super Monday

On Sunday night the US Congress failed to pass the trillion dollar fiscal stimulus package touted some two weeks ago by the White House. Before the open on the ASX yesterday morning, the S&P500 futures were once again limit-down.

This was never going to help Australian investors weighing up the benefits of Morrison’s massive stimulus package and the counter of the whole country shutting down. While the stimulus package was welcomed, the one little matter of Australians being able to tap their super was in itself a problem. The more the offer is taken up, the more fund managers have to sell the stock market.

It was thus of little surprise the ASX200 opened almost -8% down. This brought out the buyers, at least in certain sectors. The first attempt failed and the index hit its low at midday, down -8.6%. But the second attempt found traction, to a close of “only” down -5.6%.

We need look no further than a comparison of two sector performances to emphasise the nature of this particular market crisis. Financials fell -10.2%. Healthcare rose 2.6%.

Not only did the bank sector standout in percentage terms — the fall was that much greater than the next worst sector, energy (-7.5%) – it could have fallen half that and still had the greatest negative impact on the ASX200. Clearly the market is now pricing in a surge in bad debts, despite what the government is throwing at it.

If 2009 is any guide, stand by for announcements of provisions for bad debts being put aside by the banks. The difference this time is the banks are brimming with capital – capital amassed by regulatory force over the past decade as a result of, you guessed it, the GFC. Bank capital ratios should prevent the need to raise further equity, as was the case in 2009, but the GCC will undoubtedly impact on dividends.

Healthcare was a clear standout yesterday with its gain given the next best performers were materials and telcos, down -2.9% each. Gold is back in favour (and has surged overnight). Telstra’s ((TLS)) decision to provide phone bill relief will hit earnings, but has been praised throughout the market as a commendable social gesture at this time. Telstra rose 0.7%.

The list of companies providing ashen-faced trading updates continued yesterday and guidance continues to be withdrawn. How will the national shutdown affect the economy? Ardent Leisure ((ALG)) fell -35% after closing its theme parks. Marley Spoon ((MMM)) delivers food to your door. It rose 51%.

If we can find any silver lining it’s that yesterday the Australian market looked like it was trying to find a bottom. Many an analyst has been screaming from the rooftops that certain stocks and sectors are way oversold, but then they were saying that two weeks ago as well.

Right now it appears all hinges on the potential for Congress to stop playing petty party politics. Last night they failed again to pass a bill. Maybe we should send Albo and Turnbull (opposition leader to Rudd in the GFC) over to provide a lesson on what your country expects in times of crisis.

At least our futures are up 39 points this morning.

Shoot the lot of them

The US futures were limit-down overnight but did finally claw back somewhat before Wall Street opened, and indeed the Dow was almost back to square in the first half hour.

Which, of course, provides a great opportunity to sell if you haven’t yet done so. Late morning the Dow was down -960.

Then in rode the cavalry. They may be a bunch of pathetic ditherers on Capitol Hill, but there’s no dithering from a once bitten, twice shy Fed. Last night the central bank dumped enough play money into the system to far exceed anything seen in 2009’s QE1. The Fed has now added investment-grade corporate bonds to its shopping list, to join Treasuries, agency-backed (Fannie, Freddie) mortgage-backed securities, municipal bonds and commercial paper, as well as short term “repos”.

That news took the Dow back to almost square again. Which, of course, provides a great opportunity to sell if you haven’t yet done so.

With half an hour to go, the Dow was down -900 again. The late rally to pare that loss was very sharp. Probably the Fed again. The Plunge Protection team is a very covert bunch.

No one was there to see it mind. Last night was the first night on the NYSE without humans. The first in history. Debate has already begun as to whether one of the last bastions of face-to-face trade might ultimately take this opportunity to go fully electronic.

The Nasdaq has only ever been electronic, and it only fell -0.3% last night. Buyers are moving in to what many see as a once-in-a-lifetime opportunity to pick up Big Tech names cheaply, having been loath to do so early in the year when they just kept going up.

A positive sign, but it’s all up to Congress.

Commodities

It’s looking like capitulation in metal markets. Apart from the loss of demand in a world closed for business, commodity funds are yet another asset class investors can jettison to raise cash.

Which is what they had been doing in gold, but appear to have finished. As the Fed offers limitless money, there’s only one way USD gold can ultimately go.

We might tentatively be able to say US$20/bbl WTI is the line in the sand.

The Aussie is currently a rabbit in the headlights, little moved at US$0.5808.

Today

The SPI Overnight closed up 39 points or a percentage that is negligible at this time.

Stand by for March manufacturing PMI estimates from across the globe from today.

New Hope Corp ((NHC)) reports earnings.

The Australian share market over the past thirty days…