The Overnight Report: Highly Uncertain

By Greg Peel

Paddling Hard

Monday’s trade on the ASX200 was all about risk-on, with cyclicals leading over defensives. Tuesday saw this trade reverse, although the index managed to clawback some ground from -87 points down at midday to -57 at the close. Yesterday the index fell -100 points in the first ten minutes and from there spent the rest of the session chopping its way back to be up 19 points at the close.

With Wall Street down again overnight, our futures are down another -58 points this morning.

Fighting a losing battle? It appears as if there were plenty of stunned rabbits back in late March-early April when the local market bounced furiously to an ultimate 25% rebound off the bottom. Much had been said at the time about the market being oversold and there being opportunities for the bold, but not everyone was bold. Hence they were left for dust.

Now, as an economic reopening becomes the reality the market was foreseeing back in April, any dip is being seized upon by earlier slow-movers, any light at the end of the tunnel rushed towards.

Yesterday’s fillip came in the form of Commonwealth Bank’s ((CBA)) quarterly update. Suffice to say the market was pleased with the bank’s $1.3bn March quarter profit, but more pleased with a mere $1.5bn in additional provisions against virus-fallout, happy with a 10.7% capital ratio post provision and payment of the interim dividend, and thrilled with the sale of a 55% stake in fund manager Colonial First State to KKR.

Despite noting a reduced net interest margin due to low rates, CBA rose 1.9% and the financials sector 0.7%.

Leading the sectors was materials, up 1.0% on a jump in the iron ore price as Sino-Ausso trade tensions intensify.

Beyond that, there was no evidence of any form of trend, risk-on or risk-off. This is highlighted by our consumer sectors indicator for the day – flat v. flat.

Most sectors posted relatively uniform sub-1% gains, offset by energy (-0.9%) and utilities (-0.7%).

The gain for the financials sector was held back by REITs, which if we spin out fell -2.1%. This came as CBA warned at its update that it saw property prices falling by as much as -30%.

There was nothing much to note about the index winners and losers boards, with no trend evident whatsoever, other than stock-picking, or perhaps nit-picking.

Outside the index things were more interesting.

Regional Express ((REX)) jumped 32% after disclosing it had been approached with offers of funding to pick up interstate routes where Virgin has left off.

Trade finance and payroll manager CML Group ((CGR)) fell -42% after a takeover offer was pulled.

In other news, I note tomorrow is the big day for cafes, restaurants and restaurants in clubs and pubs to reopen to ten people. They’ll be queued round the block. Only to discover, as at least one café owner noted on the news last night, that ten punters will not cover the overheads by any stretch of the imagination.

Meanwhile, the state with the strictest restrictions in defiance of the federal government – Victoria – has found a new virus cluster. At a Macca’s. Yep, we’ll all be rushing back to eat out.

In other news, the federal government yesterday issued a record $19bn of ten-year bonds at an implied yield of 1.02%, with $53.5bn worth of bids. On the RBA’s recent inflation forecasts, that’s zero to negative real.

Throwing Cold Water

On Tuesday night it was Dr Fauci warning of pestilence and death if the US economy were to reopen too quickly, sending Wall Street south.

Last night it was Jay Powell’s turn, the Fed chair suggesting the near term outlook for the US economy was “highly uncertain” and additional government aid to households and businesses may be “worth it” to prevent lasting damage to the economy.

On Tuesday night legendary billionaire hedge fund manager (ret.) Stan Druckenmiller said on television the risk/reward balance on US stocks is the worst he’s seen in years. Last night legendary billionaire hedge fund manager (ret.) David Tepper suggested recent levels (ahead of a couple of days’ sell-off) represented the second most overvalued he’d seen since the 1999-2000 dotcom bubble.

Legendary tweeter you-know-who responded with an accusation these “so-called rich guys” are just talking their books in order to profit. I don’t know that being a billionaire makes one “so-called”, and who’s throwing stones?

The US Commodity Futures Trading Commission issued a staff advisory last night that explained why they are “expected to prepare for the possibility that certain [WTI crude futures] contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing,” no doubt referring to the June delivery contract due to expire next Tuesday.

The WTI price actually ticked up.

And finally, US wholesale inflation (PPI) fell -1.3% in April when -0.5% was expected.

Put it altogether and sentiment on Wall Street is waning.

Commodities

Waning sentiment is also evident in the S&P500 VIX now back at 35, having dipped below 30, and the US ten-year bond yield back at 0.65%, having traded above 0.7%.

Plus the US$14/oz jump for the gold price, which is about the only notable move above.

The Aussie is down -0.2% at US$0.6458, matching a rise in the greenback.

Today

The SPI Overnight closed down -58 points or -1.1%. Can the cavalry make it three sessions in a row?

Our April jobs numbers are out today. Can’t wait for the smacked gobs on the nightly news.

Graincorp ((GNC)) and Xero ((XRO)) report earnings today while Insurance Australia Group ((IAG)) hosts an investor day and Viva Energy REIT ((VVR)) holds its AGM.

The Australian share market over the past thirty days…