Overnight: Not A Time To Pause

By Greg Peel

A Day for the Losers

Wednesday’s 40-plus point rally for the ASX200 was all about big winners and big losers among reporting companies, with the winners outpacing the losers. Yesterday’s -40 point-plus fall for the ASX200 was all about big winners and big losers among reporting companies, with the losers outpacing the winners.

At least until now, this result season has been one of the “cleanest” in the sense that immediate macro issues have not impeded on market sentiment, allowing earnings results to be responded to free of exogenous issues. Typically there is some macro theme running in the background that distorts daily responses.

Wall Street is basically in limbo at all-time highs, and domestically there’s not much new going on that we’re not already fully aware of (and quite frankly, over).

Sector-wise, the standout loser yesterday was energy, down -3.7%. Santos’ ((STO)) result was worth -5.3% and Origin Energy ((ORG)) -6.1%.

Next worse was healthcare (-2.7%) as CSL ((CSL)) reversed some of Wednesday’s (-3.9%) post-result gains as brokers declared an “in line” result and warned of the risks of diminishing plasma collections due to the virus.

Property posted a rare sector win on the day (+1.0%) thanks to Charter Hall Group’s ((CHC)) result, worth 6.7%. IT rose 0.9% after Afterpay ((APT)) revised up its FY20 guidance ahead of its result release next Thursday.

Consumer discretionary saw a mixed bag of earnings responses which ultimately netted out to a 0.6% gain. Index star of the day was IDP Education ((IEL)), which jumped 28.5% on its result. No doubt investors had just seen “foreign students” and sold with their ears pinned back early in the crisis.

On Wednesday Corporate Travel Management ((CTD)) had surprised to the upside and rallied, dragging Webjet ((WEB)) along with it. But Webjet’s result yesterday was worth -12.5%.

Other notable results came from leasing/salary packaging company McMillan Shakespeare ((MMS)), which wowed audiences and jumped 14.8%, and intellectual property services company IPH ((IPH)), which fell -9.9%. Both are industrials, and that sector fell -1.2%.

One macro influence impacting yesterday was another big drop in the gold price, which, along with ongoing selling in BHP Group ((BHP)) post result led materials down -0.8%. Investors are clearly not happy BHP has withheld capital to deploy in rearranging its mining/oil&gas portfolio, which includes selling assets that likely have no buyers (thermal coal).

The S&P500 made it back 0.3% last night but remains below the ATH, so it still isn’t going anywhere. That leaves the Australian market to again focus solely on the day’s results. The futures are up 10 points this morning, but as the past two sessions have shown, it matters not ahead of the flow of numbers.

The best thing about Fridays in a result season as they always have much smaller lists of reporting companies than other days, probably because companies worry about the assessments of analysts who are by now exhausted and pining for the weekend, ahead of doing it all again next week.

Déjà vu

After wavering at a new all-time high on Wednesday night, last night it was back to business as usual on Wall Street. Five stocks – you know the ones – led the indices higher. The Nasdaq is the main beneficiary, the S&P500 is 25% Big Tech, and Apple and Microsoft are in the Dow.

There was no specific impetus for last night’s trade, other than, perhaps, more evidence the US average daily case-count continues to fall (but not in Vermont, Iowa and Hawaii), but then the Big Five are virus winners.

Did no one care that having fallen below one million the week before, weekly new jobless claims rose 1.1m last week?

Of course they did. Take out the Big Five and the rest of the S&P500 was net weak, led by cyclicals.

With unemployment ticking up again, the expectation is the August non-farm payroll numbers due early next month might be a bit of a wake-up call. The broader market is responding to this fear by shifting again into the safe havens, which are, in order of safety, Big Tech, bonds (US ten-year yield fell -3 basis points to 0.64%) and gold.

The pullback for the Nasdaq on Wednesday night likely had a lot to do with the US dollar index bouncing 0.8% on short-covering, but last night it returned to weakness in dropping -0.3%. The dollar is important for US multinationals, which include all of the Big Five.

Beyond the Big Five, another point of interest last night was Tesla shares hitting the US$2000 mark. The stock is up 40% in a week, after doing no more than announcing a 5-for-1 stock split, and up almost 800% for the year.

The jury is still out on whether that 40% simply reflects a lack of understanding among inexperienced investors (read: millennials) that a stock split is a zero-sum event in terms of value. It is typical for stocks to rise on a split given a lower nominal share price opens the door for more retail investors, but in this day and age services such as Robinhood offer fractional share trading. Hence the argument falls down.

I think Tesla’s share price is now about twice what it was the day Elon Musk declared even he thought the stock had run too far.

Commodities

Not much to note in commodity land other than a partial rebound for precious metals, aided by a drop in the US dollar and a fall in bond yields.

That -0.3% fall for the greenback has pushed the Aussie back up 0.2% to US$0.7194.

Today

The SPI Overnight closed up 10 points. It means nothing ahead of the days result releases. Although today is relatively a much quieter one on the calendar.

The flashers are out and about today/night, estimating August manufacturing PMIs across the globe.

The ABS will provide preliminary data on July retail sales.

The Australian share market over the past thirty days…