Overnight: Onward Ever Upward

By Greg Peel

More Slinky than Spring

The ASX200 put on 133 points over the August results season, which clearly traders decided was not overly justifiable. The futures had already provided signal before the open of the new month yesterday, suggesting down -58 points.

It took just five minutes for the ASX200 to confirm that sentiment, at which point the index smashed through any semblance of support at the prior resistance level of 6000. Late morning, it was down -150.

At that point there was some encouragement from data releases.

China’s Caixin independent manufacturing PMI for August of 53.1 represented the fastest rate of growth since 2011, to mark four consecutive months of expansion. Does that help? At the current rate China won’t be buying anything from us.

Australia posted a record current account surplus in the June quarter of $17.7bn, up from $9.0bn in the March quarter and smashing $13.2bn forecasts. The current account combines the trade balance with the balance of dividends/interest payments flowing in and out of the country. The latter fell in the quarter, but the trade balance is the main focus.

And when one drills down, it was a Pyrrhic victory. It had nothing to do with strong exports outpacing imports as might normally be the case in a trade surplus. Indeed, exports fell -6.7%.

Within exports, resources fell -1.5% on big falls in coal and LNG (dollar terms), offset by strength in iron ore. Services exports (tourism, education) fell -18.4%.

Import volumes fell -12.9% to mark the largest quarterly fall since March 1975. The biggest decline was in service imports, which recorded a record fall of -50.5% due to the border closures. The other large decline was in consumption goods, down -6.9%.

In other words, negative, negative, negative, with the exception of iron ore, which realistically is living the dream at Brazil’s expense.

Just as the ASX200 was fading away again, the RBA came to the rescue.

The RBA’s Term Funding Facility, which provides access to cheap funds for banks, was due to expire at the end of September. Economists assumed the board would wait until that date approached to see how things were going, but instead it yesterday announced an extension to June 2021. And the RBA “continues to consider how further monetary measures could support the recovery.”

Negative rates? Still not likely. But economists would not be surprised in a cash rate trim to 0.1% from 0.25%.

For the last three months the RBA has highlighted that things never got a bad as feared, but the recovery was progressing slower than hoped. Yesterday the board suggested:

“The virus outbreak in Victoria and subdued growth in aggregate demand more broadly mean that it is likely to be some months before a meaningful recovery in the labour market is under way.”

The other issue that could spur the RBA into further action is a too strong Aussie. Let’s face it, it already is. Much could be read into yesterday’s sell-off on this basis.

Pretty much every sector was thumped yesterday, with little discrimination. Utilities (-0.3%) fared best, followed by materials (-0.8%) as the iron ore price moved up again.

IT led the market down in percentage terms with a -3.4% drop, although we can look no further than a -2.5% plunge for the banks to find the greatest index impact, despite the RBA. Within IT, the BNPL bubble burst for now on news PayPal is moving into to the territory.

With Wall Street up yet again last night, the dust of yesterday has cleared and the futures are up 23 points this morning. A lot of technical damage has been done.

Zoom Zoom

I noted yesterday that Zoom had reported after the bell on Wall Street and knocked it out of the park, sparking a 16% aftermarket rally. Zoom closed up 40% last night.

Tesla fell -4.7%. Yes, fell. The company announced a US$50bn capital raising to fund its giga-factory developments. I mean, why wouldn’t you? But it’s just chump change – only 1% of market cap.

So ho-hum, it was a new high for the S&P500 because, ho-hum, the Nasdaq rallied another 1.4% into the stratosphere.

At least there was some actual positive news last night, in the form of the US manufacturing PMI rising to 56.0 in August from 54.2, better than 54.5 forecasts. But forget not that this is a “rate of change” index, thus while US manufacturing might be expanding at an accelerated rate, it is doing so from a very low virus base.

Apple rose 4% last night ahead of its annual new product launch, which this year will feature four 5G iPhones. Had this been August the Dow would have risen another hundred points, but now Apple has been split in four its price power has been emasculated.

It was left to Wal-Mart to lead the Dow in rising 6.3% after announcing a new membership service to take on Amazon Prime.

Otherwise, more of the same, although industrials, materials and financials all had positive sessions, alongside the tech sectors, suggesting that as Big Tech gets into nosebleed territory, investors are beginning to hedge a possible burst of the bubble.

Commodities

Well might materials have been the best performing sector on Wall Street last night (+2.8%), as all industrial commodities took off on the Chinese and US PMIs.

The Aussie hit 74 during yesterday’s session, which had a lot to do with it, but it has since slipped back US$0.7381.

Today

The SPI Overnight closed up 23 points or 0.4%.

It’s GDP day. Forecasts are for -6.0%. Note that is quarter on quarter, whereas most economies quote year on year (eg the US, -32%).

The US will see August private sector jobs tonight, along with the Fed Beige Book.

There’s a long list of ex-divs today, including Amcor ((AMC)), Medibank Private ((MPL)) and Treasury Wine Estates ((TWE)).

The Australian share market over the past thirty days…