|DJIA||26076.89||– 362.59||– 1.37%|
|S&P500||2822.43||– 31.10||– 1.09%|
|Nasdaq Comp||7402.48||– 64.02||– 0.86%|
|S&P500 VIX||14.61||+ 0.77||5.56%|
|US 10-year yield||2.73||+ 0.03||1.00%|
|USD Index||89.20||– 0.14||– 0.16%|
|FTSE100||7587.98||– 83.55||– 1.09%|
|DAX30||13197.71||– 126.77||– 0.95%|
|SPI Overnight (Mar)||5941.00||– 19.00||– 0.32%|
|S&P ASX 200||6022.80||– 52.60||– 0.87%|
The old adage is that if Wall Street sneezes, Australia catches a cold. On Monday night the Dow fell 177 points which seems like a lot if you’re looking from the perspective of ten years ago, when the Dow was around 10,000, but it is really not much with a Dow at 26,000. And the S&P500 dipped only slightly.
Yet the Australian market lost -0.9% yesterday in a market-wide sell-off. Every sector was down rather uniformly, suggesting index selling. Healthcare and resources have been big winners in recent months, and they led the drop with -1.2% for healthcare, -1.3% for energy and -1.3% for materials.
The banks lost -0.6% and the supposedly defensive sectors were also similarly sold, with telcos down -0.6% and utilities down -1.0%.
All this with business confidence hitting a five-month high, according to NAB’s survey released yesterday.
Was the local market suddenly afraid Wall Street was about to post a long overdue correction?
If that is the case, then one must ask as to why we should drop as well. Wall Street far outperformed the Australian market in 2017 and had “gone parabolic” in January while the ASX200 went nowhere. Monday night’s mild sell-off on Wall Street was arguably triggered by rising US rates. We’ve been expecting rising US rates for three years.
To that point, we note the Dow is down another -340 points overnight and the S&P500 is down -1%, yet the SPI futures are showing only down -19 points this morning. That would suggest yesterday’s session was pre-emptive.
If the futures are right, then support at 6000 for the ASX200 should hold today, unless investors really do become spooked. But there is little fear on Wall Street.
Perhaps there was some fear generated yesterday with regard the February reporting season. Two companies reporting yesterday topped the losers board. Navitas ((NVT)) fell -9% and credit Corp ((CCP)) -8%. Not a good start.
For some time, apparently, good mates Warren Buffet, Jamie Dimon and Jeff Bezos have been bemoaning the high cost of employee healthcare when they get together for a chat. The result of those chats was revealed last night.
Berkshire Hathaway, JP Morgan and Amazon will get together in a collective that will manage the three companies’ healthcare plans independently, leading to, it is forecast, some -20% drop in costs for the three. The news sent a shiver through the US health insurance and drug industries. Health became the latest sector to be Amazon-ed.
Dow component United Health was the biggest loser on the day. Health news aside, some of the highest flyers of recent times became big losers in the Dow last night as well – the likes of Boeing, 3M and McDonalds. What goes up…
Is this the crash beginning? No. If healthcare was the sector in focus last night, the buzzword for the day for the market in general was “healthy”. The further Wall Street ran up, the more fund managers began to be worried. A pullback in this context actually reduces fear rather than engenders it. The S&P500 had left its 200-day moving average way behind. It would be no big deal if it fell back to that support.
And there the buyers would be waiting, if they don’t all jump over each other beforehand. At least, that’s the common belief.
There is another simple explanation for the selling over the past couple of sessions. This January has broken all sorts of records. Equities have ridiculously outperformed. At the end of each month, “balanced funds”, such as pension funds, have to reweight their portfolios. If they are, for example, a classic 60% equity, 40% fixed income balanced fund, then January has seen equity allocations rise substantially above 60% by valuation. In order to rebalance, funds must sell equities.
So perhaps Wall Street continues to sell off tonight, and then it’s back to normal on Thursday night. We might assume, nonetheless, that the other side of the rebalancing equation would be evident as well, that of bond buying. But with the US ten-year yield up another 3 basis points at 2.73%, it appears there are enough sellers in that market to absorb demand.
We might also note that having spent the bulk of 2017 under 10, the VIX volatility index on the S&P500 has crept up to 15, implying investors are starting to buy downside protection. The VIX would have to break 20 before any sort of “worry” call can be made.
Later today, Australian time, Donald Trump will deliver his State of the Union address. The closest Australian equivalent to such a speech is arguably that of the Treasurer on budget night. Traders are holding their breath to hear if Trump talks up infrastructure spending, and starts throwing around some numbers. With tax cuts in the bag, infrastructure is seen as the big economic driver in 2018.
Tonight, the Fed will issue a monetary policy statement and Janet Yellen will be given a big bunch of flowers. The markets will thereafter furiously re-engage in the three rates hikes or four in 2018 debate.
The SOTU and the Fed are reasons enough to take money off the table at month-end as any other, ahead of the ramifications thereof. Despite what looks like a big drop on Wall Street last night, all it has achieved is to wipe out last week’s gains.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1337.10||– 4.10||– 0.31%|
|Silver (oz)||17.08||– 0.07||– 0.41%|
|Copper (lb)||3.18||– 0.02||– 0.48%|
|Aluminium (lb)||1.00||– 0.01||– 0.78%|
|Lead (lb)||1.18||– 0.00||– 0.19%|
|Nickel (lb)||6.07||– 0.20||– 3.14%|
|Zinc (lb)||1.61||– 0.02||– 1.30%|
|West Texas Crude (Mar)||64.38||– 1.17||– 1.78%|
|Brent Crude (Mar)||68.89||– 0.55||– 0.79%|
|Iron Ore (t)||73.50||– 0.25||– 0.34%|
After a solid run-up of late, profit-taking was sparked in nickel last night, and to a lesser extent zinc.
After focusing on increasing demand recently, oil markets are now becoming increasingly concerned about rising US production.
With the US dollar index down -0.2% at 89.20, the Aussie is also -0.2% lower at US$0.8081, reflecting weaker commodities prices.
The SPI Overnight closed down -19 points or -0.3%.
Trump will deliver his SOTU address this morning local time and the Fed statement is due early tomorrow morning.
Beijing will release official Chinese manufacturing and services PMI data today.
Australia’s December quarter CPI numbers are out today, along with monthly private sector credit.
The Australian share market over the past thirty days…
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