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Overnight: Here We Go Again?

World Overnight
SPI Overnight (Mar) 5877.00 – 28.00 – 0.47%
S&P ASX 200 5940.90 – 0.70 – 0.01%
S&P500 2716.26 – 15.96 – 0.58%
Nasdaq Comp 7234.31 – 5.16 – 0.07%
DJIA 24964.75 – 254.63 – 1.01%
S&P500 VIX 20.60 + 1.14 5.86%
US 10-year yield 2.89 + 0.02 0.56%
USD Index 89.71 + 0.51 0.57%
FTSE100 7246.77 – 0.89 – 0.01%
DAX30 12487.90 + 102.30 0.83%

By Greg Peel


The SPI futures had surprisingly suggested an open of down -34 for the ASX200 yesterday despite no lead from Wall Street and nothing much of note transpiring over the weekend. But sure enough, the index dropped almost -30 points from the open and it wasn’t until around 11am that the tide turned.

The -34 point belied the buoyant mood that was evident on Friday when the index rallied by more than that amount, driven by a combination of easing Wall Street fear (which might be back today) and the influence of the local reporting season.

The reporting season was again in the spotlight yesterday as the market grafted its way back to a square close.

Star of the day was electronics software company Altium ((ALU)), which must have been flying under the radar of many an investor given the company reported on Monday. Following some positive broker assessments, Altium jumped 27% yesterday.

Altium is very New World, so it was interesting to see the silver go to the dinosaur that is Seven West Media ((SWM)), up 19% on a surprise result. Many investors have given up traditional media for dead. But apparently streaming of the Winter Olympics is going rather well, which is not that surprising given Seven commands a never before seen level of broadcast exclusivity that all but shuts out any other media channel.

Also reporting on Monday was GWA Group ((GWA)), which jumped 11% on Monday post report and another 10% yesterday on upbeat broker assessments. “Late cycle exposure” is the buzz-phrase here, when you’re selling kitchen and bathroom fittings and garage doors into a cooling housing market.

On the flipside, Super Retail ((SUL)) disappointed with its result and fell -14.5%, and similarly Vocus Communications ((VOC)) fell -10.5% after reporting.

New World veteran Seek ((SEK)) disappointed and lost -4%, while wind farmer Infigen Energy ((IFN)), which jumped 10% following its result on Monday, faded with a -4.5% rethink yesterday.

Altium’s result ensured the IT sector won the day with a 1.9% gain, while energy bounced back 0.9% after the impact of the Woodside adjustment on Monday.

Otherwise, sector moves were fairly limited, with Vocus helping telcos down -0.4% and Seven West and GWA failing to offset Super Retail and others as consumer discretionary lost -0.2%.

Wall Street was back in selling mode last night, following the long weekend. It was mostly to do with one earnings report, but that earnings report exposed lingering nervousness.

So the SPI futures are down -30 points again this morning, this time with greater justification.

Exposed Nerves

After a six-day winning streak which took both the S&P500 and the Dow up 4.3%, and the Nasdaq up 5.3%, it is no great surprise to see day seven met with some selling. But with many a Wall Street commentator believing the prior low must be retested before the bull market can resume, there are no doubt some still nervous punters out there.

And there is still uncertainty about whether forced selling related to short volatility products is exhausted or not.

The trigger last night was Dow component Walmart. The world’s largest retailer posted an earnings miss and fell -10%, or -70 Dow points.

Walmart had become a market darling in 2017 when the company’s extensive investment in online and pick-up/home delivery services, implemented to ward off the entry into the grocery market of You Know Who, appeared to be paying off in spades. Walmart’s e-commerce business surged.

But in the December quarter, it stopped surging, hence the big sell-off. Mind you, online sales represent a mere 4% of total Walmart sales at this point, meaning 96% of sales are still derived from the ancient tradition of pushing a trolley down an aisle.

But that doesn’t matter in a clearly nervous market. Walmart’s miss, and consequent share price fall, began to trigger selling across all US grocery and related retail stocks. As indices began to slide, selling became more market-wide. Selling begat selling, and twenty minutes before the closing bell the Dow was down -335 points and looking vulnerable.

The cavalry arrived at the death to provide for a close of down -250, but at the risk of blatantly mixing metaphors, the Walmart driven snowball is indicative to some commentators of the canary in the coal mine – the hint that suggests the low must again be tested.

It should nevertheless be noted that the Nasdaq closed as good as square.

Underpinning the lingering nervousness on Wall Street is this week’s large issuance of government debt, needed to cover the loss of income due to tax cuts. Large tranches of 5-year and ten-year notes are schedule for auction this week. The US ten-year yield is sitting tenuously at 2.89% — creeping ever higher towards the 3.00% mark many consider a line in the sand.

One might think you’d be mad to buy bonds when the Fed is in tightening mode because rising yields mean falling bond prices. But that is to ignore the fact that of you buy a bond and hold it, you get that coupon and your money back. At 3%, “risk free” government debt starts to look a more attractive against dividend yields paid by stocks in a market trading at an elevated valuation.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1328.70 – 17.30 – 1.29%
Silver (oz) 16.42 – 0.22 – 1.32%
Copper (lb) 3.19 – 0.01 – 0.44%
Aluminium (lb) 1.00 – 0.01 – 0.81%
Lead (lb) 1.18 + 0.01 0.44%
Nickel (lb) 6.16 + 0.00 0.01%
Zinc (lb) 1.62 – 0.00 – 0.09%
West Texas Crude (Mar) 61.90 – 0.42 – 0.67%
Brent Crude (Apr) 65.09 – 0.31 – 0.47%
Iron Ore (t) 78.25 0.00 0.00%

The US dollar index had another one of its pops last night, and is up 0.6% at 89.71. The debt issuance factor probably has a few punters short, so short-covering snap-backs are not surprising.

The stronger greenback has its impact on gold, and to a lesser extent oil, but base metal prices barely moved in London, likely because the Chinese are still not in there playing.

They’ll be back tomorrow.

The Aussie is down -0.4% at US$0.7878.


The SPI Overnight closed down -28 points or -0.6%.

The minutes of the last Fed meeting will be closely scrutinised tonight.

Locally, December quarter construction work done and wage price index data are due today. The WPI will be closely watched for any signs of inflation.

Today will be the biggest day so far on the local reporting calendar.

Highlights include a2 Milk ((A2M)), Blackmores ((BKL)), Coca-Cola Amatil ((CCL)), Fortescue Metals ((FMG)), Fairfax Media ((FXJ)), Lend Lease ((LLC)), Stockland ((SGP)), Santos ((STO)), Wesfarmers ((WES)) and WorleyParsons ((WOR)), just to name a few.

The Australian share market over the past thirty days…

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The content of this information does in no way reflect the opinions of FN Arena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FN Arena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FN Arena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.



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