Overnight: Alternative Facts

World Overnight
SPI Overnight (Mar) 7029.00 0.00 0.00%
S&P ASX 200 7103.20 + 15.00 0.21%
S&P500 3373.94 – 5.51 – 0.16%
Nasdaq Comp 9711.97 – 13.99 – 0.14%
DJIA 29423.31 – 128.11 – 0.43%
S&P500 VIX 14.15 + 0.41 2.98%
US 10-year yield 1.62 – 0.01 – 0.80%
USD Index 99.07 + 0.04 0.04%
FTSE100 7452.03 – 82.34 – 1.09%
DAX30 13745.43 – 4.35 – 0.03%

By Greg Peel

How Many?!

On Wednesday night Wall Street took heart from the news out of Beijing that the pace of daily new cases of the virus was easing. There were nevertheless questions raised. Beijing also announced it had changed its count methodology. Was it this “change” that resulted in a slower pace, and could it be relied upon?

The Australian market wasn’t waiting to find out yesterday morning. The ASX200 opened up 57 points. But then the news came through that China’s “new methodology” had led to the biggest jump in daily new cases to date – some 15,000 – taking the case count to 60,000, and that the number of deaths had jumped by the greatest single day amount.

The ASX200 closed up only 15 points. The world is now completely confused. This “new methodology” simply reflects the fact China has run out of virus test kits, and thus has turned to CT scans as the means of identification. Many have assumed all along Beijing had been hiding the true numbers, but maybe China was just incapable of keeping up. Yesterday’s news, coming so quickly off the back of a declaration the case count is slowing, suggests perhaps Beijing is not trying to hide the truth at all.

But who knows?

At least, given a comparatively flattish close for the local index, we were able to assess the day’s long list of earnings results on their merit.

Utilities (+1.6%) was the winning sector on the day after AGL Energy’s ((AGL)) result was well received. AGL’s 3.6% gain was nevertheless dwarfed elsewhere.

Consumer discretionary posted the second best move (+0.8%) after toasted sandwich maker company Breville Group ((BRG)) jumped 27.6% on its numbers.

Consumer staples (-0.8%) went the other way thanks to Treasury Wine Estates ((TWE)), which fell -5.7% on its result despite having pre-warned just recently. Greater detail of Chinese exposure was provided, plus the CEO announced he was off.

An unchanged dividend from Telstra ((TLS)) should have on any other day been a positive, but the telco’s release was blindsided by news the ACCC will not block the merger of TPG Telecom ((TPM)) and Vodafone, which will create a third genuine player in mobile. TPG shares jumped 11.5%, Telstra shares fell -1.6%, and the telco sector fell -0.5%.

Amidst all the noise, probably the most significant result release on the day was that of logistics REIT Goodman Group ((GMG)) – for many an investor “the one that got away”. It rose 5.8%. REITs aren’t supposed to rise 5.8%.

National Bank ((NAB)) also snuck in a quarterly update yesterday, which was worth 1.4%. Financials rose 0.3%.

The rebound in the oil price had energy up 0.6%.

The Dow futures had begun to fall in our session yesterday afternoon, underscoring the change of heart with regard the virus. However, Wall Street recovered from its initial fall, and our futures are flat this morning.

What’s in a number?

The Dow fell -200 points on the open last night. By 2pm it was back to square. The question is as to whether the big jump in case count reflected a surge in the spread of the virus, or whether under the new methodology the numbers were simply catching up to reality.

Given the vast bulk of cases and deaths is confined to a locked-down Hubei Province, investors are not as fearful as they otherwise might be. Until ex-China cases start to accelerate.

The Dow was always going to underperform the other indices thanks to a weak earnings result from Cisco Systems, which fell -5%.

But just as it appeared Wall Street was taking this new virus news in its stride, nervousness flared once more, leading to a soft close.

While US December quarter earnings reports to date have been net positive, one by one US companies are warning of a virus impact in the March quarter – an impact most cannot reliably quantify at this stage, rendering guidance somewhat moot.

In economic news, the US headline CPI rose 0.1% in January, shy of 0.2% forecasts, but sending the annual rate up to 2.5% from 2.3% in December. The core rate rose 0.2% but the annual core rate remained unchanged at 2.3% for the fifth month in a row.

No impediment here for the Fed to cut if the virus situation worsens.

In other news, what do you do if your share price has gone parabolic? Raise new capital, of course. Last night Tesla announced a US$2bn raising in the wake of the stock’s 80% 2020 surge. Mind you, that’s US$2bn on a market cap of US$140bn.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1575.40 + 9.50 0.61%
Silver (oz) 17.62 + 0.17 0.97%
Copper (lb) 2.61 + 0.00 0.12%
Aluminium (lb) 0.79 + 0.00 0.01%
Lead (lb) 0.86 + 0.01 1.60%
Nickel (lb) 5.98 + 0.06 1.00%
Zinc (lb) 0.98 + 0.01 0.88%
West Texas Crude 51.60 + 0.14 0.27%
Brent Crude 56.52 + 0.48 0.86%
Iron Ore (t) futures 88.20 + 0.20 0.23%

Pretty much as case of nothing to see here. Commodity markets are just as confused as everyone else.

We might note a fear element is again creeping into gold.

The Aussie is off -0.2% at US$0.6719.

Today

The SPI Overnight closed unchanged.

US retail sales numbers will be closely watched tonight.

The local earnings season takes a bit of a breather today, ahead of next week’s fifty shades of hell. Baby Bunting ((BBN)) is in the frame nonetheless, along with a couple of others.

For a full list of earnings results due today please refer to the FNArena Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M A2 MILK Upgrade to Buy from Sell Citi
AMC AMCOR Upgrade to Add from Hold Morgans
Downgrade to Neutral from Outperform Credit Suisse
BLD BORAL Upgrade to Hold from Lighten Ord Minnett
CAR CARSALES.COM Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Hold from Accumulate Ord Minnett
Downgrade to Sell from Neutral UBS
CBA COMMBANK Downgrade to Reduce from Hold Morgans
CGF CHALLENGER Downgrade to Neutral from Outperform Macquarie
Downgrade to Sell from Lighten Ord Minnett
CNI CENTURIA CAPITAL GROUP Upgrade to Accumulate from Hold Ord Minnett
CPU COMPUTERSHARE Upgrade to Outperform from Neutral Credit Suisse
Downgrade to Lighten from Hold Ord Minnett
CSL CSL Downgrade to Neutral from Outperform Macquarie
DOW DOWNER EDI Downgrade to Hold from Accumulate Ord Minnett
EVN EVOLUTION MINING Upgrade to Buy from Neutral UBS
IEL IDP EDUCATION Upgrade to Accumulate from Hold Ord Minnett
JBH JB HI-FI Upgrade to Outperform from Neutral Macquarie
Downgrade to Sell from Neutral Citi
KMD KATHMANDU Downgrade to Neutral from Outperform Credit Suisse
NST NORTHERN STAR Downgrade to Neutral from Buy UBS
ORA ORORA Downgrade to Hold from Add Morgans
OSH OIL SEARCH Upgrade to Hold from Lighten Ord Minnett
Upgrade to Buy from Neutral UBS
REA REA GROUP Downgrade to Underperform from Neutral Macquarie
SM1 SYNLAIT MILK Upgrade to Neutral from Underperform Credit Suisse
Upgrade to Neutral from Underperform Macquarie
SUN SUNCORP Downgrade to Hold from Add Morgans
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

View more articles by Greg Peel →