Overnight: Fighting Back

World Overnight
SPI Overnight (Jun) 5250.00 + 114.00 2.22%
S&P ASX 200 5154.30 – 104.30 – 1.98%
S&P500 2526.90 + 56.40 2.28%
Nasdaq Comp 7487.31 + 126.73 1.72%
DJIA 21413.44 + 469.93 2.24%
S&P500 VIX 50.91 – 6.15 – 10.78%
US 10-year yield 0.63 – 0.01 – 1.26%
USD Index 100.06 + 0.60 0.60%
FTSE100 5480.22 + 25.65 0.47%
DAX30 9570.82 + 26.07 0.27%

By Greg Peel

Event Horizon

The NSW government announced yesterday the virus lockdown will end in 90 days, thanks to success at flattening the curve, and will not be extended. Not sure if that’s good news or bad. It does provide some certainty, but it’s still a long time to live like this.

It wasn’t necessarily great news for the local market, although the ASX200 did graft back from an initial near -200 point plunge in the first ten minutes on Wall Street’s lead.

It was another big day for sector news.

The New Zealand government has instructed NZ banks to cut their dividends to conserve capital. The biggest banks in NZ are ours. Australia’s Big Four had still been waiting for the RBNZ to make up its mind on an additional capital buffer requirement – which dates back to the GFC – which put the level of dividend payments from NZ-based banks back to their Australian parents at risk, but now it’s a new story.

Given UK and European banks have suspended dividends altogether, the fear is Australian banks would follow suit, or as is the case in NZ, be forced to follow suit, but PM Morrison has assured that won’t happen.

After to-ing and fro-ing, the financials sector closed down -4.2%, to be the worst performer on the day.

Also having a bad day were telcos (-2.3%), presumably on the assumption that despite the surge in at-home traffic many punters simply won’t be able to pay their bills, and industrials (-2.2%), given real traffic on Transurban’s ((TCL)) toll roads will remain scant for three more months and Sydney Airport ((SYD)) will remain a ghost town.

IT fell -3.6%, as NextDC ((NXT)) joined the list of companies seeking fresh capital (but for a more opportunistic reason). The stock is in a trading halt.

All other sectors saw falls of less than -1%. Consumer discretionary and energy rose 0.4% each. In energy’s case, watch out today. For discretionary, big moves from G8 Education ((GEM)), up 28.6%, IDP Education ((IEL)), up 27.6%, and AP Eagers ((APE)), up 15.2%, saved the day.

Morrison’s announcement of free child care is blessed relief for G8, IDP successfully put away a capital raising to secure its balance sheet, and car yard giant AP Eagers has joined the list of those refusing to pay rent.

Webjet ((WEB)) has successfully raised capital. That was worth 1.8%.

Yesterday’s knock-me-down-with-a-feather economic news was NAB’s monthly business survey, which had conditions down -9 points to -3 and confidence down -9 to -11. That was February.

With Wall Street rebounding overnight, our futures are up 2% this morning. Sector to watch today will be energy, with oil prices up 20%.

The fight is now on to counter an expected second wave down. Market choppiness at this point is still straight out of the text book.

Oils Not Well

Just spoke to my friend MBS (Crown Prince) of Saudi Arabia, who spoke with President Putin of Russia, & I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!”

No prizes. On that news oil prices jumped up 20%. Couple of problems though.

“It’s physically impossible for Saudi Arabia and Russia to get 10 million barrels a day off the market—they’d burst their onshore storage and fill every ship in sight,” an oil trader told the WSJ last night.

It is also assumed there is no way the Saudis and Russia would cut production by any amount unless the US cuts production as well. GLOPEC, or nothing. To that end, Trump is meeting tonight with the CEOs of the major US oil producers. Would the bastion of free markets stoop to government regulated production? We live in interesting times.

The US weekly jobless claims data came around again last night. We recall that last week economists had assumed one million, and the number was 3.3 million. This week they forecast 3.6 million, and the number was 6.7 million. That number matches the record set at the depth of the GFC recession. And the day ain’t over yet.

One is now hard pressed to find an unemployment forecast that is not in double-digits.

There is also now much confusion reigning with regard the implementation of the government’s massive fiscal rescue package. It all looks good on paper, but…

As for the direct handout, those Americans who file their tax returns online may see a direct debit in the next couple of weeks. Those who do not may have to wait for an actual paper “check” for up to five months.

As for loans to small businesses, forgivable if employees are retained, these will flow through the banks as of midnight tonight in the US and the banks still don’t quite know what’s going on.

The program is being implemented in coordination with the Treasury and Small Business Administration, and according to the banks, both are issuing conflicting guidance. There is also consternation over the mere 0.5% interest the loans will attract, as determined by the government, because it means the banks will lend at a loss.

Even if the starting gun is fired tonight, the banks expect the full US$350bn to be gone in a day.

The Dow was up 500 points in the morning, back to square in the early afternoon, and almost back up 500 by the close. The energy sector was the clear leader, with the safe haven defensives REITs and utilities continuing to be hammered on assumed rent holidays and bill non-payments.

The US government has only 10,000 test kits left. It needs 30,000.


Spot Metals,Minerals & Energy Futures
Gold (oz) 1616.20 + 25.40 1.60%
Silver (oz) 14.52 + 0.67 4.84%
Copper (lb) 2.15 – 0.01 – 0.24%
Aluminium (lb) 0.66 – 0.00 – 0.50%
Lead (lb) 0.76 – 0.00 – 0.13%
Nickel (lb) 4.93 – 0.12 – 2.43%
Zinc (lb) 0.84 + 0.00 0.40%
West Texas Crude 25.00 + 3.80 17.92%
Brent Crude 29.93 + 5.19 20.98%
Iron Ore (t) 83.50 + 1.50 1.83%

Nickel has fallen below US$5/lb.

Despite the US dollar index cracking the ton again, up 0.6%, gold is once again strong.

Oil markets remain poised for news.

The Aussie is steady at US$0.6064.


The SPI Overnight closed up 114 points or 2.2%.

Fridays are often not good at such times, because a weekend is a very long time in such a fast-moving crisis, prompting a shift to safety. There are no guarantees.

Today sees services PMIs across the globe for March. All other data releases are from February.

Wall Street will be holding its breath for tonight’s March non-farm payrolls, despite knowing full well they will be understated given the process required to compile.

The Australian share market over the past thirty days…

AGL AGL ENERGY Upgrade to Neutral from Sell UBS
Downgrade to Hold from Add Morgans
ANN ANSELL Upgrade to Buy from Neutral Citi
Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Hold from Lighten Ord Minnett
ASG AUTOSPORTS GROUP Downgrade to Neutral from Outperform Macquarie
AZJ AURIZON HOLDINGS Upgrade to Buy from Neutral Citi
BXB BRAMBLES Upgrade to Outperform from Underperform Credit Suisse
Upgrade to Outperform from Neutral Macquarie
Upgrade to Overweight from Equal-weight Morgan Stanley
CCL COCA-COLA AMATIL Upgrade to Outperform from Neutral Credit Suisse
CGF CHALLENGER Upgrade to Buy from Neutral Citi
Upgrade to Hold from Sell Ord Minnett
CTX CALTEX AUSTRALIA Upgrade to Accumulate from Hold Ord Minnett
CWN CROWN RESORTS Upgrade to Buy from Neutral UBS
DMP DOMINO’S PIZZA Downgrade to Hold from Add Morgans
HAS HASTINGS TECHNOLOGY METALS Downgrade to Hold from Buy Ord Minnett
IEL IDP EDUCATION Upgrade to Add from Hold Morgans
Upgrade to Buy from Accumulate Ord Minnett
IVC INVOCARE Upgrade to Buy from Neutral Citi
MFG MAGELLAN FINANCIAL GROUP Upgrade to Neutral from Underperform Macquarie
MQG MACQUARIE GROUP Upgrade to Buy from Hold Ord Minnett
PDL PENDAL GROUP Upgrade to Neutral from Underperform Credit Suisse
Upgrade to Outperform from Neutral Macquarie
PPT PERPETUAL Upgrade to Neutral from Underperform Macquarie
QAN QANTAS AIRWAYS Downgrade to Underperform from Neutral Credit Suisse
RAP RESAPP HEALTH Upgrade to Spec Buy from Hold Morgans
RBL REDBUBBLE Downgrade to Reduce from Add Morgans
SCG SCENTRE GROUP Upgrade to Neutral from Sell UBS
SGF SG FLEET Downgrade to Neutral from Outperform Macquarie
SGR STAR ENTERTAINMENT Upgrade to Buy from Neutral UBS
SHL SONIC HEALTHCARE Downgrade to Hold from Accumulate Ord Minnett
SYD SYDNEY AIRPORT Downgrade to Underperform from Neutral Credit Suisse
TCL TRANSURBAN GROUP Upgrade to Buy from Neutral UBS
Downgrade to Underperform from Neutral Credit Suisse
TNE TECHNOLOGYONE Downgrade to Lighten from Hold Ord Minnett
VEA VIVA ENERGY GROUP Downgrade to Hold from Accumulate Ord Minnett
WPL WOODSIDE PETROLEUM Upgrade to Buy from Neutral UBS
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.

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