Overnight: Trouble At The Top

By Greg Peel

What Now?

The local market really had no idea what to do yesterday morning, meandering around aimlessly hoping the Dow futures might provide some guidance, which they didn’t. There was a bit of a kicker at lunchtime, before the meandering returned.

The ASX had tossed a coin before the open and declared it to be a defensive session, hence staples (+2.0%), telcos (+1.5%), healthcare (+1.4%) and industrials (+1.2%) provided the better performances, outside of tech (+2.2%).

WiseTech Global ((WTC)) rose 5.9% on the global reopening theme, and led all of WAAAX higher on the day. Despite the volatility, tech is to some extent the new defensive.

Consumer discretionary still rose 1.4%, led by a2 Milk ((A2M)), up 7.8%, while Carsales ((CAR)) rose 6.2% on a positive trading update.

Outside of the index, Beacon Lighting ((BLX)) confirmed the value of investment in an online platform, revealing online sales in the six months to June were 78% up on the year before. It rose 22.6%.

Materials (-0.6%) was the only sector to close in the red while utilities (+0.6%) didn’t really pull their weight. Energy gained 1.0% on a higher oil prices and the banks (+0.5%) had a quiet session.

Absolutely nothing to read into yesterday, and this morning our futures are down -36 points, so we’ll likely be back where we started.

Wavering

Arizona, Florida, Oklahoma, Oregon and Texas all saw record increases in new cases on Tuesday, while hospitalisations in Texas, Nevada and Florida hit records.

Given a lot of the new cases involve people under the age of 30, mayors in Texas have petitioned the governor to make the wearing of masks mandatory, as it is in other states such as New York. It is assumed gatherings at bars and clubs are the likely culprit. Meanwhile, New York is about to move into a phase two reopening.

Beijing has further re-tightened restrictions, now restricting non-essential outbound travel and halving flight numbers, while neighbouring provinces are forcing mandatory quarantine on anyone arriving from Beijing.

Chinese state media is blaming imported salmon as the new source. The US FDA and CDC both brushed aside concerns about risks of coronavirus transmission from consuming or handling food.

Barley, beef, tourism, education…salmon? I note Tassal Group ((TGR)) shares remain steady.

The Fed chair was back on the Hill last night, this time testifying to the Senate. He reiterated his warning that the US economy will recover slowly, and that some form of unemployment insurance should continue beyond the July 31 expiry date.

All of the above has Wall Street in an uncertain mood. As is the usual tactic when uncertainty reigns, investors again moved into the safety of Big Tech while easing off on recovery cyclicals, hence another session of Nasdaq outperformance.

The indices hadn’t really gone anywhere until the last hour, when CNBC aired an interview with respected investor Jeremy Grantham, who is famous for calling the 1987, 2000 and 2007 bubbles.

“My confidence is rising quite rapidly that this is, in fact, becoming the fourth, real McCoy, bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain but at least I think we know now that we’re in one. And the chutzpah involved in having a bubble at a time of massive economic and financial uncertainty is substantial.”

The Dow soon slipped to be down -220 points, before settling down -170.

With Beijing moving to shut down transport once more, the US energy sector was the standout underperformer, falling -3.3%. Next worst were the banks on -1.7%, while the three Big Tech sectors all posted slight gains.

We can likely expect the same here today.

Commodities

Beijing’s lockdowns clearly are impacting more on energy stocks than oil prices, while mixed moves for metals possibly reflect a balance between the lockdowns and Trump’s infrastructure plans.

Trump always trots that one out whenever he’s feeling vulnerable, and the latest polling show Biden ahead in key swing states.

Trump’s former national security advisor John Bolton has released a memoir about his time in the White House, in which he alleges, among a range of explosive allegations, that at the 2019 G20 summit in Osaka, Trump pleaded with Xi Jinping to purchase large quantities of American soybeans and wheat to help his 2020 re-election chances.

Gold and currencies slept overnight, with the Aussie down a tick at US$0.6885.

Today

The SPI Overnight closed down -36 points.

While 36 points is almost a nothing day in this current environment, prepare for the possibility of otherwise inexplicable volatility today as June ASX futures and derivatives expire.

We’ll see May jobs numbers today.

New Zealand releases its March GDP result.

The Bank of England meets tonight.

The Australian share market over the past thirty days…