Overnight: Reality Bites

By Greg Peel

Exhaustion

After three days of the ASX200 going nowhere despite wild intraday volatility, yesterday the index went nowhere without the volatility. Mind you, the index still swung through a 50-point range, but it chopped around not knowing what at all to do.

It will know today – the futures are down -92 points. For four sessions 6000 proved a bridge too far.

A lack of net volatility did not mean there wasn’t a return to some big moves among sectors, while others sat it out.

Utilities posted the best performance, up 2.2%, suggesting a clear return to “risk off”, except such a theme was not much upheld elsewhere. Healthcare (+1.4%) came in next, but we can put that down to Victoria. Materials (+1.2%) rallied on iron ore but more so on gold, while IT played a typical Ausdaq role (+1.1%).

Industrials (-1.7%) was the worst performer, as interstate border closures and travel warnings move closer to locking Victorians in for good, reflecting on toll roads, airports and airlines. Ditto energy (-1.7%).

We might have expected the consumer sectors to benefit – specifically staples (hoarding) and the work/study-from-home beneficiaries among discretionary, except we’ve already been there-done that. Does anyone need another toilet paper stockpile? Woolworths is not taking any chances this time in reinstating rationing of relevant products.

Discretionary fell -0.3% and staples closed flat.

It’s all academic, given the case spike in Victoria and the first death in a month is nothing compared to what’s going on in the US – a point which Wall Street suddenly came to terms with last night. We’ll be down today.

Four of the top five index winners yesterday were miners, and three of them gold miners, along with Treasury Wine Estates ((TWE)). Experience shows if we’re locked in we hit the P155 quite hard.

The top five losers featured a fuel distributor, a toll road operator and a real estate classifieds company, as one might expect if restrictions are again being imposed.

Outside the index, something underhand is afoot at Freedom Foods ((FNP)), as following on from the departure on Tuesday of the company’s CFO, yesterday the CEO mysteriously went “on leave”. The stock fell -14.5% before the plug was pulled.

Civil War

Florida and California have posted record new daily cases while the ICU capacity in Houston is up to 97% full. Up until last night Wall Street has been largely ignoring the accelerating spread of the virus in the south, or at the very least moving into the safety of Big Tech and back out of cyclicals like airlines.

Last night the levee broke. The trigger was the announcement by the Yankees (New York, New Jersey, Connecticut) that anyone entering those states from nine nominated hotspot states in the south would have to quarantine for 14 days.

It was not just the Union feeling the nerves. The governor of North Carolina ordered the mandatory wearing of masks in public while extending “safer-at-home” phase two restrictions by another three weeks.

Across the Pond, the EU is yet to decide whether when the bloc reopens its international borders next month, it will preclude visitors from the US.

Suddenly it all looked real.

This time Big Tech was not the hiding spot. Many had assumed the ever-rising big names were due a pullback anyway, and last night the typical dip-buyers were absent.

There is also potentially a mathematical influence in play. As we approach the end of the quarter, the big mutual funds need to readjust their equity and bond holdings to bring them back into balanced fund weightings. Equities have surged over the quarter and bonds have sold off. Hence equities need to be sold.

The potential for re-lockdowns hit oil prices as the peak driving month of July approaches. Energy was the worst performing sector on the S&P on a day all sectors closed in the red.

Typically one would buy gold and bonds in such a situation, but gold buyers have been ahead of the curve while bond yields have done very little in recent sessions.

Apple will re-close another seven stores, in Houston, bringing total re-closures across hotpots to 18.

In a testimony to Congress on Tuesday night, top US health officials revealed the president had not discussed the virus with them for more than two weeks.

God Help America.

Commodities

The US curve at this stage is still nothing on that of Brazil, which is likely why iron ore prices are on the rise again.

Otherwise, falls in base metals appear to have simply reflected a stronger greenback. When the virus was going nuts in March, the US dollar was a safe haven but it had fallen steadily back from April.

Good news for the Aussie then. It’s down -0.8% at US$0.6872.

Today

The SPI Overnight closed down -92 points or -1.6%.

Individual stock options for the June quarter expire today. Bad timing in volatility terms.

The US will see May durable goods orders tonight, along with a pointless revision of March quarter GDP.

The Australian share market over the past thirty days…