Overnight: Party Like It’s 1999

By Greg Peel

Here we go again

Nothing much changed in the world yesterday to spark a 1% rally for the ASX200, other than more acceptance of Friday’s big sell-off being unnecessary, But so much for that – the Nasdaq was at it again last night and our futures are down -98 points this morning.

Where’s Bill Murray when you need him?

Monday saw sectors that did not need to be sold off on Friday stage a recovery, led by the banks, healthcare and materials, and those three sectors were at it again yesterday, rising 1.3%, 1.5% and 1.1% respectively.

Monday was nevertheless tainted by the announcement of extended Victorian lockdowns, hence those sectors most affected fell on the day. Nothing’s changed on that front, but those same sectors all rallied back yesterday, with the exception of staples (-0.07%), which sat it out.

Property outperformed in rising 1.6%, after retail landlord Scentre Group ((SCG)) provided a positive (under the circumstances) update on rental collections.

The Ausdaq also sat it out (+0.03%), perhaps not game to budge, which has proven a good call.

I was startled this morning to see a news headline ticker cross the screen announcing Queensland was easing its NSW border restrictions, until I looked again and saw it was boarder restrictions, ie school kids stuck on the wrong side.

Should have gone to Spec Savers.

The question now is to whether this morning’s -98 point drop in the futures proves accurate; whether local investors will just sell anyway as buyers stand aside, as they did on Friday, or whether this time sanity will prevail.

For if we want to drill down to a source of last night’s rekindling of the US Big Tech sell-off, over-valuations notwithstanding, it’s because Tesla missed out on inclusion in the S&P500.

Thus investors should be dumping all their Australian EV stocks today.

Size Doesn’t Matter

A couple of months it was touted that Tesla would would likely be included in the S&P500 in the next round of reshuffling. A couple of weeks ago investors were assuming it was a done deal. Tesla had become America’s seventh largest company by market cap, let alone 499^th.

Tesla missed out.

Size alone is not a pure determinant of Standard & Poor’s, and indeed other index compilers’, criteria. The aim is to provide a general representation of the economy as a whole, even if that means leaving big caps out for smaller caps. While S&P does not reveal its thinking, my guess is the compilers are now worried about tech representing a quarter of the whole index, and half a dozen stocks alone representing most of that.

Tesla would have just been another one. The stock fell -21% last night – it’s biggest ever daily loss. The Nasdaq hit -10% correction territory – in the fastest time in its history (even faster than 2000). We should put that into context: Tesla rose 75% in a week following its stock split announcement.

Elon Musk elected to cash in and issue US$50bn in new capital, at what now is the high. Tonight he plans to walk on water.

In other EV news, General Motors has bought into electric truck designer Nikola, exchanging its manufacturing capacity for in an easy-in to this high tech race. Nikola shares jumped 37%, and GM shares jumped 8%, confirming the market sees the move as mutually beneficial.

Apple fell -7%, again, and all the other usual suspects fell -4-6% as they had last Thursday night. Given Big Tech is a highly popular space among young, inexperienced investors, it’s quite likely Tesla alone sparked renewed panic.

To be fair, Wall Street was also rather concerned about Trump’s vow last night to “decouple” the US economy from China. And do you know whose fault it is China has risen so much in power? Yep, Joe Biden’s.

Joe Biden, is a “stupid person” whose “economic treachery” allowed the authoritarian nation’s economic rise. “If Biden wins, China wins, because China will own this country.”

Trump was drawing upon Biden’s comment that “The United States welcomes the emergence of a prosperous integrated China at the global stage because we expect this is going to be a China that plays by the rules,” as reported in Trump’s nemesis, the New York Times.

He said that in 2001.

The threat of a “decoupling” with China is not good news for anyone other than Trump, and his election campaign, hence while Big Tech led down all three indices, all S&P500 sectors closed in the red to varying degrees.

Apple and Microsoft led down the Dow, and we are reminded that if this was pre Apple’s stock split, you could have added on another couple of hundred points or so to the downside.

Boeing was also a big contributor to Dow downside last night. The FAA has now found manufacturing flaws in another of the company’s planes, the flagship 737 Dreamliner.

Commodities

Saudi Arabia announced last night it was lowering its crude sales price to Asian customers. This implies weak demand, and the assumption is China helped to keep oil prices above the US$40/bbl level for a period as it built up inventories and, as Monday’s import numbers corroborate, has now stopped.

The Labor Day weekend also signals the end of the US summer “driving season”, typically the peak in demand for oil.

The Trump US-China news had traders scurrying back into the US dollar, which impacted on high-flying metal prices.

Gold hung in there nonetheless, and in stark contrast to last Thursday night when the Nasdaq first tipped over, the US ten-year bond yield fell -4 basis points last night to 0.68%. On Thursday it jumped 9 basis points.

The thought here is one of if this Wall Street correction has further to run, the Fed may need to up the ante once more.

Three cheers for the Aussie, down -1.0% to US$0.7212.

Today

The SPI Overnight closed down -98 points or -1.6%.

It will likely be a bad day for energy and materials, and as to whether anyone takes Trump seriously is another matter. Do we follow down Tesla?

NAB’s August business confidence survey yesterday showed a drop in conditions to -6 from 0 in July but a rise in confidence, albeit to -8 from -14, so still heavily minus.

Today Westpac releases its consumer confidence survey for September. We’ll also see August housing finance numbers.

China reports inflation data for August.

Today’s ex-div list includes Brambles ((BXB)).

The Australian share market over the past thirty days…