Overnight: Just About There

World Overnight
SPI Overnight (Dec) 6170.00 + 1.00 0.02%
S&P ASX 200 6173.80 – 18.00 – 0.29%
S&P500 3453.49 + 17.93 0.52%
Nasdaq Comp 11506.01 + 21.31 0.19%
DJIA 28363.66 + 152.84 0.54%
S&P500 VIX 28.11 – 0.54 – 1.88%
US 10-year yield 0.85 + 0.03 3.92%
USD Index 92.94 + 0.28 0.30%
FTSE100 5785.65 + 9.15 0.16%
DAX30 12543.06 – 14.58 – 0.12%

By Greg Peel

Buy the Dip

There seems to be much confusion as to exactly why the ASX200 fell -90 points in the first 45 minutes of trade yesterday. Commentary suggests it was “due to a weak lead from Wall Street”, or because no stimulus package was agreed upon in the US, but for us to fall -1.5% when the S&P500 fell only -0.2% completely disabuses those notions.

The futures had shown down -1.1% and that seemed curious. The computers went on with it but soon the market turned around and marched steadily back to square before dipping at the close, down -0.3%.

It cannot have been a big sell-order pre-loaded in the futures because there was no follow-through in the physical market. My suggestion yesterday the market was spooked by the new outbreak and isolations in Melbourne, given restriction-easing has been a driver of the recent rally, but then we came all the way back. If I was right, perhaps the buy-the-dippers were standing by for any such opportunity.

Anyway, moving on. This morning the futures are up a full one point. Might be a Friday.

Sector-wise, energy was the worst performer yesterday (-1.9%) on a -3% overnight fall in oil prices that could not be offset by production reports from both Woodside Petroleum ((WPL)) and Santos ((STO)). But the main damage was done by the banks (-0.5%).

Bendigo & Adelaide Bank ((BEN)) fell -3.9% after APRA increased the bank’s minimum liquidity requirement for failing to comply with its liquidity guidelines. The failure nevertheless was in the past, and currently the bank is well inside APRA’s liquidity requirement, so it’s more of a pre-emptive “don’t do it again” than anything meaningful in the present.

A 3 basis point tick-up in the ten-year bond rate to 0.82%, possibly because the US equivalent is also on the rise, had dividend stocks down on the day. Telcos fell -0.8%, utilities fell -1.1% and REITs were hit, with UR Westfield ((URW)) topping the list with a -9.3% drop.

That stock is madness personified.

Quarterly reports were impactful on the day. OZ Minerals ((OZL)) jumped 5.3% to top the index winners’ board while Resolute Mining ((RSG)) went the other way, down -6.4%. The materials sector closed flat.

Healius ((HLS)), which is not in the index, jumped 9.3%.

I suggested yesterday that AMP’s ((AMP)) funds under management would be interesting in the wake of Praemium’s ((PPS)) big surge the day before, and sure enough AMP fell -5.6%. Would the last one out etc.

Another interesting move was that of Crown Resorts ((CWN)). Shareholders gave the board a first strike and the stock rose 2.0%. Might be a message there. Pass the swords.

Since the futures closed this morning we’ve news the FDA has now approved Gilead’s remdesivir as a treatment for covid – a treatment mind, not a vaccine – having previously only approved the drug for emergency use. Whether this excites our market or not we’ll see. The futures closed up one point, likely tired of listening to all the US stimulus rubbish.

There are none so blind

“We’re just about there,” said Nancy Pelosi last night, referring to an agreement with the White House. So what? The Senate last night rushed Amy Coney Island, sorry, Barrett through to the Supreme Court. Democrat voters boycotted. Senators are now all on their way home to at least sneak in one week of election campaigning.

They won’t be back.

Every time there’s news, Wall Street reacts. It was another up-down session last night, with Pelosi’s announcement swinging the Dow from down -170 to up 200 before closing up 150. In the 2020 scheme of things, any sub-200 Dow move is a quiet day.

Trump and Biden will debate again this morning our time The winner will be the mute button.

Otherwise Wall Street might as well just bungle along until next Tuesday, concentrating on earnings reports. But that’s not when the volatility ends, it’s when it begins. Observers fear a “red mirage”, meaning initial counting will appear to favour Trump given Republican voters will vote on the day, while most Democrat voters have chosen to mail it in.

Despite postal voting having been open now for a while, the law in some states, including critical swing states, means those votes cannot be counted until election day. There are so many ways the Republicans can challenge the postal votes. All they then need is a reliable majority in the Supreme Court.

Intel (Dow) posted a meet of earnings expectations this morning in the aftermarket, and promptly fell -10%. Investors had expected the chip-maker to do better than expected. I’ll leave you to figure out how that works, but given work-from-home and school-from-home should have driven PC sales, with “Intel inside”, the perennial underperformer is underperforming still.

The rest of the chip-makers have left Intel in their dust.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1905.60 – 18.90 – 0.98%
Silver (oz) 24.69 – 0.33 – 1.32%
Copper (lb) 3.11 – 0.04 – 1.41%
Aluminium (lb) 0.83 – 0.00 – 0.53%
Lead (lb) 0.80 0.00 0.00%
Nickel (lb) 7.10 – 0.09 – 1.19%
Zinc (lb) 1.14 0.00 0.00%
West Texas Crude 40.68 + 0.71 1.78%
Brent Crude 42.49 + 0.80 1.92%
Iron Ore (t) 119.75 – 0.65 – 0.54%

Some give-back in copper last night. The US dollar was up 0.3%.

While this doesn’t help gold the main issue is that of US bond yields now starting meaningfully move higher. Last night the ten-year, which had been ticking up slowly all week, jumped 3 basis points to 0.85%. Hence the fall in the gold price.

Putin said last night he is open to delaying the expiry of OPEC-Plus production cuts set for January. Hence the gain in oil prices.

The Aussie has nodded off at US$0.7117.

Today

The SPI Overnight closed up 1 point.

Today is flash manufacturing PMI day across the globe.

Locally, Insurance Australia Group ((IAG)), Qantas ((QAN)) and Worley ((WOR)) are among those holding AGMs today.

Beach Energy ((BPT)), Mineral Resources ((MIN)) and Regis Resources ((RRL)) release production reports.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX Atlas Arteria Upgrade to Add from Hold Morgans
CCL Coca-Cola Amatil Upgrade to Accumulate from Hold Ord Minnett
COL Coles Group Downgrade to Neutral from Outperform Macquarie
JHG Janus Henderson Group Downgrade to Equal-weight from Overweight Morgan Stanley
LOV Lovisa Upgrade to Outperform from Neutral Macquarie
MP1 Megaport Upgrade to Buy from Neutral UBS
MTS Metcash Upgrade to Outperform from Neutral Macquarie
SGP Stockland Downgrade to Neutral from Outperform Macquarie
SYD Sydney Airport Downgrade to Lighten from Hold Ord Minnett
WOW Woolworths Upgrade to Buy from Neutral Citi
XRO Xero Downgrade to Neutral from Outperform Credit Suisse
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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