Overnight: Fear Returns

By Greg Peel

Bit of give-back

It is of little surprise after a solid five-day rally for the local market, investors would finally decide it’s time to take some of that money off the table. In relative terms a -30 point drop is inconsequential.

More consequential is the fact selling accelerated in the afternoon as the Dow futures began to head south, and indeed with Wall Street reversing our futures are down -32 this morning.

The ASX200 had opened up 20 points, following the S&P500, but it couldn’t kick on and by midday the sellers had moved in. The clue to the profit-taking lies in the underperforming sectors on the day. Energy (-1.0%), the banks (-1.5%) and industrials (-0.8%) had been the big three vaccine winners during the week.

Materials (-1.1%) found no friends despite benign commodity price movements overnight, while AGL Energy ((AGL)) also saw profit-taking (-1.8%) and utilities fell -1.9%.

The best performing sector was telcos (+1.9%), driven by a 3.0% rally for Telstra ((TLS)). The company announced its intention to unlock value by splitting into three.

IT gained 1.1% on the Nasdaq rally while consumer discretionary rose 1.0%. We recall virus winners in the sector had been sold down on the vaccine news, such as the auto stocks, so last night saw a reversal of that theme as well – Eagers Automotive ((APE)) rose 4.8%.

Winning index stock on the day was Nine Entertainment ((NEC)), which jumped 5.1% after forecasting a 15% increase in metro FTA TV advertising revenue in the December quarter. You’ll have to explain that one to your kids.

I noted yesterday just how volatile Whitehaven Coal ((WHC)) is these days and sure enough, having taken the silver on the winners’ board on Wednesday, yesterday Whitehaven took the silver again…on the losers’ board…with -4.5%.

Whitehaven was pipped only by fund manager Pendal Group ((PDL)), which fell -5.5%.

What could otherwise be described as an uneventful and unsurprising session may yet have set the market up for some greater falls ahead as Wall Street’s focus once again turns to pestilence and death.

The offset here, of course, is we’re going the other way, with the National Cabinet’s pledge to reopen all state borders by Christmas moving towards reality.

My kind of town

Following on from New York State’s 10pm curfew, last night the mayor of Chicago issued a stay-at-home advisory. Not an order, just an “advisory”, but enough to keep the Democrat-leaning city mostly at home and out of restaurants, bars etc, with workplaces and schools remaining open.

The news came in the afternoon on Wall Street and only served to exacerbate the selling that had begun, as noted, in the overnight futures. The Dow was headed towards a -500 point fall before a short, sharp rally at the death saved some face.

The reality has set in that America, and all of the northern hemisphere, still faces a dim, dark winter before any vaccine is ready for mass distribution. The fear is US cities and/or states will be forced to bow to the inevitable and implement re-lockdowns to at least part of their economies, as is the case in Europe and in other countries.

Over the past week the US has clocked an average 129,000 per day, up 69% from only two weeks ago, with case-counts rising in 49 states.

What could help of course, economically, is a fiscal stimulus package. But last night the White House announced it is pulling out of any further negotiations, leaving it to Mitch McConnell to deal with Nancy Pelosi, meaning the chances of an agreement are roughly zero.

Last night Fed chair Jay Powell warned the development of an effective vaccine was good news but not an immediate panacea for the economy and “significant challenges and uncertainties remain about timing production, distribution, and efficacy for different groups”.

The US bond market had been closed on Wednesday night for Veterans Day but last night the ten-year yield fell -7 basis points to 0.89%, in line with “risk-off” sentiment in the stock market.

Meanwhile, Joe Biden is being blocked from collecting his messages at the State Department and from attending any intelligence briefings.

A notable factor in last night’s trade compared to the week in general is that all three major indices fell together. The Nasdaq performed slightly better but there was no real rotation in either direction.

Commodities

The moves are only small but it’s been a while since we’ve seen all industrial metals and oils line up to the downside.

Gold is clawing back some ground as bond yields once again fall.

There are celebrations in Martin Place – the US dollar index is little changed but the Aussie is down -6% at US$0.7234.

Today

The SPI Overnight closed down -36 points or -0.6%. We may be in for a Friday kind of Friday. And don’t look at the calendar.

It’s otherwise a quiet day on the calendar today.

NextDC ((NXT)), Orocobre ((ORE)) and PolyNovo ((PNV)) hold AGMs.

The Australian share market over the past thirty days…