The Overnight Report: Day Two

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World Overnight
SPI Overnight (Dec)	5778.00	– 47.00	– 0.81%
S&P ASX 200	5883.80	– 166.00	– 2.74%
S&P500	2728.37	– 57.31	– 2.06%
Nasdaq Comp	7329.06	– 92.99	– 1.25%
DJIA	25052.83	– 545.91	– 2.13%
S&P500 VIX	24.98	+ 2.02	8.80%
US 10-year yield	3.13	– 0.09	– 2.85%
USD Index	95.01	– 0.50	– 0.52%
FTSE100	7006.93	– 138.81	– 1.94%
DAX30	11539.35	– 173.15	– 1.48%

By Greg Peel

Thumped

It was never going to be pretty, but it was really very ugly, particularly considering the ASX200 had already fallen -2% this week before yesterday’s opening bell while Wall Street had remained relatively stable.

It was an ask-no-questions sell-off, with almost all sectors falling uniformly in a range of -2.5-3.5%. With the Dow down -800 points overnight buyers simply stood aside from the open, allowing the ASX200 to freefall over -100 points before a whiff of bargain hunting became evident.

This provided for a grinding attempt to regain some ground by lunchtime, but the sellers won out in the end. It was a market-wide, indiscriminate rout. Volume was heavy.

The only two sectors to stand out amid the carnage were IT, down a whopping -5.2%, and utilities, down only -1.0%.

Our IT sector is a Nasdaq mimic, containing therein our own collection of new age growth stocks. Those previous high-flyers were the biggest victims yesterday, taking four of the top five ASX200 loser positions – Afterpay Touch ((APT)), WiseTech Global ((WTC)), Appen ((APX)) and Altium ((ALU)), all down between -8% and -11%.

Baby formula is hardy “new age”, but a2 Milk ((A2M)) has been a very high flyer nonetheless, and it fell -10%.

On the flipside, every top five winner was a goldminer, with gains of 2.5% to 6%. The USD gold price has reacted as it always (strangely) does – a day late. On Wednesday night gold barely moved. Last night it jumped thirty bucks. Well played to those buyers.

The outperformance of utilities suggests at least some attempt to find a defensive safe haven, given past safe havens like telcos, staples, healthcare and banks can no longer safely wear that tag. Sector heavyweight AGL Energy ((AGL)) fell -1.6% so outperformance suggests support for a suite of true defensives.

It is notable that despite the rally in gold stocks, the materials sector still fell a full -2.6%. For that we can blame the big diversifieds – they were carted – as also bucking the trend was Fortescue Metals ((FMG)), which picked a bad day to announce a share buyback but nevertheless managed a 2.5% gain.

Things won’t be getting any better today. The golds might again see buying but oil prices are down over -2.5%, the Aussie has bounced up 0.8% on a weak US dollar, which is untimely, and while Wall Street didn’t close on its lows last night, as was the case on Wednesday night, an afternoon attempt at recovery was still met with a barrage of late selling.

The futures are down another -47 points.

If there is any comfort, we at least outperformed our region yesterday in falling -2.7%. Japan, which up until recently had been surging to multi-year highs, fell -3.9%. China, which has been doing the complete opposite, fell -5.2%.

No Cavalry, Yet

Typically, these sorts of “mini crashes” tend to see a second day of selling following the first, if for no other reason than investors deciding to sell on day two simply because of the rout on day one. Day three is the one to watch in terms of the potential for a bounce, at least in the short term.

Wall Street actually opened higher last night, briefly. The September CPI result came in lower than expected.

 But the bounce was enough to bring the sellers back once more. Another attempt at recovery was made up to lunch time, but it started to wane. The attempts to recover can be put down to the S&P500 at this point having fallen to its 200-day moving average, which has survived as technical support all year bar the February correction.

Then came one of the biggest market sell orders to hit the boards since February. The main S&P500 ETF was slammed, and at the same time the leading US bond ETF took off. The US ten-year yield – a primary factor in the sell-off to begin with – plunged -9 basis points to 3.13%.

This, in itself, provided some incentive for recovery, but just then news came through that Presidents Trump and Xi have agreed to meet at the upcoming G20 meeting in Argentina. The other primary factor behind the sell-off is trade.

Other news that was somewhat lost in the wash last night is that the Turkish government has freed the US pastor they had previously detained for spying, thus prompting the Trump administration to lift the sanctions it had imposed on Turkey because of that detention. The lira jumped 2%.

The combination of rates falling back again and a possible glimmer of hope in the trade war meant the Dow shot back up from down-700 at its low to down less than -300. But there were too many sell-on-close orders, hence the end result was down -545.

Which suggests a day three rebound is not yet a given. It will undoubtedly come down to the earnings reports of JPMorgan, Citigroup and Wells Fargo, due tonight. If they meet or beat expectations, a day three rally is on the cards. If they miss, it’s goodnight Irene.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1224.50	+ 30.80	2.58%
Silver (oz)	14.60	+ 0.32	2.24%
Copper (lb)	2.84	+ 0.03	0.96%
Aluminium (lb)	0.92	– 0.01	– 0.83%
Lead (lb)	0.87	+ 0.01	0.58%
Nickel (lb)	5.68	– 0.06	– 1.01%
Zinc (lb)	1.20	– 0.02	– 1.59%
West Texas Crude (Nov)	70.87	– 1.98	– 2.72%
Brent Crude (Dec)	80.23	– 2.18	– 2.65%
Iron Ore (t) futures	70.24	– 0.15	– 0.21%

Once again the industrial metals did little in the scheme of things last night.

The winner was gold, which was supported by a -0.5% drop in the US dollar index but outperformed on a safe haven basis.

The oils were hit because of the weekly US crude inventory lottery showing more stockpiles than assumed.

The weakness in the greenback has sent the Aussie up 0.8% to US$0.7122, but the Aussie climbed through the local session as well, probably as a “lesser of the evils” among regional currencies.

Today

The SPI Overnight closed down -47 points or 0.8%.

China will, fittingly, release September trade numbers today. Keep an eye on that one.

Locally, housing finance is another current point of elevated interest. The RBA will also release its biennial Financial Stability Review.

Sigma Healthcare ((SIG)) goes ex today, but I doubt anyone will notice.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANZ	ANZ BANKING GROUP	Upgrade to Add from Hold	Morgans
IVC	INVOCARE	Upgrade to Hold from Lighten	Ord Minnett
JHC	JAPARA HEALTHCARE	Upgrade to Hold from Lighten	Ord Minnett
NVT	NAVITAS	Downgrade to Neutral from Outperform	Macquarie
NXT	NEXTDC	Upgrade to Hold from Sell	Deutsche Bank

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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