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The Overnight Report: Swings And Roundabouts

Daily Market Reports | Feb 11 2020

World Overnight
SPI Overnight (Mar) 6987.00 + 42.00 0.60%
S&P ASX 200 7012.50 – 10.10 – 0.14%
S&P500 3352.09 + 24.38 0.73%
Nasdaq Comp 9628.39 + 107.88 1.13%
DJIA 29276.82 + 174.31 0.60%
S&P500 VIX 15.04 – 0.43 – 2.78%
US 10-year yield 1.55 – 0.03 – 1.96%
USD Index 98.85 + 0.17 0.17%
FTSE100 7446.88 – 19.82 – 0.27%
DAX30 13494.03 – 19.78 – 0.15%

By Greg Peel

Virus Causes Whiplash

Will the coronavirus simply affect a one quarter blip in global growth that will swiftly be recovered in prevailing quarters, or will this virus prove more devastating than its predecessors? As the count reaches 900/40,000, exceeding SARS, this is the question markets are asking.

Given the ASX200 fell -40 points from the open yesterday before closing down -10, and the futures are up 44 points this morning, clearly the answer to the question is a matter of daily swings.

Wall Street had fallen back on Friday night while still closing up 3% for the week, due ostensibly to the virus but also a strong jobs number that silenced those expecting the Fed to join in world-wide central bank easing.

The ASX200 dropped -40 points in the first half hour before stumbling around to midday. At that point it looks like a big buy order hit the market, as an hour and a half later the index was in the green. It is unlikely the Chinese CPI release at the time was the trigger. A reading of 5.4% for January is somewhat distorted.

Beneath the overlay of macro uncertainty, earnings results began to flow yesterday.

JB Hi-Fi ((JBH)) has spent most of the last decade as one of the most shorted stocks on the ASX. The reason as to why is wildly unclear. Virtually every six months the company beats expectations. Yesterday the beat was worth 11.5%, no doubt aided by short-covering.

Aurizon Holdings ((AZJ)) and GPT Group ((GPT)) also saw positive responses while on the flipside, a pre-release from Boral ((BLD)), revealing more accounting irregularities in its windows division, and the announcement of the CEO’s retirement, had that stock down -10.7%.

Sector moves were mixed. JB Hi-Fi helped consumer discretionary up 0.6% but the stalwarts of healthcare (+0.7%) and staples (+0.4%) trudged on. The hits were taken once again in energy (-0.9%) and materials (-0.6%), the latter once again tempered by gold miners.

Financials fell -0.4% but it was less about the banks and more about the insurers, as one might imagine. The Gospers Mountain mega-blaze is now out, thanks to the rain, and now it’s the rain that’s the problem.

IT posted the biggest fall (-1.1%) due to some profit-taking in REA Group ((REA)). REA and Carsales are in the info tech sector while Seek is an industrial. Go figure.

Wall Street posted a not dissimilar session last night in spinning from a -100 point loss for the Dow to a +174 close. On that basis our futures are up 44 points this morning, so yesterday doesn’t mean a lot.

Earnings season has only just begun, nonetheless.

Push and Pull

Earnings season rolls on in the US. With 65% of S&P500 companies having reported, the earnings growth run-rate sits at +1.3% when -2% was forecast for the quarter. Last night’s slew of reports were net positive.

With Facebook suffering from privacy issues and Netflix being clobbered by Disney, we need a new acronym. Alongside gold and US bonds, the “trillion dollar club” of Google, Apple, Microsoft and Amazon are proving to be a safe haven, continuing to tick higher each day. And in Apple's case, despite the bulk of its supply chain being in China. GAMA?

Last night WHO warned the spread of the coronavirus to people who have not visited China could be “the spark that becomes a bigger fire”.

Chinese factories began to reopen yesterday, many with skeleton staff (no pun intended), but many decided to remain closed.

Wall Street fell early but gradually shifted higher. Earnings results are proving the push while coronavirus is the pull. As to which will win is yet to be determined.

The US ten-year bond rate is now back at 1.55% having bounced to 1.62% last week. There are many who believe a breach of the long-term support level of 1.4% could be on the cards if the virus is not soon contained. Lower bond yields are positive for US stocks, until they’re too low, implying economic growth concerns.

The bottom line, in the US and Australia, is that markets will likely remain volatile and uncertainty will linger until there is a least a plateauing of the virus case count.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1573.10 + 3.10 0.20%
Silver (oz) 17.75 + 0.09 0.51%
Copper (lb) 2.56 + 0.00 0.02%
Aluminium (lb) 0.77 – 0.00 – 0.17%
Lead (lb) 0.82 – 0.01 – 1.07%
Nickel (lb) 5.84 + 0.09 1.53%
Zinc (lb) 0.97 – 0.01 – 0.58%
West Texas Crude 49.54 – 0.78 – 1.55%
Brent Crude 53.24 – 1.23 – 2.26%
Iron Ore (t) futures 81.70 – 0.95 – 1.15%

Metals markets seem similarly uncertain at this point and the big swings in gold have subsided for now.

Fears that Russia will not join in with OPEC in cutting production to counter plunging oil demand have oil prices continuing to fall back again.   

The Aussie is slightly higher at US$0.6683.

Today

The SPI Overnight closed up 44 points or 0.6%.

Japan is closed today.

The UK December quarter GDP result is due tonight.

Locally we’ll see housing finance data and business confidence.

Earnings reports to watch today include Transurban ((TCL)) and Suncorp ((SUN)) – the latter more for guidance than result.

National Bank ((NAB)) and Macquarie Group ((MQG)) both provide quarterly updates.

For a full list of earnings results due today please refer to the FNArena Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AQG ALACER GOLD Upgrade to Outperform from Neutral Credit Suisse
BLD BORAL Upgrade to Buy from Neutral UBS
Downgrade to Underperform from Neutral Credit Suisse
BOQ BANK OF QUEENSLAND Upgrade to Neutral from Sell Citi
COL COLES GROUP Upgrade to Neutral from Underperform Credit Suisse
Downgrade to Reduce from Hold Morgans
CSR CSR Upgrade to Buy from Sell UBS
FLT FLIGHT CENTRE Downgrade to Hold from Buy Ord Minnett
GMA GENWORTH MORTGAGE INSUR Upgrade to Outperform from Neutral Macquarie
HT1 HT&E LTD Downgrade to Neutral from Outperform Credit Suisse
JHG JANUS HENDERSON GROUP Upgrade to Outperform from Neutral Macquarie
MGR MIRVAC Downgrade to Equal-weight from Overweight Morgan Stanley
SEK SEEK Upgrade to Outperform from Neutral Credit Suisse

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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