The Overnight Report: Virus Ups And Downs

Daily Market Reports | Feb 20 2020

World Overnight
SPI Overnight (Mar) 7103.00 + 15.00 0.25%
S&P ASX 200 7144.60 + 30.90 0.43%
S&P500 3386.15 + 15.86 0.47%
Nasdaq Comp 9817.18 + 84.44 0.87%
DJIA 29348.03 + 115.84 0.40%
S&P500 VIX 14.38 – 0.45 – 3.03%
US 10-year yield 1.57 + 0.01 0.90%
USD Index 99.62 + 0.16 0.16%
FTSE100 7457.02 + 75.01 1.02%
DAX30 13789.00 + 107.81 0.79%

By Greg Peel

Tis the season to be jolly

Up until yesterday, about a third of the way through this result season by number of stocks, FNArena’s Corporate Result Monitor was showing a ratio of 31% beats to 24% misses which is about the long-run average. If yesterday’s slew of result-related share price moves is anything to go by, that ratio should swing firmly more positive.

The virus is clearly having an impact, more specifically in forward guidance rather than past earnings, but companies with little or no exposure are surging ahead. Yesterday the ASX200 hit a new all-time closing high – a point ahead of the prior high in late January. The closing high was also the intra-day high.

In terms of index component winners, earnings reporters took four of the top five spots on a board yesterday that required a substantial move to even qualify. Cleanaway Waste Management ((CWY)) rose 16.7%, Webjet ((WEB)) 10.8%, Domino’s Pizza ((DMP)) 9.6% (noting that stock is heavily shorted) and Seven Group Holdings 9.0%.

Cochlear ((COH)) took the silver with 11.0%, despite a disappointing result the day before, because a competitor has been forced to recall its device.

Unable to make the top five were Vocus Group ((VOC)) with 8.4% and, much further down, Wesfarmers ((WES)) with 2.9%.

It is important to note the 30 point gain on the day for the index was net of Commonwealth Bank ((CBA)) going ex-dividend, which was worth a -13 point handicap from the open.

It wasn’t all beer and skittles nonetheless.

Train wreck of the day was software company WiseTech Global ((WTC)), which missed on earnings but more significantly downgraded guidance due to virus impact, copping a -27.3% trashing. EML Payments ((EML)) appeared to fall short of very lofty expectations and dropped -13.5%.

Other disappointers were Tabcorp ((TAH)), down -5.7% and Vicinity Centres ((VCX)) down -5.6%.

In terms of sector moves, it was all about the above. Healthcare won the day with 2.9% (Cochlear), followed by consumer discretionary on 1.8% (Webjet, Domino’s), industrials on 1.3% (Cleanaway, Seven Group) and telcos on 1.0% (Vocus).

Given a -0.7% fall for the banks was all about CBA going ex, the only losing sectors were staples, down -0.2% as Wesfarmers sold down more of its Coles ((COL)) stake, and IT, down -3.1% (WiseTech).

Was it just a lucky day in reporting season terms? As noted, the season is only a third through so it’s not yet time to count the chickens. But maybe the doom and gloom that took us into Christmas from a national economy perspective was overwrought. Mind you, it will be the next season in which the true impact of bushfires, floods and the virus, along with the ongoing drought, will be tallied.

Correction Ahead?

Beijing has announced the pace of new virus cases is slowing. WHO has urged caution.

It’s not the first time Beijing has made such a declaration. A couple of weeks ago the story was the same until case numbers spiked substantially the following day on a change in counting methodology.

Beijing has also announced assistance for Chinese businesses struggling from supply chain disruptions.

In the minutes of its last meeting, released last night, the Fed expressed concern over the potential impact of the virus, along with tensions in the Middle East. Wall Street took this to imply another rate cut is a distinct possibility, if necessary.

That said, last night’s data showed the US headline producer price index up 0.5% in January to mark its biggest rise in 15 months. Economists had forecast 0.2%. This took the annual rate to 2.1% from 1.3% in December, albeit still well below the 3.4% of 18 months ago.

The more relevant core PPI rose 0.4%, which is significant given the big plunge in oil prices in the month, however the annual rate remains stuck at 1.5%.

So these numbers shouldn’t give the Fed pause for thought.

All of the above had Wall Street spinning around last night from the previous night’s session, in which Apple’s virus warning set off a scare, and returning to new all-time highs for the S&P and Nasdaq, with the Dow just shy.

This despite Goldman Sachs issuing a report last night suggesting:

We believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices. While a sustained bear market does not look likely, a near-term correction is looking much more probable.”

So the virus remains the swing factor, and there’s not enough to go on one way or the other at this time.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1608.90 + 7.30 0.46%
Silver (oz) 18.33 + 0.15 0.83%
Copper (lb) 2.58 – 0.01 – 0.51%
Aluminium (lb) 0.78 – 0.00 – 0.06%
Lead (lb) 0.87 – 0.01 – 0.60%
Nickel (lb) 5.75 – 0.06 – 1.08%
Zinc (lb) 0.96 – 0.01 – 0.55%
West Texas Crude 53.36 + 1.25 2.40%
Brent Crude 59.17 + 1.42 2.46%
Iron Ore (t) futures 89.15 0.00 0.00%

Beijing’s slowing-pace declaration did nothing to inspire base metals.

The gold price is not reflecting any easing in fears.

The White House last night placed sanctions on Russian oil giant Rosneft, accusing it of aiding Venezuela’s already heavily sanctioned government. Supply implications pushed up oil prices.

The Aussie is slightly lower at US$0.6676 as the greenback marches relentlessly north.

Today

The SPI Overnight closed up 15 points or 0.3%.

The RBA will be on the edge of its seat this morning as the local jobs numbers for January are released.

It’s another big day for the earnings season.

Aristocrat Leisure ((ALL)) holds its AGM.

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
ALU ALTIUM Downgrade to Lighten from Hold Ord Minnett
ANN ANSELL Downgrade to Neutral from Buy Citi
Downgrade to Lighten from Hold Ord Minnett
BPT BEACH ENERGY Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Add from Hold Morgans
BXB BRAMBLES Downgrade to Underperform from Neutral Credit Suisse
CL1 CLASS Upgrade to Add from Hold Morgans
COH COCHLEAR Upgrade to Outperform from Underperform Macquarie
Upgrade to Overweight from Equal-weight Morgan Stanley
CSL CSL Downgrade to Equal-weight from Overweight Morgan Stanley
CTD CORPORATE TRAVEL Downgrade to Hold from Add Morgans
GWA GWA GROUP Downgrade to Neutral from Outperform Macquarie
IGO IGO Upgrade to Hold from Lighten Ord Minnett
NWL NETWEALTH GROUP Upgrade to Neutral from Underperform Credit Suisse
Upgrade to Buy from Hold Ord Minnett
OZL OZ MINERALS Downgrade to Hold from Add Morgans
PPE PEOPLE INFRASTRUCTURE Downgrade to Hold from Add Morgans
Downgrade to Accumulate from Buy Ord Minnett
QBE QBE INSURANCE Upgrade to Add from Hold Morgans
RMD RESMED Downgrade to Equal-weight from Overweight Morgan Stanley
RRL REGIS RESOURCES Downgrade to Lighten from Hold Ord Minnett
SGF SG FLEET Upgrade to Outperform from Neutral Macquarie
SGM SIMS METAL MANAGEMENT Upgrade to Neutral from Sell UBS
SM1 SYNLAIT MILK Upgrade to Buy from Neutral UBS
WOR WORLEY LTD Downgrade to Neutral from Outperform Credit Suisse
WSA WESTERN AREAS Upgrade to Buy from Hold Ord Minnett

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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CHARTS

ALL CBA COH COL CWY DMP EML TAH VCX VOC WEB WES WTC