The Overnight Report: Shaky Wall Street

Daily Market Reports | Feb 21 2020

World Overnight
SPI Overnight (Mar) 7113.00 + 3.00 0.04%
S&P ASX 200 7162.50 + 17.90 0.25%
S&P500 3373.23 – 12.92 – 0.38%
Nasdaq Comp 9750.97 – 66.21 – 0.67%
DJIA 29219.98 – 128.05 – 0.44%
S&P500 VIX 15.56 + 1.18 8.21%
US 10-year yield 1.53 – 0.05 – 2.87%
USD Index 99.89 + 0.27 0.27%
FTSE100 7436.64 – 20.38 – 0.27%
DAX30 13664.00 – 125.00 – 0.91%

By Greg Peel

Let’s all just calm down

Yesterday was the second of the two biggest days in the local earnings season by number of reporting companies, and as had been the case on Wednesday, earnings beats among some of the bigger names was the theme. The index opened modestly higher and then tracked a straight line to 11am when the jobs report was released.

The unemployment rate jumped. Yay!

The index pushed on to lunchtime to be up 53 points. But over steaks and a red, traders decided it was all getting just a bit silly.

A point to note is that when a market is in blue sky, hitting new all-time highs, there’s no technical resistance – no trigger points for potential profit-taking. But round numbers are always popular, and so it was the ASX200 reached almost to 7200 when the bell was rung and sellers moved in. All the way back down to be up only 17 points at the close.

The impetus was likely a case of momentum getting out of hand, and the market initially being too carried away with the jobs report.

At first glance, a jump in the unemployment rate to 5.3% from 5.1%, reversing the move the month before, would suggest the RBA will have no choice but to cut again, given the labour market is its primary focus. However, 13,500 jobs were added, not subtracted. This was a net of 46,200 new full-time jobs with 32,700 part-time jobs lost – the right way round. The unemployment rate rose because the participation rate rose, and greater participation is healthy.

The trend rate remained cemented at 5.2%, where it has been for many moons. This was not a “bad” jobs report, it just wasn’t the sort of “good” one the RBA would have hoped for. There’s no urgency to cut implicit in the numbers, but economists still expect a cut by mid-year.

The ABS made a point of noting little bushfire impact apparent in the numbers – had the report been a shocker this may have been the reason – because it was unable to survey in bushfire ravaged areas.

Back to earnings reports.

As was the case on Wednesday, a stellar effort was required to get on to the ASX200 winners’ board. Yesterday’s podium was topped by Southern Cross Media ((SXL)), up 13.9%, followed by Perpetual ((PPT)) on 11.1%, Smartgroup Corp ((SIQ)) on 9.5%, Coca-Cola Amatil ((CCL)) on 8.6% and St Barbara ((SBM)) on 7.2%.

Certificates of merit were also handed out to the likes of Iluka Resources ((ILU)), Austal ((ASB)), Lendlease ((LLC)), Super Retail ((SUL)) and Qantas ((QAN)), all of which gained 5-7% on their results.

On the downside, disappointment was provided by Domain Group ((DHG)), down -6.3%, Iress ((IRE)) -5.7% and Whitehaven Coal ((WHC)) -5.5%.

As is evident, responses to beats were far more positive than responses to misses were negative.

There was the odd shocker nonetheless. Mortgage Choice ((MOC)), which is not in the index, fell -16.2%. otherwise, worst index performer on the day was again WiseTech Global ((WTC)), which having been trashed on Wednesday fell another -11.8% to again top the index losers’ board, after analysts warned it will take a while to turn things around.

From a sector perspective, all were up on the day on a relatively even distribution, but for two. After surging on Wednesday, Cochlear ((COH)) saw some profit-taking yesterday and healthcare fell -0.8%. And as investors become increasingly nervous about new world high-flyers like WiseTech Global (once was), IT fell another -1.7%.

There was a bit of a scare on Wall Street last night, before most of the initial loss was recovered. Our futures are flat this morning, so again the focus can be squarely on today’s round of earnings reports – not as extensive as yesterday, but still a pretty full quota for a Friday.

What just happened?

There were a few ashen faces around on Wall Street last night when the Dow opened slightly higher before plunging -400 points in half an hour. There was much confusion as to why.

The trigger, it appears, was a big program sell-order that hit the market, but commentators also pointed to virus angst, and the fact US indices were at all-time highs when the global economy was taking a hit.

One issue is that doubts continue to be cast over the efficacy of Beijing’s claims the daily case-count is slowing. Can this claim be trusted? Yesterday the South Korean city of Daegu reported the country’s first virus victim, and a sudden doubling of new cases on the day to 104. The mayor of Daegu urged its 2.5m residents to stay indoors.

There is also sheer disbelief that not one single case of the virus has been reported in Indonesia. It’s statistically impossible. What’s the real number?

Throw in Wednesday night’s warning from Goldman Sachs that investors are underestimating the ultimate impact of the virus, and hence Wall Street should set for a (healthy) correction, and what may have begun as one sell-order quickly turned to a flood, no doubt led by panicked computers.

But at 11.30am, it stopped. Wall Street then grafted its way back all afternoon to a less ominous close. A resilient market? Or was the order at that point filled? Commentators like to think the former.

However, if resilience is in evidence in stock markets, it’s not being backed up elsewhere. The US ten-year bond rate is again plumbing cycle lows, down another -5 basis points to 1.52%. Gold is up another ten dollars and is pushing higher each day.

The PBoC announced another rate cut yesterday. China is throwing everything it has at the virus, and is not alone. Expectations of further central bank easing across the globe are supporting bond and gold prices.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1619.50 + 10.60 0.66%
Silver (oz) 18.34 + 0.01 0.05%
Copper (lb) 2.59 + 0.01 0.26%
Aluminium (lb) 0.78 0.00 0.00%
Lead (lb) 0.87 + 0.00 0.09%
Nickel (lb) 5.76 + 0.01 0.25%
Zinc (lb) 0.95 – 0.01 – 0.64%
West Texas Crude 53.78 + 0.42 0.79%
Brent Crude 59.31 + 0.14 0.24%
Iron Ore (t) futures 91.10 + 1.95 2.19%

The standouts here are iron ore and gold.

But most notably, the Aussie dollar has tanked on the jobs report (and a relentlessly rising greenback), falling -0.9% to US$0.6617 – its lowest level since the GFC.

Traders have probably all gone short as usual, so stand by for the bounce.

Today

The SPI Overnight closed up 3 points.

It’s flash estimate of manufacturing PMI day across the globe today for February.

Another solid round of earnings results.

Select Harvests ((SHV)) 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 Add from Hold Morgans
BXB BRAMBLES Downgrade to Underperform from Neutral Credit Suisse
CHC CHARTER HALL Downgrade to Accumulate from Buy Ord Minnett
Downgrade to Neutral from Buy UBS
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
DMP DOMINO'S PIZZA Upgrade to Accumulate from Lighten Ord Minnett
Downgrade to Underperform from Neutral Credit Suisse
GWA GWA GROUP Downgrade to Neutral from Outperform Macquarie
IGO IGO Upgrade to Hold from Lighten Ord Minnett
NEW NEW ENERGY SOLAR Upgrade to Overweight from Equal-weight Morgan Stanley
NHC NEW HOPE CORP Upgrade to Outperform from Neutral Macquarie
NWL NETWEALTH GROUP Upgrade to Neutral from Underperform Credit Suisse
Upgrade to Buy from Hold Ord Minnett
OSH OIL SEARCH Upgrade to Neutral from Underperform Credit Suisse
OZL OZ MINERALS Upgrade to Accumulate from Lighten Ord Minnett
Downgrade to Hold from Add Morgans
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
Downgrade to Neutral from Outperform Credit Suisse
SHL SONIC HEALTHCARE Upgrade to Outperform from Neutral Credit Suisse
SIQ SMARTGROUP Upgrade to Outperform from Neutral Macquarie
SM1 SYNLAIT MILK Upgrade to Buy from Neutral UBS
VOC VOCUS GROUP Downgrade to Neutral from Buy UBS
WES WESFARMERS Upgrade to Outperform from Neutral Macquarie
WOR WORLEY LTD Downgrade to Neutral from Outperform Credit Suisse
WSA WESTERN AREAS Upgrade to Buy from Hold Ord Minnett
WTC WISETECH GLOBAL Downgrade to Lighten 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

ASB CCL COH DHG ILU IRE LLC MOC PPT QAN SBM SHV SIQ SUL SXL WHC WTC