The Overnight Report: Once More With Feeling

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World Overnight
SPI Overnight (Mar)	6664.00	– 162.00	– 2.37%
S&P ASX 200	6866.60	– 111.70	– 1.60%
S&P500	3128.21	– 97.68	– 3.03%
Nasdaq Comp	8965.61	– 255.67	– 2.77%
DJIA	27081.36	– 879.44	– 3.15%
S&P500 VIX	27.85	+ 2.82	11.27%
US 10-year yield	1.33	– 0.05	– 3.41%
USD Index	98.95	– 0.38	– 0.38%
FTSE100	7017.88	– 138.95	– 1.94%
DAX30	12790.49	– 244.75	– 1.88%

By Greg Peel

Day Three?

I suggested yesterday that for the ASX200 to fall another -2%-plus on the back of Wall Street's fall, as the futures yesterday suggested, after having fallen -2%-plus on Monday, looked a bit like double-dipping. And sure enough the index opened down -178 points from the open and immediately bounced back 100 points to lunchtime.

But I suggested one shouldn't underestimate panic, and as it was selling returned in the afternoon for a -110 point close to at least a more respectable -1.6%. The afternoon's sellers were probably Monday's slow movers who were waiting for a bit of a bounce to sell in to.

Interesting, the index bounced off 6800 and rallied back to 6900 before falling back again. The market likes round numbers as inflection points.

We must also consider that Monday's plunge would have generated margin calls on leveraged investors who would need to sell sell anything to cover their obligations. This can become a negative feedback loop. To that end we note the futures are down yet another -2.4% this morning.

No fat lady in sight.

Coming back to round numbers, 6900 was the prior low, give or take, marked in early February on the first big virus-related drop. Falling through that yesterday brought in more technical selling. The round number of 6800 saved the day, for a while. The 50-day moving average was breached at 6950 and the 200-day is down at 6710, which could be reached today if the futures prove accurate. Just below that is where we started 2020.

All sectors closed in the red yesterday. The biggest fall was marked by materials (-2.5%), for the simple reason gold buyers turned into gold sellers. The USD gold price did roll over slightly last night after its glittering run and the Aussie has stalled at US66c. Selling gold miners yesterday St Barbara ((SBM)) down -9.7% and Saracen Mineral ((SAR)) down -7.3% to top the losers' board was either a sign of profit-taking or of above-mentioned margin calls.

We recall that when Lehman went under in 2008, the gold price initially shot up but then collapsed under the weight of sellers jettisoning their gold to raise the funds to cover their margin calls in the stock market.

Consumer discretionary (-2.5%) had another bad session, although all of Breville Group ((BRG)), Domino's Pizza ((DMP)) and Star Entertainment ((SGR)) went ex. Staples fell -1.8% with Coca-Cola Amatil ((CCL)) going ex.

Telcos (-2.5%) copped it for some reason yesterday, with Telstra ((TLS)) falling -3.0% ahead of going ex today. Otherwise, energy copped it again (-2.2%) and other sectors fell to a lesser extent. IT only fell -0.3%.

In that sector, Appen ((APX)) was the star earnings reporter on the day, rising 6.5% to top the index winners' board. It was the only reporting company yesterday to make either the winners or the losers boards, so yesterday was an otherwise benign one in terms of earnings results.

We have another decent list of result reporters today.

And we have another big sell-off predicted by the futures. So far we have fallen -4.6% from the high.

Groundhog Day

On Monday night the Dow opened down over -1000 points, rallied to be down around -800 points and then closed down over -1000. Last night the Dow opened down over -900 points, rallied to be down around -700 points and then closed down almost -900.

The bargain hunters are clearly jumping the gun. And I again draw attention to the margin call feedback loop, which often can be the driver of ultimate capitulation the point at which the market truly is oversold and bargain hunters then have a green light.

Wall Street is presently down around -7.6% from its high.

There was nothing new for Wall Street to ponder last night that wasn't evident on Monday night, other than there is a growing assumption the Fed will soon be forced to act, maybe as soon as the March meeting. Certainly the bond market is demanding a cut. The US ten-year yield fell another -5 basis points to 1.33%. A new never-before-seen level.

Last night the Fed vice chair reiterated the FOMC is watching the virus closely and is ready to "act accordingly". The Fed "pivot" late in 2018 turned a -10% plus correction into a surging rally. Does the Fed have such power against nature?

Wall Street is now giving a better than a 50% chance the Fed will cut three times in 2020.

One by one US companies are trotting out virus-related profit warnings but virtually none are prepared to issue specifically quantified guidance. They can't. Nobody knows when this will end and nobody knows, at this stage, just what the damage will be to the global economy.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1650.00	– 7.70	– 0.46%
Silver (oz)	18.14	– 0.45	– 2.42%
Copper (lb)	2.56	– 0.01	– 0.39%
Aluminium (lb)	0.76	+ 0.00	0.03%
Lead (lb)	0.86	+ 0.01	1.50%
Nickel (lb)	5.63	+ 0.05	0.81%
Zinc (lb)	0.92	+ 0.00	0.10%
West Texas Crude	49.84	– 1.60	– 3.11%
Brent Crude	54.72	– 1.61	– 2.86%
Iron Ore (t) futures	90.10	– 1.10	– 1.21%

Some stability has returned to base metal prices. Iron ore has dipped back but has yet to do anything dramatic.

The gold price has finally taken a breather, despite the US dollar index falling -0.4%.

Oil prices continue to slide as markets await a response from OPEC.

The Aussie is 0.2% higher at US$0.6618 as the greenback pulls back on Fed rate cut speculation.

Today

The SPI Overnight closed down -162 points or -2.4%.

Locally today we see numbers for December quarter construction work done. Next week's GDP result is becoming increasingly irrelevant. The damage will be done in the March quarter.

Today's list of result releases includes those of Rio Tinto ((RIO)) and Woolworths ((WOW)).

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
AFG	AUSTRALIAN FINANCE	Upgrade to Add from Hold	Morgans
AX1	ACCENT GROUP	Downgrade to Neutral from Buy	Citi
BLD	BORAL	Upgrade to Neutral from Underperform	Credit Suisse
BSL	BLUESCOPE STEEL	Upgrade to Neutral from Sell	UBS
CCL	COCA-COLA AMATIL	Downgrade to Underperform from Neutral	Credit Suisse
COE	COOPER ENERGY	Upgrade to Buy from Hold	Ord Minnett
DHG	DOMAIN HOLDINGS	Upgrade to Neutral from Sell	UBS
EBO	EBOS GROUP	Upgrade to Neutral from Underperform	Credit Suisse
		Upgrade to Add from Hold	Morgans
ING	INGHAMS GROUP	Upgrade to Outperform from Neutral	Credit Suisse
IRE	IRESS	Downgrade to Underperform from Neutral	Macquarie
NHF	NIB HOLDINGS	Upgrade to Buy from Neutral	Citi
OGC	OCEANAGOLD	Downgrade to Accumulate from Buy	Ord Minnett
PPT	PERPETUAL	Upgrade to Overweight from Equal-weight	Morgan Stanley
		Downgrade to Sell from Neutral	Citi
RWC	RELIANCE WORLDWIDE	Upgrade to Buy from Neutral	UBS
		Downgrade to Neutral from Outperform	Credit Suisse
STO	SANTOS	Upgrade to Accumulate from Hold	Ord Minnett
SUL	SUPER RETAIL	Upgrade to Outperform from Neutral	Macquarie
		Upgrade to Accumulate from Hold	Ord Minnett
SXY	SENEX ENERGY	Upgrade to Outperform from Neutral	Credit Suisse
SYD	SYDNEY AIRPORT	Upgrade to Add from Hold	Morgans

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

Allovernight 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.)

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