The Overnight Report: No End In Sight

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By Greg Peel

I Get Knocked Down

I suggested yesterday that Wednesday’s trade on the local market smacked of the sort of capitulation session that often signals a bottom is close. All sectors were sold down by similar percentages on Wednesday without discrimination. Sure enough, after a comparatively innocuous move lower on Wall Street overnight, yesterday the ASX200 rallied from the open.

Nice try, but it was only worth 20 points. Down we went again, and up until 2pm, two more attempts to recover similarly failed. Finally an attempt in the afternoon gained traction, but simply meant the index closed down -50, with a fade to the close, instead of the low at -78.

The problem was, leaving the day’s corporate earnings results aside for the moment, the bad news on the macro level just kept coming.

The Korean central bank shocked the world by leaving its cash rate on hold. South Korea is epicentre number two with a bullet. The country is locking down, and last night US airlines began to suspend flights to Korea, as well as China, as well as waiving ticket-change penalties for anyone booked to fly to northern Italy.

Australia’s private sector capital expenditure in the December quarter fell -2.8% to mark four quarters of declines in 2019. It’s a lot more than the -0.4% fall in September, and a significant miss of +0.5% forecasts. Weakness was equally spread across mining and non-mining sectors.

But it is non-mining that has ensured the future looks “bleak”, as ANZ Bank’s economist described it. The sector plans to reduce capex by -2% in FY20 and -1% in FY21.

Given the survey was conducted before the world fell ill, risk is very much to the downside.

S&P500 futures were notably falling again in the afternoon our time, on news the US has reported its first case of the virus infecting a person who has no connection to China or anywhere else, implying infection occurred locally, in California.

And then there were the day’s earnings results.

Adelaide Brighton ((ABC)) reported on Wednesday, but received no less than four ratings upgrades from seven covering brokers in the FNArena database. It topped the index winners yesterday with 6.2%.

AP Eagers’ ((APE)) result was worth 6.1%, a2 Milk ((A2M)) 5.0% and Costa Group ((CGC)) 4.9%. Pretty good on a tough day.

And not a good day to post a miss. Link Administration ((LNK)) fell -13.5% and Perenti Global ((PLG)) fell -9.7%.

Webjet ((WEB)) reported last week but has been on the losers’ board every day, being virus poster child. It fell another -8.5% yesterday and is now down -30% from its January peak, despite being 10% shorted.

The good news is yesterday actually saw two sectors close in the green, and more varied falls across other sectors, unlike Wednesday’s “sell everything”. An obvious one for the bargain hunters is CSL ((CSL)). It rose 2.2% and sent healthcare up 1.3%. Utilities played the defensive card in rising 0.3%.

The bad news is yesterday the ASX200 broke down through both the 200-day moving average and year to date breakeven level. An attempted rally back on Wall Street overnight has failed, miserably. Our futures are down another -164 points this morning.

If you thought you saw a fat lady, you were hallucinating.

Relapse

On the news of an in-house virus case in California, notwithstanding the state government is monitoring 8,400 Californians who had travelled to China, had the Dow down -960 points from the open. But then, traders decided enough was enough.

The cavalry rode in and by mid-session the Dow was down only -180. It was a bold attack, and resulted in decimation.

The failed rally only served to reignite the panic as traders once again fled. No doubt the computers are doing their bit. Selling accelerated to the close for another plus -1000 fall. Plus -1100, no less. All three major US indices are now down over -10%.

The week isn’t over yet, but already it’s the worst on Wall Street since October 2008. Some may remember what happened that month. The overall fall is not as yet as steep as the December 2018 wipe-out, just a lot faster at this stage.

Talk of possible global recession is now swinging towards talk of inevitable recession. WHO is yet to declare a “pandemic”, but no one’s holding their breath.

Last night Goldman Sachs cut its 2020 earnings growth forecast for the S&P500 to zero.

A revision of the US December quarter GDP came in at an unchanged 2.1%. No one blinked – that’s ancient history.

Much comparison was being made earlier on with SARS, and while that virus was more fatal, it ended just about as swiftly as it had begun, to ensure a one quarter only economic impact. Comparisons with SARS are now starting to fade as the likelihood of this being only a one quarter event diminishes.

Commodities

Iron ore has begun to lose its bottle.

The US dollar has taken a tumble (-0.5%) but gold remains stalled. The Aussie has nevertheless matched that with a 0.5% recovery to US$0.6585 despite the weak capex numbers.

As airlines begin cancelling flights to other destinations beyond China, there’s no stopping the oil price plunge.

Today

The SPI Overnight closed down -164 points or -2.5%. As one US commentator famously said back in October 2008: “There are only two positions you can have in this market – short or foetal”.

China will report January PMIs today. Even they will be starting to look old.

It is mercifully the last day of the official earnings season today, with only a small list of companies set to report. Although Bega Cheese ((BGA)), which was supposed to report yesterday, has postponed till Monday. Can’t be good.

Today’s list of ex-dividends is extensive, and longer than that of the day’s earnings results.

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…

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.)

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