The Overnight Report: Agreement Stalls

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By Greg Peel

Curiouser and Curiouser

On Tuesday the ASX200 rallied 180 points to lunchtime on anticipation of a US fiscal stimulus package being agreed upon, but then faded right away in the afternoon until the last half hour, when it bounced up 130 points.

Yesterday the index shot out of the blocks at the open, following the Dow’s two thousand point rally, only to peak up 300 points in the first half hour and then fade right away again. News the US Senate had reached an agreement sparked a bit of a turnaround towards the close, but after the bell rang, the index shot up about 100 points in the “match-out”.

When the bell rings, overhanging buy-sell orders coming in in the last seconds are matched out to set the final closing price. Typically this might result in one or maybe two points of adjustment in the few minutes after the bell. Not 100.

And where did that put the index? Smack on 5000 (almost). The price that for years after the GFC was a stubborn resistance/support level.

Methinks something underhand is afoot. Just HFT?

Yet, our futures are up another 100 points this morning despite a last minute hit to what had been another 1300 point rally for the Dow last night.

Moving on, sector action yesterday was very similar to that on Tuesday as cyclicals were again much in favour over defensives. Financials led the pack with an 8.7% gain. If I wanted to deliberately move the market quickly, I’d hit the banks. Materials gained 7.1% after metal prices rebounded and gold shot up.

Consumer discretionary rose 6.1% as investors sort through those stocks beaten down too much and those who will actually benefit. The big movers in the sector were Aristocrat Leisure ((ALL)), up 22%, whose gamble-at-home offerings are seeing a surge in interest, along with Breville Group ((BRG)), up 20%, because if you’re missing your usual morning macchiato from a CBD hole in the wall you can always make your own at home.

On the other side, staples rose only 1.4%, telcos 0.7% and utilities 0.1% and healthcare actually fell -0.2%.

Other stocks on the top five index winners’ board yesterday were Afterpay ((APT)), up 33% because it was just another day, Qantas ((QAN)), up 26% after securing emergency funding, and Resolute Mining ((RSG)). See: gold.

On the losers board, well, if you look at the ASX website all it will tell you is all of Flight Centre ((FLT)), Cochlear ((COH)), oOh!media ((OML)), Southern Cross Media ((SXL)) and Webjet ((WEB)) are in trading halts, seeking capital raisings, or government support, or divine intervention.

In Cochlear’s case it’s not just virus problems but a very costly patent dispute it just lost. For oOh!media think lockdowns, and for Southern Cross think no sport to cover. The other two speak for themselves.

Weekend at Bernie’s?

On news the US Senate had agreed upon a US$2trn fiscal “stimulus” package (the pundits are calling it a “relief” package as it will only go some way to saving the economy, not boost it), the Dow added another 1300 points last night on Tuesday night’s 2100 point gain, which anticipated such an agreement.

The US indices then stalled, which would be of no surprise if early movers on Tuesday decided to lock in some once-in-a-lifetime two-day profits. However doubt also crept in regarding the said “agreement”, bearing in mind it still has to actually be passed as a bill.

Three Republican senators, after having delved into the 800 page document, pointed out the opportunity the bill would allow for some low-paid workers in, for example, the healthcare sector, to walk out the door and be paid more on unemployment benefits.

Not quite the intention, one presumes.

But as Wall Street mulled this over, with the Dow still up 1000, a certain Senator Sanders (D) came back the other way and suggested unless these objections were dropped, he would not vote for the bill. He might be just one senator but he does have some clout. The Dow dropped back -500 points at the death.

The Nasdaq fell into the red. The wide disparity last night between the Dow and Nasdaq mostly reflects two stocks: Boeing, which closed up 24% because it is assumed the US$60bn bailout for it and its supply chain within the fiscal package is safe, and Nike, which closed up 9% after reporting quarterly earnings to January which were not nearly as bad as feared.

You might say January is ancient history, but this is when China was on its knees, and Nike is very exposed to China. All eyes will be on subsequent earnings data.

So the US Congress is at it again. Senators on both sides were up to the wee-smalls the night before to reach agreement on the 800-page document, and it looks like they’ll be at it again for a while longer.

Meanwhile, as America frets over the time this is all taking, as small businesses stare into the abyss, workers are being recruited to handle the next and most difficult phase – how to get the money to the right people as quickly as possible.

Thank God their houses didn’t burn down.

Commodities

Base metals remain mixed as iron ore continues to fight back, while Tuesday night’s exuberance for gold eased off last night.

Oil prices are ticking quietly back up, possibly in anticipation of marginal US shale producers going to the wall.

The Aussie is up another 0.3% at US$0.5960.

Today

The SPI Overnight closed up 104 points or 2.1%.

The Bank of England holds a policy meeting tonight.

The US December quarter GDP result will be revised. Inconsequential.

Locally, March quarter individual stock options expire on the ASX today.

Brickworks ((BKW)) reports earnings.

Flight Centre ((FLT)) is among those stocks going ex today. Having been declared, it must by law be paid.

The Australian share market over the past thirty days…

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