The Overnight Report: Fed Shocks No One

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World Overnight
SPI Overnight (Sep)	5950.00	– 13.00	– 0.22%
S&P ASX 200	5956.10	+ 61.30	1.04%
S&P500	3385.49	– 15.71	– 0.46%
Nasdaq Comp	11050.47	– 139.86	– 1.25%
DJIA	28032.38	+ 36.78	0.13%
S&P500 VIX	26.04	+ 0.45	1.76%
US 10-year yield	0.69	+ 0.01	1.18%
USD Index	93.10	+ 0.02	0.02%
FTSE100	6078.48	– 27.06	– 0.44%
DAX30	13255.37	+ 37.70	0.29%

By Greg Peel

Follow the Leader

The Nasdaq rose 1.2% on Tuesday night. The S&P500 rose 0.5%, but only because of the tech stocks within. Yesterday the ASX200 rose 1.0%. For the record, tech stocks make up 25% of the S&P500 and less than 4% of the ASX200.

At least this time we’re going up with the Nasdaq and not down. One suspects that while there’s little connection between America’s tech-driven economy and an Australian economy that is yet to progress from the Iron Age, investors feared that were the current pullback in US tech to morph into something more akin to 2000, the spill-over in sentiment would be enough to send shockwaves around the globe.

America went into recession after 2000. We didn’t.

The ASX200 closed up 60 points yesterday and the bulk of that was achieved in the first fifteen minutes, with a kicker after lunch. We can, nonetheless, add in a domestic sentiment factor driven by regional Victorian restrictions being lifted, providing a glimmer hope for metro Melbourne, the insistence from the federal government and corporate Australia that the states ease their border restrictions, and even the push to bring more ex-pats home, as forerunners of an economy edging its way back to normal.

All sectors closed in the green.

In percentage terms, the Ausdaq won the day, of course (+2.4%), but BNPL stocks were the main driver, as investors jump back in following the PayPal scare.

Telcos rose 2.1% after having fallen -1.4% on Tuesday on a weak update from Telstra ((TLS)). Go figure.

Industrials jumped 1.7% thanks to Seek ((SEK)) topping the index chart with a 9.4% gain on rumours of a Chinese company looking to take a stake in Zhaopin.

The real stand out was consumer discretionary (+1.5%). Property, inclusive of retail landlords, also rose 1.5%.

Kogan ((KGN)) reported its largest monthly growth in active customers in August and sales up 117% year on year. While this was good for a 6.1% gain for Kogan, the whole sector fired up, which brings us back to the aforementioned restriction-easing story.

Eagers Automotive ((APE)) jumped 7.9%. Cars back on the road, but no one can afford a new one. Super Retail ((SUL)) also had a positive session, as did Nick Scali ((NCK)).

Investors even scratched on the coffin lid of Myer ((MYR)), and it jumped 9.3%. Whoohoo! Yeah that’s two cents.

Otherwise, healthcare rose 1.3% but was up on Tuesday as well, while moves in other sectors were positive but less pronounced. The banks managed 0.6%, as did materials, despite a fall in the iron ore price.

Moves on Wall Street last night were as good as a mirror image of Tuesday night’s trade. Dow good as flat again, S&P down -0.5% having risen 0.5% on Tuesday night, and, similarly, Nasdaq down -1.3% having risen 1.2%.

So we’ll be down -1.0% today? The futures are down -13 this morning, so likely not. Maybe we can pull focus more on our own economic standing.

Not over yet

Jerome Powell banged on for ages, as usual, earlier this morning at his press conference, but when correspondents switched off their Zooms they pondered what a waste of time that was. Try as he might, Powell could not convince anyone he just said something different.

The Fed is targeting maximum employment and at least 2% inflation before it would consider raising its cash rate, but at this stage the cash rate will remain at zero at least until 2023. Could have just said that and walked off.

But there was at least a now more plaintive plea to Congress. While the Fed still has unused monetary tools in its box, it cannot go it alone, hence fiscal support is desperately needed.

Good luck with that one. The Democrats are now trying to break their stimulus package demands into tranches, beginning with small business loans and extended PPP (JobKeeper), but the chances of the Republicans conceding ground ahead of the election are somewhere between zero and bugger all.

Having closed flat on Tuesday night, the Dow was positive all morning while the Nasdaq tried to hang on to the flatline. When the Fed statement came out the Dow hit a high of up 370 points, as no one told the computers the statement said nothing new.

The Dow closed up 36 points and the Nasdaq down -1.3%. From last Friday night to Tuesday night, the Nasdaq had rallied back from its depths, but on Tuesday night that rally did begin to fade away by the close (+1.8% became +1.2%). The sellers were clearly lined up, waiting for the bugle to sound at an appropriate point in the bounce.

As Tuesday night had seen a fade out, last night was the night to pounce, as soon as Powell opened his mouth.

We are reminded that markets rarely V-bounce out of a correction, unless, as we have since learned, a virus is involved. This week’s action on the Nasdaq – influencing the other major indices – is historically very typical. There has to be a bit of bouncing around before a rally can recommence in earnest, if that is to be the case.

An interesting point to note is that the Russell small cap index closed up 0.9% last night. Given US major banks are dead in the water, and one can imagine how the small regional banks which make up a big chunk of the Russell are going, this rally in small caps is a sign of investors looking hard for value and cyclicals within the small cap space, ex-banks.

The Russell is still -8% below its February high.

Last night I pondered the chances of a company called Snowflake listing on the NYSE. The chances went heaven’s way – Snowflake came on the board mid-session and jumped over 100%.

I had no idea either, so this is courtesy of Yahoo: The company's platform enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data.

It’s a beautiful world we live in.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1958.80	+ 5.80	0.30%
Silver (oz)	27.15	+ 0.02	0.07%
Copper (lb)	3.07	– 0.01	– 0.43%
Aluminium (lb)	0.80	– 0.00	– 0.25%
Lead (lb)	0.85	– 0.01	– 0.95%
Nickel (lb)	6.85	+ 0.00	0.06%
Zinc (lb)	1.14	+ 0.00	0.18%
West Texas Crude	40.18	+ 1.79	4.66%
Brent Crude	42.30	+ 1.60	3.93%
Iron Ore (t)	124.30	– 4.25	– 3.31%

The US dollar index initially popped on the release of the Fed statement last night, and then the LME closed, which might explain some base metal weakness. The dollar has since fallen back again.

Iron ore, as we know, always does its own thing.

Oil price jumps are a reflection of Hurricane Sally meeting a decline in weekly US crude inventories.

With the greenback steady, the Aussie is unmoved as well at US$0.7308.

Today

The SPI Overnight closed down -13 points.

New Zealand will report its June quarter GDP result today. Got change for a twenty?

Josh will be on the edge of his chair as Australia’s August jobs number comes out today.

The Bank of Japan holds a policy meeting today – it’s first under a new and very sweet PM.

The Bank of England meets tonight.

Today is the expiry of September quarter ASX derivatives — SPI futures, futures options, index options and stock options. In the current environment, watch out for some non-fundamental volatility.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CCP	Credit Corp	Downgrade to Neutral from Outperform	Macquarie
CGF	Challenger	Upgrade to Outperform from Neutral	Credit Suisse
CSL	CSL	Upgrade to Buy from Neutral	Citi
EVN	Evolution Mining	Upgrade to Outperform from Neutral	Credit Suisse
GXY	Galaxy Resources	Downgrade to Sell from Hold	Ord Minnett
HVN	Harvey Norman Holdings	Upgrade to Outperform from Neutral	Credit Suisse
IPL	Incitec Pivot	Upgrade to Buy from Neutral	UBS
JBH	JB Hi-Fi	Upgrade to Outperform from Neutral	Macquarie
NCM	Newcrest Mining	Upgrade to Outperform from Neutral	Credit Suisse
PRU	Perseus Mining	Upgrade to Outperform from Underperform	Credit Suisse
RRL	Regis Resources	Upgrade to Outperform from Neutral	Credit Suisse
WES	Wesfarmers	Upgrade to Outperform from Neutral	Credit Suisse

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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