The Monday Report – 21 September 2020

Daily Market Reports | Sep 21 2020

By Greg Peel

Fiddling About

It seemed slightly incongruous under the current circumstances that while the Nasdaq again tested the -10% correction level on Thursday night, the local futures closed up 17 points on Friday morning. And then the ASX200 jumped almost 40 points in the first ten minutes.

Normality was soon restored and the index was down -20 points late morning, and then did not do much through to the close. The return of volatility on Wall Street was good reason not to carry positions over the weekend.

Sure enough the futures closed down -63 points on Saturday morning.

There was not much of a pattern to sector moves on Friday, other than all bar two sectors closed in the red. Two sectors that had had a hard time of it over the week were IT, on Nasdaq weakness and BNPL shenanigans, and materials, on a falling iron ore price. They drew buyers to the extent of +1.3% and +1.1%.

All five of the top five index winners on the day were materials stocks – CSR ((CSR)) and four miners.

Industrials (-1.8%) was the standout worst performer. Sydney Airport ((SYD)) fell -1.1% after reporting August traffic down -96.5%, which somehow was a surprise, and seemed to flow on to Transurban ((TCL)), which now has investors worried about debt levels. It fell -3.1%.

Property was next worst with -1.1%. UR Westfield ((URW)) fell -7.3% to be the worst index performer on the day, following on from its announced debt raising.

All other sectors fell -0.5% to -1% except energy (-0.2%), which tentatively hung in given hurricane-boosted oil prices.

Such widespread selling would have reflected the Friday effect meeting a very tenuous looking Wall Street, which on the strength of Thursday night’s trade could have either rebounded from the Nasdaq’s -10% correction level as it had done recently, or crashed on through.

It was also “quadruple witching” on Friday night, which is the expiry of quarterly derivatives such as Australia had seen on Thursday, and can similarly create undue volatility.

Getting Frustrated

Aside from the standoff between Democrats and Republicans over a second fiscal package, Congress needs to pass a bill sooner rather than later that will ensure the government doesn’t shut down. While the Republicans were set to put up such a bill on Friday night, the Democrats won’t budge unless a full second package sufficient to their demands is included.

Another side issue has been that of the Republicans wanting to put through a second rescue package for airlines, which would ensure thousands of layoffs can be avoided at the end of this month. At the time of the first airline handout, the question was raised as to why the airlines, albeit important to the economy, were being singled out while other industries also suffered.

Pelosi in particular wants to help both the airlines and restaurants, but still this has to be included in a full second package, no less than US$2.2trn.

So stalemate lingers.

The rally that led up to the correction this month had in part been supported by the assumption Congress would reach a compromise, as there was no alternative, but as the days tick by this is becoming less certain.

This may well explain why Wall Street fell again on Friday night, taking the Nasdaq further into correction, but matched in percentage terms on the day by the S&P500. While the usual tech suspects had another down-day, the worst performing sectors were those that had been drawing buyers earlier in the week – materials, utilities, industrials and property.

All sectors closed in the red.

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