The Overnight Report: Not Tech This Time

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World Overnight
SPI Overnight (Dec)	5746.00	– 78.00	– 1.34%
S&P ASX 200	5822.60	– 41.90	– 0.71%
S&P500	3281.06	– 38.41	– 1.16%
Nasdaq Comp	10778.80	– 14.48	– 0.13%
DJIA	27147.70	– 509.72	– 1.84%
S&P500 VIX	27.78	+ 1.95	7.55%
US 10-year yield	0.67	– 0.02	– 3.31%
USD Index	93.53	+ 0.60	0.65%
FTSE100	5804.29	– 202.76	– 3.38%
DAX30	12542.44	– 573.81	– 4.37%

By Greg Peel

Here we go again

The banks (-1.3%) led the ASX200 down yesterday on yet another money laundering scandal, this time global.

The point to note is that, while nothing can exonerate the banks, the latest leak actually reveals old news, well known to the banks and regulators, and came from the US Treasury itself. In Australia’s case, while the media has highlighted “hundreds” of instances in which Australian banks were guilty, amounts paled into comparison with the specific list of global banks named.

But in the current climate, it is again a case of sell first and ask questions later.

Elsewhere sectors were mixed, with materials (-1.2%) falling on a lower iron ore price while energy (+0.8%) rallied on a higher oil price. Property (-1.2%) was led down by an ongoing fall for UR Westfield ((URW)), which dropped another -7.1% on the potential for a second British lockdown on top of confusion over a potential equity raising.

To the first point, Virgin Money UK ((VUK)) was the worst index performer in falling -9.2%.

The best index performer was Whitehaven Coal ((WHC)), up 10.2% as more punters jump on the coal price recovery bandwagon.

The IT sector fell -1.1% because that’s what the Nasdaq fell while healthcare (+0.3%) and consumer staples (+0.2%) used their size to provide some offset.

We are again faced with a “for what it’s worth” scenario because Wall Street has tumbled again overnight and our futures are down -78 points or -1.3% to the S&P500’s -1.2%.

Two points to note:

The S&P was down as much as -2.9% last night which represented a -10% correction from its early September all-time high, at which point it bounced and bounced hard.

Following the bounce, the S&P closed at a level last seen in early August.

If the ASX200 does fall -78 points today, it would take the index back to mid-June. And we don’t have Big Tech. Plus US Big Tech closed higher last night.

What’s wrong with this picture?

September Swoon

The money laundering scandal was never going to play well for the big banks in the UK, Europe and the US, but arguably the major driving factor in an absolute drubbing for UK banks overnight was the potential for a second lockdown.

In Europe, the focus is on runaway case-counts, in France and Spain in particular, to levels higher than those seen in the first wave.

I doubt I was the only person astounded at the crowds following the Tour de France in the Alps.

In the US, the milestone of 200,000 deaths is looming and the running average case count has turned back up again. America is looking across The Pond with trepidation.

The S&P financials index fell -2.5%, as Wall Street, too, sees the possibility of another lockdown. This fear was backed up by -3.3% for energy (on -3-4% falls in oil prices), -2.7% for real estate, and -3.4% for both materials and industrials.

But these are closing levels. Earlier in the session, the Dow was down over -900 points and the S&P500 was down -2.9%. The Nasdaq was only down around half of the S&P’s fall, because Big Tech stocks are lockdown winners, and the valuation froth has already been swept off.

It was when the S&P hit -10% down from its high the buyers came in. They came in mostly to Big Tech, where an opportunity to get in had been provided to those who missed out previously.

The end result was the Nasdaq closing down only -0.1%. Apple led the S&P and Dow back up in rising 3%.

Despite the bounce, there remains another source of uncertainty, in several ways.

The death of the respected Supreme Court judge – a Democrat – has thrown Congress and Constitution into turmoil. Trump is already suggesting he will nominate a replacement by week’s end. Protocol (since 2016) suggests a new Supreme Court judge should not be nominated before an election. The Constitution has its say as well, but here there is disagreement.

Trump will obviously choose a Republican replacement. This will become a crucial factor if the election result is challenged, as it will be challenged in what would now be a Republican majority Supreme Court.

That aside, it were the Democrat judges in the panel who previously blocked Trump’s attempt to scrap Obamacare, and provided for abortion to be legal in the US. A Republican majority Supreme Court would likely do the opposite.

But the biggest problem for Wall Street is that a Supreme Court nominee has to be approved by Congress, and the process takes time. Time Congress doesn’t have if it’s trying to reach an agreement on a second fiscal package.

Even before the Supreme Court issue, time was running out for Congress. Agreement on a bill of some sort is needed before month’s end to avoid a government shutdown, and then there’s not much time left before Congress goes into mandatory, pre-election recess.

The broad US stock market bounced off its correction level quite hard last night, but can that hold? Uncertainty reigns supreme.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1912.40	– 36.50	– 1.87%
Silver (oz)	24.69	– 2.03	– 7.60%
Copper (lb)	3.09	0.00	0.00%
Aluminium (lb)	0.79	0.00	0.00%
Lead (lb)	0.85	0.00	0.00%
Nickel (lb)	6.70	0.00	0.00%
Zinc (lb)	1.14	0.00	0.00%
West Texas Crude	39.59	– 1.52	– 3.70%
Brent Crude	41.76	– 1.39	– 3.22%
Iron Ore (t)	120.00	– 5.20	– 4.15%

Apologies, but there appears to be something wrong with the LME feed this morning. Other indicators suggest copper was down -2.5%.

Iron ore is nevertheless down a confirmed -4%, as is WTI crude, while gold is down -US$36/oz.

Commodity prices are impacted by a 0.7% bounce for the US dollar. It sounds incongruous, but the reserve currency becomes a “safe haven” amidst turmoil, while gold is often sold to pay margin calls on equities, when it should by rights be bought.

The good news is the Aussie’s down -0.9% at US$0.7229.

Today

The SPI Overnight closed down -78 points or -1.3%.

It’s a quiet day economically.

Nearmap ((NEA)) holds its AGM.

Carsales ((CAR)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT	Beach Energy	Upgrade to Buy from Neutral	Citi
DXS	Dexus Property	Downgrade to Underweight from Overweight	Morgan Stanley
RWC	Reliance Worldwide	Downgrade to Neutral from Buy	UBS

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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