The Overnight Report: Running Scared

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World Overnight
SPI Overnight (Dec)	5850.00	– 55.00	– 0.93%
S&P ASX 200	5923.90	+ 139.80	2.42%
S&P500	3236.92	– 78.65	– 2.37%
Nasdaq Comp	10632.99	– 330.65	– 3.02%
DJIA	26763.13	– 525.05	– 1.92%
S&P500 VIX	28.58	+ 1.72	6.40%
US 10-year yield	0.68	+ 0.01	1.81%
USD Index	94.37	+ 0.40	0.43%
FTSE100	5899.26	+ 69.80	1.20%
DAX30	12642.97	+ 48.58	0.39%

By Greg Peel

Buy Everything

Could it be that local investors are finally coming to realise that we are not America? That there’s no reason to be concerned downunder that US Big Tech went parabolic last month and thus has come back to earth, a bit, this month? That fear of a second wave is rising in the US as it looks with trepidation to Europe, while here the virus is rapidly being nipped in the bud?

Yesterday the ASX200 opened higher, in line with a rally on Wall Street that offered the possibility of a correction being over for now. But then the index kicked on, in a relatively straight line upward to close on its high. Every sector closed in the green. It was market-wide buying resulting in a 2.4% rally when the S&P500 had only rallied 1%.

And…and…the S&P plunged -2.4% last night yet our futures are only down -0.9% this morning. Now, it doesn’t mean they’ll prove right at the end of the day, but it’s an indication of the headless chook panic we saw up to this week possibly subsiding.

And…and… the Aussie was knocking on the door of US74c last week but this morning is below US71c, helped by the Wall Street turnaround inspiring a turnaround back to rally mode for the US dollar.

Every sector closed up between 2% to 3.5% yesterday with just a couple of exceptions. One is materials, which had to fight against weaker iron ore and gold prices offset by the weak Aussie. It rose 1.1%.

The other exception was a standout 4.0% gain for industrials, which you just don’t see every day. This was driven by 4%-plus gains for reopening flagships Transurban ((TCL)) and Sydney Airport ((SYD)). Look out Barossa Valley, you’re about to be invaded these NSW school holidays.

Even the banks put on 2.2%, despite respected Westpac economist Bill Evans now confirming a forecast of a RBA rate cut to 0.1% next month, citing sufficient hint from the deputy governor on Tuesday.

Consumer discretionary rose a whopping 3.4% yesterday despite retail sales falling -4.2% in August, to mark the first decline since national lockdowns.  Investors brushed off the numbers because Victorian sales fell -12.6% and sales ex-Victoria only -1.5%, and Dan is now pre-empting restriction easing.

There remains a fear of what happens when we fall off the fiscal cliff next month – government support payments reduce, eviction moratoriums end, mortgage deferrals end and layoffs begin – but we are also set for a federal budget next month that may yet save some bacon.

The major individual stock story yesterday, which can be tied back to the virus (WFH), was the announcement the government will spend up to $4.5bn to about-face on fibre to the home. This was worth a 14.0% rally for network builder Service Stream ((SSM)). So much for those in regional Australia stuck with horse-drawn satellite and no mobile reception.

The increasingly clear path to full border re-openings had Eagers Automotive ((APE)) up 7.0% and Flight Centre up 6.5% to make up the podium.

Bucking the trend on the downside were gold miners – four in the top five losers – and Virgin Money UK ((VUK)), which fell again because it has UK in its name.

Outside of the index, Kathmandu ((KMD)) fell -8.5% after posting its earnings result and admitting it probably wasn’t the best year to make a big move into complimentary warm weather clothing with the acquisition of Rip Curl.

The S&P500 fell back last night to be almost back to square for the year, heaven forbid.

Even after yesterday, the ASX200 needs to rally a further 800 points just to get to square for the year.

Sell Everything

Just when you thought it was safe to go back in the water, along comes Jaws IV. Since its initial plunge early this month, the Nasdaq has made four attempts to bounce, serving only to keep the cat cemetery busy and resulting in interim lower highs and lower lows. The last attempt, beginning on Monday night, was last night again slapped down.

It is disappointing for Wall Street because the last attempt came off the base of the S&P500 hitting a -10% correction. The S&P is now again over -9% down, while the Nasdaq is -12% down.

Last night was unusual in 2020 terms to date. All year the Nasdaq has led the charge, with only occasional stalls as investors looked to pick up value/cyclicals on improving economic data. When the Nasdaq started falling back this month, for the most part Wall Street ex-tech hung in there, if not rallying strongly at least not falling by as much.

Last night was different. The Nasdaq indeed underperformed with a -3.0% fall to the S&P’s -2.4%, while the Dow’s -1.9% was tempered by Nike rising 9% on its earnings result, but every S&P sector closed in the red. All sectors posted sizeable falls, from healthcare’s -1.1% to energy’s -4.6% (despite WTI flat on the day), with the usual tech suspects merely in between.

It is clear America now strongly fears a second lockdown. The UK and Europe are defining the road map, with the US case-count now back on the rise. And with agreement on a second fiscal stimulus package now looking even more remote, it’s Terror on Main Street. The big drop in the energy sector is an obvious clue, as are -2.9% falls for real estate and materials.

But if there is a second lockdown, shouldn’t Big Tech win on the stay-at-home theme? Yes, but Big Tech had already priced itself way beyond what anyone other than Robinhooders considered realistic. It’s an economic fear and uncertainty story meeting a tech bubble bursting.

Not even positive news on a vaccine can get Wall Street’s blood pumping, as Johnson & Johnson’s one-dose vaccine candidate heads into phase 3 trials. After a flurry of excitement earlier in the year, Wall Street now accepts that incremental progress is being made and, realistically, even if a vaccine is approved by December, which the FDA now insists will be the earliest possibility, then it will still be well into next year before Joe Average can get his dose.

And let’s not mention the election. I mentioned it once but I think I got away with it.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1863.00	– 37.10	– 1.95%
Silver (oz)	22.75	– 1.62	– 6.65%
Copper (lb)	3.02	– 0.06	– 2.00%
Aluminium (lb)	0.78	– 0.01	– 1.18%
Lead (lb)	0.84	– 0.00	– 0.01%
Nickel (lb)	6.54	– 0.04	– 0.67%
Zinc (lb)	1.09	– 0.02	– 1.56%
West Texas Crude	39.59	– 0.01	– 0.03%
Brent Crude	41.47	– 0.25	– 0.60%
Iron Ore (t)	114.40	– 2.60	– 2.22%

The rebounding US dollar is not doing base metal prices any favours.

Iron ore is beginning to look like the Nasdaq.

While the dollar bounce is also behind the gold price correction, with US bond rates stable, it is more than clear gold had become another speculative play on the road to US$2000/oz, more so than a safe haven.

The greenback is only up 0.4%, but over 24 hours (which includes forecasts of an upcoming RBA rate cut), the Aussie is down a full -1.2% to US$0.7083.

Today

The SPI Overnight closed down -55 points or -0.9%. Wishful thinking, or a change of heart?

Today we will learn what Australia’s population reached by the end of the March quarter. Keep this number in mind when the June quarter result is ready.

Brickworks ((BKW)) reports earnings today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
DXS	Dexus Property	Downgrade to Underweight from Overweight	Morgan Stanley
FMG	Fortescue	Upgrade to Buy from Neutral	Citi
GOR	Gold Road Resources	Upgrade to Outperform from Underperform	Macquarie
MFG	Magellan Financial Group	Upgrade to Add from Hold	Morgans
NCM	Newcrest Mining	Upgrade to Neutral from Underperform	Macquarie
NST	Northern Star	Upgrade to Outperform from Underperform	Macquarie
PAN	Panoramic Resources	Downgrade to Underperform from Neutral	Macquarie
PRU	Perseus Mining	Upgrade to Outperform from Underperform	Macquarie
SAR	Saracen Mineral	Upgrade to Outperform from Underperform	Macquarie
WAF	West African Resources	Downgrade to Neutral from Outperform	Macquarie

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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