The Overnight Report: Uncertainty Reigns

Daily Market Reports | Sep 25 2020

This story features CHALLENGER LIMITED, and other companies. For more info SHARE ANALYSIS: CGF, KAR, KMD, NUF, WBC

World Overnight
SPI Overnight (Dec) 5862.00 + 7.00 0.12%
S&P ASX 200 5875.90 – 48.00 – 0.81%
S&P500 3246.59 + 9.67 0.30%
Nasdaq Comp 10672.27 + 39.28 0.37%
DJIA 26815.44 + 52.31 0.20%
S&P500 VIX 28.51 – 0.07 – 0.24%
US 10-year yield 0.67 – 0.01 – 1.48%
USD Index 94.32 – 0.05 – 0.05%
FTSE100 5822.78 – 76.48 – 1.30%
DAX30 12606.57 – 36.40 – 0.29%

By Greg Peel

Resilient

It may seem incongruous to call a session in which every ASX200 sector closed in the red “resilient”, but let’s look at the numbers.

On Wednesday the S&P500 rallied 1.0% but the ASX200 rallied 2.3%. On Wednesday night the S&P fell -2.4% but yesterday the ASX200 fell only -0.8%.

The index was down -100 points in the first ten minutes yesterday but within an hour had almost halved that loss. It stayed around there for the rest of the day until the death, when it kicked up slightly.

I suggested yesterday that Wednesday’s trade appeared to indicate the local market was finally showing signs of decoupling from the US tech sector and focusing instead on Australia’s relative economic and health performance, most notably our winning battle against the virus when all about (other than next door) seem to be losing.

All sectors had closed in the green in the surge that was Wednesday’s trade, so it’s no great surprise they all trimmed those gains yesterday. The most notable moves, however, came from financials (-0.2%) and materials (-1.5%).

Westpac ((WBC)) was slapped with the biggest fine in Australian corporate history yesterday but fell only -0.1%. Granted, the market knew a fine was coming and the bank had put funds away to cover, but that was only -$900m and the fine was -$1.3bn. That’s 44% more. Yet it seems the market was just relieved that despite the magnitude of the fine, at least Westpac can now put all this behind it.

We hope.

Gold plunged -US$37/oz on Wednesday night and iron ore’s price correction continued a-pace, so only a -1.5% trimming for materials, which had rallied the day before, was a good result, and can be put down to a -US3c fall in the Aussie in three days.

Otherwise, we could look to the Nasdaq on Wednesday night to explain why the Ausdaq fell -2.7% yesterday and to a -4% fall for the S&P500 energy sector as to why our energy sector fell -2.1% despite little movement in oil prices.

We can look inward to the government’s new NBN funding for FTTH as to why telcos fell -1.6% but for the rest…just a pullback after Wednesday’s strength.

We note that REITs fell -2.9% in the US but our REITs fell only -0.17% to be the “best” performer on the day, given our shops look much better placed at this stage than America’s shops in terms of possible restrictions.

Not a lot to note among individual stock moves, other than Nufarm ((NUF)) popping 8% on its result release on Wednesday and falling back -6.5% yesterday, and Kathmandu ((KMD)) falling -8% on its result on Wednesday and rallying 4% yesterday.

Challenger ((CGF)) is rumoured to have received a takeover offer, but on only a 3.0% gain yesterday it’s either a spurious rumour or not much of an offer.

Wall Street was all over the shop in last night’s session as the S&P flirted with the year to date flatline. No clear direction was apparent, hence our futures are up a non-committal 7 points this morning.

No Idea

Here is the news:

The US case-count continues to rise, with new states seeing alarming jumps.

870,000 Americans filed for unemployment benefits last week, continuing the recent upward trend.

House Democrats are preparing a new, “smaller” virus relief package as a “stop-gap” ahead of a larger deal. The new package is worth US$2.4trn.

Hello?

At one stage in the proceedings, the Democrats had brought an initial US$3trn demand down to US$2.0trn in an effort to encourage the Republicans off their US$1trn line in the sand. Next we knew that had become US$2.2trn, and now this “smaller” package is worth US$2.4trn. Call me naïve, but I sense something wrong here.

The White House had even gazumped the Republican Senate with a $1.3trn offer, and now Pelosi is looking to restart talks with Mnuchin to see if that offer can be lifted, by putting up an even bigger number than before.

Is this some strange Texas Hold ‘Em strategic twist, or is this an election pitch? Vote for us and you’ll get US$2.4trn as the “stop-gap”, vote for them and you’ll only ever get US$1trn.

Confused? So was Wall Street last night. The Dow opened down over -200 points last night before rallying back to be up over three hundred before dropping back into the red before closing up 52. The Nasdaq swung from -1% down to 1% up and back again.

The S&P500 briefly traded below the year to date flatline, then tracked a similar path to the other indices close. That year to date breakeven level appears to be support for now, as is the -10% correction level for the S&P. But both look tenuous.

Stimulus uncertainty is one thing, election uncertainty is another. Trump again last night refused to guarantee a smooth succession were he to lose the election unquestionably. With 35% of Democrat voters suggesting they will vote by post given virus risk, and the state of Michigan already receiving postal votes, the chances of a result being known on election night are basically nil, and within a week pretty remote.

And that’s before Trump challenges, if it comes to that.

Trump also suggested last night he might veto the FDA’s move to tighten the rules regarding authority for the emergency use of a vaccine.

What would health experts know? Trump knows. Just like scientists don’t know the planet is cooling when he does.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1868.60 + 5.60 0.30%
Silver (oz) 23.13 + 0.38 1.67%
Copper (lb) 3.00 – 0.01 – 0.49%
Aluminium (lb) 0.77 – 0.01 – 0.87%
Lead (lb) 0.84 – 0.00 – 0.10%
Nickel (lb) 6.48 – 0.05 – 0.82%
Zinc (lb) 1.09 – 0.00 – 0.27%
West Texas Crude 40.19 + 0.60 1.52%
Brent Crude 41.77 + 0.30 0.72%
Iron Ore (t) 115.90 + 1.50 1.31%

Finally, a reprieve for iron ore.

Not so for base metals prices. A little tick-up for gold, with the US dollar slipping a tad.

Despite that slip, the Aussie is down yet another -0.5% to US$0.7046 as expectations grow of an RBA rate cut next month.

Today

The SPI Overnight closed up 7 points.

The US will see August durable goods orders tonight.

Karoon Gas ((KAR)) reports earnings today.

Kathmandu holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
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
TWE Treasury Wine Estates Upgrade to Outperform from Neutral Credit Suisse
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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CHARTS

CGF KAR KMD NUF WBC

For more info SHARE ANALYSIS: CGF - CHALLENGER LIMITED

For more info SHARE ANALYSIS: KAR - KAROON ENERGY LTD

For more info SHARE ANALYSIS: KMD - KATHMANDU HOLDINGS LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION