The Overnight Report: Debatable

Daily Market Reports | Oct 01 2020

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL, CTD, STO

World Overnight
SPI Overnight (Dec) 5813.00 + 11.00 0.19%
S&P ASX 200 5815.90 – 136.20 – 2.29%
S&P500 3363.00 + 27.53 0.83%
Nasdaq Comp 11167.51 + 82.26 0.74%
DJIA 27781.70 + 329.04 1.20%
S&P500 VIX 26.37 + 0.10 0.38%
US 10-year yield 0.68 + 0.03 4.96%
USD Index 93.83 – 0.05 – 0.05%
FTSE100 5866.10 – 31.40 – 0.53%
DAX30 12760.73 – 65.09 – 0.51%

By Greg Peel

End of Quarter

With the S&P500 down only -0.6% on Tuesday night it seemed out of step that our futures should be down -0.9% or -56 points before the open yesterday, but when the ASX200 fell over -100 points in the first half hour the situation became a little clearer. One need only look at the calendar.

The relative uniformity of sector falls by day’s end strongly suggests a big fund or funds had decided to reallocate out of Australia. Most likely an offshore fund given the magnitude, and given the fact the Aussie fell to just above US71c before rebounding again once the ASX closed.

Buyers made a valiant effort through the morning, halving the losses, but selling resumed thereafter and buyers could only stand aside. This resumption of selling happened to occur just as the presidential debate, if that’s what we’re calling it, ended, and the Dow futures headed south.

But really, if the premise was that Trump was blowing it then the selling could have begun long before the debate was mercifully over.

So the bottom line is, I suggest, don’t read too much into yesterday. I’d be more comforted if our futures were up a bit more than only 11 points this morning, with Wall Street back to strength, but these out-of-the-blue sessions occur every now and again, typically around the end of a quarter, and also in the opposite direction.

A couple of sectors stood out yesterday nonetheless. While most sectors as good as matched the percentage move of the index, in a clear nod to the government’s gas-fired economic recovery plan, energy fell -4.2% and utilities -3.4% — the latter led by AGL Energy ((AGL)) which fell -3.4%.

A big thumbs up for the government’s approval of Santos’ ((STO)) highly controversial Narrabri CSG project. At least one industry analyst has pointed out that rather than reduce gas prices to consumers, the distance the gas must travel from Narrabri to population centres through pipelines yet to be built will actually make that gas more expensive.

Santos now needs to find the money.

Beyond gas, telcos outperformed again yesterday (-1.5%) but had been weak earlier in the week.

Among individual stocks there was only one move of any real note yesterday, being that of Corporate Travel Management ((CTD)). The travel agent came out of a trading halt after announcing a capital raising for the purpose of acquiring a US travel firm, and the market saw that it was good. Corporate Travel jumped 9.7%, and one wonders what that might have been if it hadn’t run up against whoever was doing all the selling.

As of last week the stock was 7.3% shorted. Hope the shorts got an allocation.

In the wash-up, and including yesterday, the ASX200 fell -4% in the month of September and -1.4% for the quarter.

The S&P500 also fell -4% in the month, but rose 8.5% in the quarter. The prosecution rests.

Glass half which?

The Dow futures’ initial reaction to the debate was to head southward in our time yesterday but after the president had been safely led away by two men in white coats, and Chris Wallace was able to have a stiff drink, the reality was Biden was leading the polls going in and not a lot has changed.

Indeed, the Dow opened up by 570 points from the opening bell.

The shift in focus has been attributed to optimism over the possibility of a deal between the Democrats and the White House on stimulus, with Mnuchin saying ahead of a second meeting with Pelosi he was hopeful of a deal being reached.

It wasn’t. Of course, “progress” was made, as it always is the case, and the two will meet again tonight in a last ditch effort, with the first stimulus package now expired. After tomorrow night, Congress goes on a break ahead of the election.

If you’re a glass-half-full type you might suggest that progress being made is a good thing, and given the situation is getting desperate, particularly for Trump, a deal has to be imminent. If you’re glass-half-empty, you’d say no deal is likely before the election. Wall Street was undecided, and initially sold in the afternoon to the extent it looked like a negative close was on the cards.

But it rallied back late, even after Senate leader Mitch McConnell reminded that the Democrat House and the Republican Senate are still “very, very far apart”.

Given it was the end of quarter, somewhere in the midst of it all was the usual argie-bargie of book-squarers facing off against window-dressers, so a true picture is somewhat obscured.

Back in the real world, 749,000 private sector jobs were added in the US in September, well above 650,000 estimates. August saw 481,000 and July 216,000. But during the session, all of Disney, Shell and Dow Inc announced they were set to lay off tens of thousands of employees now US “JobKeeper” is no more.

The airlines are set to do the same, unless a second stimulus deal can be reached.

Wall Street awaits tomorrow night’s non-farm payroll result, but it is clear the real story can only be told come the October numbers, due out three days after the election.

Meanwhile, pending home sales rose 8.8% to a record in August. With the Fed’s cash rate at zero (or effectively less), the US housing market is absolutely booming.

RBA beware.

In other news, Moderna confirmed that while its vaccine candidate is looking good, there’s no chance it can be approved before the election. The US case-count continues to accelerate in 23 states, led again by California, Texas and Florida.

Be warned, there are two more presidential debates to come, unless Biden decides they’re a waste of time.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1885.20 – 12.10 – 0.64%
Silver (oz) 23.20 – 0.97 – 4.01%
Copper (lb) 3.00 + 0.05 1.75%
Aluminium (lb) 0.79 – 0.00 – 0.05%
Lead (lb) 0.82 – 0.01 – 0.87%
Nickel (lb) 6.55 + 0.02 0.26%
Zinc (lb) 1.08 – 0.01 – 0.60%
West Texas Crude 39.86 + 0.75 1.92%
Brent Crude 40.95 + 0.11 0.27%
Iron Ore (t) 123.15 + 4.20 3.53%

China reported a September manufacturing PMI yesterday of 51.5, up from 51.0, and services PMI of 55.9, up from 55.2.

Good news, it would seem, for iron ore and copper.

A slight dip in the US dollar had gold bugs nervous again.

That slight dip, of -0.05%, has the Aussie up 0.4% at US$0.7167, having earlier almost dropped through 71 as (presumably) yesterday’s big stock market seller switched Aussie into greenbacks.

Today

The SPI Overnight closed up a disappointing 11 points. Welcome to the December quarter.

Manufacturing PMIs are due today from across the rest of the world while Australia will also see September house prices.

The US will see the Fed’s benchmark PCE inflation reading tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M a2 Milk Co Upgrade to Add from Hold Morgans
ALX Atlas Arteria Upgrade to Outperform from Neutral Macquarie
BLD Boral Upgrade to Buy from Neutral Citi
CTD Corporate Travel Upgrade to Outperform from Neutral Macquarie
CWY Cleanaway Waste Management Upgrade to Outperform from Neutral Credit Suisse
DOW Downer Edi Upgrade to Buy from Neutral UBS
NST Northern Star Upgrade to Neutral from Sell UBS
SM1 Synlait Milk Downgrade to Neutral from Outperform Credit Suisse
SUN Suncorp Upgrade to Outperform from Neutral 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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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