The Overnight Report: Still Talking Stimulus

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By Greg Peel

Negative Views

The Australian stock market continued its act of defiance against the US market yesterday morning, at least until 11am. The ASX200 opened lower as the futures had suggested, on a -1.6% fall for the S&P500, but shot straight back up after ten minutes and was into the green when the RBA minutes were released.

The minutes themselves were of little consequence, having been superseded by the RBA governor’s speech last week, but taking the limelight was the release by the RBA assistant governor, Chris Kent, of a paper entitled The Stance of Monetary Policy in a World of Many Tools.

Presumably he’s referring to leaders around the world.

In a related Q&A session, Kent suggested it would be not unexpected if the bank bill swap rate (BBSW), which is the rate at which banks exchange funds and hence where all the action is, were to “pop below zero”.

Bang. Down went the banks, ultimately closing down -1.2%. Just when investors were becoming more confident in lower loan defaults as the country reopens, the impact of negative rates on bank earnings (that’s negative at 90 days, not overnight cash) was too much to ponder.

We note that the overnight cash rate has been trading at just above 0.10% for a while now and should be 0.25% if the RBA were to step in to support its target, but it hasn’t, hence a cut to 0.10% is baked in for Cup Day. And quite possibly QE as well.

The comment appeared to take the wind out of the sails across all sectors, except tech. IT bucked the trend in rising 1.7% led by Afterpay ((APT)), which jumped 4.5% to a new record high. Afterpay has signed a deal with Westpac ((WBC)) to allow the BNPL company to offer transaction and savings accounts to the bank’s three million-plus customers.

Materials (-1.1%) was the next worst performer after financials, with BHP Group ((BHP)) dropping -1.6% on its quarterly production report.

Beyond that, falls in all other sectors were relatively uniform, other than property closing largely flat after a couple of weak sessions. Yo-yo UR Westfield ((URW)) bounced back 3.9% in its latest yo.

General market-wide selling raises the question of whether even lower interest rates are a good or bad thing. On the one hand they should provide a boost to the economy, which is exactly why the RBA cuts in the first place, but on the other they highlight just what a poor state the economy is in. Yesterday it appeared investors took the latter view.

It is interesting to note however, with regard the banks, that those taking up bank offers of mortgage holidays, and are now back paying again, have found their rate increased. It is not a traditional “re-pricing” move in the banks’ favour but rather a means of recouping lost payments within the original mortgage maturity instead of tacking an extra six months on the end. So in theory it should be zero-sum for the banks, but hardly in the spirit of what the RBA is trying to achieve.

No Fat Lady

Tonight in the US, ie this morning here, was supposed to be the deadline for any deal being reached between the Democrats and the White House. Pelosi and Mnuchin may still be speaking as I write.

Wall Street is on the edge of its seat, but if no deal is agreed upon today then apparently the parties still have until the end of the week to get something into Congress. This in itself has provided Wall Street with a tincture of hope.

What’s more, Republican Senate leader Mitch McConnell said last night that were the White House to agree to a deal, he would put it to the Senate. The Dow was up 380 points at lunchtime.

But, you can lead a horse to water…

Whether or not others saw McConnell’s benevolent promise as hollow, given anything up in the US$2trn region has little to no hope of being passed, the afternoon saw a very choppy period ultimately ending with the Dow up only 113 points.

In virus news, Moderna announced its vaccine candidate could be ready for emergency use approval by December if phase 3 trials are successful. That now makes three candidates hopeful of FDA approval by the end of the year.

The US seven-day moving average of new cases was reported as 56,000 last night, its highest level since August 5. The good news is that while cases continue to accelerate, with 47 states suffering increases, the death toll is not keeping step. No doubt this reflects a greater understanding of the virus and how to treat it as was the case back in the first wave. However, a lack of hospital beds is an issue in many areas of the country.

Meanwhile, Wales is set to go into a two-week full lockdown in an attempted “fire break”. Ireland will go into level 5 restrictions for at least four weeks, akin to Melbourne, but that was only stage 4.

And to think the biggest issue holding up Brexit was the Ireland-Northern Ireland border.

On the other hand, China and Japan are talking about a travel bubble. Two-way, I believe.

In other news, the US Department of Justice has filed an antitrust suit against Google. Google share rose 1.4%.

Netflix reported after the bell and missed on earnings, new subscribers and guidance. It’s down -6.5% in the aftermarket. Yet management had candidly warned that the sort of subs growth seen in the early lockdowns was never going to be repeated.

Snap reported earnings and is up 24%. Let’s chat.

Commodities

Nickel and zinc continue to fire, while copper was at least back in the green. The US dollar index is down -0.3%.

Having seen an initial flurry of volatility post Chinese Golden Week, iron ore has gone to sleep.

OPEC-Plus has met and not managed to reach an agreement on production cuts. The cartel had planned to end its cuts in January, but with the virus again out of control across the globe, is prepared to reconsider. Which is positive for oil prices.

Despite the greenback being down, the Aussie is again down, by 0.1% to US$0.7056, ahead of BBSW popping into the negative.

Today

I can say with great confidence the SPI Overnight closed up 10 points. Sorry about the recent confusion, but the correct page has now been located.

The Fed Beige Book is out tonight.

Locally we’ll see preliminary numbers from the ABS for September retail sales.

AGL Energy ((AGL)) and Orora ((ORA)) are among those holding AGMs today.

Coronado Resources ((CRN)), Lynas Corp ((LYC)), St Barbara ((SBM)) and Sandfire Resources ((SFR)) report production numbers.

Atlas Arteria ((ALX)) reports its lack of traffic stats.

The Australian share market over the past thirty days…

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