The Overnight Report: Nervous Twitch

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This story features A2 MILK COMPANY LIMITED, and other companies.
For more info SHARE ANALYSIS: A2M
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

The Dow closed up 85 points or 0.4% while the S&P lost -0.1% as the Nasdaq fell -0.6%.

On Script

The intraday high for the ASX200 yesterday? Yep, 5799. Hate to sound like a broken record, but the range remains in place. At the high the index was up 23 points before the technical sellers moved in to ensure only an 8 point gain on the close.

Sector moves were varied, with the Aussie headwind evident in selling of energy (-0.6%) and healthcare (-0.7%) while consumer staples (+0.6%) appeared the beneficiary. Otherwise, not much to report at the sector level.

At the stock level, The a2 Milk Company ((A2M)) just keeps on frothing as more brokers jump on the infant formula bandwagon. Sales to China are surging, but another 7% gain in share price yesterday does rather seem to ignore the fact Beijing can move the goal posts at any moment. Just ask Bellamy’s ((BAL)) and Blackmores ((BKL)).

Having jumped 10% on Wednesday post Caterpillar’s earnings surprise in the US, Seven Group Holdings ((SVW)) kicked on another 6% yesterday.

On the other side of the coin, Independence Group ((IGO)) suffered another round of weakness (-3.5%) following its badly received quarterly production report posted Wednesday, while BlueScope ((BSL)) topped the list of worst performers (-4.1%), likely on the currency impact.

Speaking of the currency, the Aussie kicked on in yesterday’s local session, as the shorts were taken out at 80. It reached as high as 80.5 before last night saw a turnaround in the greenback, and momentum swung fiercely back the other way. This morning the Aussie’s down -0.5% over 24 hours at US$0.7966 but down over -1% from the high.

There’ll be a few forex cowboys feeling a bit saddle-sore right now.

The ASX200 closed at 5785. The futures are down -2 this morning. It’s a Friday. Again, probably not the session that will see a breakout of the range.

Wrinkle in the Space-Time Continuum

It’s unclear exactly what caused it, but Wall Street was sailing along nicely in the morning, set to mark yet another triple-index record, when suddenly around lunchtime the bottom fell out of the market. In the space of an hour, the Dow went from around 80 points up to slightly down on the session.

The main culprit was the Nasdaq, which fell from another intraday record to be down over -1% in the same period. The S&P tracked accordingly.

Some observers point to a note issued by JPMorgan late morning, warning that the current extended period of low volatility suggests a very risky environment. Others note a big sell order hitting the Nasdaq futures. Whatever the case, as soon as a couple of traders decided it might be time to take profits, they were suddenly trampled in the rush to the exits.

FANG & Co were the main targets, but any stock that has outperformed of late, tech or otherwise, was taken out.

The carnage did not last long. Traders switched into safer names, such as telcos and consumer staples, while Boeing kicked on further from its previous session’s surge. Boeing has now overtaken Goldman Sachs as the “biggest” stock in the Dow, by virtue of having the highest nominal share price.

Facebook was actually riding high early in the session following its Wednesday night aftermarket earnings result, but was quickly trimmed to only a 2.9% gain. Shocker of the day was Twitter, which on the release of its earnings result plunged -14%.

Before the sell-off, the new intraday high price hit by Amazon made Jeff Bezos officially the richest man in the world. How do you make US$90bn? Start selling books online from your garage (but do it in the nineties). Amazon then released its own earnings result after the bell and is currently down -2.8%.

By the closing bell, order had been restored. The Dow was back up around 80 points, albeit with different stocks playing leader. The Nasdaq’s fall was pared back to down -0.6%, and the S&P was almost flat.

In the scheme of things, but a blip. But it does go to show that as Wall Street continues to push on to higher highs, anxiety also rises.

Commodities

A solid durable goods orders number in the US sparked a bounce in the US dollar last night, sending the index up 0.5% to 93.91. The greenback was overdue an upward correction.

There was little impact on commodity prices. Nickel’s 1% gain on the LME was the only base metal move of any note.

Iron ore rose US$1.20 to US$69.60/t.

West Texas crude is up US43c at US$49.15/bbl. Now that it’s back over 49, it’s probably set for another drop back to 45 shortly.

Even gold moved little, down a tad to US$1258.60/oz.

Today

The SPI Overnight closed down -2 points.

The US economy will be in the frame tonight, among further earnings releases, as the first estimate of June quarter GDP is released.

Locally we’ll see June quarter PPI.

AWE Ltd ((AWE)) and Sandfire Resources ((SFR)) will issue production reports today, Programmed Maintenance ((PRG)) will hold its AGM, and Westpac ((WBC)) will host an investor day.

Rudi will connect with Sky Business via Skype at around 11.15am to discuss the latest broker calls.
 

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