The Overnight Report: Fighting To Settle Down

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            [5] => ((TAH))
            [6] => ((NAB))
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This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Tentative

The futures suggested yesterday morning the ASX200 would rally 98 points and sure enough we hit the ton right on the open, although at ten minutes in with the opening rotation still underway. By 10.30am the index had fallen back close to -40 points to sitting smack on 5900.  

I suggested yesterday that there would be sellers lined up on any bounce, representing those who didn’t or couldn’t act on Monday for one reason or another. They are usually investors who had hoped in vain the market would stop falling. The index dipped late morning before rallying back to 5900, and tried again around lunchtime to breach 5900, but the afternoon saw a general drift down.

So a 100 point bounce became 43 points, which looks a bit weak against the three hundred or so point fall from the high. But it’s all part of the dust settlement process.

We would have seen a stronger bounce if the banks had joined in. All sectors finished in the green bar utilities (-0.6%), as one might expect, and financials, which dipped slightly. Commonwealth Bank ((CBA)) dragged down the sector following an earnings result miss, albeit not substantial, alongside its announcement, as expected, of various provisions against the anticipated cost of its indiscretions.

Energy was the best performer with a 1.9% gain despite a yet lower oil price, but then energy has been the most volatile sector through this period, either up or down by the greatest percentage each day. It will be down today. More on that later.

Otherwise, materials, healthcare, industrials and consumer discretionary all made decent comebacks having been hard hit during the sell-off, while consumer staples and telcos made smaller gains. One of the hardest hit sectors was the high PE info tech sector; it managed only a 0.5% rebound.

IT will likely not return quickly to prior levels of excess valuation.

It’s been another rocky ride on Wall Street overnight, with the S&P closing down -0.5%. Yet the local futures closed up 22, so exactly where we end up today is unclear.

Battleground

Last night the Dow opened down over -100 points as some of those slow sellers I talked about moved in, but on consensus suggestions the sell-off has provided a buying opportunity, by 11am the Dow was up nearly 400. At lunchtime it was back to square, with 20 minutes to go it was up over 250, and it’s closed down -19.

This is exactly the sort of volatility one would expect after what transpired over the previous three sessions. The good news is Wall Street is not plummeting, it’s just trying to sort itself out. We’ll likely see more of this over the next couple of days.

Hindering any chance of a V-bounce rebound, which rarely happens anyway, is the fact the US ten-year bond yield is at 2.84%. We recall that this whole episode was triggered last Friday when that yield jumped to 2.85% following the US jobs report. So rate-wise, we’re back where the sell-off started.

The 8 basis point leap in the ten-year last night was driven by two factors. Firstly, Congress leaders agreed on a deal that will significantly increase the US budget deficit. Secondly, a scheduled Treasury auction of ten-years last night was underwhelmingly received.

As US rates rise, the US dollar rises, and it’s up another 0.7% on its index to 90.29. This is mathematically bad for all commodities, but last night WTI crude plunged -3%, having managed lesser falls through the last few days of mayhem.

It was all about US production which, it was revealed last night, jumped by 332k barrels last week to 10.25mbpd – the biggest weekly jump since data began being tracked in 1983. This news ensured the energy sector provided Wall Street with another headwind last night.

Amidst the rocking and rolling, US earnings season continues, and for the most part the numbers are still good. Netflix reported after the bell this morning and I see it’s down only slightly, suggesting nothing untoward.

We might note, nonetheless, that the Nasdaq underperformed the other indices last night given some of the highest flyers – FANG and friends – are seeing their extended PEs brought back to earth.

Commodities

It was not a good night for oil and not a good night for base metals. Commodity prices in general are succumbing to a surging greenback but I suspect by now we’re seeing commodity fund selling. Oil is the dominant weighting in commodity indices so when it falls, fund managers have to sell other commodities as well to maintain weightings.

Iron ore, on the other hand, continues to defy gravity, with Chinese New Year rapidly approaching.

The Aussie continues to respond to the greenback rally, falling another -0.8% to US$0.7828.

Today

The SPI Overnight closed up 22 points or 0.4%.

In case you missed it, the RBA left the cash rate unchanged yesterday, and Dr Lowe made no mention of stock market volatility in his statement. He will be speaking today so presumably questions will be asked.

China releases January trade numbers today.

The Bank of England holds a policy meeting tonight.

Today’s list of local earnings reporters includes AGL Energy ((AGL)), AMP ltd ((AMP)), Mirvac Group ((MGR)), Mineral Resources ((MIN)) and Tabcorp ((TAH)).

National Bank ((NAB)) will provide a quarterly update.

The Australian share market over the past thirty days…

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