The Overnight Report: Last Minute Turkey

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            [3] => ((CSL))
            [4] => ((TRS))
            [5] => ((TME))
            [6] => ((CYB))
            [7] => ((QBE))
            [8] => ((QUB))
            [9] => ((PRY))
            [10] => ((SCP))
            [11] => ((IPL))
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            [6] => CYB
            [7] => QBE
            [8] => QUB
            [9] => PRY
            [10] => SCP
            [11] => IPL
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)

This story features WOOLWORTHS GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WOW
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

No Fangs

Things were looking dire for the ASX200 yesterday after the first hour, as the index crashed through support at 5650 and fell to below 5600, at which point it was down over -70 points. But in came the buyers.

There is no doubting the Australian market is indirectly beholden to US-China trade tensions, to Fed monetary policy, to Brexit and troubles in Europe, notwithstanding domestic problems, but for mine the important point is we don’t have fangs. FANG & Co led the US market to new highs this year, Apple and Amazon both hit the trillion in market cap at different times, and then FANG & Co has led Wall Street down over the past two months.

We are still a very long way from our all-time highs, to a great extent because we don’t have fangs, and even the combined market cap of our Big Four banks does not reach one trillion. Why then must we fall precipitously in line with Wall Street every time?

Perhaps that was the view being taken on Tuesday and more so yesterday as steep early losses became less-steep losses by day’s end. From 11am to 4pm the ASX200 rallied back.

If we take out the energy sector, which was never going to do anything less than fall -2.5% on a -7% plunge in the oil price, yesterday’s performance would look even better. There was still a clear switch to defensives/yield going on, with the banks (+0.2%) again finishing in the green and utilities and REITs proving popular, so we can’t call this a risk-on comeback.

Staples also closed in the green, up 0.2%, with Woolworths ((WOW)) rising 1.2% on the back of its AGM on the day, coincidentally, it’s major rival was kicked out of home. Wesfarmers ((WES)) showed down -28% on the day but that’s purely a reflection of “ex-Coles”, just like ex-dividend, and thus a net zero sum for shareholders and the index. The Coles ((COL)) price did not move.

A little surprising was a trashing of the big miners after they were bought up on Tuesday. Materials fell -2.7% despite metals prices not doing anything particularly rash overnight, which might suggest a connection from a weak oil price to weak global demand for commodities in general, perhaps.

Or maybe someone was just bailing out, as happened in CSL ((CSL)) on Tuesday. That stock bounced back yesterday and healthcare rose 1.5%.

IT was once again the worst performer with a -2.8% fall but again simply followed the Nasdaq.

I’m not sure what the ratios are now, post Wall Street sell-off, but at one stage “tech” was about 25% of the S&P500 and the bulk of the Nasdaq. IT is around about 3% of the ASX200.

We saw a reminder yesterday that market corrections offer up helpful opportunities to launch takeovers and so it was perennial struggler The Reject Shop ((TRS)), which is not in the index, jumped 14% yesterday and NZ classifieds platform Trade Me ((TME)), which is in the index, jumped 16.5%.

On the flipside, CYBG ((CYB)), aka Clydesdale Bank, fell -20% after reporting quarterly earnings. Sentiment is not exactly positive for UK banks at present, with a no-deal Brexit still a possibility.

Dead Cat

It was all looking good at 3pm on Wall Street last night when the Dow was up 150 points, having opened up by about that amount and reaching as high as up 200, but an hour later all was given back.

I suggest we need to take this in its context. On any other day we would conclude this was a failed relief rally and signs are thus Wall Street still needs to retest October lows, if not the February lows, before a true rally can begin. But given it was the afternoon before Thanksgiving, which is effectively a four-day break (half session Friday, but only about three people turn up), then this likely reflects an opportunistic holiday square-up.

That’s the glass-half-full conclusion anyway. Realistically we need to wait to see what Wall Street does on Monday, by which point the “Black Friday” sales numbers will be evident and “Cyber Monday” will be underway. Strong sales will provide relief, weak sales will mean those previous lows are looming.

Beyond that, the G20 meeting starts today week in Buenos Aires, throwing up trade possibilities, OPEC meets the following weak, throwing up production cut possibilities, and the Fed meets a week before Christmas, throwing up the possibility of a more dovish tone. The Fed chair nevertheless speaks next week, which also might prove significant.

On the subject of oil, last night the Saudis reported a surge in production to a record daily output this month. They have already flagged December production cuts, and November numbers suggest there’s plenty of room to move. One factor in Tuesday night’s -7% oil price plunge was Trump standing behind the Saudis despite murder allegations, suggesting no sanctions would be forthcoming. Last night Trump thanked the Saudis for getting the oil price down and begged for more.

Which seemed to be the signal for oil prices to bounce. No one believes OPEC will not cut production simply because that’s what Trump wants. The kingdom’s economy is entirely oil price dependent. WTI jumped 2%.

On the subject of Trump, US durable goods orders fell -4.4% in October when -3.4% was expected, suggesting tariffs are biting. Existing home sales surprised to the upside nonetheless, which sparked a big jump in US homebuilder stocks that have been trashed this year on the back of deflating data and higher mortgage rates.

All US markets are closed tonight.

Commodities

The US dollar dipped back a bit last night. Metals prices did little.

The oils had likely been oversold on Tuesday night.

The Aussie has jumped back 0.6% to US$0.7263.

Today

Despite Wall Street’s late sell-off, the SPI Overnight closed up 18 points or 0.3% this morning. They were up by as much as 31 before the last minute sell-off on Wall Street. If accurate, that gets us back above 5650.

There’s another sizeable list of AGMs today, including QBE Insurance ((QBE)), Qube Holdings ((QUB)), Primary Health Care ((PRY)) and Shopping Centres Australasia ((SCP)).

Incitec Pivot ((IPL)) goes ex-div.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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