The Overnight Report: Lost In The Wilderness

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By Greg Peel

Buyers’ Strike

So much for 14 points looking light on.

To recap, Wall Street fell -0.8% on Tuesday night and our futures suggested down -72, which seemed excessive, and indeed the ASX200 closed down -39. Wall Street rebounded 0.6% on Wednesday night and our futures suggested up 14, which seemed light.

Yesterday the index opened up 10 points and and fell all day to the close, finishing down -32.

What happened?

To make things more confusing, Wall Street closed down -0.2% last night and out futures are up 25 this morning.

That would suggest a sell-order hit the market yesterday against the run of play. Reports suggest it was a slow-grind day on low volume, which would imply buyers simply stood aside. The futures are suggesting the buyers will be back in again today, assuming the selling is now exhausted.

We should take into account Monday is the end of the month and the quarter and the RBA meets on Tuesday, with the market suggesting a rate cut is a 75% chance. Quarter-ends can bring all sorts of volatility, although typically more positive than negative, and RBA anticipation would explain low volumes.

And when the quarter ends, it’s then school holidays in NSW and other states and China goes into a one-week holiday starting Tuesday.

But back to yesterday.

All sectors bar one closed in the red by varying degrees. Industrials closed flat.

Telcos (-1.7%) and utilities (-1.5%) were slammed but staples (-0.1%) were not. Materials (-0.7%) is easily explained by a plunge in the gold price but energy (-1.0%) fell more than the overnight oil price move would suggest.

Healthcare (-1.0%) is ignoring a lower Aussie.

There were no major moves among index stocks. Bingo Industries ((BIN)) topped the winners in rising 6.0%, after announcing the sale of its Banksmeadow facility. Gold miners took out the top three loser positions, with Silver Lake Resources ((SLR)) worst on -5.5%.

It’s all a bit confusing, so we’ll see whether the futures have made the right call this morning. We recall that the last day of August was a Friday and the index absolutely surged to the close. This time the month ends on Monday, which implies weekend risk, so who knows?

Uncertainty

While on Wednesday night Wall Street appeared to shrug off possible impeachment as a longer term distraction, last night the release of a whistle-blower report suggested not only did Trump pressure the Ukrainian president into digging dirt on the Biden family, the White House tried to cover it up. This unsettled US markets from the open.

The final revision of the US June quarter GDP came in unchanged at 2.0%, but no one expected anything exciting.

On the back of strong new home sales data on Wednesday night, pending home sales hit their second highest level since the end of 2017.

The Dow down some -170 points late morning.

Sentiment turned, nevertheless, when China’s state councillor and foreign minister said China was willing to buy more US products. Wang Yi said the Trump administration had shown goodwill by waiving tariffs on many Chinese products.

Chinese importers have set deals to buy American soybeans and pork as the governments make conciliatory gestures ahead of trade talks. One might suggest pork buying is not much of a “gesture” when China is in desperate undersupply due to swine fever. Talks are set to resume on October 10.

By which time the US September quarter earnings season will have begun.

So it’s the same deal in the US – end of month and end of quarter on Monday and then a week or so before earnings results start flowing, providing some “real” drivers, while trade talk anticipation hangs overhead.

For now, it’s uncertain times, with Wall Street not really going anywhere and a defensive posture remaining the state of play, as REITs/utilities/staples and bonds again outperform on the day.

Commodities

The gold price may also have been stronger last night in line with the defensive play but it is being weighed on by the US dollar, which just keeps climbing.

This is also impacting on base metal prices, although zinc got a shot in the arm last night.

The Aussie is steady at US$0.6748.

Today

The SPI Overnight closed up 25 points or 0.4%.

China releases industrial profits numbers today.

It’s an important night in the US for those hoping for another Fed rate cut in October. Data for durable goods orders, PCE inflation and consumer sentiment are due.

Quite a few local REITs and similar trusts go ex-dividend today.

The Australian share market over the past thirty days…

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