The Overnight Report: No Deal

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

By Greg Peel

White Flag

The ASX200 was up 77 points in the first ten minutes yesterday. Just before 3pm it dipped into the negative. Only a late rally saved some face.

The reality is that since the most recent peak on September 3, Wall Street volatility has had the ASX200 closing at consecutively lower highs as well as lows. This is technically negative. Put up any argument you like about why we should not need to follow Wall Street down, and Lord knows I have, but it appears the local market is simply afraid.

It is September after all, and after that comes October, and after that comes the US election.

So it’s safest to accept the market connection to Wall Street in the face of the glaring valuation disconnect and just let the weak hands do their thing, with help from, or more likely further panicked by, the actions of indifferent algorithms.

To that point, Wall Street is down again overnight and our futures are suggesting down -79 points this morning which, if accurate, would confirm another lower high followed by a lower low.

All sectors bar one closed in the green yesterday (property down -0.2%), but that’s now by the by. The greatest failure to hold the rally yesterday was financials, which after a strong start fell back to only a 0.15% gain. The best performer percentage-wise was IT, of course, because the Nasdaq rebounded overnight, while materials (+1.0%) held the fort.

A shout out to healthcare, which rose 0.5% in the face of CSL ((CSL)) going ex-div.

There are some interesting developments politically in Australia at present, such as whether by the time you read this there will no longer be a Coalition in NSW and just how far the Commonwealth is prepared to override the People’s Democratic Republic of Queensland with regard overpaid footballers receiving special exemptions and family members wishing to attend funerals being denied, but domestic developments are not driving the stock market.

Sell in May didn’t work this year – far from it – but so far it looks like self-fulfilling September-October volatility is in play.

Not much worth noting among individual stocks yesterday, except for Myer ((MYR)), which is no longer in the index. Having jumped 17% one day late last month on the announcement it would become an Amazon pick-up centre, the stock fell -17% yesterday on its FY20 result.

Not even Amazon can stave off the inevitable.

Hope Fades

The story so far:

Wall Street has for months held on to a notion that Congress will eventually agree on a second fiscal stimulus package simply because it must.

The Democrats, with a majority in the House, initially wanted US$3trn but have come down to US$2.2trn. The Republicans, with a majority in the Senate, have gone as high as $1trn but won’t budge any further.

The Trump Administration, supposedly drawing upon executive powers and becoming desperate ahead of the election, has offered the Democrats US$1.3trn but that’s simply not enough.

Last night the Republican Senate propped a stop-gap bill of US$500bn to prop up the economy until a real deal can be settled. Not only did the Democrats vote against it, for to accept it would be to concede leverage, but it didn’t pass anyway because not all Republicans came on board.

It’s a strange system in America, where in a bicameral legislature the House of Review can propose its own bills, and the non-elected executive (other than the president) can to some extent do its own thing as well.

So the chances of an agreement being reached on a second round of stimulus seem even more remote, and will need to take a back seat now anyway as Congress has to approve a budget that will prevent the government shutting down at the end of this month which, the Democrats have warned, will not be inclusive of any second-round fiscal stimulus. That is a separate matter.

The Dow was up 275 points from the open last night, kicking on from its rebound attempts on Wednesday night, but that proved to be the high for the day. All indices tracked steadily lower all session, to finish only slightly off the intraday low.

The jury is out on whether the stimulus news was the trigger for the turnaround, for it was not so much of a turnaround as a fade away. What is more important to investors at this point of the covid rebound and correction is just what are these companies really worth? Throw away the text books.

On such a consideration, it’s safer to err on the downside, particularly given markets that run up too hard are traditionally set for a much bigger pullback than -10%, and typically that occurs in October.

Recent economic data have proven inconclusive. Last Friday saw a much better than expected non-farm payrolls result, but last night new weekly jobs claims from last week were disclosed as 884,000, the same as the week before, and more than 850,000 expectations.

Continuing claims (more than two weeks) rose by 93,000 to around 13.4 million.

More uncertainty, and where these numbers go now depends a lot on a second round of stimulus. If the US JobKeeper equivalent is not extended sometime soon, a flood of lay-offs will follow. And bankruptcies, which are already a flood.

Commodities

Base metal prices seem to have entered a flip-flop period, with the US dollar too now bouncing back and forth day to day.

Oil prices are little different, with last night’s falls attributed to a rise in weekly US inventories.

The Aussie is stuck in the 72s for the time being, down -0.3% to US$0.7263.

Today

The SPI Overnight closed down -79 points or -1.3%.

The US sees August CPI data tonight, which has taken on a new meaning now the Fed is prepared to let inflation run.

Locally the day’s ex-div list is a small one.

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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