The Overnight Report: Conflicting Drivers

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World Overnight
SPI Overnight (Sep)	5945.00	+ 42.00	0.71%
S&P ASX 200	5934.40	+ 36.50	0.62%
S&P500	3115.86	+ 15.57	0.50%
Nasdaq Comp	10154.63	+ 95.86	0.95%
DJIA	25734.97	– 77.91	– 0.30%
S&P500 VIX	28.62	– 1.81	– 5.95%
US 10-year yield	0.68	+ 0.03	4.44%
USD Index	97.15	– 0.22	– 0.23%
FTSE100	6157.96	– 11.78	– 0.19%
DAX30	12260.57	– 50.36	– 0.41%

By Greg Peel

Uncertain Start I

Australia has begun the new year with parts of Melbourne locked down and warnings any Victorian crossing a state border will be shot on sight. The ASX200 nevertheless took its lead from the open from window-dressing on Wall Street overnight, rising 57 points to midday.

The index slipped on the release of May building approval numbers, but not for long.

After two months of smallish dips, building approvals fell -16.4% in May when -10% was forecast. House and non-residential approvals fell, but it was all about apartment approvals, down -34.5%.

Not such a surprise, given (a) apartments were already reaching oversupply, (b) new apartments blocks tend to crack, (c) the virus has killed off population growth and (d) the economy has fallen into a hole. The government has since announced a housing stimulus package, but will this be enough to save a labour-intensive building industry?

Sellers finally arrived at lunchtime and the index chopped back to a less positive close. The banks (+1.0%) provided the bulk of the gain, after US banks rallied overnight after not announcing dividend cuts. The connection is, as always, unclear. The big US banks offer payout ratios of around 35% to Australia’s (pre-deferrals) 70-80%.

Real estate was the best performing sector, up 2.5%, presumably because fewer buildings ahead will provide some safety net to reduced valuations on existing properties.

The Ausdaq rose 1.6% thanks to a chart-topping 8.1% gain for data centre operator NextDC ((NXT)) after it updated on contract commitments. Peer (sort of) Megaport ((MP1)) rose 7.4% in sympathy.

Bargain hunters appeared to shrug off locked up Mexicans and instead focus on a re-opened Queensland border in pushing Corporate Travel Management ((CTD)) up 7.9%, Webjet ((WEB)) up 7.4% and airport billboard specialist oOh!media ((OML)) up -7.1%.

On the downside, a -4.1% fall for Suncorp ((SUN)) stood out after the insurer/banker announced a restructure.

Travel agents had consumer discretionary looking good with a 1.0% gain while healthcare (-0.8%) continues to stall.

It was all in all a mixed bag of moves that could just as easily reverse on any day, suggesting as we move into the new financial year the No Idea trade is still very much the focus.

The S&P500 is up 0.5% overnight and our futures are up 42 points, or 0.7%, this morning.

You tell me.

Uncertain Start II

The US reported a record number of new cases last night.

California has moved to re-close bars, restaurants and cinemas in certain counties, just in time for the long weekend.

Apple has closed 30 more stores across seven states, bringing total re-closures to 77 of 271. Apple shares fell -0.2%.

Fast food giant Chipotle is the latest big name to withdraw advertising from Facebook. Facebook shares rose 4.6%. Analysts argue that while month-long boycotts might be sending a message, US companies ultimately cannot afford not to advertise on the world’s biggest platform.

ADP last night reported a 2.4 million increase in private sector jobs in June, after a (revised) 3.1 million in May. While such numbers look staggering compared to “usual” numbers, it is noted that job additions (which are really returning workers) in hospitality, for example, still only represent around 25% of the pre-virus workforce in the sector.

The US manufacturing PMI jumped into expansion at 52.6 in June from 43.1 in May.

Pfizer (Dow) reported very early results from a very small trial of a vaccine that are encouraging. The stock rose 3%.

Put all that together and what does an investor do?

The outperforming sectors in the S&P last night were real estate, utilities, consumer discretionary (Amazon) and communication services (Facebook). Investors once again shifted into the most defensive cohort in the market – Big Tech. The Nasdaq hit a new all-time high even as the Dow fell, having at one point been up 200.

Let’s put that into perspective. Last night Tesla rose to become the world’s biggest auto manufacturer by valuation, surpassing Toyota. It’s not so surprising. Driving around town these days it’s hard to even spot a Toyota among all those Teslas.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1770.30	– 9.80	– 0.55%
Silver (oz)	18.00	– 0.20	– 1.10%
Copper (lb)	2.72	– 0.01	– 0.37%
Aluminium (lb)	0.72	– 0.01	– 0.70%
Lead (lb)	0.80	– 0.00	– 0.16%
Nickel (lb)	5.76	– 0.02	– 0.33%
Zinc (lb)	0.92	– 0.01	– 1.00%
West Texas Crude	39.71	– 0.11	– 0.28%
Brent Crude	41.98	+ 0.83	2.02%
Iron Ore (t) futures	100.75	– 0.30	– 0.30%

Falls in metal prices belie Caixin’s read on China’s June manufacturing PMI, which rose to 51.2 from 50.7 when 50.5 was forecast.

Gold was probably due a bit of a pullback, but don’t lose heart.

The Aussie is up 0.2% at US$0.6918.

Today

The SPI Overnight closed up 42 points or 0.7%.

Australia and the US will see May trade numbers today/night.

The US will also see data for factory orders, and June non-farm payrolls, pulled forward due to Friday’s holiday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
3PL	3P Learning	Upgrade to Overweight from Equal-weight	Morgan Stanley
API	Aus Pharmaceutical Ind	Downgrade to Neutral from Buy	Citi
AQG	Alacer Gold	Downgrade to Neutral from Outperform	Macquarie
CMM	Capricorn Metals	Downgrade to Underperform from Outperform	Macquarie
DCN	Dacian Gold	Downgrade to Underperform from Outperform	Macquarie
EBO	EBOS Group	Upgrade to Buy from Neutral	Citi
GXY	Galaxy Resources	Downgrade to Neutral from Outperform	Credit Suisse
JIN	Jumbo Interactive	Upgrade to Add from Hold	Morgans
NCM	Newcrest Mining	Downgrade to Underperform from Neutral	Macquarie
PAN	Panoramic Resources	Downgrade to Underperform from Neutral	Macquarie
PLS	Pilbara Minerals	Downgrade to Sell from Neutral	Citi
RRL	Regis Resources	Downgrade to Underperform from Neutral	Macquarie
RSG	Resolute Mining	Downgrade to Underperform from Neutral	Macquarie
SAR	Saracen Mineral	Downgrade to Neutral from Outperform	Macquarie
SBM	St Barbara	Downgrade to Underperform from Neutral	Macquarie
SIG	Sigma Healthcare	Upgrade to Buy from Neutral	Citi
STO	Santos	Downgrade to Neutral from Outperform	Macquarie
TAH	Tabcorp Holdings	Upgrade to Neutral from Sell	Citi
WAF	West African Resources	Downgrade to Underperform from Neutral	Macquarie
WHC	Whitehaven Coal	Upgrade to Buy from Neutral	Citi
WPL	Woodside Petroleum	Upgrade to Outperform from Neutral	Macquarie

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

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