The Overnight Report: Land Of Hope

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

World Overnight
SPI Overnight (Dec)	5982.00	+ 38.00	0.64%
S&P ASX 200	5952.30	– 12.60	– 0.21%
S&P500	3351.60	+ 53.14	1.61%
Nasdaq Comp	11117.53	+ 203.96	1.87%
DJIA	27584.06	+ 410.10	1.51%
S&P500 VIX	26.19	– 0.19	– 0.72%
US 10-year yield	0.66	+ 0.00	0.61%
USD Index	94.27	– 0.37	– 0.39%
FTSE100	5927.93	+ 85.26	1.46%
DAX30	12870.87	+ 401.67	3.22%

By Greg Peel

Breather

It appeared yesterday that after Friday’s big bank-led surge, the local market needed a rest, despite the weekend in between. The opening bell sounded and nobody blinked. It remained that way for the rest of the session.

Given Wall Street had again rebounded on Friday night, on a return to Big Tech buying, again we see on display the warped psychology of an Australian market that doesn’t, with good reason, follow up Big Tech when it goes parabolic but does, for no reason, plunge when Big Tech plunges.

The ASX200 lost -350 points to its low in September and now appears it’s not going to follow the Nasdaq back up. Again this morning we see our futures up only 0.6% when the S&P500 rallied 1.6% overnight (Nasdaq 1.9%).

The IT sector did follow the Nasdaq up yesterday, of course, rising 1.9% to win the day by a margin. Indeed it’s hard to fathom how the ASX200 only lost -12 points by the close when property (+1.4%) and consumer discretionary (+0.2%) were the only other sectors to close in the green.

The banks gave back -0.6% which is hardly surprising and telcos lost -0.5%. The big loser was consumer staples, down -2.2%, while other sectors had a rest.

Staples fell because a2 Milk ((A2M)) slashed guidance, blaming the Victorian lockdowns for killing off the Chinese daigou market for infant formula (local Chinese stripping supermarket shelves and mailing purchases off to the motherland for a profit). The stock fell -11.4% to top the losers’ board.

Conversely, the top five winners’ board mostly reflected re-openings, or at least the prospect thereof, other than Mesoblast ((MSB)), which jumped 12.0% ahead of FDA reviews due tomorrow for remestemcel-L (who comes up with these tongue twisters, and why?).

EML Payments ((EML)), which seems to have a finger in every payment pie here and in the US, jumped 7.0%. With a NSW-NZ travel bubble set to open, albeit one-way, and management moving to outsource its ground services, Qantas ((QAN)) rose 6.4%. Air New Zealand ((AIZ)) rose 7.4%.

In between, the most shorted stock on the market by a wide margin, Webjet ((WEB)) rose 6.6%.

Premier Investments ((PMV)) showed on Friday how to take on the virus when it comes to apparel retailing, and it gained another 6.3%.

All is looking rosy, with NSW reporting two days of no cases and Captain Dan suggesting Victoria may yet reopen sooner than originally hoped. Don’t mention WA.

But from today, JobKeeper/Seeker is reduced, so it’s a different game from here. What can Josh come up with next week?

Stimulated

US House Speaker Nancy Pelosi said over the weekend there’s a chance that a deal on new stimulus can be achieved.

“I trust Secretary Mnuchin to represent something that can reach a solution, and I believe we can come to an agreement.”

Not sure how. The White House has for a time offered US$1.3trn, a little better than Senate Republicans fixed at US$1.0trn, but still a long way shy of the Democrats. They have now brought their offer back down to US$2.2trn, having started at US$3.0trn, dropped to US$2.0trn, raised to US$2.2trn and then to US$2.4trn.

So Lord knows what the next offer will be, but US900bn is still a yawning gap. And Congress is now going to be consumed with the Supreme Court nomination, which the Republicans hope can be approved by October 26, a week ahead of the election.

If there is no stimulus agreement reached in time, it’s unclear who voters will blame, but what is clear is any “positive news” on the stimulus front sends Wall Street on a buying spree.

Big Tech again led the charge last night, but a spread of Dow up 1.5%, S&P up 1.6% and Nasdaq up 1.9% suggests buying was less concentrated than previously. Confirmation is evident in a 2.4% jump for the Russell small cap index.

Helping the mood was news last night restrictions in Chicago will be eased, including an increase in bar/restaurant capacity to 40%. Meanwhile, the new hotspot states are neighbours North Dakota, Montana and Wisconsin.

As Boris considers shutting down the North once more, and possibly London, there remains a lingering fear of another lockdown in the US. But as the governor of Florida indicated on Friday in reopening bars/restaurants to full capacity, even as the states’ case-count turns northward once more, there’s little appetite for re-shuttering the economy.

In the wake of September volatility, it appears Wall Street may now be in a post-correction consolidation range which may last through to the election, unless there are any breakthroughs in the meantime (stimulus, vaccine etc).

Tonight brings the first presidential debate.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1881.20	+ 20.00	1.07%
Silver (oz)	23.67	+ 0.79	3.45%
Copper (lb)	2.98	+ 0.00	0.07%
Aluminium (lb)	0.78	+ 0.01	1.64%
Lead (lb)	0.83	– 0.00	– 0.05%
Nickel (lb)	6.54	+ 0.05	0.83%
Zinc (lb)	1.09	+ 0.01	1.10%
West Texas Crude	40.57	+ 0.32	0.80%
Brent Crude	42.48	+ 0.56	1.34%
Iron Ore (t)	117.05	+ 1.00	0.86%

The US dollar rebound stalled last night, allowing a return to the positive for base metals and particularly gold.

Iron ore rarely tracks the currency, but is climbing back up again.

The oils are currently doing not much.

The dip in the dollar has snipped the Aussie’s fall for now. It’s up 0.5% at US$0.7074.

Today

The SPI Overnight closed up 38 points or 0.6%.

The US will see monthly consumer confidence tonight.

On the local market, it’s REIT/infra fund ex-dividend day, meaning the index will begin with a handicap.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BKW	Brickworks	Upgrade to Add from Hold	Morgans
NST	Northern Star	Upgrade to Neutral from Sell	UBS
QUB	Qube Holdings	Upgrade to Buy from Accumulate	Ord Minnett
SUN	Suncorp	Upgrade to Outperform from Neutral	Macquarie
TWE	Treasury Wine Estates	Upgrade to Outperform from Neutral	Credit Suisse

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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