The Overnight Report: Virus Versus Vaccine

This story features INSURANCE AUSTRALIA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: IAG

World Overnight
SPI Overnight (Dec)	6567.00	+ 29.00	0.44%
S&P ASX 200	6547.20	+ 16.10	0.25%
S&P500	3581.87	+ 14.08	0.39%
Nasdaq Comp	11904.71	+ 103.11	0.87%
DJIA	29483.23	+ 44.81	0.15%
S&P500 VIX	23.11	– 0.73	– 3.06%
US 10-year yield	0.85	– 0.03	– 3.17%
USD Index	92.30	– 0.01	– 0.01%
FTSE100	6334.35	– 50.89	– 0.80%
DAX30	13086.16	– 115.73	– 0.88%

By Greg Peel

Just the Job

Australia added 179,000 jobs in October. Of those 82,000 were in Victoria. Job losses due to Victoria’s lockdown had led to a national loss of -40,000 jobs in September.

New jobs were split 82,000 part-time and 97,000 full-time, ending a run of mostly part-time jobs growth. The participation rate jumped, thus the unemployment rate increased to 7.0% from 6.9%, but the underemployment rate fell to 10.4% from 11.4%.

Smiles all round. The numbers suggest Australia’s economy is, as everyone from the RBA to bank CEOs have suggested, recovering faster than first hoped.

It’s great news for the banks. Jobs mean mortgage payments and mortgage payments stave off defaults. The data turned around the ASX200 yesterday morning after a weak start in line with Wall Street. The index was down -33 points but quickly flipped.

Strength in the banks was nevertheless countered by weakness in insurance companies, leaving the financials sector with a 1.2% gain. The NSW Court of Appeal yesterday upheld the claim of a Tamworth tourist park operator that his business insurance covered forced closure. Insurance companies believed they had clauses in their contract that meant pandemics didn’t count.

They do count, according to the NSW court. This was seen as a test case, and one can only imagine the pending total payout cost to insurers. The Insurance Council of Australia is considering an appeal to the High Court.

Insurance Australia Group ((IAG)) went into a trading halt yesterday pending a capital raising.

The jobs numbers were consumer friendly as well, sending consumer discretionary up 0.7% at the expense of staples, which fell -0.8%. The fintech services within IT pushed that sector up 1.2%.

Otherwise, it took more selling in healthcare (-0.8%) to counter the banks. It seems healthcare stocks are being used to fund a return to bank buying, with investors eyeing off the 5-6% yields banks can once again offer post dividend deferrals.

Minerals and life sciences testing company ALS Ltd ((ALQ)) topped the index winners’ board yesterday with a 7.9% gain. The company reported earnings on Wednesday, but the market responded yesterday to subsequent positive assessments from brokers.

Fund manager Perpetual’s ((PPT)) shopping spree continued with another acquisition in the US. It jumped 7.6%. Updated guidance from BlueScope Steel ((BSL)) virtually wowed the punters at the company’s AGM. It rose 5.3%.

The day’s losers were nothing special, other than to note QBE Insurance ((QBE)) fell -3.9%.

Wall Street meandered around in uncertain fashion last night. Our futures are up 29 points this morning.

Beep, Beep

Wall Street is Wile E. Coyote, standing atop a cliff looking across to the Road Runner (mass distribution of a vaccine), with a deep chasm in between.

I suggested yesterday that with initial vaccine excitement wearing off, Wall Street will likely now enter a range-bound, purgatory period though to next year, rather than a traditional Santa Rally. It’s virus versus vaccine.

With the death toll now surpassing 250,000 and no end to case-count acceleration, New York City has re-closed schools. So now we have 32 other states, by varying degrees, both Democrat and Republican.

Last night British drug maker AstraZeneca said the experimental vaccine it is developing with the University of Oxford showed a robust immune response in older adults, based on data from mid-stage trials. Wall Street shrugged. Indeed, the Dow was down over -200 points early in the session.

It was the mayor of NYC who closed the schools. This prompted protests from parents who asked why schools should close when bars remain open? The mayor responded by informing the governor of New York has suggested that is only a matter of time.

Wall Street is in fear of re-lockdowns. But it can’t crash on such a development, because there is a vaccine(s). Yet it can’t rally either, if the US economy again goes backwards.

Weekly new jobless claims came in at 742,000 last week – the first increase in several weeks.

Perhaps that number, and the 77% increase in daily case-count in just two weeks, were what prompted the Republican Senate majority leader and the Democrat Senate minority leader to agree to resume stimulus talks after Thanksgiving.

The news helped Wall Street recover its losses to close modestly higher. But a familiar split of 0.2% Dow, 0.4% S&P500 and 0.9% Nasdaq indicates investors are back to betting on the stay-at-home stocks, assuming the worst.

For months after the expiry of the initial government stimulus package Wall Street was convinced agreement on a second package would be forthcoming because it simply had to be. A third wave was taking hold. But a stalemate ensued. Can the two parties agree on something this time?

Meanwhile, Trump continues to block any efforts by the Biden team to push for a smooth transition. He’s still the president until January 20, and it’s his damn bat and ball.

Commodities

As bitcoin looms ever closer to its 2017 high, gold is slipping away.

The iron ore price continues to steadily rise but is not having the usual impact on Australia’s big mining stocks. Materials down -0.3% yesterday.

Hooray for the jobs numbers, but aren’t they just another reason for the Aussie to rise? Apparently not. The Aussie is down -0.4% at US$0.7290 with the greenback steady.

Don’t tell me the forex traders were long?

Today

The SPI Overnight closed up 29 points or 0.4%.

The ABS will release preliminary October retail sales numbers today.

It might be Friday, but that hasn’t reduced today’s list of AGMs. Lendlease ((LLC)) and ResMed ((RMD)) are among those handing out the virtual tea and bickies today.

Orica ((ORI)) reports earnings.

Spot Metals,Minerals & Energy Futures
Gold (oz)	1864.30	– 7.20	– 0.38%
Silver (oz)	24.02	– 0.30	– 1.23%
Copper (lb)	3.19	– 0.02	– 0.52%
Aluminium (lb)	0.89	+ 0.00	0.16%
Lead (lb)	0.88	+ 0.01	0.89%
Nickel (lb)	7.12	– 0.02	– 0.21%
Zinc (lb)	1.24	+ 0.01	0.94%
West Texas Crude	41.93	– 0.01	– 0.02%
Brent Crude	44.38	– 0.13	– 0.29%
Iron Ore (t)	128.30	+ 1.05	0.83%

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Downgrade to Underperform from Neutral	Macquarie
ALQ	ALS Limited	Downgrade to Lighten from Hold	Ord Minnett
EVN	Evolution Mining	Downgrade to Underperform from Neutral	Macquarie
MGR	Mirvac	Upgrade to Outperform from Neutral	Macquarie
NAB	National Australia Bank	Downgrade to Underweight from Equal-weight	Morgan Stanley
NCM	Newcrest Mining	Downgrade to Underperform from Neutral	Macquarie
OGC	Oceanagold	Downgrade to Underperform from Neutral	Macquarie
OSH	Oil Search	Downgrade to Neutral from Outperform	Macquarie
SGM	Sims	Downgrade to Neutral from Buy	Citi
UMG	United Malt Group	Downgrade to Underperform from Neutral	Credit Suisse
WAF	West African Resources	Downgrade to Neutral from Outperform	Macquarie
WBC	Westpac Banking	Upgrade to Overweight from Equal-weight	Morgan Stanley

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

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