The Monday Report – 30 November 2020

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By Greg Peel

FNArena’s website was suddenly shut down for “maintenance” on Friday, but that had nothing to do with FNArena. Rather, Microsoft apparently botched a software update. So we can only apologise, but there was nothing we could do about it.

I include this morning a wrap of Thursday’s trade on the ASX, which otherwise would have been published on Friday.

Thursday

Wall Street saw a predictable pullback on Wednesday night after the Dow hit 30k, and traders squared up ahead of the Thanksgiving holiday which for all intents and purposes is a four-day break in markets.

It was also of no surprise the local market pulled back on Thursday, ahead of Wall Street shutting shop, and after a stellar couple of weeks. It was only the second down-day in those two vaccine-fuelled weeks.

The two biggest sector falls were unsurprisingly posted by the two sectors that had stood out well ahead of the pack in said rally, being energy (-1.0%) and financials (-1.4%).

Healthcare (-0.8%) and industrials (-1.1%) had not rallied every day but still copped some selling, which started slowly but accelerated into the afternoon.

Other sector moves were minimal except for utilities (+1.2%), which benefitted from a 1.5% gain for APA Group ((APA)) after it announced it was building a new WA gas pipeline.

The index losers’ board featured stocks that had also had good runs individually. Virgin Money UK ((VUK)) fell -11.5% following a downgrade from Macquarie, while Whitehaven Coal ((WHC)) and UR Westfield ((URW)) both dropped -3.5%.

If I had a dollar for every day those three stocks have appeared equally on either the winners’ or losers’ boards in recent times I would not need a super fund.

Bucking the trend was TechnologyOne ((TNE)), which jumped 5.6% on its earnings result. Harvey Norman ((HVN)) gained 5.5% a day after its AGM after effusive brokers talked up the stock.

The rest of the top five were all gold miners, after the gold price bounced slightly.

In economic news, private capital expenditure fell -3.0% in the September quarter, indicating a slowing from the -6.4% pace of the June quarter. Machinery and equipment capex fell -2.2% compared to June’s -7.9%, and a -3.7% drop for buildings & structures was also slower.

So things appear to be heading back in the right direction, but then capex intentions disappointed. Capex intentions is a non-binding survey of what businesses expect to spend in FY21, and is subject to a change of heart every quarter.

The “September quarter” intentions survey is conducted in October/November, by which time Victoria was coming out of lockdown. Economists had thus expected a more confident response from businesses than $105bn – a very small increase on $99bn “June quarter” survey, which was conducted in July/August.

A clear split was nonetheless evident between the mining (which includes oil & gas) and non-mining sectors, with non-mining upgrading to a -12% reduction on spending from a prior -19% expectation, but mining now expecting a -6% reduction compared to a prior 1.0% increase.

ANZ Bank economists point out most, if not all, of the survey would have been completed before the first vaccine news.

On Friday morning the futures closed down -15 points.

Friday

Thursday’s pullback continued into Friday despite no lead from Wall Street, with sentiment somewhat shattered by China’s announced wine tariffs. Treasury Wine Estates ((TWE)) fell -11.3% before trading was halted.

That recently signed RCEP must be a cracker of a free trade agreement. The government is taking its concerns to the WTO, as if Beijing cares less. As the list of export products grows, it’s a question of what’s next? Not iron ore of course – China needs that.

All sectors closed in the red on Friday bar one, led again by energy (-1.8%), financials (-0.5%) and healthcare (-0.7%). Having rallied on Thursday, utilities fell -1.6%.

Property bucked the trend (+0.5%) on gains in Goodman Group ((GMG)) and Charter Hall Group ((CHC)).

Materials (-04%) is not seeing any traction from a rising iron ore price – up over US$130/t on Friday – with gold miners providing the drag after Thursday’s brief recovery. The gold price fell below US$1800/oz on Friday night.

Bega Cheese ((BGA)) topped the index winners, rising 8.9% after successfully raising capital to acquire Lion Dairy & Drinks, a side-line of New Zealand’s brewing company. There was then a gap to Fisher & Paykel Healthcare ((FPH)), which rose 3.8% after broker’s talked up the prospects for the company’s ventilators.

Beach Energy ((BPT)) matched Fisher & Paykel Healthcare to the downside (-3.8%), as did TechnologyOne ((TNE)) following Thursday’s rally.

The ASX200 still managed to close up for the week and November is set to be a stellar month, with 11% in the bag on Friday and the futures showing up 39 points ahead of trade this morning. The month has featured everything from the election, three vaccine announcements and the reopening of borders across the country.

While the virus has clearly not been eradicated, the signs are positive for Christmas. The complete opposite is true for the US, which begs the question of how closely we will follow Wall Street from here if one of the driving forces is that out-of-control case count.

Friday night

Friday was Black in the US, which doesn’t mean much anymore as retailers begin offering discounts from the start of the week and these days are open on Thanksgiving. While foot-traffic was understandably down this Black Friday, online sales have been surging all week.

It was a half-hearted half session on Wall Street, with markets closing at 1pm. Volumes were thin within the time available. But one theme still stood out.

A split of Dow up 0.1%, S&P up 0.2% and Nasdaq up 0.9% looks all too familiar. The Nasdaq hit a new all-time high – its 45^th in 2020.

The positive news on Friday was that of aforementioned online sales, which hit a record in dollar terms on Thanksgiving Day itself. Presumably those who heeded the warning not to hold the regular family gathering this year needed something else to do.

A spike in airline travel indicates not everyone heeded that warning, raising concerns of further escalation of virus impact after this holiday period. Thursday saw US covid hospitalisations hit a record 90,000.

Reality is taking the gloss off election and vaccine excitement, with Friday night’s trade suggesting the rotation into value and cyclicals may have run its course for now, while the stay-at-home winners in technology are back in the foreground.

There was also good news in the form of Trump agreeing he would leave the White House if the Electoral College “votes” for Biden, which is really just a rubber stamp of the result. We recall Trump told Republican governors in “flipped” states to sign in Trump as winner and ignore the outcome of the ballot box contest.

Meanwhile, France has extended its lockdown to December 15 and Germany to December 20.

Commodities

It was another positive session for industrial commodities all round on Friday night, if we ignore lead – which is primarily used in car batteries, and not the new type.

Iron ore has cracked US$130/t.

Gold is again the loser, falling over twenty dollars despite the US dollar continuing to drift lower. A -4 basis point drop in the US ten-year yield to 0.84% provided no relief either. Bitcoin also plunged on Friday night having hit a new high for the year last week, on rumours there may be regulations afoot.

Despite China’s inane attacks on Australian exports, the Aussie is up another 0.4% at US$0.7393 with the US dollar down -0.2%.

The SPI Overnight closed up 39 points or 0.6% on Saturday morning.

The Week Ahead

Tonight is Cyber Monday in the US, but that, too, has become an anachronism now that everyone’s shopping on line anyway. It will nevertheless be back to business on Wall Street.

It’s jobs week in the US, with private sector numbers out on Wednesday and non-farm payrolls on Friday. The latest Fed Beige Book is out on Wednesday.

China will report November PMIs today while the first of the month – tomorrow – sees manufacturing PMI results from across the globe, followed by services PMIs on Thursday.

Australia’s September quarter GDP is due on Wednesday, but being published in December it seems rather old hat. Lead-in numbers for company profits and inventories are out today, and the current account, including the terms of trade, tomorrow.

We’ll also see monthly data for private sector credit today, house prices and building approvals tomorrow and housing finance on Thursday. The ABS will also publish final results for the October trade balance on Thursday and retail sales on Friday, having already delivered preliminary results.

The RBA meets tomorrow.

As we head into December the local corporate calendar becomes a lot quieter compared to that of November. AGMs and earnings results are now thin on the ground leading up to Christmas.

This week sees AGMs from Zip Co ((Z1P)) today and Eagers Automotive ((APE)) and Premier Investments ((PMV)) on Friday.

Select Harvests ((SHV)) reports earnings today and Collins Foods ((CKF)) tomorrow.

Domino’s Pizza ((DMP)) hosts an investor day today, followed by Incitec Pivot ((IPL)) and Santos ((STO)) tomorrow.

The Australian share market over the past thirty days…

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