The Overnight Report: Game Stops

This story features CREDIT CORP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: CCP

The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

And a cherry on top

A positive session on Wall Street on Monday night appeared to give the Australian market the all-clear to go back to where it was before the whole short-squeeze carnival began. No US brokerage failed as a result, sending Wall Street into a tail spin, but the risk of such was apparent in the sheer amount of capital retail broker Robinhood was forced to raise.

On Wednesday last the ASX200 closed at 6781. Yesterday it closed at 6762. This morning our futures are up 57 points after another strong Wall Street session.

It was all just a bad dream.

The market shot up from the outset yesterday and after a brief mid-morning stumble, tracked higher through to the afternoon, before pausing for the RBA announcement.

While leaving both the overnight cash and three-year rates at 0.10%, the RBA announced it would extend its QE program from the prior April expiry with another $100bn of government bond purchases over six months. The board also adjusted its forward guidance slightly in declaring “no rate rise before 2024 at the earliest” from a prior “for at least three years”.

While neither move was unexpected, the statement still left the stock market feeling warm and fuzzy as it kicked on further to the close.

Technology led the sectors yesterday in percentage terms, rising 4.0% thanks to buying in the likes of Afterpay ((APT)) to the tune of 7.9%. No new news, just a Pavlovian response to the overnight Nasdaq rally.

Afterpay was third best index performer behind Credit Corp ((CCP)), which jumped 8.8% on an earnings result beat and Tabcorp ((TAH)), also up 8.8% after revealing it has a queue of suitors for its wagering business.

Also ahead of the pack yesterday were industrials (+2.5%), which is not something you see very often in this diverse and often dull sector. There was no one standout stock that led the rally, just solid buying in names such as Transurban ((TCL)) and Brambles ((BXB)).

Most of the index clout came from financials (+1.7%) and materials (+2.0%), which were two sectors that copped plenty of selling this past week, albeit there were other things going on in iron ore.

Other sectors chimed in with gains above 1.5%, except for utilities (+0.8%), property (+0.6%) and healthcare, which fell -0.4%. Whenever investors want to buy “the market” they fund purchases by selling CSL ((CSL)). The ASX has consumer staples as moving 0.00%, which I would dismiss as a technical glitch.

Other individual stock moves of note include Webjet ((WEB)), up 7.5% likely because it’s the most shorted stock on the ASX. You might have missed that boat mate. Because UR-Westfield ((URW)) was one of the first stocks to be targeted dowmunder and it fell back -7.1% yesterday, and another target – Blackmores ((BKL)) – fell -3.8%.

Second most heavily shorted is Tassal Group ((TGR)). It fell -2.0%. Mind you, rival Huon Aquaculture ((HUO)) fell -12.1% on a profit warning.

Note that when I say “heavily shorted”, Webjet is 15% shorted. Under bizarre US rules, GameStop was shorted more than its actual free-float. Not sure how that works, but it does help to explain the past week’s madness.

Let’s talk stimulus

GameStop fell -60% last night. Now it’s only up 400% for the year. I doubt the selling’s over. Other “Reddit stocks” also saw similar plunges.

Has the squeeze come to an end? I’d say so. Silver fell -7.7% last night.

Focus can now return to Biden’s US$1.9trn stimulus package. It is increasingly clear his attempts to garner bipartisan support will fail, and compromise seems unlikely when the Republicans have offered up only US$600bn. Word from the White House is nevertheless that Biden will resign to using the Democrats’ casting vote majority in the Senate if necessary.

The main stumbling block is the planned US$15 minimum wage, the argument being it would lead to the loss of a million-plus jobs.

So while Wall Street’s rally last night lent itself a lot to the short squeeze fading, there was also a positive tone thanks to the promise of stimulus. While the process is still far from perfect, the vaccine rollout is now picking up pace since the change of government.

And it appears hospitalisations may have peaked.

Let us not forget there is also an earnings result season still underway. To date, 189 S&P500 companies have reported and 81% have beaten expectations.

Google has just this morning reported in the aftermarket and is up 6%. Amazon also reported but is down -0.6%.

With all three major indices rising by similar amounts, last night was more of a “buy everything” than any battle between growth and value, stay-at-home or otherwise. The standout sector in the S&P was financials (+2.5%), which will likely bode well for our banks again today.

Commodities

The silver squeeze didn’t last long.

The US dollar has found a bit of buying this week which is keeping a lid on base metals, while iron ore has slipped again.

With OPEC-Plus seemingly committed to its production curtailments, oil prices have now reached their highest levels in over a year.

It would be easy to pin a -0.4% fall in the Aussie to US$0.7593 on the RBA, but the truth is there was no movement post statement until the offshore markets kicked in. The US dollar index rose 0.2%.

Today

The SPI Overnight closed up 57 points or 0.9%.

Locally we’ll see building approvals numbers today while in the US, private sector jobs data are due.

Amcor ((AMC)) and BWP Trust ((BWP)) post earnings results today. We also have Temple & Webster ((TPW)) on the calendar today, but the company released unaudited results yesterday, which sent the stock down -4.6%.

The Australian share market over the past thirty days…

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