The Overnight Report: Going Nowhere

This story features TRANSURBAN GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TCL

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Micro Mix

There remains an underlying macro undertone of case numbers falling and vaccines being swiftly rolled out in the world’s hotspots, and now being rolled out in Australia. But with Wall Street in a holding pattern, another rally for the local market yesterday was all about micro stories.

Energy was the best performing sector (+2.1%) as the big freeze in Texas shuts down supply.

Industrials came in with 1.9% on a 4.7% rebound for Transurban ((TCL)), due to Melbourne’s lockdown ending tonight. That rebound nonetheless flew in the face of rising bond yields. The Australian ten-year is now at 1.33%, largely following US yields.

Higher yields are not good for utilities (-0.5%) but are good for banks (+0.5%). That financial sector move is net of Commonwealth Bank ((CBA)) going ex-div yesterday so better than it appears, helped by a solid trading update from National Bank ((NAB)), which rose 1.1%.

Having shot up 11% on its result on Monday, Bendigo & Adelaide Bank ((BEN)) gained another 6.8% yesterday on positive broker assessments.

Healthcare (+1.3%) was driven by a 2.0% gain for CSL ((CSL)), as the TGA approves the AstraZeneca vaccine.

Technology had a rare weak session (-0.4%) on a Nasdaq gain, despite another 10.0% leap for Zip Co ((Z1P)). It was up 18% early in the session, prompting a “please explain” from the ASX. Management couldn’t. Reddit might. It appears Zip’s newfound popularity is Afterpay’s ((APT)) loss (-0.4%). Where goes Afterpay goes the sector.

Having already jumped up sharply on its result on Monday, Seven West Media ((SWM)) jumped 16% after revealing it has come to an agreement with Google.

Then we get into the day’s earnings results.

BHP Group ((BHP)) starred with a chunky dividend, and rose 2.7%. The materials sector gained 1.3%, also aided by a not so scrappy result from Sims ((SGM)). It rose 7.4%.

Consumer discretionary was the worst performing sector (-0.7%), led by kitchen & bathroom company GWA Group ((GWA)), down -8.1%, and ARB Corp ((ARB)), down -3.3%. It was more about outlook than earnings in both cases, with GWA noting strength in house construction/renovation but weakness in apartments and commercial.

4WD accessories specialist ARB has had a strong run in covid, but warned investors not to necessarily expect it to continue. Another high flyer of the times has been furniture & homewares retailer Adairs ((ADH)). It fell -3.8% on result.

Today is the first really big day of results season. So with Wall Street yet again flat, today’s session will again focus on earnings results and any other micro news.

We’re not off to a great start though, with the futures suggesting a bit of overheating on -20 points this morning.

Bonding

The US ten-year yield leapt 10 basis points to 1.30% last night, having spent some time stuck around 1.20%. With the Fed making QE purchases at the two-year maturity, that yield is stuck at 0.12%, so the yield curve is steepening rapidly.

Which is all a banker dreams of. The two sectors initially hardest hit in the pandemic were banks and energy. Last night JPMorgan (Dow) hit a new all-time high. Banks and energy once again were the standout sector performers last night. The big freeze is particularly driving up the price of natural gas.

Communication services was the only other sector to close in the green, modestly, while all other sectors fell. Utilities (-1.2%) was the hardest hit on bond yields.

While 1.30% is hardly a level at which to panic, inflation expectations that the Fed does not share are beginning to build. The higher bond yields rise, the more they undermine the forward earnings forecasts of high-flying growth stocks.

The Nasdaq was the underperformer last night.

Yet expectations the Democrats will shortly ram through their stimulus package continue to provide a floor. Biden is still trying to get some Republicans onside, hoping to use last week’s floor show in Congress as a wedge to those senators clearly not in the Trump Camp.

Also underpinning Wall Street is the rapidly declining case-count. The US averaged 85,798 new cases a day in the past week, down -41% from the average two weeks ago.

While the Dow hit another new all-time high last night, Wall Street continues to go largely nowhere. Despite the underpinnings, if a market tries hard to rally but can’t, there is typically a cooling off period.

Commodities

The jump in US bond yields has gold down sharply once more, on a day when Bitcoin hit US$50k before backing off.

Otherwise, not a lot going on. The Chinese will be back tomorrow.

The Aussie has slipped back -0.3% to US$0.7763. The minutes of the last RBA meeting, released yesterday, told us nothing new.

Today

The SPI Overnight closed down -20 points or -0.3%.

The minutes of the last Fed meeting are out tonight, along with numbers for US industrial production, retail sales and housing sentiment.

Rio Tinto ((RIO)) follows up with its result today, but we’re now at the point at which there are too many companies reporting to pick highlights. Please refer to the FNArena Calendar.

Westpac ((WBC)) provides its quarterly update today.

FNArena's Corporate Results Monitor is updated daily throughout the month: https://www.fnarena.com/index.php/reporting_season/ (includes corporate results calendar near the bottom)

The Australian share market over the past thirty days…

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

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