The Overnight Report: Little Trouble In Big Tech

Daily Market Reports | Feb 23 2021

This story features BHP GROUP, and other companies. For more info SHARE ANALYSIS: BHP

World Overnight
SPI Overnight (Mar) 6700.00 – 13.00 – 0.19%
S&P ASX 200 6780.90 – 12.90 – 0.19%
S&P500 3876.50 – 30.21 – 0.77%
Nasdaq Comp 13533.05 – 341.42 – 2.46%
DJIA 31521.69 + 27.37 0.09%
S&P500 VIX 23.45 + 1.40 6.35%
US 10-year yield 1.37 + 0.03 1.86%
USD Index 90.06 – 0.30 – 0.33%
FTSE100 6612.24 – 11.78 – 0.18%
DAX30 13950.04 – 43.19 – 0.31%

The Nasdaq continued to slide last night as rising yields wear down the FANGs, while industrials head ever higher. Dow up 27.

By Greg Peel

Call the Doctor

After the big slide in US dollar earners on Friday, driven by a surging currency and rising bond yields, it was testament to the balance of the stronger Aussie, and the commodity price gains that are driving it, that the materials sector was yesterday the only sector to close in the green.

We tend to consider them in the context of iron ore but BHP Group ((BHP)) and Rio Tinto ((RIO)) are both major global copper miners, and copper crossed the US$4/lb mark on Friday night on its way to an unprecedented eleven month rally. Iron ore rose again yesterday as well.

Domestic copper play Sandfire Resources ((SFR)) gained 8.5%.

Gold was also up. The materials sector closed up 2.6% to provide the offset to every other sector.

Another flip from Friday was that of Macquarie Group ((MQG)), which yesterday reminded the market it was a big player in US oil & gas infrastructure and markets, and thanks to the Texas freeze has upgraded guidance. Macquarie fell -2.4% in Friday’s sell-off and jumped back 3.4% yesterday against the bank sector tide.

Otherwise it would appear Friday’s selling has struck a chord and investors are feeling nervous in general, more so than just with regard the Aussie. But it was also another day in which earnings reports featured heavily.

Green grocer Costa Group ((CGC)) topped the index winners’ board with a 13.0% gain on result. Health insurer nib Holdings ((NHF)) chimed in with 6.8%. But some of the bigger moves were outside the ASX200.

Outdoor advertiser oOh!media ((OML)) jumped 14.5% on its numbers, AV solutions company Audinate ((AD8)) scored 8.3%, and Senex Energy ((SXY)) rose 7.6%. Graphite miner Syrah Resources ((SYR)) gained 11.3% on news it will restart its shuttered Balama mine. Bling retailer Lovisa Holdings ((LOV)) reported on Friday but jumped 16.4% yesterday on broker upgrades.

The index top five was otherwise dominated by the three major travel agents, as local and global vaccine rollouts provide a glimmer of hope. The most shorted stock on the ASX – Webjet ((WEB)) – rose 8.9%.

There were no particularly big losers on the day to counter these big gains, just widespread selling. Platinum Asset Management ((PTM)) was the only reporting stock on the day to make the top five index losers, falling -3.7%.

Otherwise, no falls above -5% were recorded, and we note Fisher & Paykel Healthcare ((FPH)) dropped -4.1%. The ventilator manufacturer is rather the antithesis of travel agents at this time.

The hardest hit sector yesterday was healthcare (-2.2%) as investors continue to bail out of CSL ((CSL)) on plasma collection fears. Technology (-1.7%) was next worst, and will be under pressure today after the Nasdaq dropped overnight.

The futures are down -13 this morning.

Selling Accelerates

The US ten-year bond yield briefly hit 1.39% last night before settling back to be up 3 basis points at 1.37%. Selling in US Big Tech had been gradual last week as bond yields rose, but last night signs of panic set in.

The Nasdaq fell a full -2.5% when the Dow closed slightly higher. The S&P500 split the difference with -0.8%. At the risk of repeating myself, high bond rates reduce today’s value of future growth and the US technology companies big and small are all about growth potential.

Bond yields began quietly rising in November when Biden won, and kicked on in January when the Democrats won the Georgia run-offs to even up the Senate. Once Biden made it clear he would use the VP casting vote to push through his US$1.9trn stimulus package, yields took off.

That bill has now been cleared to go to the House for consideration. While it is unsure whether every Republican senator will vote against, assuming it passes the House, more critical for Biden is ensuring all Democrat senators are on board. Some moderates are not that happy with the size of the package.

It was notable last night that the US dollar index dropped -0.3% on the same stimulus theme, and is looking set to break down through the 90 level.

The higher yields go, and the yield curve steepens, the longer the run-up for the US bank sector. Last night oil prices jumped again, so last night was another session led by banks and energy stocks while the Big Three of tech – technology, communication services and consumer discretionary – all got carted, along with utilities.

Fed chair Jerome Powell is set to testify before Congressional committees tonight and tomorrow night, which is a semi-annual requirement. He has remained stoically in the “no inflation fear” camp, so Wall Street will be interested to hear what he has to say.

Probably that with 10 million Americans still out of work, inflation is not a risk at this stage.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1808.70 + 24.10 1.35%
Silver (oz) 28.06 + 0.80 2.93%
Copper (lb) 4.07 + 0.02 0.61%
Aluminium (lb) 0.98 + 0.02 2.05%
Lead (lb) 0.97 + 0.00 0.29%
Nickel (lb) 8.80 + 0.18 2.07%
Zinc (lb) 1.31 + 0.02 1.30%
West Texas Crude 61.49 + 2.25 3.80%
Brent Crude 65.18 + 2.27 3.61%
Iron Ore (t) 175.60 + 3.40 1.97%

The oils leapt up again last night on news it will take longer than usual (such as a hurricane) to restore production and refinery output given the Texan freeze is not something the infrastructure was built to handle.

Not meant to snow in Texas. Last week’s US crude production is reported as having fallen -40%.

Meanwhile, the weaker US dollar is only serving to underpin the ongoing, infrastructure stimulus-driven rally in metals and minerals. Copper took a bit of a breather last night to let others have a go.

And gold is baaack.

Unfortunately, it all adds up to another 0.6% jump in the Aussie, to US$0.7921.

Today

The SPI Overnight closed down -13 points on a balance of stronger commodity prices, a higher Aussie and risk of copy-cat tech selling today.

The ABS will release preliminary January trade data today and the US will see monthly consumer confidence.

It’s another big day for earnings results.

FNArena's Corporate Results Monitor is updated daily throughout the month: https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M a2 Milk Co Upgrade to Hold from Lighten Ord Minnett
BAP Bapcor Limited Downgrade to Hold from Add Morgans
CAR Carsales.Com Upgrade to Buy from Neutral UBS
COH Cochlear Downgrade to Sell from Neutral Citi
COL Coles Group Downgrade to Neutral from Buy Citi
Downgrade to Neutral from Outperform Credit Suisse
CSL CSL Downgrade to Neutral from Buy Citi
Downgrade to Neutral from Outperform Credit Suisse
CTD Corporate Travel Downgrade to Neutral from Outperform Macquarie
CWN Crown Resorts Upgrade to Outperform from Neutral Credit Suisse
EVT Event Hospitality Upgrade to Buy from Sell Citi
GMG Goodman Grp Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Outperform from Neutral Macquarie
Upgrade to Buy from Hold Ord Minnett
LOV Lovisa Holdings Upgrade to Overweight from Equal-weight Morgan Stanley
MOC Mortgage Choice Downgrade to Neutral from Buy Citi
NWL Netwealth Group Upgrade to Hold from Sell Ord Minnett
OGC Oceanagold Downgrade to Hold from Accumulate Ord Minnett
ORA Orora Upgrade to Buy from Neutral Citi
PGH Pact Group Upgrade to Buy from Hold Ord Minnett
Downgrade to Neutral from Outperform Credit Suisse
PME PRO Medicus Downgrade to Hold from Add Morgans
QBE QBE Insurance Upgrade to Neutral from Underperform Macquarie
Upgrade to Buy from Neutral UBS
SKC SKYCITY ENTERTAINMENT Upgrade to Buy from Neutral UBS
STO Santos Downgrade to Accumulate from Buy Ord Minnett
SVW Seven Group Upgrade to Accumulate from Hold Ord Minnett
TAH Tabcorp Holdings Upgrade to Buy from Neutral Citi
Upgrade to Hold from Lighten Ord Minnett
TWE Treasury Wine Estates Upgrade to Accumulate from Lighten Ord Minnett
UMG United Malt Group Upgrade to Outperform from Neutral Credit Suisse
VCX Vicinity Centres Downgrade to Neutral from Outperform Credit Suisse
WSP Whispir Upgrade to Buy from Hold Ord Minnett

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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CHARTS

AD8 BHP CGC CSL FPH LOV MQG NHF OML PTM RIO SFR SXY SYR WEB

For more info SHARE ANALYSIS: AD8 - AUDINATE GROUP LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP

For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: LOV - LOVISA HOLDINGS LIMITED

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

For more info SHARE ANALYSIS: NHF - NIB HOLDINGS LIMITED

For more info SHARE ANALYSIS: OML - OOH!MEDIA LIMITED

For more info SHARE ANALYSIS: PTM - PLATINUM ASSET MANAGEMENT LIMITED

For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED

For more info SHARE ANALYSIS: SFR - SANDFIRE RESOURCES NL

For more info SHARE ANALYSIS: SXY - SENEX ENERGY LIMITED

For more info SHARE ANALYSIS: SYR - SYRAH RESOURCES LIMITED

For more info SHARE ANALYSIS: WEB - WEBJET LIMITED