The Overnight Report: Nas-Scare

Daily Market Reports | Feb 24 2021

This story features OIL SEARCH LIMITED, and other companies. For more info SHARE ANALYSIS: OSH

World Overnight
SPI Overnight (Mar) 6766.00 – 25.00 – 0.37%
S&P ASX 200 6839.20 + 58.30 0.86%
S&P500 3881.37 + 4.87 0.13%
Nasdaq Comp 13465.20 – 67.85 – 0.50%
DJIA 31537.35 + 15.66 0.05%
S&P500 VIX 23.11 – 0.34 – 1.45%
US 10-year yield 1.36 – 0.01 – 0.58%
USD Index 90.15 + 0.09 0.10%
FTSE100 6625.94 + 13.70 0.21%
DAX30 13864.81 – 85.23 – 0.61%

By Greg Peel

Simon – Tahiti

At midday yesterday the government announced the new JobSeeker rate post March will be $50 per fortnight above the old pre-pandemic dole. That news was worth 65 points to the ASX200.

The index had been directionless in the morning, down as many as -15 points around 11am in line with the morning’s futures market prediction. But hey, an extra $3.57 per day? Get me in!

Elsewhere the dole increase has gone down like a lead balloon but the government has also raised the threshold of allowable income before the dole is revoked, albeit the obligation to actively seek work and prove it has also been reinstated.

Clearly the market assumed all that extra cash will go towards filling the tank given the energy sector leapt 4.9% to be the standout performer. Or we might look to a near 4% jump in oil prices overnight and a well-received earnings result from sector heavyweight Oil Search ((OSH)), which gained 6.4% and dragged the other biggies with it.

Perhaps that $3.57 day will be the lifeline for struggling shopping malls. Having been sold down recently on rising bond yields, Scentre Group ((SCP)) rose 6.0% and the property sector gained 2.5%.

One might imagine consumer discretionary would be a winner but that sector fell -2.0%. This was largely due to sector heavyweight Domino’s Pizza ((DMP)) falling -8.9%, because it went ex-dividend, although G8 Education ((GEM)) copped a -7.3% hiding on its result.

The banks rose 1.5% to provide a lot of those index points which we likely could tie to additional handouts. Materials gained 2.0% but that was all about further jumps in commodities prices, most of which reversed last night.

Industrials were solid (+1.6%) on decent gains for vaccine beneficiaries such as toll roads, airlines and airports while Adbri ((ABC)) cemented its position at the top of the index winners’ table with a 10.5% jump on result.

You’d think more dole would mean greater capacity to pay phone bills but no, telcos fell a full -1.9%. Utilities dropped another -0.7%, so maybe these sectors didn’t get the memo that we were not worrying about rising bond yields yesterday.

Other big individual movers on the day included insurance broker AUB Group ((AUB)), up 10.1% on result, Corporate Travel Management ((CTD)), up 9.8% on a vaccine short-squeeze, Bank of Queensland ((BOQ)) up 9.5% as brokers shouted ME, ME, ME, and Lendlease ((LLC)), up 8.4% in the wake of a broker upgrade post Monday’s result release.

The big earnings result loser on the day was mining contractor Perenti Global ((PRN)), down -12.6%, and shipbuilder Austal ((ASB)) down -10.9% after revealing it had done something naughty in the US, littorally.

Afterpay ((APT)) fell -7.2%, and the technology sector -4.1%, in response to the Nasdaq.

It was really quite an extraordinary day of very big sector moves in either direction.

It appears that that Wall Street didn’t do much last night, but nothing could be further from the truth. Our futures are down -25 this morning.

(In case you’re not of a certain age, the title above is the tag-line to a seventies ad for “luxury” soap.)

Stop the World

Nervousness had been building over the past few sessions due to the sharp rise in US bond yields and its impact on growth sectors, particularly tech. The Nasdaq had begun to fall gradually before a -2.5% drop on Monday night really brought on the jitters.

The Nasdaq opened down almost -4% from the bell last night. The weak growth stock trend had been countered by a rotation into “value” industrials – mostly post-covid recovery stories – sending the Dow on to new highs. The Dow opened down -360 points.

It lasted all of 15 minutes.

With 15 minutes to go the Dow was up 130 points and the Nasdaq was back to square. Last minute selling had the Dow closing up 15 and the Nasdaq down -0.5%, which is very reminiscent of most of the past several sessions. At the close it looked like nothing new had happened.

The rebound happened to coincide with Fed chair Jerome Powell’s semi-annual testimony to a Senate Committee, leading to Powell being given the credit for the rebound.

“We will be watching that very carefully,” Powell said of inflationary pressures from another huge stimulus package. But he noted that the “economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.” He described the recovery as “uneven” and “far from complete,” while saying the path ahead remained “highly uncertain.” He acknowledged however that “developments point to an improved outlook for later this year.”

Is an “improved outlook” good? Not necessarily as it might mean a tapering of monetary support. Otherwise Jay must be feeling a bit the broken record by now. He said nothing new and on that basis I doubt the sharp Wall Street rebound was really all his doing.

Noting that the US ten-year yield actually fell last night, albeit by only one point to 1.36%, I’d be more inclined to suspect the opening -4% drop for the Nasdaq was a computer-driven attempt by hedge funds to completely spook the market, and it didn’t work. Data have shown inflows into investment funds and new account openings at retail brokerages have hit record highs in the past couple of months.

There is a lot of money looking to be put to use, and any chance to pick up the Teslas of this world at a lower price is welcomed. Once the turnaround kicked off, it was then incumbent on the momentum algos to swing into action in the other direction.

For that is the way of stock markets these days.

Meanwhile, the House last night approved the Democrats’ US$1.9trn stimulus bill, which is another step towards its actual passage, and likely another impetus for the rebound.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1806.10 – 2.60 – 0.14%
Silver (oz) 27.65 – 0.41 – 1.46%
Copper (lb) 4.12 + 0.06 1.38%
Aluminium (lb) 0.98 – 0.01 – 0.86%
Lead (lb) 0.95 – 0.02 – 1.86%
Nickel (lb) 8.71 – 0.09 – 1.06%
Zinc (lb) 1.29 – 0.02 – 1.53%
West Texas Crude 62.05 + 0.56 0.91%
Brent Crude 65.81 + 0.63 0.97%
Iron Ore (t) 172.25 – 3.35 – 1.91%

I noted yesterday copper had had a rest on Monday night, but last night the doctor sprung back into action to counter falls elsewhere among the metals, possibly sparked by a bounce in the US dollar, albeit only of 0.1%.

Oil markets continue to take a short-term risk ahead of the next OPEC-Plus meeting in April.

The Aussie remains stunned and unmoved at US$0.7920.

Today

The SPI Overnight closed down -25 points or -0.4%, suggesting a little of yesterday’s heat might come out today.

But today is the biggest day in the local earnings season to date by a margin, challenged only by tomorrow. So anything could happen.

We’ll also see December quarter numbers for construction work done and the wage price index today.

The RBNZ holds a policy meeting.

The US will see durable goods orders data.

Note Telstra ((TLS)) goes ex today, among a host of others.

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
BIN Bingo Industries Downgrade to Neutral from Outperform Credit Suisse
CGC Costa Group Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Neutral from Buy UBS
COH Cochlear Downgrade to Sell from Neutral Citi
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
IDX Integral Diagnostics Downgrade to Neutral from Outperform Credit Suisse
LLC Lendlease Upgrade to Outperform from Neutral Credit Suisse
LOV Lovisa Holdings Upgrade to Overweight from Equal-weight Morgan Stanley
MOC Mortgage Choice Downgrade to Neutral from Buy Citi
NHC New Hope Corp Upgrade to Neutral from Underperform Macquarie
OGC Oceanagold Downgrade to Hold from Accumulate Ord Minnett
ORA Orora Upgrade to Buy from Neutral Citi
PGH Pact Group Downgrade to Neutral from Outperform Credit Suisse
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
TYR Tyro Payments Upgrade to Buy from Accumulate Ord Minnett
UMG United Malt Group Upgrade to Outperform from Neutral 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

ABC APT ASB AUB BOQ CTD DMP GEM LLC OSH PRN SCP TLS

For more info SHARE ANALYSIS: ABC - ADBRI LIMITED

For more info SHARE ANALYSIS: APT - AFTERPAY LIMITED

For more info SHARE ANALYSIS: ASB - AUSTAL LIMITED

For more info SHARE ANALYSIS: AUB - AUB GROUP LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

For more info SHARE ANALYSIS: GEM - G8 EDUCATION LIMITED

For more info SHARE ANALYSIS: LLC - LENDLEASE GROUP

For more info SHARE ANALYSIS: OSH - OIL SEARCH LIMITED

For more info SHARE ANALYSIS: PRN - PERENTI GLOBAL LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA CORPORATION LIMITED