The Overnight Report: Revitalised, Re-Vaccinated

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By Greg Peel

Clueless

It’s the only word one could use to describe the current action in the Australian market. Sharp spike up one day, sharp spike down the next. One day we’re cheering on commodity prices and the next we’re running scared of the coincidental currency surge. One day we’re freaking out over rising bond yields and the next we’re cheering on vaccine rollouts.

On Tuesday we seemed all excited about a $25 per week increase to the dole, and then yesterday we freaked out when the December quarter wage price index was released.

For it appears to be that release, and concurrent release of December quarter construction work done numbers, that sent the ASX200 downward again yesterday to wipe out the gains of Tuesday.

The market opened slightly lower yesterday morning, led down by technology, which followed down the Nasdaq, and nothing much transpired until 11am. Then down we went, bottoming out at -80 before some buying emerged in the final hour.

The December quarter wage price index showed 0.6% growth when 0.3% was expected. Remember those days? They started back in October last year. The ABS attributed the surprise result to the reversal of pre-pandemic wage freezes, and a deferred minimum wage increase having been deferred to November. In other words – one-offs.

The market simply saw wage price inflation. Never mind that Tuesday’s dole increase is also by rights inflationary.

Construction work done fell -0.9% in the quarter when 1.0% growth was forecast. This despite a 2.7% jump in the residential segment, driven by low rates and government subsidies. Weakness was expected in private commercial and engineering, but not so much in public sector construction, which was the real drag.

But it was only at this time federal and state governments started announcing their big infrastructure plans, as a means of economic stimulus. These things don’t then commence the next day. Indeed, a constant theme of broker analysis to date of engineering and building material company earnings results is that all hinges on public infrastructure, in the second half (January-June).

Never mind. The futures are up 44 points this morning, so we can once again write off the previous day.

Sector-wise it was a bit of a mixed bag. Technology unsurprisingly fell -2.7% but materials were slapped down -2.2% on the slightest dips in commodity prices. Telcos fell -2.6%. Telstra ((TLS)) went ex-dividend.

Drops of -0.5% in energy and banks were possibly due to strength the day before, and utilities looked right out of whack in rising 0.7%. We can thank APA Group’s ((APA)) earnings result.

Yes, beneath the macro craziness the results season powers on, with yesterday’s by far the largest list of reporting companies to date. There were the usual sharp up and down moves on yesterday’s numbers, but no mega-caps to particularly impact on sector moves.

We’re still number one, said Nine Entertainment ((NEC)), topping the index with a 9.7% jump. IDP Education ((IEL)) gained 7.2%, and 6%-plus gains were recorded by all of Platinum Asset Management ((PTM)), Blackmores ((BKL)) and Bega Cheese ((BGA)) on result.

In the naughty chair were beleaguered Appen ((APX)), down -12.0%, Nanosonics ((NAN)), with -8.1% and Eagers Automotive ((APE)), on -7.3%. Seek ((SEK)) reported on Tuesday but fell another -7.8% yesterday as brokers questioned the fire sale sell-down of the company’s Zhaopin stake.

Today’s list of reporting companies is much the same as yesterday’s in number. But today we’re all excited because Wall Street has taken off.

Given the All-Clear

We recall that from the open on Tuesday night, the Nasdaq plunged -4% and the Dow dropped -360 points. It appeared that the much feared growth apocalypse had arrived. But fifteen minutes later Wall Street swung hard, sending the Dow to a flat close and the Nasdaq only down -0.5%.

No growth apocalypse, for now. If that’s the case, buy!

It is consistently evident that plenty of would-be buyers are taking any opportunity of a pullback to jump into the popular big names at a better price. But it is also now clear that while millennials love growth, the bulk of investors have firmly turned their attention to value.

Growth has been leading the Wall Street rally for over a decade and surged out of the initial covid crash last year to spectacular new highs. There was the odd attempt at rotation in 2020 that never amounted to much, until Biden won the election at the same time the first vaccine was announced. And then the second.

Last night a third (for the US) moved towards approval. There has been much anticipation of the approval of the Johnson & Johnson vaccine, as it is one-dose only and can be stored in a regular fridge.

J&J’s candidate should be cleared for emergency use by the FDA this weekend. This news provided the extra kicker last night for a market already in a buying frame of mind. A return to a post-covid “normal” means the hardest hit, boring old world industrials will see a return to earnings growth. Some of the big growth names will lose their stay-at-home appeal.

The value play now appears firmly entrenched. Yet the Dow’s outperformance of the Nasdaq last night was not as distinct as it has been in recent sessions. That would be the aforementioned millennials.

Tesla jumped 6%.

Commodities

Where will copper stop?

The slow restart of storm-hit infrastructure in Texas is continuing to support oil prices.

The US dollar is flat but the Aussie is up another 0.5% at US$0.7958. Bit of a kick from wages.

Today

The SPI Overnight closed up 44 points or 0.7%.

Following on from yesterday’s December quarter numbers, today we’ll see private sector capex.

Japan is closed today.

The US will see another revision of its December quarter GDP.

It’s another big, big day of earnings results.

There are some big exes today as well, including those of Woodside Petroleum ((WPL)), JB Hi-Fi ((JBH)) and Super Retail ((SUL)).

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…

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

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