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The Overnight Report: Rotation Resumes

Daily Market Reports | Mar 03 2021

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

World Overnight
SPI Overnight (Mar) 6738.00 + 16.00 0.24%
S&P ASX 200 6762.30 – 27.30 – 0.40%
S&P500 3870.29 – 31.53 – 0.81%
Nasdaq Comp 13358.79 – 230.04 – 1.69%
DJIA 31391.52 – 143.99 – 0.46%
S&P500 VIX 24.10 + 0.75 3.21%
US 10-year yield 1.42 – 0.03 – 2.14%
USD Index 90.74 – 0.30 – 0.33%
FTSE100 6613.75 + 25.22 0.38%
DAX30 14039.80 + 26.98 0.19%

By Greg Peel

Double Counting

After a very strong night on Wall Street, the AX200 opened with a flourish yesterday as the computers pushed the index up 71 points in the first half hour. Then a human pointed out the reasons Wall Street had rallied on Monday night were the exact same reasons the ASX200 had rallied hard on Monday, so why are we going again?

At 2pm the index was back where it had closed on Monday, sparking a brief rally, before selling overwhelmed once more and from peak to close the index had fallen -100 points.

Nothing to be overly concerned about. And this morning, with the S&P500 down -0.8%, our futures are up 16.

The resource sectors led the index down yesterday on drops in oil and specifically gold prices. The iron ore price held up, but investors sold the Big Three anyway, likely because they’re now all ex-div so time to cash in and look elsewhere. Energy fell -1.9% and materials -1.5% with daylight next.

The only two sectors to close in the green were staples (+0.8%) and banks (+0.4%).

The RBA did nothing new at its meeting yesterday other than note the bond purchases it made on Monday were a bring-forward of the next tranche of QE planned for after this month, and there is no change to the total QE target. The purchases were brought forward to “assist with the smooth functioning of the market”.

Whack-a-mole.

The RBA will only raise rates when inflation is sustained in the 2-3% target range, and the board doesn’t see that happening until at least 2024.

Australia posted its seventh straight current account surplus in the December quarter, led once again by the trade balance, which was itself led not by volumes but by prices. Exports rose 3.8% and the star of the show was the rural sector, where volumes rose 23.5% to mark the biggest jump since 1974.

You know what you can do with your barley tariffs.

Imports rose 4.9%, because of the current trend of consumers buying “stuff” to compensate for the lack of other spending options.

Building approvals fell -11.2% in January after having surged late last year. Approvals were still up 39% annually. The HomeBuilder subsidy took a step down in January and will end this month, so there may be more of the same. However, lending to home construction is up a lazy 141% annual, so no great need to panic.

Nothing all that exciting among individual stocks yesterday, noting results season is done and dusted. Topping the index was a2 Milk ((A2M)) on a bit of bargain hunting after it was thumped post-result. It rose 7.6%.

Eagers Automotive ((APE)) was another suffering a negative result response. It rose 4.5%. Nine Entertainment’s ((NEC)) was well-received, and yesterday it kicked on 4.4%.

Gold miners appeared in the top five losers, along with Omni Bridgeway ((OBL)), after a weak result posted on Friday. It fell -7.0%. Zip Co ((Z1P)) fell -5.8% because it went up on Monday.

Pause and Recover

They’re still talking about us over there. “Leave it to Australia’s central bank to take action,” hailed a Dow Jones report last night. Will the Fed do the same?

It may not have to. On the assumption it would if necessary, US bond yields have now fallen back after last week’s surge. We recall that the US ten-year briefly hit 1.61% last Thursday before settling at 1.52% but has drifted back ever since, post-RBA intervention.

Last night the yield dropped another -3 basis points to 1.42%. But as yields ease off it is clear Wall Street does not believe they’re going to continue to just head back down again. For last night US stocks went back into growth-to-value rotation mode.

Up until the final hour, the Dow was slightly higher despite its big rally on Monday night and the Nasdaq was lower, after its big rally on Monday night, which reflects the text book rotation trade. A wave of late selling sent all indices into the red, but still the Dow well outperformed the Nasdaq.

The late selling was likely a response to Monday night’s enormous surge.

Biden’s stimulus bill is in the Senate, and the issue is not one of trying to get some Republicans on side, as that’s irrelevant, but making sure every single Democrat senator is on board. That is not yet certain, hence the bill may yet need some tweaking.

The main problem is the scatter gun approach of the stimulus, championed by Treasury Secretary Yellen, but not so popular with everyone. A more targeted package would appease the doubters. We could sum it all up simply by asking does Elon Musk need a US$1400 hand-out as well as Joe the janitor?

The Democrats have to reach a decision swiftly, as the stop-gap extension to government support agreed upon at the eleventh hour before the December expiry runs out at the end of March.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1735.20 + 13.90 0.81%
Silver (oz) 26.72 + 0.27 1.02%
Copper (lb) 4.17 + 0.02 0.47%
Aluminium (lb) 1.00 + 0.02 2.26%
Lead (lb) 0.95 – 0.00 – 0.18%
Nickel (lb) 8.41 – 0.13 – 1.49%
Zinc (lb) 1.29 + 0.01 0.98%
West Texas Crude 59.75 – 0.61 – 1.01%
Brent Crude 62.72 – 0.68 – 1.07%
Iron Ore (t) 175.55 + 1.20 0.69%

The US has placed new sanctions on Russia in response to the treatment of Alexi Navalny. Given the US has already upset the Saudis – twice – upsetting the Russians as well may not bode well for oil prices when OPEC-Plus meets to seek revenge later this week.

The question for the cartel is of course one of balancing production with price impact, so as to not shoot themselves in the foot. Both economies are totally reliant on oil exports. Oil prices have been quietly slipping away, but there’s no sign of panic.

The US dollar slipped back -0.3% to provide some reprieve for gold, alongside slightly weaker bond rates.

This didn’t help the Aussie situation. While yesterday’s RBA statement and current account surplus did not move the currency during the day, last night it jumped back another 0.8% to US$0.7834.

Here we go again.

Today

The SPI Overnight closed up 16 points.

Our GDP’s out today.

The world will release February service sector PMIs and the Fed will release its Beige Book.

US private sector jobs numbers are due tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M a2 Milk Co Downgrade to Lighten from Hold Ord Minnett
ALX Atlas Arteria Upgrade to Overweight from Equal-weight Morgan Stanley
APX Appen Upgrade to Buy from Accumulate Ord Minnett
ASB Austal Upgrade to Outperform from Neutral Credit Suisse
CRN Coronado Global Resources Upgrade to Add from Hold Morgans
DTC Damstra Holdings Downgrade to Equal-weight from Overweight Morgan Stanley
EVN Evolution Mining Upgrade to Buy from Neutral Citi
FLT Flight Centre Upgrade to Outperform from Neutral Macquarie
Upgrade to Hold from Lighten Ord Minnett
Downgrade to Sell from Neutral Citi
Downgrade to Underperform from Neutral Credit Suisse
Downgrade to Equal-weight from Overweight Morgan Stanley
Downgrade to Neutral from Buy UBS
NIC Nickel Mines Downgrade to Neutral from Buy Citi
NUF Nufarm Upgrade to Outperform from Neutral Macquarie
Downgrade to Neutral from Outperform Credit Suisse
NVX Novonix Upgrade to Add from Hold Morgans
ORI Orica Upgrade to Outperform from Neutral Credit Suisse
Downgrade to Neutral from Outperform Macquarie
Downgrade to Hold from Add Morgans
Downgrade to Neutral from Buy UBS
QUB Qube Holdings Downgrade to Neutral from Outperform Credit Suisse
Downgrade to Hold from Buy Ord Minnett
REH Reece Upgrade to Hold from Lighten Ord Minnett
RHC Ramsay Health Care Downgrade to Neutral from Buy Citi
TPG TPG Telecom Upgrade to Buy from Neutral UBS
VOL Victory Offices Downgrade to Hold from Buy Ord Minnett
WGN Wagners Holding Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Outperform from Neutral Macquarie
WTC Wisetech Global Upgrade to Neutral from Sell Citi

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

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CHARTS

A2M APE NEC OBL

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For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED

For more info SHARE ANALYSIS: NEC - NINE ENTERTAINMENT CO. HOLDINGS LIMITED

For more info SHARE ANALYSIS: OBL - OMNI BRIDGEWAY LIMITED