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The Monday Report – 02 August 2021

Daily Market Reports | Aug 02 2021

This story features REDBUBBLE LIMITED, and other companies. For more info SHARE ANALYSIS: RBL

World Overnight
SPI Overnight (Jun) 7337.00 + 37.00 0.51%
S&P ASX 200 7392.60 – 24.80 – 0.33%
S&P500 4395.26 – 23.89 – 0.54%
Nasdaq Comp 14672.68 – 105.59 – 0.71%
DJIA 34935.47 – 149.06 – 0.42%
S&P500 VIX 18.24 + 0.54 3.05%
US 10-year yield 1.24 – 0.03 – 2.36%
USD Index 92.17 + 0.27 0.29%
FTSE100 7032.30 – 46.12 – 0.65%
DAX30 15544.39 – 96.08 – 0.61%

By Greg Peel

End of Month I

The ASX200 followed Wall Street from the open on Friday, peaking at 7437 in the first 15 minutes; -10 points shy of the all-time high. But it was all downhill from there.

The index chopped around to be flat at 3pm and then in came the end-of-month sellers. It was not a uniform sell-off, with sector moves ranging from -2.5% for technology to +1.4% for property.

Tech was hit on two fronts. Firstly, Amazon’s after-the-bell result on Thursday night had that stock down -7% on disappointing guidance, setting the Nasdaq up for a fall on Friday night. While the bulk of Australian tech companies look nothing like Amazon, it’s a growth stock sentiment thing.

Perhaps closest, outside Kogan, is Redbubble ((RBL)), which is indeed an online marketplace but more Etsy-like in that it sells arty-crafty stuff, including fancy masks. The stock had been appearing in the top five index movers lists all last week, on either side of the ledger, and on Friday fell -11.2% for no other reason.

Secondly, BNPL player Sezzle ((SZL)) posted a quarterly report but also signalled the end of escrow. It fell -11.0% and dragged all BNPLers down with it.

One wonders why REITs would be sought after with delta running riot, impacting on retail and offices, but as had been noted, REITS are seen as a hedge against inflation. Australia’s June quarter PPI came in at 2.2% annual – the highest level since 2014.

Energy took a tumble (-1.1%) after Origin Energy’s ((ORG)) quarterly included a big write-down of generation assets and goodwill. It fell -7.9%, while peer AGL Energy ((AGL)), which is a utility, fell -3.0% and the utilities sector -1.7%.

Healthcare fell -0.5% because the Aussie was up (then down on Friday night) and consumer discretionary fell -0.7% because that’s Amazon’s sector.

Holding firm were financials (flat), after National Bank ((NAB)) launched a buyback, in the wake of ANZ Bank and with the other two expected to follow. Janus Henderson ((JHG)) rose 7.7% on its quarterly result, to top the index winners.

In another warning, as we head into results season, that covid-winners may have run too far, Marley Spoon ((MMM)) fell -21% on its quarterly results.

Materials fell -0.5%, including a -5.3% drop for Fortescue Metals ((FMG)). The miner had announced a quarterly production and revenue beat on Thursday but also rising costs. Friday also saw the iron ore price plunge, albeit the damage was mostly done after the ASX closed.

China is again using the smokescreen of emissions reduction to signal a reduction of Australian iron ore exports – not from anywhere else, just Australia – and cut back on steel production. The spot iron ore price fell -7% to US$180.50/t, although analysts have been expecting this for some time.

Our futures were up 37 points on Saturday morning, countering Friday’s late end-of-month selling, ignoring the iron ore price, focusing on gold, gold, gold for Australia.

End of Month II

At the end of the day, a -0.7% fall for the Nasdaq when Amazon fell -7.6% is a pretty good effort. Widespread selling on Wall Street was again attributed to end-of-month squaring. July marks six straight months of Wall Street gains.

Pinterest, which provides an online platform for shared-interest communities, was the latest covid winner to prove lockdowns made 2020 a year like no other. It fell -19% on its earnings report.

Yet still almost 90% of companies reporting to date have beaten forecasts, and average S&P500 earnings gains (year on year) are still running around 17%. This week is the biggest in the US reporting season by number of stocks.

The impact of delta has become a very one-day-on, one-day-off affair. Wall Street was heartened earlier in the week by signs the UK outbreak was finally blowing itself out, and noting the original Indian surge also seemed to blow itself out having reached peak grimness.

But on Friday night the CDC warned that even vaccinated people could unwittingly catch and pass on the virus without showing symptoms, hence a recommendation that everyone, including the vaccinated, should wear masks indoors.

Certain state governments will of course ignore this warning but they can’t stop individual corporations setting their own rules, spanning everything from workers having to be vaccinated, to customers having to wear masks, and a hold-off on workers returning to the office.

As the list of these companies grows, and health authority warnings become more urgent, Wall Street again has covid high on its risk list.

In economic news, the Fed’s preferred PCE measure of inflation came in at 4.0% for June – the fourth month of inflation surge. Back in December, the Fed’s forecast for this measure in 2021 was 1.8%.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1813.80 – 14.10 – 0.77%
Silver (oz) 25.46 – 0.02 – 0.08%
Copper (lb) 4.41 – 0.01 – 0.21%
Aluminium (lb) 1.17 + 0.02 1.59%
Lead (lb) 1.09 + 0.01 0.84%
Nickel (lb) 8.89 – 0.05 – 0.60%
Zinc (lb) 1.37 + 0.02 1.44%
West Texas Crude 73.95 + 0.33 0.45%
Brent Crude 75.41 – 0.53 – 0.70%
Iron Ore (t) 180.50 – 14.50 – 7.44%

If gold is meant to be an inflation hedge it didn’t work on Friday night, with the US dollar’s renewed rise taking some wind out of the sails of last week’s pop.

Base metals were mixed, leaving iron ore to rather stand out.

The oils continue to hang in there on a balance of reduced demand fears (delta) meeting reduced supply.

The greenback may have risen 0.3% but a -0.7% fall for the Aussie to US$0.7343 has iron ore written all over it.

The Week Ahead

The local earnings season kicks off this week although it’s a bit of a trickle before the flood sets in. See the FNArena Calendar for details.

It will be a busy week economically nonetheless, with job ads today, building approvals, house prices and housing finance tomorrow, and final reads for June retail sales on Wednesday and trade on Thursday.

Today is global manufacturing PMI day across the globe.

The RBA meets tomorrow and issues a Statement on Monetary Policy on Friday.

The Bank of England meets on Thursday.

It’s jobs week in the US, with private sector numbers due on Wednesday and non-farm payrolls on Friday.

Today is a bank holiday in NSW which does not shut the ASX but does suggest a quieter session.

Although with the SPI Overnight closing up 37 points or 0.5% on Saturday morning, it may not be so quiet.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANN Ansell Downgrade to Neutral from Outperform Credit Suisse
BSL Bluescope Steel Downgrade to Neutral from Outperform Macquarie
CMM Capricorn Metals Downgrade to Underperform from Neutral Macquarie
CPU Computershare Downgrade to Lighten from Hold Ord Minnett
CQE Charter Hall Social Infrastructure REIT Downgrade to Hold from Accumulate Ord Minnett
DHG Domain Australia Upgrade to Outperform from Neutral Credit Suisse
FMG Fortescue Metals Downgrade to Neutral from Outperform Credit Suisse
IRE Iress Downgrade to Neutral from Outperform Credit Suisse
JHG Janus Henderson NeutralNeutral Citi
MYX Mayne Pharma Upgrade to Neutral from Underperform Macquarie
NIC Nickel Mines Downgrade to Neutral from Outperform Macquarie
PAN Panoramic Resources Upgrade to Add from Hold Morgans
SBM St. Barbara Downgrade to Neutral from Buy Citi
SWM Seven West Media Upgrade to Buy from Accumulate Ord Minnett
WAF West African Resources Downgrade to Neutral from Outperform Macquarie
WTC WiseTech Global Upgrade to Outperform from Neutral Credit Suisse

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

AGL FMG JHG MMM NAB ORG RBL SZL

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: JHG - JANUS HENDERSON GROUP PLC

For more info SHARE ANALYSIS: MMM - MARLEY SPOON SE REGISTERED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: RBL - REDBUBBLE LIMITED

For more info SHARE ANALYSIS: SZL - SEZZLE INC