The Monday Report – 13 September 2021

This story features NICKEL INDUSTRIES LIMITED, and other companies. For more info SHARE ANALYSIS: NIC

World Overnight
SPI Overnight (Jun)	7368.00	– 28.00	– 0.38%
S&P ASX 200	7406.60	+ 37.10	0.50%
S&P500	4458.58	– 34.70	– 0.77%
Nasdaq Comp	15115.49	– 132.76	– 0.87%
DJIA	34607.72	– 271.66	– 0.78%
S&P500 VIX	20.95	+ 2.15	11.44%
US 10-year yield	1.34	+ 0.04	3.23%
USD Index	92.58	+ 0.07	0.08%
FTSE100	7029.20	+ 4.99	0.07%
DAX30	15609.81	– 13.34	– 0.09%

By Greg Peel

Miner Victory

I suggested on Friday that Thursday’s big sell-off was exacerbated by buyers standing aside to let sellers do their thing, such that the following day would see a bounce as buyers moved in on cheaper prices. Having fallen -140 points on Thursday, the ASX200 opened up 60 points on Friday.

But not for long. The bounce lasted all of ten minutes and by lunchtime the index was up only 10 points. So the buyers had another go, and split the difference at 37 points by the close.

The resources sectors were the primary drivers, with materials up 1.7% on surging prices for aluminium, copper and nickel in particular, defying ongoing weakness in iron ore. Nickel Mines ((NIC)) topped the index leaders’ board with an 8.5% gain, followed by Alumina Ltd ((AWC)), South32 ((S32)), Mineral Resources ((MIN)) and mining contractor Monadelphous ((MND)) to round out the top five.

Even Fortescue Metals ((FMG)) managed a 2.6% comeback from Thursday’s selling.

Energy was next best with 0.9%, on stronger oil prices but also confirmation the merger of Santos ((STO)) and Oil Search ((OSH)) will proceed, to form Australia’s biggest oil & gas company, elbowing out incumbent Woodside Petroleum ((WPL)). Analysts see the merger as mutually beneficial. Woodside shareholders are not quite as enamoured with the BHP Petroleum merger.

Despite resource domination, all sectors closed in the green bar a slight dip for property, and a -0.7% drop for healthcare, which tends to be in and out of favour on daily basis at present, beyond just currency moves.

News that regional Victoria was to come out of lockdown helped to lift sentiment on Friday, suggesting there may be some light at the end of the tunnel. Vaccination rates are finally surging, and the 70/80% double-dose targets are looking a lot more achievable.

Let the debate now rage over vaccination passports and the legality of mandating them across the economy.

On Friday night base metal prices surged once more, and the oils were up again but iron ore slipped further. Wall Street nevertheless closed the week on a sombre note, and our futures were down -28 points on Saturday morning.

The run of ex-dividends continues this week but all the biggies are now pretty well past us.

One Bad Apple

The US producer price index rose 0.7% in August, more than forecasts of 0.6%, but down from July’s 1.0% gain. The annual PPI rose to a record 8.3%, up from 7.8%.

The US ten-year bond yield rose 4 basis points to 1.34%.

Grocery chain Kroger, akin to Colesworth here, reported a beat on earnings and upgraded its guidance and promptly fell -7.5%. The reason was a miss on margins, which the company attributes to supply chain issues. Grocery is not a business in which wholesale inflation can be passed through in full to consumer prices with ease.

Apple was in the frame, having enjoyed a solid week of new highs in defiance of the rest of Wall Street. The company has been involved in a legal battle with Epic Games, and claimed a victory when the judge ruled Apple could not be deemed a “monopolist” under antitrust laws.

However, the judge issued an injunction that said Apple can no longer force developers to use its payment system, effectively bypassing app store commission fees of 15% to 30%. The stock responded with a -3.3% drop.

Doesn’t seem that dramatic, but that’s worth -US$60bn in market cap, and with an hour to go Apple accounted for all of the S&P500’s fall to that point. Apple is also a member of both the Dow and Nasdaq.

Selling nevertheless accelerated into the close in a very Friday fashion, on a sombre note ahead of the 9/11 anniversary. The S&P500 fell -1.7% over the week and marked its longest losing streak since February. The Dow closed -2.2% lower and the Nasdaq -1.6%.

It seems that perhaps the historical weakness of the month of September is becoming a self-fulfilled prophecy, but there are a few things on Wall Street’s mind.

Firstly, the spectre of delta lingers, with the US still averaging 150,000 cases a day and only 53% of the population vaccinated despite overwhelming supply. This puts the US well behind Canada and Europe in vaccination percentage, and I think we’re starting to look better as well.

Secondly, there is the issue of the debt ceiling, which needs to be resolved to avoid a government shutdown in October, and we know how good the two parties are at resolving anything at present. In between, Biden is trying to push his US$3.5bn infrastructure package along, and questions remain about what tax hikes will be implemented to cover the cost.

Finally, there’s the Fed. Next week the Fed is expected to announce a tapering timetable at its meeting, assumed to kick off in November. While it’s hardly a well-kept secret, the feeling is the beginning of the removal of unprecedented monetary stimulus will not be an incentive to push markets higher.

A lot will come down to the September quarter earnings season, which begins in October – October being the most volatile month.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1786.80	– 7.40	– 0.41%
Silver (oz)	23.68	– 0.33	– 1.37%
Copper (lb)	4.31	+ 0.06	1.38%
Aluminium (lb)	1.31	+ 0.03	2.70%
Lead (lb)	1.07	+ 0.01	0.74%
Nickel (lb)	9.26	+ 0.08	0.90%
Zinc (lb)	1.40	+ 0.01	0.90%
West Texas Crude	69.72	+ 1.58	2.32%
Brent Crude	72.92	+ 1.69	2.37%
Iron Ore (t)	128.75	– 1.75	– 1.34%

Strong demand meeting low inventories continues to be the theme in base metals.

The Chinese government continues to be the theme for iron ore.

The jump in oil prices has been attributed to a phone call between Joe Biden and Xi Jinping in which they “had a broad, strategic discussion in which they discussed areas where our interests converge, and areas where our interests, values, and perspectives diverge,” the White House reported.

Apparently the market hoped the call could lead to more trade between the world’s two largest economies, which is expected to boost oil demand. I didn’t know Sir Humphrey traded oil.

The Aussie is down slightly at US$0.7360.

The SPI Overnight closed down -28 points or -0.4% on Saturday morning.

The Week Ahead

China will report August industrial production, retail sales and fixed asset investment on Wednesday.

The US will see its August CPI tomorrow night, along with numbers over the week for industrial production, retail sales, consumer sentiment and the Empire State and Philadelphia Fed indices.

New Zealand reports June quarter GDP on Thursday.

Locally we’ll see June quarter house prices tomorrow, along with a rather more up to date NAB business confidence survey. Westpac follows on Wednesday with its consumer survey and on Thursday we’ll see August’s locked down jobs numbers.

Thursday is the expiry of all September quarter equity derivatives on the ASX, which may lead to elevated volatility on the day.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
FMG	Fortescue Metals	Upgrade to Buy from Neutral	Citi
IMD	Imdex	Upgrade to Outperform from Neutral	Macquarie
JMS	Jupiter Mines	Downgrade to Underperform from Neutral	Macquarie
MQG	Macquarie Group	Downgrade to Hold from Add	Morgans
NVX	Novonix	Downgrade to Hold from Add	Morgans
QUB	Qube Holdings	Downgrade to Neutral from Outperform	Credit Suisse
TNE	TechnologyOne	Downgrade to Neutral from Buy	UBS

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

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