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The Overnight Report: Going In Early

Daily Market Reports | Sep 16 2021

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL

World Overnight
SPI Overnight (Jun) 7447.00 + 32.00 0.43%
S&P ASX 200 7417.00 – 20.30 – 0.27%
S&P500 4480.70 + 37.65 0.85%
Nasdaq Comp 15161.53 + 123.77 0.82%
DJIA 34814.39 + 236.82 0.68%
S&P500 VIX 18.18 – 1.28 – 6.58%
US 10-year yield 1.30 + 0.03 2.11%
USD Index 92.47 – 0.18 – 0.19%
FTSE100 7016.49 – 17.57 – 0.25%
DAX30 15616.00 – 106.99 – 0.68%

By Greg Peel

Hanging in there

After two sessions of trying hard to hold up the ASX200, yesterday saw the resource sectors give way. It was all looking pretty ugly in the first hour as the index fell -58 points, but at 11am, a graft-back began.

Was it the news Sydney’s lockdowns will be lifted, and NSW has now hit the 70% one-dose milestone? Or did investors see the market as having been too oversold?

While the lifting of curfews is hardly significant when you’re locked down anyway, it is a glimmer, and the 70% milestone implies (using my own experience at least) the initial 70% double-dose target can be hit in three weeks’ time. That’s got to be positive.

It was healthcare’s turn to save the day yesterday (+1.2%), with property (+1.1%) and technology (+1.0%) providing some assistance. All three sectors had been sold down in prior sessions. Perhaps the lower Aussie was the trigger to jump back into healthcare.

Every other sector closed in the red, with energy (-2.2%) reversing half its gains of Tuesday, utilities (-1.8%) following suit as AGL Energy ((AGL)) tumbled -7.4%, after losing a key executive, and materials down (-1.4%) on weaker base metal and iron ore prices.

The fall in the big miners was offset to a small degree by further surges in your “green” commodities, being lithium and uranium, with Pilbara Minerals ((PLS)) up another 8.4% and looking like a meme. Paladin Energy rose 7.9%.

Again a warning that analysts are pretty unanimous in calling lithium overbought, while uranium’s recent price surge has been purely driven by speculators and not end-users.

Elders ((ELD)) was the second best index performer (+4.7%) on news of record profits for farmers this year, as long as they can get the stuff to market without the usual transient labour support. News is primary school kids are driving the tractors and headers through the night.

Second worst performer was oil service company Worley (-4.3%) while having starred on Tuesday, Beach Energy ((BPT)) fell -4.0%.

In general, falls in unmentioned sectors were unsubstantial.

The good news is everything reversed last night, and our futures are up 32 points this morning on a Wall Street rebound.

Oil prices shot back up, and aluminium and copper rebounded strongly, although gold has slipped back and iron ore’s correction is now beyond -50%.

The market was only momentarily impacted by China’s data release yesterday, which saw retail sales growth slip to 2.5% (annual) from July’s 8.5% and well below 7.0% forecasts, as China deals with its own delta wave.

Industrial production dropped to 5.3% from 6.4% when 5.8% was forecast. Fixed asset investment grew 8.9% year to date, down from 10.3%.

Locally, Westpac’s consumer confidence survey for this month showed a 2 point gain to 106.2, suggesting consumers can also see light at the end of the tunnel.

Reversal

It was the usual weekly US inventory lottery that saw oil prices again jump up last night, having stalled on Tuesday night. The energy sector had led Wall Street down on Tuesday night, and that reversed last night (+3.8%).

The US ten-year bond yield also reversed, after Tuesday night’s -5 basis point fall on the CPI numbers, bouncing back 3bps to 1.30%, which helped US banks to also lead the charge last night, having fallen on Tuesday night.

Bounces in base metals had materials reversing, and industrials went along for the ride. Every sector had closed in the red on Tuesday night, and every sector bar utilities closed in the green last night.

Wall Street enjoyed a bit of a boost from Microsoft, after the leviathan announced an 11% increase in its dividend and a US$60bn buyback. After rallying close to 40% this year and running on a 33x multiple, a buyback seems a bit pricey, but it’s only about 3% of market cap. Microsoft rose a mere 1.7% but as was the case with Apple on Tuesday night, that’s an influential move for a company that is part of all three indices.

While Microsoft played its part, last night’s swift reversal from Tuesday night’s ominous looking fall has been attributed to the consistent pattern of 2021 – the S&P500 pulling back often but only ever to the 50-day moving average, at which point the dip-buyers move in.

The S&P didn’t actually reach its 50MA on Tuesday night, but it is assumed given such consistency dip-buyers decided last night to go early and avoid the rush, spurred on by reversals in aforementioned markets.

So the trend remains unbroken and if Wall Street is still playing to script, the S&P should now make its way up to yet another new high. But there’s the small matter of the Fed meeting next week, which is expected to bring news of a tapering timeline.

And tonight brings August retail sales numbers, which are critical to the US economy.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1794.10 – 10.50 – 0.58%
Silver (oz) 23.82 – 0.02 – 0.08%
Copper (lb) 4.35 + 0.10 2.32%
Aluminium (lb) 1.32 + 0.03 1.98%
Lead (lb) 1.02 – 0.03 – 2.46%
Nickel (lb) 8.94 – 0.03 – 0.34%
Zinc (lb) 1.39 + 0.02 1.19%
West Texas Crude 72.61 + 2.15 3.05%
Brent Crude 75.53 + 1.58 2.14%
Iron Ore (t) 113.40 – 6.95 – 5.77%

The funny thing about the bounce-back up in the copper price last night is it came on the back of weak Chinese economic data, and on the back of Chile lowering its 2021 average price forecast to US$4.20/lb from US$4.30/lb (current US$4.35), citing China and the expected easing in Fed stimulus.

Maybe a short-squeeze. And slight help from a weaker greenback.

Iron ore, however, is friendless, albeit surely due for a rebound.

Gold gave back on higher US yields what it gained on Tuesday night what it gained on Tuesday night on lower US yields.

Oil as noted.

The Aussie is up slightly at US$0.7335.

Today

The SPI Overnight closed up 32 points or 0.3%.

Today brings our locked-down August jobs numbers.

New Zealand reveals its June quarter GDP.

Retail sales, as noted, in the US.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AZJ Aurizon Holdings Upgrade to Add from Hold Morgans
HDN HomeCo Daily Needs REIT Downgrade to Hold from Accumulate Ord Minnett
MFG Magellan Financial Downgrade to Sell from Neutral UBS
MIN Mineral Resources Downgrade to Hold from Buy Ord Minnett
NAB National Australia Bank Downgrade to Neutral from Outperform Credit Suisse
OGC OceanaGold Outperform Macquarie

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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