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The Overnight Report: Good Or Bad?

Daily Market Reports | Sep 17 2021

This story features CAR GROUP LIMITED. For more info SHARE ANALYSIS: CAR

World Overnight
SPI Overnight 7424.00 – 18.00 – 0.24%
S&P ASX 200 7460.20 + 43.20 0.58%
S&P500 4473.75 – 6.95 – 0.16%
Nasdaq Comp 15181.92 + 20.39 0.13%
DJIA 34751.32 – 63.07 – 0.18%
S&P500 VIX 18.69 + 0.51 2.81%
US 10-year yield 1.33 + 0.03 2.07%
USD Index 92.88 + 0.41 0.44%
FTSE100 7027.48 + 10.99 0.16%
DAX30 15651.75 + 35.75 0.23%

By Greg Peel

Smoke and Mirrors

Yesterday was the first day this week the ASX200 did not swing from negative to positive or vice versa at any time during the session, rather remained in the green all day. After a positive open, the real kicker was the August jobs report release. That pushed the index to up 70 points.

Two points to consider; firstly, it was derivatives expiry day yesterday, which has the power to exacerbate moves in either direction; and secondly, only one number in the jobs report was positive.

The unemployment rate fell to 4.5% from 4.6% in July, but only because participation fell to an eleven-month low of 65.2%. Indeed, -146,000 jobs were lost in the month. The underemployment rate surged to 9.3% from 8.3% as hours worked crashed by -3.7%.

Of course “jobs lost” will not in most cases actually be lost, rather stood down for the time being. This is reflected in the drop in participation, as workers have not necessarily been sacked, and with the government support package, see no reason to look for other employment.

The number of employed will likely fall further in September given Victoria didn’t go into lockdown until half way through August.

There was nevertheless a silver lining. NSW lost -210,000 over July-August but as ANZ Bank economists point out, this is -21% fewer than was the case in last year’s lockdown, even without JobKeeper. Hence ANZ Bank believes the employment will rebound strongly as soon as lockdowns are lifted.

Whatever the case, the stock market liked it, until giving it a bit more thought, leading to a close of up 43. The Aussie ten-year bond jumped 5 basis points to 1.25%, but there was no response from the Aussie dollar.

It would be easy to point to higher yields and lower unemployment as why the banks led the market up yesterday with a 0.9% gain, if only the numbers weren’t misleading. The consumer discretionary sector was not misled, nonetheless, closing flat when every other sector closed in the green.

Under normal circumstances a drop in unemployment would suggest a boost for the sector.

Energy posted the biggest percentage gain (+1.3%) on higher oil prices while healthcare helped out the banks in rising 0.9%.

It had been a strong night on Wall Street so we must take that into consideration in terms of yesterday’s overall strength, but one cannot read too much into any expiry day.

Wall Street was slightly down last night. Iron ore, copper and particularly gold prices all took a hit last night.

Our futures are down -18 points in the new December expiry.

Spending Boom

Also a bit misleading were last night’s US retail sales numbers for August.

Sales rose 0.7% in the month when economists had forecast a fall of -0.7%. Wall Street ran for the hills. All major indices were sold down – the Dow by almost -300 points – on the implication the result would only steel the Fed’s resolve to begin tapering.

But as economists scoured the details to see where they got it so horribly wrong, some doubt crept in regarding the strength of the result.

Firstly, the original July result of a -1.1% fall in sales was revised down to -1.8%, taking some of the gloss off, and raising doubts about the ultimate veracity of the August number.

It was also notable within the data that online sales received quite a boost in August, while restaurant sales flagged. This suggests that delta had driven consumers back to lockdown conditions, without there being actual lockdowns, which is not a great sign for the overall economy.

Then there was the matter of this week’s CPI numbers. While consumers may have spent more in August, they will also have had to pay more for the equivalent purchases, which ups the dollar-value growth result. And retail sales refer only to goods and not services. While restaurant meals are counted as a “good” (and in America, fast food joints are called “restaurants”), the likes of plane tickets and hotel rooms are not, and these were the segments that saw the biggest price falls in the CPI on weaker demand.

Big ticket items, such as cars, are counted in a different sub-measure, such that “retail sales” reflect more of your everyday spending.

So whether it was this breakdown that led Wall Street to a rethink, or simply the dip-buyers seeing another opportunity to get in on an early sell-off, or both, Wall Street rallied back to be in the green with half an hour to go, slipping slightly at the close.

The US ten-year bond yield rose another 3 basis points to 1.33% to be back where it was before being sold down after the CPI result. The US dollar index shot up 0.4%, but this was as much about euro weakness as about strong retail sales.

For now, Wall Street is holding in a range in place over the last two weeks. No new highs yet, and the Fed next week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1753.70 – 40.40 – 2.25%
Silver (oz) 22.87 – 0.95 – 3.99%
Copper (lb) 4.23 – 0.12 – 2.82%
Aluminium (lb) 1.30 – 0.01 – 1.00%
Lead (lb) 1.01 – 0.01 – 0.71%
Nickel (lb) 8.86 – 0.08 – 0.85%
Zinc (lb) 1.39 + 0.00 0.02%
West Texas Crude 72.62 + 0.01 0.01%
Brent Crude 75.63 + 0.10 0.13%
Iron Ore (t) 106.50 – 6.90 – 6.08%

Copper swiftly reversed its gains of Wednesday night last night, which came as Chile lowered its forecast average price. Maybe the dollar jump sparked a rethink.

Yesterday’s data showed China’s steel production dropped -13.2% year on year in August, on ongoing cuts to meet Beijing’s strict emission reduction demands. The trend is expected to continue through year-end, ahead of the Beijing Winter Olympics.

As to whether there will be a bounce thereafter is unclear, as Beijing also clamps down on runaway property development – the biggest consumer of steel – which has the country’s largest developer hanging on the edge of bankruptcy.

Gold had been struggling hard to keep its head above US$1800/oz, so when the dollar shot up last night it was goodnight Irene.

The oils had a rest.

On the strong greenback, the Aussie is down -0.6% at US$0.7295.

Today

The SPI Overnight closed down -18 points or -0.2%.

In the wake of this week’s CPI and sales data, the US will see initial consumer sentiment data for September tonight.

The quarterly rebalance of ASX indices becomes effective today.

Carsales ((CAR)) goes ex-dividend.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
HDN HomeCo Daily Needs REIT Downgrade to Hold from Accumulate Ord Minnett
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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