Daily Market Reports | Sep 23 2021
This story features BRICKWORKS LIMITED, and other companies. For more info SHARE ANALYSIS: BKW
|SPI Overnight||7290.00||+ 14.00||0.19%|
|S&P ASX 200||7296.90||+ 23.10||0.32%|
|Nasdaq Comp||14896.85||+ 150.45||1.02%|
|S&P500 VIX||20.87||– 3.49||– 14.33%|
|US 10-year yield||1.34||+ 0.01||0.91%|
|USD Index||93.45||+ 0.25||0.27%|
By Greg Peel
With Wall Street slightly lower on Tuesday night, yesterday the ASX200 again headed south from the open, falling -32 points in the first hour to more than wipe-out Tuesday’s attempted comeback. But at 11am, the mood changed.
No, it was nothing to do with local case-counts, but all about China.
Evergrande announced it had “resolved” one of its two interest payments due today, that being US$35.9m equivalent on an RMB-denominated 2025 bond. As to what “resolved” means is not clear, and the company has another payment due today of US$83.5m, on a USD-denominated bond, and another next week for US$47.5m.
In each case Evergrande has thirty days to make payment before the bonds default. Meanwhile, the PBoC announced it had injected RMD120bn into China’s banking system.
It should be noted that while Evergrande is China’s second biggest property developer, it is also a diversified conglomerate with fingers in many other pies, from retail to EVs. It is thus feared the collapse of the company would reverberate through the wider Chinese economy in a Lehman-style meltdown. Hence the PBoC’s actions.
With the Chinese back from holiday, the property sector jumped 3.5% on the Shanghai exchange and, somewhat ironically, the Chinese saved the day, a bit, for iron ore. By day’s end in Singapore the spot price had rebounded 14.4% to US$107.55/t.
So no surprise the local market saw investors piling back into iron ore miners yesterday, with the Big Three seeing low single digit percentage gains but smaller miners jumping into double-digits. All miners (ex-gold) had crashed on Monday on wider Chinese economic fears so they were all bought back again yesterday.
The materials sector rose 2.0% and given the same story for oil, energy rose 2.3%.
The next best performer was property (0.9%), but still financials are being slammed, down another -0.6%. Insurers led the charge down yesterday, with yet another natural disaster shaking sentiment.
By lunchtime yesterday the ASX200 had turned a -32 point open into a 65 point gain, but excitement faded into the close with a Fed decision pending.
That decision did little to upset Wall Street, with the S&P500 closing up 1%. But given Wall Street had actually been higher ahead of the Fed release on the back of the Evergrande news, our futures this morning are only up 14 points.
The Evergrande story is not yet over.
The Dow was up 520 points at its peak last night ahead of the Fed release, and all three major indices were uniformly up well over 1% at that point, on the reasons noted above.
At 2.30pm it surprised no one that the statement suggested a tapering schedule will likely be announced at the next meeting (November). Jay Powell did not confirm an announcement, in case anything untoward happens in the meantime.
He did suggest tapering would be “gradual”, ending by mid-2022. Wall Street is assuming the announcement will come in November and tapering will kick off from the December meeting.
But some found that timeframe not quite as “gradual” as one might have expected, ending by mid next year. And then there was the matter of the infamous “dot plots”.
The dot plots are (anonymous) predictions from all FOMC members as to where interest rates will be in one-two-three years and longer term. Based on last night’s predictions, nine members see the first rate hike coming in 2022, nine in 2023, and one in 2024, which was Powell’s original timeline in the wake of the covid crash.
That is a lot more hawkish than the tone persistently set by the Fed chair.
Informing the dots are a balance of inflation and labour market assumptions. They are by no means a commitment, and will be recast at the March Fed meeting when a lot more data has flowed through.
To that point, US homebuilder KB Homes reported a miss on revenues in the aftermarket last night. The miss was blamed on the slow delivery of completions, on a combination of supply shortages and labour shortages.
While there is little surprise forecasts for September quarter US GDP growth have been reined in in the wake of delta, including the Fed last night, corporate earnings forecasts are now being wound back as well on the assumption the quarter will feature a notable margin squeeze as so many businesses across many sectors grapple with the same issues facing KB Homes.
The US bank sector enjoyed a 1.5% boost from the Fed last night, looking toward rate hikes down the track. The US ten-year yield lifted only one basis point to 1.34%, reflecting no surprise.
In other news, the House voted last night to keep the government funded, suspend the federal debt limit and provide disaster and refugee aid. The deadline is September 30, after which the government would shut down without a debt ceiling increase. By October, it would be defaulting on bonds.
Republicans are dead against a debt ceiling increase. The vote still has to go to the Senate.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1767.90||– 6.20||– 0.35%|
|Silver (oz)||22.66||+ 0.19||0.85%|
|Copper (lb)||4.20||+ 0.06||1.34%|
|Aluminium (lb)||1.33||+ 0.04||2.77%|
|Lead (lb)||0.97||– 0.02||– 1.62%|
|Nickel (lb)||8.70||+ 0.04||0.48%|
|Zinc (lb)||1.37||+ 0.01||0.48%|
|West Texas Crude||72.23||+ 1.67||2.37%|
|Brent Crude||75.94||+ 1.20||1.61%|
|Iron Ore (t)||107.55||+ 13.55||14.41%|
A slightly rosier picture this morning.
The LME closed ahead of the Fed release, but there was nothing in there to much impact base metals prices. The US dollar rose 0.3% but there are greater influences on commodity prices at present than the currency.
The iron ore rout had to end somewhere.
While oil prices are also supported by the news out of China, the usual US weekly inventory lottery also provided a boost last night.
Accounting for the greenback’s rise, the Aussie is steady at US$0.7234 on commodity prices.
The SPI Overnight closed up 14 points.
The Bank of England meets tonight.
Flash estimates of September PMIs are due across the globe, other than in Japan, which is closed today.
Suncorp ((SUN)) holds its AGM.
Cochlear ((COH)) is among several stocks going ex.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|AST||AusNet Services||Upgrade to Equal-weight from Underweight||Morgan Stanley|
|BBN||Baby Bunting||Upgrade to Buy from Neutral||Citi|
|CIA||Champion Iron||Upgrade to Buy from Neutral||Citi|
|EVT||Event Hospitality & Entertainment||Upgrade to Buy from Neutral||Citi|
|IPL||Incitec Pivot||Downgrade to Neutral from Outperform||Credit Suisse|
|NHC||New Hope||Upgrade to Outperform from Neutral||Macquarie|
|SIG||Sigma Healthcare||Downgrade to Neutral from Buy||Citi|
|TCL||Transurban Group||Upgrade to Outperform from Neutral||Credit Suisse|
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For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED
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