The Overnight Report: Fingers Crossed

Daily Market Reports | Oct 13 2021

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

World Overnight
SPI Overnight 7261.00 + 14.00 0.19%
S&P ASX 200 7280.70 – 19.10 – 0.26%
S&P500 4350.65 – 10.54 – 0.24%
Nasdaq Comp 14465.93 – 20.28 – 0.14%
DJIA 34378.34 – 117.72 – 0.34%
S&P500 VIX 19.85 – 0.15 – 0.75%
US 10-year yield 1.58 – 0.03 – 2.11%
USD Index 94.51 + 0.13 0.14%
FTSE100 7130.23 – 16.62 – 0.23%
DAX30 15146.87 – 52.27 – 0.34%

By Greg Peel

Stop, you’re going the wrong way

Weakness on Wall Street had our futures down -27 points yesterday morning but within an hour, the ASX200 was up 31. The materials sector had led the charge on strong overnight prices but at 11am sharp, someone said this is silly.

By lunchtime the index was down -39 points.

By the close, even the materials sector was down, by -0.1%. A stall in the oil price rally sparked profit-taking, and it closed down -1.1%. IT fell -1.5% on the Nasdaq’s performance but otherwise all sectors closed lower in a fairly uniform manner, but for staples (+0.2%) and healthcare (+0.9%).

CSL ((CSL)) and Telstra ((TLS)) both held their AGMs yesterday at which both left earnings guidance unchanged. The difference is that Telstra closed “unch” while CSL rose 1.8%. The stock has been in the cross-hairs of late, and unchanged guidance was clearly better than expected news.

Westpac ((WBC)) posted a warning yesterday, ahead of its earnings result on November 1, that it would be writing down -$1.3bn, mostly related to goodwill and capitalised software but also for customer refunds and litigation costs. The Royal Commission might have been forgotten by the Treasurer and APRA but ghosts still roam the corridors.

Westpac fell -1.7% and financials -0.4% as the news, while taking -15 basis points off the bank’s tier 1 capital, was no great shock.

There was no joy forthcoming from NAB’s September business survey, which unsurprisingly indicated a -9 point drop in current business conditions to +5 in the locked-down month but a solid +18 point jump in confidence to +13, swinging the mood from pessimism to optimism, as businesses looked ahead to reopening.

Strong growth in vaccinations would have been behind that shift, with NSW in particular now 90% single-dosed, implying 90% double-dosed is only three weeks or so away, and the 80% target likely to be hit this weekend.

The state has shot through the initial 70% target like a freight train.

Among individual stocks, Sims Group ((SGM)) rose 4.6% to top the index on director buying, while Ansell ((ANN)) topped the losers in falling -4.6% after Macquarie downgraded to Underperform, citing an incapacity to continue to hike prices to cover rising costs.

Overall the weak tone appears largely reflective of Wall Street, which awaits tonight’s CPI result and the beginning of the September quarter earnings season.

Yet while the S&P500 closed down -0.2%, and the iron ore charge swiftly reversed to a -6% drop, our futures are up an optimistic 14 points this morning.

The 7300 level in the index seems to be a bit of a magnet.

Take your seats

A large commercial/investment bank is not an operation that will itself be hit by supply/labour shortages but JPMorgan is nonetheless seen as an economic barometer, as are its peers. Hence the bank will be seen tonight as the pace car leading out the field in the September quarter result season.

The rest of the Big Six US banks report Thursday-Friday, and then next week we’re into the wider business world.

So Wall Street is holding its breath for JPMorgan tonight but more specifically for the September CPI numbers.

A headline ahead of expectation will only serve to drive home the supply/labour shortage issue and underscore fears this season’s earnings results will be weak, despite forecasts having been lowered for both earnings and US GDP.

A lower than expected number would provide some relief, but then the number should by rights start to fall back as each month cycles last year’s initial recovery out of covid.

And what will the Fed do in either case? The likely answer is nothing different. The September jobs number might have been a big miss, but the drop in the unemployment rate to 4.8% from 5.2% plays right into the Fed’s target. If inflation is “hot”, then it only underscores the Fed’s plan to begin tapering.

St Louis Fed president James Bullard said on CNBC last night he believes conditions have been met for the Fed to begin tapering from November, at a pace that would see bond purchases completed by the end of the first quarter next year.

Powell has to date implied mid-2022.

The US yield curve flattened out last night, with the ten-year yield falling -3 points to 1.58%, and the stock market posted another nervous session in which most of the selling occurred in the last half hour.

Has the expected bad news been priced in? We shall soon see. But there’s much to be concerned about.

Earnings are one thing, then there’s inflation, Fed tapering, the debt ceiling and uncertainty around Biden’s fiscal ambitions.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1760.30 + 6.50 0.37%
Silver (oz) 22.54 – 0.02 – 0.09%
Copper (lb) 4.32 + 0.04 0.86%
Aluminium (lb) 1.37 + 0.02 1.67%
Lead (lb) 1.03 + 0.00 0.18%
Nickel (lb) 8.63 – 0.01 – 0.15%
Zinc (lb) 1.46 + 0.01 0.59%
West Texas Crude 80.48 – 0.04 – 0.05%
Brent Crude 83.24 – 0.38 – 0.45%
Iron Ore (t) 128.50 – 8.45 – 6.17%

I suggested yesterday that iron ore may have seen a bit of a short squeeze on Monday, with China back in business, which clearly ended yesterday.

Otherwise, constrained aluminium production also remains clear.

Oil is a big part of headline inflation, and prices stalled last night.

The US dollar continues to climb steadily but this is not providing any relief on the Aussie dollar front, which is up slightly at US$0.7352.

Today

The SPI Overnight closed up 14 points or 0.2%.

Westpac’s October consumer confidence survey is out today.

China reports September trade numbers.

Along with the CPI, the minutes of the last Fed meeting are out tonight.

Bank of Queensland ((BOQ)) reports earnings.

Commonwealth Bank ((CBA)) holds its AGM, as does Southern Cross Media ((SXL)).

Challenger ((CGF)) provides a quarterly update.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANN Ansell Downgrade to Underperform from Neutral Macquarie
CMM Capricorn Metals Upgrade to Neutral from Underperform Macquarie
DTL Data#3 Upgrade to Add from Hold Morgans
FBU Fletcher Building Upgrade to Buy from Neutral UBS

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.)

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CHARTS

ANN BOQ CBA CGF CSL SGM SXL TLS WBC

For more info SHARE ANALYSIS: ANN - ANSELL LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: CGF - CHALLENGER LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: SGM - SIMS LIMITED

For more info SHARE ANALYSIS: SXL - SOUTHERN CROSS MEDIA GROUP LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA CORPORATION LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION