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The Overnight Report: And We’re Off

Daily Market Reports | Oct 15 2021

This story features NETWEALTH GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: NWL

Republished to clarify both Netwealth and Hub24 released quarterly market updates yesterday.

World Overnight
SPI Overnight 7335.00 + 46.00 0.63%
S&P ASX 200 7311.70 + 39.20 0.54%
S&P500 4438.26 + 74.46 1.71%
Nasdaq Comp 14823.43 + 251.79 1.73%
DJIA 34912.56 + 534.75 1.56%
S&P500 VIX 16.86 – 1.78 – 9.55%
US 10-year yield 1.52 – 0.03 – 1.94%
USD Index 93.97 – 0.07 – 0.07%
FTSE100 7207.71 + 65.89 0.92%
DAX30 15462.72 + 213.34 1.40%

By Greg Peel

As Expected

And so it came to pass that the 50 point overnight gain in the futures, out of synch with a flattish session on Wall Street, translated into buying in the ASX200 from the open yesterday. After 15 minutes, the index was up 50 points.

All year this formula has worked – a strange looking SPI Overnight move has signalled a big order is afoot.

Momentum then drove the market higher, and the index was up 87 points mid-afternoon before the sellers made their move to restore order. But earlier, little attention had been paid to the jobs numbers.

Australia lost -138,000 jobs in September and the unemployment rate ticked up to 4.6% from 4.5%. Not a good result, but actually not as bad as feared under the lockdown circumstances. Some economists had forecast 4.8-5.0%.

This month’s number should be much healthier with NSW reopening, and later Victoria reopening, as long as it can put a lid on the highest daily case-count numbers in any state at any time during the pandemic.

Despite the exogenous influence of a buy order, there were a few factors before and after the open yesterday that aided the positive sentiment, starting with big moves overnight in metal prices including gold, albeit not for iron ore. The materials sector rose 1.7%, but a little dip in oil prices had energy down -0.9%.

I suggested yesterday we’d probably see all gold miners in the top five but as it turned out, there was only one. Winning the day was wealth platform Netwealth ((NWL)), which jumped 15.3% after announcing a $4bn gain in funds under management in the September quarter. Peer Hub24 ((HUB)) managed a 8.7% gain upon release of its own quarterly update, revealing it had added $4.5bn in funds under management.

Both are financials, but nowhere near big enough to drive the sector. The tick up in unemployment had the Aussie ten-year yield falling back -6 basis points after a solid run of late, which is not positive for banks, so financials fell -0.5%.

Sector winner on the day was technology with a full 4.1%. It had been a good night for Square, but a good day for WiseTech Global ((WTC)) and Megaport ((MP1)), which rose 7.2% and 6.8%.

Individually, all the action was on the winners’ board, with the losers’ board fairly benign other than one stock. Redbubble ((RBL)) fell -12.5% after announcing lower mask sales (surely we all have one or more flash ones by now), with next worst performer being Viva Energy ((VEA)), down -3.3% because it went ex.

In third was Insurance Australia Group ((IAG)), down -2.9% as Sydney traders looked out the window.

Those sellers who decided the rally was all a bit overdone yesterday afternoon will be kicking themselves today – the buyer was right. The futures are up 46 points this morning on the back of Wall Street.

Some interesting data came out of China yesterday. China’s headline PPI grew by 10.7% year on year, while headline CPI grew by 0.7%. Bit of a margin squeeze?

The numbers are distorted by rocketing coal and energy prices in the first instance, and a -47% fall in pork prices in the second. At the core level, the distortion is not so stark.

Earnings Boost

Over in the US, the PPI grew by 0.5% from August to be up 8.6% year on year. While 8.6% compares to 8.3% in August, Wall Street focused on the 0.5% increase compared to 0.7% in August to declare this a “cool”, rather than “hot”, result as was the CPI.

Furthermore, weekly new jobs claims fell below the 300,000 mark last week for the first time post-pandemic. These data releases provided a positive base, but it were earnings results which drove last night’s rally.

The difference between the September quarter and the prior two quarters is that in both March and June, analysts were increasing earnings forecasts heading into the season, and the S&P500 was at new all-time highs, while for September forecasts have been coming down, and the S&P has seen a pullback in September-October.

So whereas solid earnings beats in the prior two quarters often were met with sell-the-fact profit-taking, this quarter there is upside on offer as long as results can indeed beat. And last night, they did.

Morgan Stanley, Bank of America, Citigroup and Wells Fargo all reported last night, and all beat. Of the four, BofA scored best given its greater exposure into higher bond yields, being more a commercial than investment bank, winning with a 4.5% gain. Morgan Stanley and Citi saw gains while least impressive in its beat was Wells Fargo, which fell -1.6%.

None of the four is a Dow component, but JPMorgan is and it also rallied last night after having been sold on the fact of the previous night’s beat. Goldman Sachs (Dow) wraps up the Big Bank results tonight.

Two Dow components that did make a splash last night were United Health and pharmacist Wallgreens Boots. The former gained 4.2% and the latter 7.4%. Given the distorted price-average make-up of the Dow, United Health was alone worth 100 Dow points.

Yet despite this distortion, all three major indices rallied in synch. Every sector in the S&P500 closed in the green. Apple and Microsoft both gained 2%, and these leviathans are the only stocks to appear in all three indices.

But it’s early days. The banks are not impacted by the supply/labour shortages dogging the real economy. It is this inflationary pressure on the cost-side that has driven down earnings forecasts to this point, and as an 8.6% PPI to a 5.4% CPI implies, not all companies can fully pass on higher costs into retail prices, meaning margin pressure.

Next week we should start to see that theme starting to play out in results and guidance.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1796.40 + 3.60 0.20%
Silver (oz) 23.53 + 0.48 2.08%
Copper (lb) 4.53 + 0.09 1.93%
Aluminium (lb) 1.42 + 0.04 3.10%
Lead (lb) 1.07 + 0.02 2.06%
Nickel (lb) 8.84 + 0.09 0.98%
Zinc (lb) 1.60 + 0.06 4.03%
West Texas Crude 81.47 + 0.90 1.12%
Brent Crude 84.25 + 0.96 1.15%
Iron Ore (t) 126.00 + 2.40 1.94%

Yes, well enough said on the base metals front. The prior night’s announcement zinc producer Nyrstar was halving production due to soaring electricity costs has lit a fire under all metals, and it’s not an issue that’s going to go away anytime soon.

And now the oils have sparked up again.

Ever rising commodity prices, iron ore aside, mean an ever rising Aussie, which is up another 0.5% at US$0.7418. Economists are now talking next stop 80.

Today

The SPI Overnight closed up 46 points or 0.6%.

The US will see another important data release tonight – September retail sales, along with consumer sentiment.

Treasury Wine Estates ((TWE)) holds its AGM.

Harvey Norman ((HVN)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ANN Ansell Downgrade to Underperform from Neutral Macquarie
BOQ Bank of Queensland Upgrade to Buy from Neutral Citi
BUB Bubs Australia Upgrade to Buy from Neutral Citi
CMM Capricorn Metals Upgrade to Neutral from Underperform Macquarie
DMP Domino's Pizza Enterprises Downgrade to Neutral from Buy Citi
GUD G.U.D. Holdings Upgrade to Buy from Hold Ord Minnett
PGH Pact Group Upgrade to Outperform from Neutral Macquarie
Z1P Zip Co Downgrade to Neutral from Buy Citi

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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CHARTS

HUB HVN IAG MP1 NWL RBL TWE VEA WTC

For more info SHARE ANALYSIS: HUB - HUB24 LIMITED

For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: MP1 - MEGAPORT LIMITED

For more info SHARE ANALYSIS: NWL - NETWEALTH GROUP LIMITED

For more info SHARE ANALYSIS: RBL - REDBUBBLE LIMITED

For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED

For more info SHARE ANALYSIS: VEA - VIVA ENERGY GROUP LIMITED

For more info SHARE ANALYSIS: WTC - WISETECH GLOBAL LIMITED