The Monday Report – 18 October 2021

This story features HUB24 LIMITED, and other companies. For more info SHARE ANALYSIS: HUB

World Overnight
SPI Overnight	7364.00	+ 31.00	0.42%
S&P ASX 200	7362.00	+ 50.30	0.69%
S&P500	4471.37	+ 33.11	0.75%
Nasdaq Comp	14897.34	+ 73.91	0.50%
DJIA	35294.76	+ 382.20	1.09%
S&P500 VIX	16.30	– 0.56	– 3.32%
US 10-year yield	1.58	+ 0.06	3.75%
USD Index	93.94	– 0.03	– 0.03%
FTSE100	7234.03	+ 26.32	0.37%
DAX30	15587.36	+ 124.64	0.81%

By Greg Peel

Breaking Back

The 7300 level had been a bit of a cap on the ASX200 all month but on Friday, the cap was finally breached. The index shot up 62 points in the first half hour before another stumbling session ended with a positive, slightly lower close.

Utilities was the only sector to close in the red (-0.5%) while consumer staples was flat and other defensive sectors posted modest gains, other than property (+0.5%), which can these days be called cyclical.

While technology posted the biggest gain (+1.4%) it was materials (+1.3%) and banks (+0.7%) that drove the index, on a combination of strong commodity price moves and solid US bank earnings.

It was also a good day for discretionary (+0.8%) as travel stocks had another run on easing restrictions. Notably, double-vaxxers returning to NSW do not have to quarantine, while regional NSW will open to Sydney on November 1. Outbound international travel is also close, but the government won’t yet put a date on it.

A general green-on-screen and the technical breach suggest we’re though the seasonal September-October slump, but one must never count one’s chickens.

Hub24 ((HUB)) topped the index winners’ board on Friday (+5.8%), kicking on from its trading update on Thursday. ARB Corp ((ARB)) kicked on from its AGM (+5.6%), while OZ Minerals ((OZL)) also made the top five (+5.2%) on strength in the copper price, which was up another 4% on Friday night.

In an interesting day for the wealth management/platform industry, Hub’s funds under administration growth was countered by Pendal Group’s ((PDL)) funds under management disappointment. It fell -11.5%, while Platinum Asset Management ((PTM)) dropped -6.9% after a major shareholder bailed.

Treasury Wine Estates ((TWE)) warned investors at its AGM not to get too carried away. It fell -5.4%.

A strong retail sales result drove Wall Street higher once more on Friday night, another US bank shot the lights out, and base metal and oil prices were once again stronger.

Not so iron ore and gold.

On that mix, our futures closed up 31 points on Saturday morning.

Inflation be damned

Despite US households being loaded up with savings and busting to spend, economists had assumed consumers would be put off by 5.4% inflation driving higher prices. After a solid 0.9% retail sales gain in August, economists forecast a -0.2% pullback in September.

They were wrong. Sales rose 0.7%, with strength seen in most categories. This had economists scrambling to reassess their September quarter forecasts for the consumer-based economy’s GDP result, which had been steadily downgraded over the course of the quarter – inflation being a major issue.

Yet the retail sales result did not corroborate consumer sentiment data. At the end of September, the Michigan Uni consumer sentiment index showed 72.8, which on a 100-neutral index suggests pessimism, and the result for the first half of October is a further slide to 71.4.

Still, Wall Street was happy to look on the bright side and as such all three major indices closed positive for the week. Friday’s rally was not upset by a 6 basis point rise in the US ten-year yield to 1.58%.

Also driving sentiment was a solid beat on revenues and earnings from Goldman Sachs, to wrap up the US Big Bank earnings suite. Goldman’s 3.8% gain was worth around a hundred Dow points.

The two top S&P500 sector gains on the day were driven by consumer discretionary and financials.

Also aiding discretionary, aside from the sales numbers, was news the US border will be open to double-vaxxed UK/European travellers from November 8. UK/Europe opened its borders to the US a while back, so the airlines are rushing to restore trans-Atlantic flight numbers to cope with the bookings flowing in.

A dampener on the excitement is Biden’s ongoing failure to bring the left and progressive factions of the Democrat Congress anywhere near a compromise on the (original) US$3.5trn infrastructure bill. The gap remains at US$2trn, ie the fiscal conservatives won’t go over US$1.5trn.

Biden could separate the earlier bipartisan-agreed infrastructure package, which is actual building of things, out from the big “social infrastructure” package, that includes the likes of universal child care, but the left won’t have a bar of that either.

And there remains the issue of the debt ceiling, which threatens to shut down the government just in time for Christmas.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1767.40	– 29.00	– 1.61%
Silver (oz)	23.30	– 0.23	– 0.98%
Copper (lb)	4.71	+ 0.19	4.17%
Aluminium (lb)	1.44	+ 0.02	1.45%
Lead (lb)	1.08	+ 0.01	0.73%
Nickel (lb)	9.08	+ 0.24	2.68%
Zinc (lb)	1.61	+ 0.01	0.47%
West Texas Crude	82.28	+ 0.81	0.99%
Brent Crude	84.86	+ 0.61	0.72%
Iron Ore (t)	125.45	– 0.55	– 0.44%

A big plunge in inventories held at exchanges was behind copper’s move on Friday night. Demand remains elevated but supply continues to fall amidst surging energy costs in Europe and power restrictions in China.

The whole base metal suite is facing similar issues.

Earlier last week gold saw a bit of a pop when US yields actually fell on the hot CPI result. Friday night’s retail sales number did the opposite, so gold crawled back into its box.

The Aussie is slightly stronger at US$0.7425.

The SPI Overnight closed up 31 points or 0.4% on Saturday morning.

The Week Ahead

China will report its September quarter GDP today, along with monthly industrial production, retail sales and fixed asset investment numbers.

New Zealand will report September quarter CPI, while the UK and eurozone report month of September inflation numbers on Wednesday.

The US will also report on industrial production this week amidst a raft of housing data. The Fed will release a Beige Book.

The minutes of the October RBA meeting are out today and NAB will report September quarter business confidence on Thursday.

The AGM and quarterly reporting seasons significantly pick up the pace this week, with too many to highlight.

Temple & Webster’s ((TPW)) AGM kicks us off today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APA	APA Group	Downgrade to Hold from Add	Morgans
ARB	ARB Corp	Upgrade to Buy from Neutral	Citi
BOQ	Bank of Queensland	Upgrade to Buy from Neutral	Citi
BUB	Bubs Australia	Upgrade to Buy from Neutral	Citi
CNU	Chorus	Upgrade to Neutral from Sell	UBS
DMP	Domino's Pizza Enterprises	Downgrade to Neutral from Buy	Citi
GUD	G.U.D. Holdings	Upgrade to Buy from Hold	Ord Minnett
IAG	Insurance Australia	Downgrade to Neutral from Buy	UBS
MHJ	Michael Hill International	Upgrade to Buy from Neutral	Citi
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.

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