Daily Market Reports | Oct 20 2021
This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP
| World Overnight | |||
| SPI Overnight | 7383.00 | + 41.00 | 0.56% |
| S&P ASX 200 | 7374.90 | – 6.20 | – 0.08% |
| S&P500 | 4519.63 | + 33.17 | 0.74% |
| Nasdaq Comp | 15129.09 | + 107.28 | 0.71% |
| DJIA | 35457.31 | + 198.70 | 0.56% |
| S&P500 VIX | 15.70 | – 0.61 | – 3.74% |
| US 10-year yield | 1.64 | + 0.05 | 3.22% |
| USD Index | 93.77 | – 0.20 | – 0.21% |
| FTSE100 | 7217.53 | + 13.70 | 0.19% |
| DAX30 | 15515.83 | + 41.36 | 0.27% |
By Greg Peel
No Idea
The futures suggested down -20 points yesterday morning but the ASX200 was up 25 points by 11am. It failed to gain any traction, and at 3pm gave up.
While a close of -6 points in itself points to an indecisive market, more notable was that just about everything that went up/down on Monday went down/up yesterday.
On Monday, materials rose 1.0%, energy 0.8% and the banks 0.9% while property fell -1.1%, healthcare -1.0% and technology -1.2%. Yesterday, materials fell -1.4%, energy -0.7% and the banks -0.2% while property rose 1.1%, healthcare 0.8% and technology 1.6%.
There were some fundamental drivers yesterday nonetheless.
BHP Group’s ((BHP)) quarterly report underwhelmed, Aussie bond yields stopped rising, Cochlear ((COH)) left guidance unchanged at its AGM and the BNPL players enjoyed broker upgrades (although not from FNArena database brokers, who are polarised).
The RBA minutes, bearing in mind the meeting pre-dates recent global inflation/policy movements, struck a dovish tone:
“Overall, there were few indications from disaggregated wages data or from the Bank's liaison program to suggest that aggregate wages growth was likely to accelerate sharply in the period ahead.”
However, ANZ Bank economists point out the April 2024 government bond yield rose to 0.14% on the back of the NZ CPI number. This is the next “three-year” bond which in theory the RBA should be capping at 0.10% through purchases, in line with its QE policy, so it remains to be seen whether or not it will do so.
“To not do so,” says ANZ, “would be interpreted as a signal that the forward guidance on when the cash rate might move has changed”.
In that context, Goldman Sachs is predicting house price will rise another 22% in 2022, before peaking and eventually easing in 2024. But if the market is right about its RBA rate hike pricing – suggesting the first hike in late 2022 or early 2023 (RBA still on 2024) – then this would spark a -13% house price pullback over 2023-24 and knock -1.5% percentage points off the GDP, Goldman estimates.
The dovish tone to the RBA minutes helped the Aussie to drop, down -0.5% this morning despite a -0.2% fall in the US dollar.
The stock market may possibly be less indecisive today, with the S&P500 up 0.7%. Our futures are up 0.6% this morning, or 41 points.
Playing to Script
History suggests that on average, September is the weakest month on Wall Street and weakness flows into October, before a bottom is found ahead of a rally into year end. History doesn’t always repeat, but for the 2021 year to date, it sure rhymes.
After five straight up-days the S&P500 is now around -1% shy of its August all-time high. For those five days, we can mostly point to earnings results as the driver.
The banks kicked things off last week but of all S&P companies reporting to date, 66% have beaten on both earnings and revenues, according to Bank of America, well above the 47% average.
Last night, solid results from Dow components Travelers and Johnson & Johnson drove the mood. Proctor & Gamble, on the other hand, dropped on a miss blamed on supply chain issues, which is the primary concern for this season.
But otherwise, so far so good.
Netflix reported after the bell, beating on earnings but only matching forecasts for all-important subscriber growth numbers, both for the quarter and December quarter guidance. Not good enough. Netflix is down -1% as I write.
An interesting factoid, somehow calculated by Netflix:
If one takes all the armchair activities of video streaming services, FTA/cable television, social media engagement and reading a book, Netflix – the biggest in streaming subs by a margin – has only 6% of that overall market. Hence the company points to the potential of remaining TAM, or total addressable market.
The way Australians bang on about Netflix you’d think we all have it already.
In other news, a funny thing happened last night. The US ten-year rose 5 basis points to 1.64% and Wall Street didn’t blink. Gains among the three major indices were relatively uniform. As there was no new bit of US data to spur the move, one can only assume it was a delayed reaction to Monday’s NZ inflation news and hawkishness from the Bank of England.
In another delayed reaction, Apple rose 1.5% last night after investors assessed and finally responded to the launch of the new range of Mac Books and Air Pods on Monday night. The salient point is not whatever new whizz-bangery the new Macs contain, but the fact they are the first to be driven by Apple’s own in-house chips.
In the current climate of a global chip shortage, that’s significant. A 1.5% gain for America’s largest company is also significant. And Apple is in all three indices, supporting those uniform gains last night.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1769.30 | + 5.00 | 0.28% |
| Silver (oz) | 23.66 | + 0.49 | 2.11% |
| Copper (lb) | 4.76 | + 0.00 | 0.04% |
| Aluminium (lb) | 1.42 | – 0.02 | – 1.58% |
| Lead (lb) | 1.10 | + 0.01 | 0.62% |
| Nickel (lb) | 9.17 | + 0.04 | 0.44% |
| Zinc (lb) | 1.65 | – 0.06 | – 3.30% |
| West Texas Crude | 82.83 | + 0.50 | 0.61% |
| Brent Crude | 84.99 | + 0.83 | 0.99% |
| Iron Ore (t) | 123.50 | – 0.65 | – 0.52% |
Some give-back in zinc is not surprising after around a 10% jump over two sessions.
The oils just keep on keeping on. When does OPEC break?
The Aussie is down -0.5% at US$0.7374.
Today
The SPI Overnight closed up 41 points or 0.6%.
Stand by for inflation data out of both the UK and eurozone tonight.
The Fed releases its Beige Book.
Another solid round ahead locally of AGMs and quarterly reports.
Domino’s Pizza ((DMP)) hosts an investor day.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ALL | Aristocrat Leisure | Upgrade to Outperform from Neutral | Macquarie |
| ALX | Atlas Arteria | Upgrade to Add from Hold | Morgans |
| APA | APA Group | Downgrade to Hold from Add | Morgans |
| ARB | ARB Corp | Upgrade to Buy from Neutral | Citi |
| AWC | Alumina Ltd | Downgrade to Neutral from Outperform | Credit Suisse |
| BSL | BlueScope Steel | Downgrade to Equal-weight from Overweight | Morgan Stanley |
| CNU | Chorus | Upgrade to Neutral from Sell | UBS |
| EVN | Evolution Mining | Downgrade to Neutral from Outperform | Credit Suisse |
| GPT | GPT Group | Upgrade to Equal-weight from Underweight | Morgan Stanley |
| Downgrade to Neutral from Outperform | Credit Suisse | ||
| HMC | HomeCo | Upgrade to Hold from Lighten | Ord Minnett |
| IAG | Insurance Australia | Downgrade to Neutral from Buy | UBS |
| IGO | IGO | Upgrade to Outperform from Neutral | Credit Suisse |
| MHJ | Michael Hill | Upgrade to Buy from Neutral | Citi |
| SXY | Senex Energy | Downgrade to Neutral from Buy | Citi |
| Downgrade to Hold from Add | Morgans | ||
| Downgrade to Hold from Buy | Ord Minnett | ||
| TCL | Transurban Group | Upgrade to Add from Hold | Morgans |
| WAF | West African Resources | Downgrade to Neutral from Outperform | Macquarie |
| WPL | Woodside Petroleum | Downgrade to Neutral from Outperform | Macquarie |
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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CHARTS
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED
For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED