The Overnight Report: Small World

Daily Market Reports | Nov 02 2021

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

World Overnight
SPI Overnight 7360.00 + 13.00 0.18%
S&P ASX 200 7370.80 + 47.10 0.64%
S&P500 4613.67 + 8.29 0.18%
Nasdaq Comp 15595.92 + 97.53 0.63%
DJIA 35913.84 + 94.28 0.26%
S&P500 VIX 16.41 + 0.15 0.92%
US 10-year yield 1.58 + 0.02 1.16%
USD Index 93.88 – 0.24 – 0.25%
FTSE100 7288.62 + 51.05 0.71%
DAX30 15806.29 + 117.52 0.75%

By Greg Peel

Bank of New South Wails

A look across sector moves in the ASX200 yesterday confirms to a great extent that Friday’s tumble was as much an end-of-month profit-taking session as anything else, albeit clouded by the fact bond yields surged on Friday and pulled back yesterday.

But there was one small glitch. All sectors fell on Friday and all sectors rose yesterday except one. A disappointing earnings result from Westpac ((WBC)), including a lower than expected buyback, had that stock down -7.4% to be the worst index performer.

I think the last time Westpac fell by that much in a day, Kerry Packer stepped in.

Some investors switched into Commonwealth Bank ((CBA)) it would appear, as it rose 1.5%. Despite analyst objections, CBA still remains the shortest price favourite since Phar Lap. ANZ Bank ((ANZ)), which has already reported, stood still, while National Bank ((NAB)), yet to report, fell -0.9%. The sector fell -0.5%.

Hence rather than recovering all or most of Friday’s fall, the ASX200 managed only about a half.

Friday’s big surge in bond yields likely involved a bit of a short-covering scramble (via the futures), as yesterday the two-year yield fell back -10 points, the five-year -18 points and the ten-year -17 points, ahead of today’s RBA meeting, implying a bit of a safety trade.

This reversal helped to fuel reversals in the yield-paying sectors yesterday, with telcos up 2.3%, utilities 1.7%, property 0.7% and staples 0.6%. Energy reversed with a 1.2% gain, and even materials managed 0.3% despite falls in base metal, gold and iron ore prices.

Healthcare posted only a small fall on Friday due to a solid response to ResMed’s ((RMD)) earnings, but yesterday jumped 1.5% despite ResMed falling -4.9% on a rethink. It took a 2.0% gain for CSL ((CSL)) to overcome.

Fun fact of the day: you know those ads bombarding the tele featuring beefy blokes bouncing around in bamboo undies? Step One IPO’d yesterday and jumped 80%.

In other news, Australian house prices rose an average 1.5% in October to be up 21.6% year on year – the fastest rate in 32 years. But that 1.5% is the slowest rate of growth in nine months. Tighter lending restrictions, rising fixed mortgage rates and unaffordability suggest the writing’s on the wall.

For the stock market, we could net out Friday and yesterday and consider, ex-Westpac, that November begins today from square. However, Victoria is closed, and the Big Event occurs half an hour before the other one. That Big Event could have a material impact.

Triple Threat

Speaking of central bank meetings, we’ll know by early Thursday morning our time just what the Fed’s tapering plans will be. While it makes sense for Wall Street to go quiet in the run-up, it’s not often the case.

It was hardly explosive, but last night all of the S&P500, Nasdaq and Dow posted new all-time highs.

More remarkable was a 2.7% leap for the Russell 2000 small cap index. The Russell has underperformed the major indices all year throughout the delta surge and is still far from its highs, but loaded with small banks, small energy stocks and a raft of other small cyclical businesses, it’s making a comeback.

Historically, Wall Street stages a run-up to new year after a soggy September, and historically, the Russell outperforms. It’s hard to find any commentator who doesn’t think history will repeat this year (it doesn’t always work) and a lot of that is to do with the belief Fed tapering is happily priced in.

So we can only wait and see.

Meanwhile, fuelling the rally are ongoing earnings results. The stats have 83% of S&P500 companies reporting to date beating estimates by an average 7%. There are 167 companies reporting this week.

In other corporate news, meme stock favourite AMC Entertainment, which after exploding in January thanks to Robinhood’s merry men and women, was expected to come back to earth but didn’t, rose 4.8% after declaring its best month of cinema revenues since the pandemic began. The stock is up 1600% year to date.

A G20 agreement to drop the EU’s planned 56% tariffs on steel and aluminium in response to Trump’s tariff attacks had Harley Davidson up 9%.

Tesla rose 8.5% on no news, other than EV sales expectations apparently increasing from prior forecasts. The stock is up 50% in a month, to US$1208, recalling that last year Tesla did a 5:1 stock split, and before that Elon threatened to take the stock private at US$400.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1793.70 + 9.40 0.53%
Silver (oz) 24.02 + 0.13 0.54%
Copper (lb) 4.46 + 0.00 0.00%
Aluminium (lb) 1.23 – 0.01 – 0.86%
Lead (lb) 1.10 + 0.00 0.05%
Nickel (lb) 8.85 + 0.03 0.32%
Zinc (lb) 1.56 + 0.00 0.26%
West Texas Crude 83.95 + 0.38 0.45%
Brent Crude 84.54 + 0.82 0.98%
Iron Ore (t) 103.30 – 3.45 – 3.23%

Iron ore is again threatening to fall through US$100/t. Australia’s Big Miners are not seeing major share price falls because (a) we’ve been here once already and (b) their cost of production is so low compared to smaller players that they still back up the truck to the bank at US$100/t when others become non-commercial.

The dividends won’t be quite so spectacular, but still pretty solid, analysts insist.

Gold has recovered somewhat from Friday’s US dollar-driven fall, with the greenback dropping back a bit last night.

The Aussie is steady at US$0.7520 as traders look forward to their RBA Day lunches.

Today

The SPI Overnight closed up 13 points.

Nothing else on the calendar today funnily enough, other than an earnings report from Exclipx Group ((ECX)), while Brickworks ((BKW)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M a2 Milk Co Upgrade to Neutral from Underperform Credit Suisse
ANZ ANZ Bank Upgrade to Neutral from Sell Citi
CHL Camplify Upgrade to Add from Hold Morgans
COE Cooper Energy Downgrade to Accumulate from Buy Ord Minnett
DEL Delorean Corp Upgrade to Speculative Buy from Hold Morgans
FMG Fortescue Metals Upgrade to Hold from Reduce Morgans
JBH JB Hi-Fi Upgrade to Outperform from Neutral Macquarie
MQG Macquarie Group Upgrade to Buy from Neutral Citi
PBH PointsBet Downgrade to Hold from Buy Ord Minnett
REH Reece Upgrade to Neutral from Underperform Macquarie
Upgrade to Hold from Reduce Morgans
Upgrade to Buy from Lighten Ord Minnett
RWC Reliance Worldwide Upgrade to Buy from Neutral UBS
WAF West African Resources Upgrade to Outperform from Neutral Macquarie
WOW Woolworths Group Downgrade to Sell 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.)

(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)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

ANZ BKW CBA CSL ECX NAB RMD WBC

For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED

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

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: ECX - ECLIPX GROUP LIMITED

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION