The Overnight Report: All The Way With Jay?

Daily Market Reports | Nov 23 2021

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

World Overnight
SPI Overnight 7341.00 – 12.00 – 0.16%
S&P ASX 200 7353.10 – 43.40 – 0.59%
S&P500 4682.94 – 15.02 – 0.32%
Nasdaq Comp 15854.76 – 202.68 – 1.26%
DJIA 35619.25 + 17.27 0.05%
S&P500 VIX 19.17 + 1.26 7.04%
US 10-year yield 1.63 + 0.09 5.79%
USD Index 96.53 + 0.50 0.52%
FTSE100 7255.46 + 31.89 0.44%
DAX30 16115.69 – 44.28 – 0.27%

By Greg Peel

Bank Exit

The futures said down -45 in the morning and the ASX200 duly closed down -43 points yesterday as investors once again abandoned the banks, in a session reminiscent of the days of the Royal Commission.

Commonwealth Bank ((CBA)) fell -2.1%, Westpac fell -2.1%, ANZ Bank ((ANZ)) fell -2.0% and National Bank ((NAB)) fell -1.2%. Macquarie Group ((MQG)) wasn’t spared either, down -1.0%. The financials sector fell -1.4%.

The bank reporting season just passed started poorly with a -4% drop for Westpac, but the alarm bells really rang when CBA wrapped up the season with an -8% plunge. An ongoing near-zero interest rate environment, competition for mortgages in a raging housing market, and the need to spend big to keep up with fintech disruptors are conspiring to crunch bank earnings margins.

Analysts agree the only real saviour ahead would be RBA rate rises, which are still, according the governor, some way off.

And CBA’s own economists are now forecasting a -10% housing sell-off in 2023.

The bank sector’s move was not the biggest by percentage but by far the biggest by market weight. Technology fell -2.1% because Afterpay ((APT)) fell -2.5% and energy fell -1.6% on lower oil prices.

The other specific sector under attack yesterday was travel, after Austria relocked down on the weekend and cases surged elsewhere in Europe, and in parts of the US. The northern winter does not look like being a pleasant one.

Flight Centre ((FLT)) topped the losers’ board with a -7.1% drop, followed by Corporate Travel Management ((CTD)) on -6.0%. Webjet fell -3.7% ahead of its earnings result tomorrow and Qantas ((QAN)) fell -4.0%.

Materials (+0.4%) managed to provide some resistance on a jump in the iron ore price and further surges for twenty-first century metal prices, leading Pilbara Minerals ((PLS)) to top the winners’ board with a 5.1% gain and Lynas Rare Earths ((LYC)) close by on 3.6%.

Iron ore was up again yesterday but gold has tanked forty bucks overnight (-2.18%).

There appears little relief in sight. The futures are down -12 points thin morning.

Santa where are you?

Better the devil you know

The fact that futures markets are now pricing in the first Fed rate hike as early as June next year underscores a general belief on Wall Street Jerome Powell is “behind the curve” on monetary policy in the face of solid economic growth and stubborn inflation. But last night he got a big thumbs up.

At least to start with.

Biden chose to nominate Powell as Fed chair for another four years, with the other contender, Brainard, nominated for vice. The nominations have to be approved by Congress, but given Trump originally appointed Powell it shouldn’t be a problem.

Wall Street might be at odds with Powell but he is also considered to have done a good job at getting America through the worst of the pandemic, and with the pandemic still a threat it is more comforting to stick with the incumbent than to endure the uncertainty of someone new, even if Brainard is considered to be not too dissimilar in her thinking.

The response was a 9 point jump in the US ten-year yield to 1.63%, another 0.5% gain for the US dollar, and a rapid switch back into value/cyclical stocks and out of growth – the opposite of what the past month has seen.

The Nasdaq actually hit a new high on the news, before turning tail. The response seems a bit robotic (higher yields bad for growth stocks) when you consider the ten-year was last at 1.63% in early November and the Nasdaq had since rallied 10%.

But just when it appeared a good day for value/cyclicals would be locked in, in came a selling stampede. The Dow entered the last hour of trade up 300 and closed up 17. The Nasdaq was flat at 3pm and closed down -1.3%.

The dust may settle once cooler heads prevail but in what is considered a three-day week, with a big data dump on Wednesday, Wall Street is moving swiftly to reposition before what for most will be a four-day holiday.

Geopolitical news was somewhat shoved into the background last night.

Fears surrounding the Chinese economic slowdown were slightly allayed after the PBoC reportedly cut several phrases about policy restraint out of a new report, suggesting an easing of policy is nigh.

Fears about rising case-counts in Europe have not abated.

Russian stocks tumbled last night when allied intelligence reports suggested it is increasingly likely Putin is about to invade Ukraine.

Back home, Black Friday kicked off last night (yes, these days it’s an all-week affair) and there are high hopes for a consumer spending spree. Forecasts are for 8.5-10% growth in sales on last year, but that’s in dollar value, and everything’s more expensive.

It will also depend on whether any of this year’s requests high on lists for Santa are still left on shelves, with retailers having warned to buy early, and a big jump in October retail sales implying a subsequent pull-forward of demand.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1804.80 – 40.20 – 2.18%
Silver (oz) 24.14 – 0.42 – 1.71%
Copper (lb) 4.38 + 0.03 0.76%
Aluminium (lb) 1.22 + 0.02 1.39%
Lead (lb) 1.02 + 0.00 0.37%
Nickel (lb) 8.99 + 0.04 0.40%
Zinc (lb) 1.46 – 0.01 – 0.62%
West Texas Crude 76.56 + 0.62 0.82%
Brent Crude 79.51 + 0.62 0.79%
Iron Ore (t) 94.70 + 3.40 3.72%

Just when you thought gold was back shining again, big moves up in yields and the dollar killed off the joy.

Iron ore heading back to US$100/t?

Oil prices saw some reprieve. Still no word on reserve releases.

The Aussie is down -0.1% at US$0.7227.

Today

The SPI Overnight closed down -12 points.

Today brings flash estimates of November PMIs from across the globe.

Japan is closed.

TechnologyOne ((TNE)) reports earnings today, there are a few more AGMs and Amcor ((AMC)) and GrainCorp ((GNC)) go ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALX Atlas Arteria Upgrade to Outperform from Neutral Macquarie
APE Eagers Automotive Upgrade to Buy from Accumulate Ord Minnett
EVN Evolution Mining Upgrade to Buy from Neutral Citi
IPL Incitec Pivot Downgrade to Accumulate from Buy Ord Minnett
SEK Seek Downgrade to Neutral from Buy 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)

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CHARTS

AMC ANZ APT CBA CTD FLT GNC LYC MQG NAB PLS QAN TNE

For more info SHARE ANALYSIS: AMC - AMCOR PLC

For more info SHARE ANALYSIS: APT - AFTERPAY LIMITED

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

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED

For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

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

For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED

For more info SHARE ANALYSIS: QAN - QANTAS AIRWAYS LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED