The Overnight Report: Encouraging Signs

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World Overnight
SPI Overnight	7314.00	+ 29.00	0.40%
S&P ASX 200	7245.10	+ 3.90	0.05%
S&P500	4591.67	+ 53.24	1.17%
Nasdaq Comp	15225.15	+ 139.68	0.93%
DJIA	35227.03	+ 646.95	1.87%
S&P500 VIX	27.18	– 3.49	– 11.38%
US 10-year yield	1.43	+ 0.09	6.78%
USD Index	96.33	+ 0.22	0.23%
FTSE100	7232.28	+ 109.96	1.54%
DAX30	15380.79	+ 210.81	1.39%

By Greg Peel

Running in Circles

It was pleasing to see the ASX200 close flat yesterday after the S&P500 fell -0.8% on Friday night, recognising the big fall on Wall Street as all about tech companies we just don’t have (with some exceptions). But it took a 50 point range on the day to get there.

The session began by not following Wall Street, until the index fell into a hole at 11am. It bottomed out down -33 at lunchtime and ten minutes before the bell was up 16.

The release of ANZ Bank’s job ads series for November seemed to cause the consternation, with ads jumping 7.4% in the month to be a record 44% above pre-pandemic levels. The reopening of NSW and Victoria resulted in 16.9% and 15.2% increases in ads in those states respectively.

ANZ believes a strong rebound in employment is imminent, expecting the unemployment rate to fall below 5% (October 5.2%) in the near term and below 4% by the end of next year. Encouraging stuff, unless you’re worried about a sooner rather than later RBA rate rise, which it appears the market was.

So good news can be bad, but it can also be good, which seems to be the way the market interpreted it in the afternoon.

Presumably we buy more groceries when we have a job so consumer staples helped drive the index yesterday with a 1.9% gain, after falling all last week. This was nevertheless with a bit of help from Metcash ((MTS)), which reported earnings and jumped 7.3% to top the index.

Healthcare also fell all last week, despite the big plunge in the Aussie, but was still down -0.3% yesterday.

Utilities was the best performer (+2.0%) as investors continue to shift into APA Group ((APA)) on the hydrogen theme. It rose 4.5%. Property rose 0.9% and industrials 0.7%, so we could call it a defensive shift, except that telcos fell -0.5%.

The banks stayed out of it and materials slipped -0.3% but energy rose 0.6%.

Train crash of the day was technology, down -2.2% after the Nasdaq fell -1.9% on Friday night. Square was one of the victims, so Afterpay ((APT)) dropped -4.3%, but a general attack on BNPL had Zip Co ((Z1P)) down -10% and Sezzle ((SZL)) down -16%.

Sell now, buy later.

Australia’s hesitancy to follow down Wall Street has paid off, with a big bounce in the US last night sending our futures up 29 points this morning.

Buy First

“Thus far, it does not look like there’s a great degree of severity to it, but we have really got to be careful before we make any determinations that it is less severe or it really doesn’t cause any severe illness, comparable to delta.”

Wall Street only heard the first line of what Dr Fauci told CNN on Sunday night regarding omicron before deciding to buy first and worry about “being careful” later. The reversal from Friday night’s selling was swift.

But while the FAAMGs were back in favour, it was not a mirror reversal of the rapid tech de-rating seen on Friday, with chip stocks in particular hit again as they continue to drop off after spectacular 2021 rallies. Rather, it was industrials leading the charge.

The Dow was up almost 800 points earlier in the session.

The venerable doctor’s words were positive for the banks and energy in particular, in the latter case riding a 5% bounce in oil prices. But it were the travel names that really stood out with their share price jumps, having been abandoned two weeks ago when omicron was revealed.

Reports from South Africa show that while the virus is rapidly spreading, hospitalisations aren’t. That’s all Wall Street needed to know. In the meantime, the Mayor of New York City announced that by later this month, all private sector employers will have to mandate vaccinations for their workers.

There was good news out of China, or bad if one assesses the reasons. The PBoC has cut Chinese bank reserve requirements, freeing banks up to lend more money, but Evergrande has warned what everyone suspected, that it may not be able to repay its creditors. Its share price fell -20%.

We might recall shares of Moderna leapt 20% the day omicron was revealed. Last night they fell -13%.

You might also like to know that on Saturday morning, bitcoin dropped -20% in forty minutes – while all other markets were closed.

US bond yields also saw a reversal last night, with the ten-year jumping back 9 points to 1.43% having dropped -11 points on Friday night.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1778.90	– 3.70	– 0.21%
Silver (oz)	22.34	– 0.18	– 0.80%
Copper (lb)	4.33	+ 0.00	0.11%
Aluminium (lb)	1.18	– 0.01	– 0.50%
Lead (lb)	1.01	– 0.01	– 0.69%
Nickel (lb)	9.05	– 0.19	– 2.08%
Zinc (lb)	1.48	– 0.03	– 1.75%
West Texas Crude	69.71	+ 3.45	5.21%
Brent Crude	73.37	+ 3.49	4.99%
Iron Ore (t)	100.40	+ 1.90	1.93%

Nickel and zinc both took off last month when Beijing eased its restrictions on steel makers, so we might be seeing some of the speculation die down.

Iron ore seems comfortable for the moment around the US$100/t mark. (Every time I say that it shoots off in one direction or the other.)

If omicron is indeed a damp squib, then borders will reopen and planes will be back in the air quick smart, needing lots of fuel.

The Aussie had a look over the cliff at 69 and was frightened. It’s up 0.5% at US$0.7044.

Today

The SPI Overnight closed up 29 points or 0.4%.

What will the RBA think about the job ads numbers, which imply a trend down in unemployment in line with the board’s assumptions? We’ll find out after today’s meeting.

China will report November trade numbers.

The US will also report trade numbers tonight, but for October, while a reading of September quarter productivity will put delta in the spotlight.

Bank of Queensland ((BOQ)) holds its AGM today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
DHG	Domain Australia	Upgrade to Buy from Neutral	UBS
FMG	Fortescue Metals	Downgrade to Hold from Buy	Ord Minnett
IAG	Insurance Australia	Downgrade to Underweight from Equal-weight	Morgan Stanley
OTW	Over The Wire	Downgrade to Accumulate from Buy	Ord Minnett
REA	REA Group	Upgrade to Neutral from Sell	UBS
RIO	Rio Tinto	Downgrade to Hold from Buy	Ord Minnett
RMD	ResMed	Upgrade to Outperform from Neutral	Macquarie
WOR	Worley	Upgrade to Overweight from Equal-weight	Morgan Stanley

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.)

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