Overnight: Conflicting Drivers

World Overnight
SPI Overnight (Sep) 5945.00 + 42.00 0.71%
S&P ASX 200 5934.40 + 36.50 0.62%
S&P500 3115.86 + 15.57 0.50%
Nasdaq Comp 10154.63 + 95.86 0.95%
DJIA 25734.97 – 77.91 – 0.30%
S&P500 VIX 28.62 – 1.81 – 5.95%
US 10-year yield 0.68 + 0.03 4.44%
USD Index 97.15 – 0.22 – 0.23%
FTSE100 6157.96 – 11.78 – 0.19%
DAX30 12260.57 – 50.36 – 0.41%

By Greg Peel

Uncertain Start I

Australia has begun the new year with parts of Melbourne locked down and warnings any Victorian crossing a state border will be shot on sight. The ASX200 nevertheless took its lead from the open from window-dressing on Wall Street overnight, rising 57 points to midday.

The index slipped on the release of May building approval numbers, but not for long.

After two months of smallish dips, building approvals fell -16.4% in May when -10% was forecast. House and non-residential approvals fell, but it was all about apartment approvals, down -34.5%.

Not such a surprise, given (a) apartments were already reaching oversupply, (b) new apartments blocks tend to crack, (c) the virus has killed off population growth and (d) the economy has fallen into a hole. The government has since announced a housing stimulus package, but will this be enough to save a labour-intensive building industry?

Sellers finally arrived at lunchtime and the index chopped back to a less positive close. The banks (+1.0%) provided the bulk of the gain, after US banks rallied overnight after not announcing dividend cuts. The connection is, as always, unclear. The big US banks offer payout ratios of around 35% to Australia’s (pre-deferrals) 70-80%.

Real estate was the best performing sector, up 2.5%, presumably because fewer buildings ahead will provide some safety net to reduced valuations on existing properties.

The Ausdaq rose 1.6% thanks to a chart-topping 8.1% gain for data centre operator NextDC ((NXT)) after it updated on contract commitments. Peer (sort of) Megaport ((MP1)) rose 7.4% in sympathy.

Bargain hunters appeared to shrug off locked up Mexicans and instead focus on a re-opened Queensland border in pushing Corporate Travel Management ((CTD)) up 7.9%, Webjet ((WEB)) up 7.4% and airport billboard specialist oOh!media ((OML)) up -7.1%.

On the downside, a -4.1% fall for Suncorp ((SUN)) stood out after the insurer/banker announced a restructure.

Travel agents had consumer discretionary looking good with a 1.0% gain while healthcare (-0.8%) continues to stall.

It was all in all a mixed bag of moves that could just as easily reverse on any day, suggesting as we move into the new financial year the No Idea trade is still very much the focus.

The S&P500 is up 0.5% overnight and our futures are up 42 points, or 0.7%, this morning.

You tell me.

Uncertain Start II

The US reported a record number of new cases last night.

California has moved to re-close bars, restaurants and cinemas in certain counties, just in time for the long weekend.

Apple has closed 30 more stores across seven states, bringing total re-closures to 77 of 271. Apple shares fell -0.2%.

Fast food giant Chipotle is the latest big name to withdraw advertising from Facebook. Facebook shares rose 4.6%. Analysts argue that while month-long boycotts might be sending a message, US companies ultimately cannot afford not to advertise on the world’s biggest platform.

ADP last night reported a 2.4 million increase in private sector jobs in June, after a (revised) 3.1 million in May. While such numbers look staggering compared to “usual” numbers, it is noted that job additions (which are really returning workers) in hospitality, for example, still only represent around 25% of the pre-virus workforce in the sector.

The US manufacturing PMI jumped into expansion at 52.6 in June from 43.1 in May.

Pfizer (Dow) reported very early results from a very small trial of a vaccine that are encouraging. The stock rose 3%.

Put all that together and what does an investor do?

The outperforming sectors in the S&P last night were real estate, utilities, consumer discretionary (Amazon) and communication services (Facebook). Investors once again shifted into the most defensive cohort in the market – Big Tech. The Nasdaq hit a new all-time high even as the Dow fell, having at one point been up 200.

Let’s put that into perspective. Last night Tesla rose to become the world’s biggest auto manufacturer by valuation, surpassing Toyota. It’s not so surprising. Driving around town these days it’s hard to even spot a Toyota among all those Teslas.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1770.30 – 9.80 – 0.55%
Silver (oz) 18.00 – 0.20 – 1.10%
Copper (lb) 2.72 – 0.01 – 0.37%
Aluminium (lb) 0.72 – 0.01 – 0.70%
Lead (lb) 0.80 – 0.00 – 0.16%
Nickel (lb) 5.76 – 0.02 – 0.33%
Zinc (lb) 0.92 – 0.01 – 1.00%
West Texas Crude 39.71 – 0.11 – 0.28%
Brent Crude 41.98 + 0.83 2.02%
Iron Ore (t) futures 100.75 – 0.30 – 0.30%

Falls in metal prices belie Caixin’s read on China’s June manufacturing PMI, which rose to 51.2 from 50.7 when 50.5 was forecast.

Gold was probably due a bit of a pullback, but don’t lose heart.

The Aussie is up 0.2% at US$0.6918.

Today

The SPI Overnight closed up 42 points or 0.7%.

Australia and the US will see May trade numbers today/night.

The US will also see data for factory orders, and June non-farm payrolls, pulled forward due to Friday’s holiday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
3PL 3P Learning Upgrade to Overweight from Equal-weight Morgan Stanley
API Aus Pharmaceutical Ind Downgrade to Neutral from Buy Citi
AQG Alacer Gold Downgrade to Neutral from Outperform Macquarie
CMM Capricorn Metals Downgrade to Underperform from Outperform Macquarie
DCN Dacian Gold Downgrade to Underperform from Outperform Macquarie
EBO EBOS Group Upgrade to Buy from Neutral Citi
GXY Galaxy Resources Downgrade to Neutral from Outperform Credit Suisse
JIN Jumbo Interactive Upgrade to Add from Hold Morgans
NCM Newcrest Mining Downgrade to Underperform from Neutral Macquarie
PAN Panoramic Resources Downgrade to Underperform from Neutral Macquarie
PLS Pilbara Minerals Downgrade to Sell from Neutral Citi
RRL Regis Resources Downgrade to Underperform from Neutral Macquarie
RSG Resolute Mining Downgrade to Underperform from Neutral Macquarie
SAR Saracen Mineral Downgrade to Neutral from Outperform Macquarie
SBM St Barbara Downgrade to Underperform from Neutral Macquarie
SIG Sigma Healthcare Upgrade to Buy from Neutral Citi
STO Santos Downgrade to Neutral from Outperform Macquarie
TAH Tabcorp Holdings Upgrade to Neutral from Sell Citi
WAF West African Resources Downgrade to Underperform from Neutral Macquarie
WHC Whitehaven Coal Upgrade to Buy from Neutral Citi
WPL Woodside Petroleum Upgrade to Outperform from Neutral Macquarie
Greg Peel

About Greg Peel

Greg Peel joined Macquarie Bank in 1986 and acquired trading experience in equities, currency, fixed income and commodities derivatives, ultimately being appointed director of equity derivatives trading. He later published In With The Smart Money (a plain English guide to the mysterious world of financial markets and derivatives) and acted as a consultant to boutique investment funds. In 2004 Greg joined FNArena as a contributing writer. He is now a director and principal of the company. Greg compliments the journalistic background of the FNArena team with lengthy experience as a financial markets proprietary trader.

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