Overnight: No Reason Not To Buy

World Overnight
SPI Overnight (Sep) 5941.00 + 28.00 0.47%
S&P ASX 200 5941.10 – 36.40 – 0.61%
S&P500 3197.52 + 42.30 1.34%
Nasdaq Comp 10488.58 + 97.73 0.94%
DJIA 26642.59 + 556.79 2.13%
S&P500 VIX 29.52 – 2.67 – 8.29%
US 10-year yield 0.62 – 0.03 – 3.91%
USD Index 96.25 – 0.30 – 0.31%
FTSE100 6179.75 + 3.56 0.06%
DAX30 12697.36 – 102.61 – 0.80%

By Greg Peel

Ups and Downs

The ASX remains firmly in yo-yo mode, falling yesterday after rising on Monday after falling on Friday after rising on Thursday after falling on Wednesday. Net result down -60 for the ASX200.

The futures are up again this morning.

The standout from yesterday was the Ausdaq, which fell -4.0% as traders scrambled over each other to take profits, as had been the case for the Nasdaq overnight. The BNPL players had been the main drivers recently, so they were the hardest hit.

Afterpay ((APT)) fell -7.2%, Zip Co ((Z1P)) fell -7.7% and Sezzle ((SZL)) lost its sizzle, falling -12% after rallying 22% on Monday.

Pushpay Holdings ((PPH)) led the index losers in falling -10.8% after a major shareholder bailed – hopefully not someone otherworldly. PointsBet ((PBH)) was a winner on Monday and a loser yesterday, falling -9.7%.

On Monday night in the US it had looked like the tech bubble may have burst, but after opening lower last night, the Nasdaq turned itself around. We may see some “bargain” hunting in the Ausdaq today.

Meanwhile, back in the real world, utilities (-1.1%), telcos (-0.9%) industrials (-0.9%) and healthcare (-0.7%) were the worst performers, which seems odd on a “risk off” sort of session. Staples (+0.2%) was the only sector to close in the green. Discretionary was only down a tad.

The anti-defensive play continued through to gold miners, which saw profit-taking likely driven by the US$1800/oz round number, holding materials to a -0.4% loss despite a big jump in the iron ore price, and base metal strength.

The banks contributed with -0.5%.

Individual winners on the day included Credit Corp ((CCP)), up 6.7% on broker upgrades, and Breville Group ((BRG)), up 5.5% following a glowing initiation by Morgan Stanley.

Wall Street’s turnaround last night suggests the up-down pattern will continue, simply underscoring the No Idea theme. Is the economy (here and in the US) reopening or reclosing? As case-counts climb in both countries, and plenty of other countries, it’s difficult to see the former winning out.

The smugness has now disintegrated for the so-called “First Mover Group” – those countries including Australia that had appeared to have swiftly nipped the virus in the bud. Israel, for one, has now lost control. New Zealand remains a shining light, so far, but outside the Group Japan is considering going back into a state of emergency.

The Dow was up 550 points last night.

Thick Fog

JPMorgan, Citigroup and Wells Fargo reported June quarter earnings last night. All three saw big falls in earnings as expected, but all three increased bad debt provisions by more than expected. Wells Fargo cut its dividend by more than expected.

Citi and Wells fell -4%. The two are more exposed to commercial banking than investment banking, whereas for JPMorgan it’s the opposite. JPM saw a 120% year on year increase in stock/bond market trading profits, offsetting commercial banking losses, and its shares rose 0.6%.

Goldman Sachs is even more investment bank leaning, so its shares rose 2.5% ahead of its report tonight. Goldman and JPMorgan are in the Dow, thus contributing to Dow outperformance. The other big Dow movers were United Health, Home Depot and Apple, which are all stay-at-home winners.

Monday night’s trade smacked of a bubble bursting for tech, and all indices opened lower last night. But not for long. Trading accelerated to the upside over the course of the session, and the Nasdaq swung back to positive with less than an hour to go.

Monday night’s “get me out” trade became “get me in” late in the session, albeit the Nasdaq still underperformed.

The reason Wall Street sentiment swung back again was the result of Fedspeak.

Fed governor Lael Brainard called for, in not so many words, QE forever, given the “thick fog of uncertainty” brought about by the virus.

In his post-result commentary, JPMorgan CEO echoed a similar uncertainty theme. “We just don’t know”.

St Louis Fed president James Bullard suggested that the unemployment rate could drop sharply in the next six months, if “we play our cards right” and if many workers subject to temporary layoffs end up being recalled.

Ten bucks says a lot of them won’t. Bullard also said that optimism around stocks, so far, has proven right.

So far.

So with the central bank assuring no downside, thanks to a bottomless pit of printed money, the only action an investor can take is to buy.

It’s now down to the White House and Congress as to what further fiscal measures will be applied after the initial package expires at the end of this month. Australia has the same dilemma. Extend JobKeeper/Seeker, extend but reduce, cease?

The unabated rise of cases, hospitalisations and deaths in the US would suggest something had best be done.

More grist for the TINA mill.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1809.80 + 7.80 0.43%
Silver (oz) 19.25 + 0.24 1.26%
Copper (lb) 2.94 – 0.02 – 0.65%
Aluminium (lb) 0.77 + 0.00 0.09%
Lead (lb) 0.83 – 0.02 – 1.92%
Nickel (lb) 6.03 – 0.01 – 0.22%
Zinc (lb) 0.98 – 0.02 – 2.01%
West Texas Crude 40.44 + 0.84 2.12%
Brent Crude 43.07 + 0.91 2.16%
Iron Ore (t) futures 112.40 + 0.55 0.49%

Base metal prices took a breather last night, but iron ore didn’t.

QE forever is good news for oil prices.

The US dollar continues to slide, which helps underpin gold, and, unfortunately, the Aussie, which is up 0.6% at US$0.6979.

Today

The SPI Overnight closed up 28 points or 0.5%.

The NAB business confidence survey yesterday showed solid improvement in confidence and conditions, but the survey was conducted before Victoria had its relapse. Today we’ll see a more recent consumer survey from Westpac.

The Bank of Japan meets today.

The US will see June industrial production numbers tonight and the Fed Beige Book.

Alcoa reports earnings in the US tonight, which will inform the performance of its JV with Alumina Ltd ((AWC)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL AGL Energy Downgrade to Underperform from Neutral Macquarie
BPT Beach Energy Upgrade to Add from Hold Morgans
EVN Evolution Mining Downgrade to Sell from Neutral Citi
GMG Goodman Grp Downgrade to Neutral from Buy Citi
NCM Newcrest Mining Downgrade to Neutral from Buy Citi
PPC Peet & Company Downgrade to Neutral from Outperform Macquarie
PRU Perseus Mining Downgrade to Neutral from Buy Citi
SAR Saracen Mineral Downgrade to Neutral from Buy Citi
TWE Treasury Wine Estates Upgrade to Neutral from Underperform Macquarie
Upgrade to Overweight from Equal-weight Morgan Stanley
Downgrade to Lighten from Hold Ord Minnett
Downgrade to Neutral from Buy UBS
VOC Vocus Group Upgrade to Buy from Neutral UBS
WSP Whispir Downgrade to Hold from Buy Ord Minnett
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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