Overnight: More Vaccine Excitement

World Overnight
SPI Overnight (Sep) 6053.00 + 22.00 0.36%
S&P ASX 200 6052.90 + 111.80 1.88%
S&P500 3226.56 + 29.04 0.91%
Nasdaq Comp 10550.49 + 61.92 0.59%
DJIA 26870.10 + 227.51 0.85%
S&P500 VIX 27.76 – 1.76 – 5.96%
US 10-year yield 0.63 + 0.02 2.44%
USD Index 96.05 – 0.20 – 0.21%
FTSE100 6292.65 + 112.90 1.83%
DAX30 12930.98 + 233.62 1.84%

By Greg Peel

Technically Speaking

The ASX200 followed Wall Street’s lead and opened up 60 points to be above the 6000 mark in the first ten minutes of trade yesterday, only to fall back to that level shortly after. Another attempt to rally was made, but by late morning had failed, before yet another attempt failed and the index was back at 6000 at lunchtime.

But it held. A market will typically see a third failure to breach a certain level, up or down, as confirmation it’s not going to happen. The index rallied another 50 points to the close.

Every sector closed in the green. CSL ((CSL)) got its mojo back, rising 3.0% on positive vaccine talk, sending healthcare up 2.8%. IT also rose 2.8%, bouncing back from Tuesday’s -4% plunge.

The focus nevertheless remains on the BNPL space. Zip Co reported a 64% year on year increase in June quarter revenue and fell -6.7%, to be the worst performer on the index. Outside the index, Openpay reported a 45% revenue increase and fell -11.8%. Sezzle ((SZL)) said nothing, and fell another -7.8%. Thank God for Afterpay ((APT)), which rose 2.4% after announcing deals with Apple Pay and Google Pay.

Materials rose 2.8% as iron ore and gold prices push higher, while consumer discretionary rounded out the big winners (+2.6%), even as further restrictions threaten. Has everyone not by now sorted out their home office and bought a new sofa?

Kogan, aka Aussie Amazon, rose 6.9%, even as consumer confidence fell back again in Westpac’s July survey to 87.9 from 93.7 in June. The virus bottom was 75 in April. The survey captured the period of Melbourne going back into lockdown, unlike NAB’s positive business confidence survey, released on Tuesday, which pre-dated.

The also-ran sectors still put in solid performances, with 0.9% gains for both energy and telcos the weakest. While it was not a uniform Buy Australia, there was clearly an indiscriminate technical element to yesterday’s move.

Individually Zip Co was the standout index loser, with next worst IOOF Holdings ((IFL)) in falling -2.9%. One needs to pick one’s fund managers. Pinnacle Investments ((PNI)) topped the day with a 7.1% increase.

Just the Medicine

Before the opening bell on Wall Street last night, Moderna announced its vaccine candidate had produced a “robust” immune-system response in a larger group of people and the study will move to a decisive clinical trial in July. Earlier, UK broadcaster ITV reported that positive news may come Thursday on initial trials of the Oxford University vaccine candidate backed by AstraZeneca.

Every time there is incrementally positive news on the vaccine front, Wall Street surges once more. With the S&P500 again just shy of being square for the year, the question is being asked as to whether a vaccine being found sooner rather than later is already priced in.

Wall Street’s gain was not all vaccine driven nonetheless.

US industrial production jumped 5.4% in June when economists had forecast 4.1%. However, with April production falling -12.5% and May another -4.4%, it’s a case of bouncing off a low floor. June quarter production netted out at a -42.6% fall, and the trend remains down -11% from pre-virus.

The Empire State (New York Fed district) activity index has swung to positive in July for the first time since February. But the risk is total US production will again go backwards if the virus continues to run amok in southern and western states.

The Fed Beige Book indicated economic activity increased in almost all Fed districts in June from May, but was still far below pre-virus levels.

The state of play in the US is one of a race being on between finding a vaccine and a still rising case-count, which is forcing the further reimposition of restrictions. Science versus nature, with a stock market in between.

Last night science was clearly winning, as the Nasdaq again underperformed while the back-to-normal stocks surged. The Russell small cap index rose 3.5%.

Goldman Sachs (Dow) reported last night and posted a beat in both earnings and revenue. Indeed, its highest quarterly revenues in history, thanks to a surge in market trading profits and debt and equity underwriting fees.

The stock only rose 1.4% as it had jumped 2.2% on Tuesday night after peer JPMorgan reported earnings.

Alcoa is up 6% in the aftermarket after reporting a less than expected loss in the June quarter. One factor in the loss were weaker results in alumina due to higher energy prices in Australia, a reference to its joint venture with Alumina Ltd ((AWC)).

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1810.50 + 0.70 0.04%
Silver (oz) 19.43 + 0.18 0.94%
Copper (lb) 2.92 – 0.01 – 0.42%
Aluminium (lb) 0.77 – 0.00 – 0.08%
Lead (lb) 0.83 – 0.00 – 0.02%
Nickel (lb) 6.08 + 0.05 0.83%
Zinc (lb) 0.99 + 0.01 0.99%
West Texas Crude 40.99 + 0.55 1.36%
Brent Crude 43.61 + 0.54 1.25%
Iron Ore (t) futures 112.70 + 0.30 0.27%

Nothing much to report.

Oil prices continue to tick up ahead of tonight’s OPEC-Plus meeting, at which the Saudis and Russia are expected to announce a gradual winding back of virus-related emergency production cuts.

The Aussie is back over 70, rising 0.4% to US$0.7010, as the greenback continues to fade away.

Today

The SPI Overnight closed up 22 points or 0.3%. If that gain holds, it will be the first session in seven the index has put two days together in one direction.

Australia’s June jobs numbers are out today.

China reports June quarter GDP, along with month of June industrial production, retail sales and fixed asset investment.

The ECB meets tonight.

The US reports June retail sales.

South32 ((S32)) reports quarterly production.

AusNet Services ((AST)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BPT Beach Energy Upgrade to Add from Hold Morgans
TPG TPG Telecom Upgrade to Overweight from Equal-weight Morgan Stanley
TWE Treasury Wine Estates Upgrade to Overweight from Equal-weight Morgan Stanley
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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