Overnight: Earnings In Focus

By Greg Peel

The Lord Giveth

The Australian market was set up for a fall yesterday morning after Tuesday’s huge surge. That surge was a lot about the government’s fiscal support extension to year-end and possibly beyond, with added impetus from the EU’s massive coordinated stimulus package. Clearly the assumption was Wall Street would follow suit.

It didn’t, so our overnight futures closed down -65 points yesterday morning. Most notable on Wall Street, aside from lack of broad market excitement, had been a turnaround in the Nasdaq.

The ASX200 fell -50 points in the first ten minutes, in a rush to lock in some of Tuesday’s profits. Then the news came out Australia had reported over 500 new cases on Tuesday – 484 in Victoria – to mark the biggest single day increase since the pandemic hit our shores.

Once the ball was set rolling, momentum carried the index lower through to the last hour, before at least some buying emerged. The index was down -100 points at its low.

Preliminary data from the ABS showed retail sales grew 2.4% in June, having risen 16.9% in May, to be up 8.4% year on year. Most notable in the numbers was a clear rebound in “out-of-home” sales, such as restaurant dining and frock shopping, which makes this data rather passe. Melbourne shut down again in July.

The ABS noted that as June came to a close there was a resurgence of supermarket hoarding, including the usual suspects of toilet paper, flour, rice and pasta.

What the hell do people do with all this toilet paper?

We also had the Treasurer warning yesterday that the budget numbers he will deliver today include an “eye-watering” deficit. It’s hardly a surprise, and would have to be something far worse than expected to move the market today, or maybe even the Aussie. I suggest that aside from setting voters up for the bad news, in playing up the reality of the situation, Josh is taking away any opportunity for Labor to use the numbers as ammunition.

They’d look pretty foolish at this stage if they laid it on the government, despite the Coalition laying the GFC deficit on Rudd.

Only one sector closed in the green yesterday, being energy (+0.6%), on higher oil prices. Stronger metals prices, particularly for gold, did not however help materials. That sector fell -1.3% after some downbeat comments from BHP Group ((BHP)).

One might have expected the worst performing sector to have been IT, given the turnaround in the Nasdaq, but its -2.4% fall – about half of Tuesday’s gain – was dwarfed by a -3.2% fall for healthcare. Everyone who had jumped back into CSL ((CSL)) on Tuesday jumped out again yesterday, notwithstanding the top four index losers yesterday were all biotechs, led by Mesoblast ((MSB)), down -6.8%.

That’s clear profit-taking, although the number of times biotechs appear on the winners/losers boards daily in recent times has become a bit tedious.

Utilities lost -2.2%, probably because chances of a NSW re-lockdown are growing every day, while all other sectors fell around -1%, except the banks (-0.6%). They got some good news from ASIC which, having lost its Federal Court appeal against Westpac ((WBC)), has decided not to pursue the banks any further on responsible lending charges.

Wall Street has posted another rather tepid (in these times) rally overnight, and while the Nasdaq did not fall further, it still underperformed the broad market. Our futures find this unconvincing, and are up only 7 points this morning.

Press Any Key

Microsoft reported after the bell on Wall Street last night, beat on the top and bottom lines, and is down over -2% in the aftermarket as I write. Doesn’t seem like much, but when you’re a US$1.6trn company, it does have an impact.

Microsoft had set itself up for a “sell the fact” response given it has been the best performing stock on the Dow this year. The fact that it is in all the major indices will mean a handicap start for Wall Street tonight, and maybe even some more Big Tech profit-taking if Microsoft (and Snap the previous day) is a harbinger of investor responses to come.

We might compare whitegoods manufacturer Whirlpool, which also reported after the bell and also beat on earnings, but is up 3.8% in the aftermarket. The theme here continues to be one of analysts having made overly grim assumptions with regard cyclicals.

And here’s the clincher. Tesla reported after the bell and all focus was on whether the company could post its first ever profit. Analysts had forecast a US3c earnings per share result. That number came in at US$2.18 per share. And not only that, a maiden profit means Tesla is now eligible for S&P500 inclusion.

The shares are up 4%. Only 4%. In Tesla terms, that’s nothing.

During the session, Wall Street learned that the Republicans had come up with a number for their dole extension plan. The initial “JobSeeker” payment, expiring end-July, was US$600 per week. The Republicans have offered an extension, at US$400 per month.

Let the games begin.

The White House has also ordered the Chinese consulate in Houston to shut down.

Let the games continue.

Meanwhile, the US case-count has now topped 3.8 million, out of 14.8 million globally. That’s a quarter of all cases for 4% of the global population. Finding that the president’s bravado in refusing to wear a mask like a girly Democrat is not playing well in the focus groups, less than four months out form the election, his minders have decided to now make him wear one.

That’ll help.

Commodities

After running up on Tuesday night on the EU stimulus news, industrial metals gave some back last night.

But not so precious metals. Gold has leapt almost thirty bucks and silver has added another 8%. Are the Hunt brothers buying?

US dollar weakness remains relentless, which is another factor helping to boost US multi-nationals like Microsoft et al. The Aussie is up a tad at US$0.7140.

Today

The SPI Overnight closed up 7 points.

Josh will play Grim Reaper today.

All of Evolution Mining ((EVN)), Newcrest Mining ((NCM)), Northern Star Resources ((NST)), Syrah Resources ((SYR)) and Santos ((STO)) post production reports today.

Megaport ((MP1)) provides a quarterly update.

The Australian share market over the past thirty days…