Overnight: Never Lasts Long

By Greg Peel

Golden Age

The possibility of the ASX200 marking two consecutive sessions in one direction yesterday was thwarted by the US dollar gold price. The futures suggested down -27 points before the open, but -11 was the best the index could do before rallying to up 20 by the close.

That’s fifteen sessions in a row. But fear not, the futures are up 26 points this morning, so today could be the day.

Having crossed the US$1900/oz mark in the US session, the gold price powered on in Asian trading yesterday and after last night’s US session is at US$1943 to mark a new record in nominal dollars. The last time gold hit US$1900 was in 2011, before it subsequently collapsed.

One might say it’s “gone parabolic”, but silver is leaving gold in its dust, as the gold/silver ratio rapidly regresses to the mean.

The materials sector (+1.6%) led the index up yesterday in what was otherwise a rather mixed and inconsequential session. Three of the top five index winners were gold miners. They were beaten by Lynas Corp ((LYC)), which rallied 12.0% after signing a contract with the US government for phase one work on the heavy rare earth separation facility.

Telcos (+1.1%) were the next best performer, followed by IT and consumer discretionary, both up +0.7%.

In the latter case, strength belied a -4.1% fall for Corporate Travel Management ((CTD)) and -3.5% for G8 Education ((GEM)), both ongoing pandemic losers, and both among the top five index losers. City Chic Collective ((CCX)) nonetheless came out of its capital raising and jumped 9.4%.

In the former case, note last night NZ BNPL company Laybuy opened its IPO and closed it ten minutes later, fully subscribed. No bubble in that space.

We bought our first television on lay-buy.

Utilities were the biggest loser (-0.7%) while healthcare fell -0.5% as CSL ((CSL)) continues to struggle against a strong Aussie, or more realistically a weak greenback. The banks (-0.4%) await APRA’s dividend decision, and energy (-0.4%) keeps sliding despite the oil price going nowhere much.

Worst performing stock on the day was Insurance Australia Group ((IAG)), which fell another -5.3% after having abandoned its dividend last week, and as Sydney traders looked out the window.

The futures are up 26 points this morning, likely anticipating a further rush into gold miners. IT will possibly run up today after the Nasdaq reclaimed its Wall Street leadership last night.

The ‘Daq is Back

Several brokers decided in unison last night to raise their price targets on US Big Tech names, some into the stratosphere, ahead of earnings reports this week. And so ended Big Tech profit-taking that dominated last week’s trade.

Amazon, Apple, Google and Facebook all report over Wednesday-Thursday. Microsoft set the trend early last week with a “sell the fact” response to a positive result, prompting investors to cash in on other big names. Does this imply “sell the fact” is now complete?

It was last night, with the Nasdaq bouncing back 1.7%, while the same names dragged the S&P500 up 0.7%.

This change of heart overrode all other issues on investors’ minds this week, aside from earnings results (this week is the biggest).

The Republicans have reached a consensus, among themselves, on a round two stimulus package. The US$100 a week unemployment benefit first proposed, down from US$600 in the first package, has been raised to $200 per week. Don’t spend it all at once. The Democrats want the US$600 to remain, so an actual bill is still a long way off.

The Fed meets this week. Nothing will change, but Wall Street is still keen to assess Jay Powell’s tone, with futures markets persisting with an assumption negative rates are inevitable.

There was good news, supposedly, in case-counts in Florida and Arizona appearing now to have peaked. One shouldn’t count one’s chickens just yet, as Melbourne has illustrated. Weekly data nonetheless show shopping habits and dining reservations have stalled in several states, confirming the US economic recovery has hit a bump.

Major League Baseball recommenced with great fanfare on Friday night. On day two, games are already being postponed due to players testing positive.

China reported 61 new cases yesterday – the biggest daily count in four months. Hong Kong has closed all restaurants.

Moderna shares rose 9.2% last night as the company begins its phase three vaccine trial, having received a commitment of US$472m from the government. The caveat is no doubt the US gets to buy up all the vaccine.

US new durable goods orders leapt 7.3% in June, in line with expectation. The bulk is attributed to a surge in vehicle orders, as auto-makers made up for ground lost during the shutdowns. The data precede re-shutdowns in July.

Boeing (Dow) announced orders for new planes fell -462% in June. No new orders, and almost 200 order cancellations. The company has decided there’s no point in proceeding with the development of its new 777X at this point.

With all the above swirling around, it will still be earnings reports that will dominate the tone on the Street this week.

Commodities

Weakness in the US dollar is accelerating, as markets consider the potential for a negative Fed rate, Congress squabbles over further fiscal stimulus, and the US maintains its number one position as leading pandemic victim.

The weak dollar, along with negative real interest rates and rising US-China tensions, have investors streaming into precious metals.

The weak dollar is also supporting commodity prices, albeit the run for copper has stalled.

Iron ore is down, but never out it seems.

The -0.8% fall in the greenback means a 0.6% jump in the Aussie to US$0.7149, just to give Phil a headache.

Today

The SPI Overnight closed up 26 points or 0.4%.

Monthly consumer confidence numbers are out in the US tonight.

Locally, Alacer Gold ((AQG)) and Iluka Resources ((ILU)) post production reports.

Credit Corp ((CCP)), GUD Holdings ((GUD)), PointsBet ((PBH)) and Uniti Group ((UWL)) report earnings.

The Australian share market over the past thirty days…