Overnight: Back In Business

World Overnight
SPI Overnight (Sep) 5893.00 – 13.00 – 0.22%
S&P ASX 200 5899.50 + 40.10 0.68%
S&P500 3383.54 + 42.57 1.27%
Nasdaq Comp 11056.65 + 203.11 1.87%
DJIA 27993.33 + 327.69 1.18%
S&P500 VIX 25.85 – 1.02 – 3.80%
US 10-year yield 0.67 + 0.00 0.30%
USD Index 93.06 – 0.27 – 0.29%
FTSE100 6026.25 – 5.84 – 0.10%
DAX30 13193.66 – 9.18 – 0.07%

By Greg Peel

Storm the Barricades!

Qantas ((QAN)), Virgin Australia, Flight Centre ((FLT)) and Helloworld ((HLO)) got together yesterday and demanded the states open their borders in order to save the tourism industry, suggesting Australia must “learn to live” with the virus.

Doubt you’ll get much out of Palasz…Palazk…the Queensland premier before the election.

The market nevertheless believes the Group of Four may have some clout – Qantas rose 3.1% yesterday, Flight Centre 7.8% and Helloworld 4.6%. Qantas helped the industrial sector up 1.4% and Flight Centre helped consumer discretionary up 0.5% Helloworld is not in the index.

But that was not the story of yesterday. Yesterday the ASX200 opened up around 40 points, lost about half of that by 3pm, and then kicked at the close as traders looked to a 300 point rally in the Dow futures. The big drivers on the day were the resource sectors.

Energy rose 2.0% on an announcement next month’s federal budget will include $211m to build new domestic fuel storage facilities and back local refineries to stay open wherever commercially possible, in order to secure the country’s long term fuel supply.

Might have thought of this earlier?

Recent news is that the government has threatened to build a new gas-fired power station if electricity companies cannot guarantee secure power supply when remaining coal-fired plants shut down.

Coal prices actually rose on Friday night – yes, would you believe it – leading New Hope Corp ((NHC)) to top the index leaders’ board yesterday with an 8.5% gain, and Whitehaven Coal ((WHC)) to take the bronze with 7.3%, behind Flight Centre. Add in gains for iron ore and base metal prices as well, and the materials sector won the day with a 2.2% rise.

That’s most of your 40 index points accounted for, with healthcare and financials having a rest day. In the latter case, despite Macquarie Group ((MQG)) issuing a profit warning as it nears the end of its first half, citing a drop in investment banking activity since March. Macquarie fell -4.7% to make a rare appearance on the index losers’ board.

Topping the losers’ board was Cleanaway Waste Management ((CWY)), following revelations the company’s CEO has a bit of a short fuse. The stock lost -7.1% but was previously up around 30% year to date and 80% from the March low.

Telcos (+0.8%) provided some support for the resource sectors but for the others it was thanks for playing.

Iron ore and base metal prices are up again overnight as is gold, and the Dow did indeed rally 300 points. But this morning, our futures are down -13 points.

M&A Monday

The Dow futures were up late in our session yesterday as Wall Street had its first chance to respond to the weekend’s news the Oxford/AstraZeneca vaccine trial was back on again. Pfizer later announced it expects to know whether its vaccine candidate “works” by the end of October.

There were two other factors helping to drive what was a widespread rally.

Firstly, for some reason US companies like to announce M&A deals on a Monday, and last night brought two biggies as chip-making giant Nvidia and biotech giant Gilead Sciences both announced large takeovers of complimentary companies you won’t have heard of.

Remember remdesivir? That’s Gilead. All has seemingly gone quiet on the remdesivir front as Gilead’s takeover relates to cancer treatments.

Meanwhile, TikTok is attempting to avoid a full takeover of its US business by signing a deal with Oracle – an early potential suitor – as a secure cloud services partner. The details are a bit scant at this stage and it is yet to be determined whether it would be sufficient for the president, but Oracle shares rose as a result.

Having previously tied up with Microsoft to take out TikTok, Wal-Mart has suggested it is happy to jump into bed with Oracle.

The second factor driving Wall Street last night was a kick-on from late Friday night’s trade when the indices spun around in the afternoon and rallied to the close, with the S&P500 having bounced off its 50-day moving average and Apple having reached a -20% correction.

So we were back in familiar territory with the Nasdaq jumping 1.9% and the S&P500 1.3%, but it wasn’t all just about tech. The Russell small cap index leapt 2.7%.

Also fuelling the mood was a spate of IPOs to be launched this week – no less than twelve hopefuls for a target of US$6.8bn. Just like the late nineties.

You do have to worry when the biggest of them is called Snowflake. Not sure about its chances.

One also wonders whether the IPO acceleration has anything to do with trying to get in quickly in case Wall Street really does take a turn for the worse.

For now, Wall Street is acting as if the correction it had to have has been had, and it’s back to business.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1955.60 + 15.50 0.80%
Silver (oz) 27.10 + 0.39 1.46%
Copper (lb) 3.09 + 0.03 1.03%
Aluminium (lb) 0.80 + 0.01 1.29%
Lead (lb) 0.84 – 0.01 – 0.87%
Nickel (lb) 6.85 + 0.07 1.09%
Zinc (lb) 1.12 + 0.01 1.17%
West Texas Crude 37.26 – 0.07 – 0.19%
Brent Crude 39.62 – 0.21 – 0.53%
Iron Ore (t) 130.50 + 1.45 1.12%

With US bond prices pretty static, the gold price is now acting as if it, too, has consolidated enough after its pullback from the US$2000/oz mark, aided by a resumption in US dollar weakness.

Try and find anyone right now who is not bullish gold.

Base metals and iron ore also kicked on with it last night.

If the greenback is back into its lengthy slump, it’s not good for us. The Aussie is threatening 73 again, up 0.2% to US$7292.

Today

The SPI Overnight closed down a tepid -13 points.

The minutes of the September RBA meeting are out today.

China will release August industrial production, retail sales and fixed asset investment numbers.

The US will also report industrial production, as well as housing market sentiment.

Freedom Foods ((FNP)), still in a trading halt, will allegedly report earnings today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APX Appen Upgrade to Neutral from Underperform Credit Suisse
CSL CSL Upgrade to Buy from Neutral Citi
EVN Evolution Mining Upgrade to Outperform from Neutral Credit Suisse
FMG Fortescue Downgrade to Underweight from Equal-weight Morgan Stanley
GXY Galaxy Resources Downgrade to Sell from Hold Ord Minnett
IPL Incitec Pivot Upgrade to Buy from Neutral UBS
MGX Mount Gibson Iron Upgrade to Buy from Neutral Citi
MIN Mineral Resources Downgrade to Underweight from Equal-weight Morgan Stanley
NCM Newcrest Mining Upgrade to Outperform from Neutral Credit Suisse
NXT Nextdc Upgrade to Outperform from Neutral Macquarie
PBH Pointsbet Holdings Upgrade to Neutral from Underperform Credit Suisse
PRU Perseus Mining Upgrade to Outperform from Underperform Credit Suisse
RIO Rio Tinto Upgrade to Buy from Neutral Citi
RRL Regis Resources Upgrade to Outperform from Neutral Credit Suisse
SIG Sigma Healthcare Upgrade to Outperform from Neutral Credit Suisse
STO Santos Upgrade to Buy from Neutral UBS
TNE Technologyone Upgrade to Add from Hold Morgans
WPL Woodside Petroleum Upgrade to Add from Hold Morgans
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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