Overnight: America Wakes Up

By Greg Peel

Consumption Craze

We live in interesting times. On Sunday Captain Dan postponed the reopening of Melbourne due to case-count uncertainty. Yesterday, after one day of zero cases (and/or a rather unpleasantly placed hot poker) Captain Dan relented. Melbourne will reopen from tomorrow internally and reopen to the rest of the state in a couple of weeks.

This should have been positive for the stock market this morning except for two problems – one being yesterday’s reality check on runaway consumer discretionary stocks and the other being a big fall on Wall Street, which has our futures down -55 points this morning.

In what appears a quiet session yesterday, the consumer sectors took all the focus, while other sector moves largely netted each other out. A sector-winning 0.8% gain for consumer staples suggested things go better with Coke.

After receiving a takeover approach from Coca-Cola Europe, Coca-Cola Amatil ((CCL)) jumped 16.3%. It’s not a given, but the approach has certainly brought the fizz back.

The worst performing sector was consumer discretionary, down -0.8%. Investors had been snapping up consumer stocks that had embraced the virus thanks to increased demand and/or successful online platforms and pushed them just a little too far.

Adairs ((ADH)) reported a 22% year on year increase in FY21-to-date sales and fell -5.7%. Nick Scali ((NCK)) upgraded guidance and fell -5.9%. The infection spread. Temple & Webster ((TPW)) fell -7.3%. Kogan ((KGN)) fell -6.2%. Eagers Automotive fell -4.8%. But the standout was Marley Spoon ((MMM)).

The meal delivery service went into a trading halt on Friday and yesterday announced it had successfully placed $56m at $3.22 per share representing a -7.7% discount to the last trade. The share price fell -32% yesterday to $2.36.

Bovvered? Marley Spoon had been up over 900% this year.

Next worst performing sector was IT (-0.6%), with BNPL and payment companies caught up in the consumer discretionary reality check. Zip Co ((Z1P)) announced it had made a scrip-swap acquisition and fell -5.6%.

The materials sector (-0.6%) is feeling the weight of falling iron ore prices. Investors were also trying to sort out the right Iluka-Deterra valuation balance yesterday, post Friday’s spin-off. Iluka Resources ((ILU)) rose 3.7% and Deterra Royalties ((DRR)) fell -6.5%.

Melbourne is now on a reopening path, Tasmania has reopened its border, and once the Wicked Witch of the North’s election strategy proves successful, Queensland will surely reopen. China has new outbreaks but appears able to contain them. In the rest of the northern hemisphere, the picture is bleak.

There’s a virus?

Pelosi and Mnuchin are still talking, for reasons unknown. Wall Street has now fully accepted there won’t be a stimulus agreement before next Tuesday and even if the Democrats sweep all three houses it’s highly unlikely anything could be passed in the lame duck period up to inauguration.

By that time a vaccine may or may not have been approved, but it is well understood Joe Bloggs won’t be in line for his shot for months thereafter.

This is the backdrop before which the US seven-day rolling average daily case-count hit almost 70,000 over the weekend, and suddenly Wall Street took notice. In Europe and the UK the situation is similarly dire, the difference being those countries have conceded to the necessity of re-lockdowns. Not so in the US, yet.

The Dow was down over -950 points up to lunchtime last night before the ever present dip buyers moved in. Not helping the mood up to that point was an update from German company SAP.

The large-cap business software company downgraded its guidance and promptly fell -23%. Management cited a drop in revenues on a falling level of cloud-based IT spend amidst the uncertainty of Europe’s covid crisis round two. Suddenly investors on Wall Street pulled their heads out of the cloud and realised not everything internet-based is a guaranteed winner.

The downgrade prompted a rethink of the cloud/online/stay-at-home thematic. While the Nasdaq closed down -1.6%, companies such as Amazon and Zoom managed to close higher on the day while Apple just snuck back into the green. Cloud-based business software companies all copped it. Microsoft fell -2.8%.

The FAAMGs last night went their separate ways.

The reopening trade was harder hit. Airlines, cruise lines, car rental companies and the like were all knocked on the head again.

Amidst all of this is the uncertainty created by the election itself. While a Blue Wave might be on the cards, it’s not a given. If the Democrats take the White House and the House but not the Senate, it would be a disaster. Then there’s the distinct possibility of a slow count due to postal votes, and the possibility of a challenged result.

The VIX volatility index jumped back over 30 last night. After a steady rally of late, the US ten-year bond yield fell -4 basis points to 0.80%.

There are still six trading days before the polls close.

Commodities

Gold has remained stubbornly cemented despite rising uncertainty and lower bond yields. The US dollar itself becomes a safe haven in times of volatility, and it rose 0.3% last night.

Other commodities appear more reflective of the situation.

The Aussie is down -0.3% at US$0.7125.

Today

The SPI Overnight closed down -55 points or -0.9%.

US data tonight include consumer confidence and durable goods orders.

Today sees a big ramp-up in the AGM season. Meetings include those of Bendigo & Adelaide Bank ((BEN)), Boral ((BLD)) and South32 ((S32)), among many others.

Evolution Mining ((EVN)) provides its quarterly report.

The Australian share market over the past thirty days…