The Overnight Report: Never Say Never

By Greg Peel

Rock Wars

The popular press was suggesting last night Australia’s big miners fell on the market yesterday on fears the coal ban would extend to iron ore. Complete nonsense of course. Beijing only targets goods it can produce itself or procure elsewhere. It can’t buy enough iron ore anywhere else in the world.

Which leads us to the next joke of the day. China’s steel association has asked authorities to investigate the recent for the iron ore price surge. Look in the mirror mate. You’re buying it all. Iron ore miners fell yesterday because this news dropped the price -4%. Yes, there are speculators in the market as well – mostly Chinese one would assume.

Australian coal stocks did drop yesterday, but Whitehaven Coal ((WHC)) can fall -5.9% any other day. New Hope Corp ((NHC)) fell -2.7%. The only big mover was Yancoal ((YAL)), down -8.4%. The clue’s in the name.

Materials ended the day down -1.7%, but was pipped by both energy (-2.0%) and utilities (-1.9%). Oil-related selling was nothing to do with oil prices, but someone must have decided to exit the sector yesterday. AGL Energy ((AGL)) fell -4.9%, hence the big fall in utilities.

It should have been good news for the banks that due to an improving economy, APRA will no longer hold banks to a minimum level of earnings retention, meaning dividends are back. But the regulator noted the onus will be on boards to carefully consider the sustainable rate for dividends, taking into account the outlook for profitability, capital, and the economic environment. This may have taken the gloss off. Financials fell -0.6%.

All other sector moves to the downside were minimal. As investors jumped out of resources after a solid run, they jumped back into healthcare (+0.8%), industrials (+0.8%) and property (+0.9%). Shopping Centres Australasia ((SCP)) took a rare silver on the index table with a 3.1% gain.

Mesosblast ((MSB)) fell -15.2%. Another day in the life of a biotech.

SaaS company Altium ((ALU)) dropped -6.8% after announcing it had sold its Tasking business. Iron ore miner (among other things) Mineral Resources ((MIN)) took the bronze with -6.8%, ahead of Whitehaven.

But anyhow, all is forgiven. The iron ore price ticked back up last night, the gold price has had a pop, and Wall Street is up a percent on…wait for it…stimulus hopes.

Our futures are up 45 points this morning.

For the record, the minutes of the December RBA meeting were out yesterday, confirming what we all knew. Don’t expect rates to rise again in the foreseeable future and if the RBA needs to do even more, it will.

One notable point from the minutes was the observation that the bounce in Australian house prices, brought on by cheap rates, is not nearly as sharp as those in other countries, including New Zealand. Which tells us just who used to buy all our houses before the border closed.

Apple a Day

Apple rose 5% last night on a report the company intends to produce 95-96m iPhones during the first half of 2021, almost a 30% increase from a year earlier. When Apple moves, the world moves with it.

Which is the main reason we saw a very rare case of index uniformity on Wall Street last night, as Apple is in all three camps. These days it can be rare for the Nasdaq even to go the same way as the Dow, let alone all three majors clocking 1% together.

And is is even more unusual considering the other reason for Wall Street strength last night – hopes of a stimulus package. Stimulus talk typically has stay-at-home (mostly tech) falling and cyclicals/value rising conversely.

As I write, Congressional leaders are in discussion #143, or something like that, I’ve lost count, to consider the latest bipartisan proposal of a split-off, part one package of all the elements the two sides can agree on, such as payroll support, leaving part two with all they can’t, such as state and local government support, to be argued over later.

The part one proposal of US$748bn is a long way from the Democrats line at US$2.2trn, but not far off the Republicans’ stubborn US$500bn.

Could it possibly be? Wall Street remains convinced a deal will be agreed upon before Congress goes into recess. Why? Because it’s Christmas.

Which leads us to ponder what might happen if there actually were a deal struck. Since the first package began winding down, Wall Street has rallied every time there appeared to be some glimmer of hope for a second package. But when that hope turned to dust, every time, Wall Street did not fall, in the belief a deal was still “close”.

A late sell-off left the major indices just below their all-time highs reached last week. If a deal is agreed upon, can Wall Street just keep on rallying?

Commodities

One could argue a stimulus package would remove risk in the market, and safe haven against risk is gold. But stimulus means the government moving ever deeper into debt, devaluing the greenback, and hence gold jumped over twenty bucks last night against the dollar’s -0.3% fall.

Iron ore returned to normal programming.

Stimulus is good for oil.

Coal ban? The Aussie is up 0.4% at US$7563.

Today

The SPI Overnight closed up 45 points or 0.7%.

The Fed’s latest policy statement is out tonight along with the usual press conference, but all will hinge on what the fiscal side might bring.

The US will also see retail sales data for the peak buying spree month of November.

Flash estimates of manufacturing PMIs will be out around the world – a bit early this month due to Christmas.

ANZ Bank ((ANZ)) holds its AGM today.

The Australian share market over the past thirty days…