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The Overnight Report: The Good Oil

Daily Market Reports | Feb 09 2021

List StockArray ( [0] => LYC [1] => MIN [2] => ILU [3] => AGL [4] => ORG [5] => URW [6] => CGF [7] => CPU [8] => JHX [9] => SCP [10] => SUN [11] => MQG )

This story features LYNAS RARE EARTHS LIMITED, and other companies.
For more info SHARE ANALYSIS: LYC

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight (Mar) 6796.00 – 14.00 – 0.21%
S&P ASX 200 6880.70 + 40.20 0.59%
S&P500 3915.59 + 28.76 0.74%
Nasdaq Comp 13987.64 + 131.35 0.95%
DJIA 31385.76 + 237.52 0.76%
S&P500 VIX 21.24 + 0.37 1.77%
US 10-year yield 1.16 – 0.01 – 0.85%
USD Index 90.94 – 0.10 – 0.11%
FTSE100 6523.53 + 34.20 0.53%
DAX30 14059.91 + 3.19 0.02%

By Greg Peel

Material Gains

The rally for the ASX200 yesterday was all about the materials sector, which closed up a standout 2.0% compared to 0.6% for the index. The index was up 60 points at its peak, which happened to be 6900, and there it found some sellers.

Solid gains in all base metals and gold, and a move up during the session for the iron ore price, underscored material strength. The big iron ore miners posted 2-3% increases.

The excitement spread further, into rare earths, with Lynas Rare Earths ((LYC)) rising 7.1% to be third best index performer and Mineral Resources ((MIN)), which also mines iron ore, in fourth with 5.6%.

Mineral sands producer Iluka Resources ((ILU)) took fifth with 4.9%.

Every silver lining has a cloud, nonetheless. The Aussie is up 0.5% to be back over US77c.

The top individual stock movers on the day were Zip Co ((Z1P)), rising 12.9% on a rumour the company is considering a dual listing in the US, and Vocus Group ((VOC)), up 12.8% after receiving a takeover bid from Macquarie Infrastructure & Real Assets (MIRA).

The stronger Aussie is of course good for many retailers. Consumer discretionary rose 1.5%, while other sectors posted less than one percent gains. The banks (+0.3%) took a bit of a breather, healthcare (flat) sat it out for once, while the sector losers on the day were property (-1.1%) and utilities (-2.1%).

Selling continued in the electricity space, with AGL Energy ((AGL)) dragging down utilities and Origin Energy ((ORG)) putting the brakes on the energy sector. Analysts are now debating the longer term viability of legacy power generators in a clean, green world, although Origin does have a backstop in the form of its LNG interest.

Origin nevertheless topped the index losers’ board yesterday (-3.6%), while persistently volatile UR Westfield ((URW)) weighed on property (-3.2%).

Interestingly, the Australian ten-year yield posted another 7 basis point gain yesterday, to 1.26%. We recall Thursday’s selling was supposedly all about panic over rising yields, which was then all forgotten about on Friday. Rising yields can explain falls in the utilities and property sectors, and -0.6% for industrials (toll roads, airports) yesterday, but this time there was no evidence of panic.

Strength in mining stocks is being supported by infrastructure spending plans as a means of covid recovery in all of China, the US and Australia, and likely others as well.

Then there’s the burgeoning EV market, which governments here wish to ignore.

On Wall Street overnight, it was all about oil. However, it looks like 6900 might hold the local market in the short term, with our futures down -14 this morning.

Onward ever Upward

Further 2% gains in oil prices, taking Brent back over US$60/bbl and marking six straight sessions of gains, is being attributed not to increasing demand – for that you need planes back in the sky and cars back on the road – but dwindling inventories. And the historically unusual production discipline being shown by OPEC.

Word is that OPEC-Plus is still willing to tough it out for now, as production curtailments are working, but at some point what’s left of marginal US shale production after last year’s bankruptcies will kick back in when prices reach commercially viable levels.

This didn’t stop the S&P energy sector posting a standout 4.2% gain, with the banks well behind in second with 1.0%. Utilities are also otherwise being hit in the US (-0.8%) as US bond yields rise.

Beyond energy, only utilities and healthcare (-0.2%) fell last night, and relatively even gains among the three major indices imply there is no clear rotation underway, such as growth versus value or Big Tech versus the rest, rather buying is widespread.

All of the Dow, S&P500, Nasdaq and Russell small cap index hit new all-time highs last night.

As noted yesterday, talk of a correction has abated for now, thanks to Wall Street surviving the GameStop mini-correction. There is no denying the signals suggest overheating, but valuations are backed by ultra-loose monetary policy, ultra-high fiscal policy soon to make its mark, vaccine rollouts, a now falling death rate, and most empirically, strong corporate earnings results.

With just over half of S&P500 companies having now reported, earnings are running at 1.7% growth. Yes, whacko you say, but even a small positive net result would not only confirm analyst forecasts were way too pessimistic, but that the US has come out of the covid “earnings recession”, which had earnings retreating in both the June and September quarters.

So for now, Wall Street is net bullish. Until it isn’t. Corrections never occur when everyone expects one, only when complacency sets in.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1833.30 + 18.10 1.00%
Silver (oz) 27.51 + 0.78 2.92%
Copper (lb) 3.64 + 0.04 1.11%
Aluminium (lb) 0.92 + 0.01 0.64%
Lead (lb) 0.93 + 0.01 0.69%
Nickel (lb) 8.17 – 0.01 – 0.15%
Zinc (lb) 1.19 – 0.01 – 1.04%
West Texas Crude 57.94 + 1.09 1.92%
Brent Crude 60.56 + 1.22 2.06%
Iron Ore (t) 159.80 + 3.90 2.50%

Gold appears back in rally mode, while base metals had a more mixed session last night.

Iron ore is bouncing around each day, but appears to be consolidating after its fall from the highs, prompted by news of Beijing’s plan to cut steel production.

As noted, the Aussie is up 0.5% at US$0.7707.

Today

The SPI Overnight closed down -14 points or -0.2%.

NAB releases its January business confidence survey today.

Today’s earnings results include those of Challenger ((CGF)), Computershare ((CPU)), James Hardie ((JHX)), Shopping Centres Australasia Property Group ((SCP)) and Suncorp ((SUN)).

Macquarie Group ((MQG)) provides a quarterly update.

FNArena's Corporate Results Monitor is updated daily throughout the month: https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC AdBri Upgrade to Neutral from Underperform Macquarie
AMC Amcor Upgrade to Buy from Neutral UBS
CIA Champion Iron Upgrade to Neutral from Sell Citi
CSR CSR Upgrade to Outperform from Neutral Macquarie
GWA GWA Group Upgrade to Outperform from Neutral Macquarie
MFG Magellan Financial Group Upgrade to Outperform from Underperform Macquarie
MGX Mount Gibson Iron Upgrade to Buy from Neutral Citi
MQG Macquarie Group Downgrade to Sell from Neutral Citi
ORG Origin Energy Downgrade to Neutral from Buy Citi
REA REA Group Downgrade to Underperform from Neutral Credit Suisse
TWE Treasury Wine Estates Downgrade to Equal-weight from Overweight Morgan Stanley
UWL Uniti Group Downgrade to Accumulate from Buy Ord Minnett
WES Wesfarmers Upgrade to Outperform from Neutral Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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CHARTS

AGL CGF CPU ILU JHX LYC MIN MQG ORG SCP SUN URW

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: CGF - CHALLENGER LIMITED

For more info SHARE ANALYSIS: CPU - COMPUTERSHARE LIMITED

For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED

For more info SHARE ANALYSIS: JHX - JAMES HARDIE INDUSTRIES PLC

For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: MQG - MACQUARIE GROUP LIMITED

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: SCP - SCALARE PARTNERS HOLDINGS LIMITED

For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED

For more info SHARE ANALYSIS: URW - UNIBAIL-RODAMCO-WESTFIELD SE

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