The Overnight Report: Auld Acquaintance Forgotten

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World Overnight
SPI Overnight (Jun)	7217.00	– 6.00	– 0.08%
S&P ASX 200	7313.00	+ 11.80	0.16%
S&P500	4297.50	+ 5.70	0.13%
Nasdaq Comp	14503.95	– 24.38	– 0.17%
DJIA	34502.51	+ 210.22	0.61%
S&P500 VIX	15.83	– 0.19	– 1.19%
US 10-year yield	1.44	– 0.04	– 2.50%
USD Index	92.36	+ 0.28	0.30%
FTSE100	7037.47	– 50.08	– 0.71%
DAX30	15531.04	– 159.55	– 1.02%

By Greg Peel

Well Fought Battle

The window-dressers gave it a red hot go, pushing the ASX200 up almost 70 points from the open yesterday, following a flat night on Wall Street, but it was the profit-takers who were just too strong in the second half.

Somewhere behind the scenes was consideration of the latest covid developments.

On a case-count progression of 18,19, 22 in the past three days in Sydney, we can conclude cases are growing incrementally and not exponentially, which can only be good news on the delta variant front. But elsewhere, new cases are popping up about the place, and now even The Alice is in lockdown.

Meanwhile, the premiers are blaming the feds, underestimating the skill with which the feds are able to blame anyone but themselves.

The major sector moves that stood out on the day were those of telcos (+2.7%) and utilities (-3.2%), in a tale of two demergers.

Telstra ((TLS)) has successfully sold 49% of its towers business to a consortium of super funds. For shareholders, the cheques will soon be in the mail.

AGL Energy ((AGL)) has decided to go ahead and split into two companies – its retail and renewables business on the one hand and coal-fired generation business on the other. There is no chance of attracting a consortium of super funds to the coal-fired business, even though it comes with a range of typewriters, telex machines and Commodore 64s thrown in, but news is Barnaby Joyce is quite interested.

Telstra rose 4.4% and AGL fell -10.0%.

Technology lost -0.8% on the day, led by Nuix ((NXL)), down -13.0% on insider trading allegations it needs like a hole in the head.

On the EOFY profit-taking theme, we can also cite the other EOFY trick of tax-loss selling. One way to offset tax owed on trading profits is to sell your duds for a loss, although if you sold yesterday and buy back today the ATO would be on to you. You need to be more discreet.

But a -9.5% plunge for Kogan ((KGN)) is far from discreet, noting that the stock has struggled in 2021 after a bonanza in 2020. Another stock to disappoint this year is Appen ((APX)), which fell -4.9%. There was no new news out of either company.

Rio Tinto ((RIO)) announced yesterday it had shut down its Richards Bay mineral sands operation in South Africa due to violent attacks on workers and infrastructure, and declared force majeure on its contracts. That news was worth an 11.6% boost for mineral sands rival Iluka Resources ((ILU)) and a 0.8% gain for the materials sector.

This was offset by a -0.8% fall for healthcare, following a strong week.

What we can’t discern from yesterday was any specific macro fear regarding covid. But it’s a new day, it’s a new dawn etc so we’ll see what transpires, particularly following the 11am update.

Okay, your turn

For the umpteenth time in June, the S&P500 closed a tick higher last night, to a new record. While Tuesday night saw growth outperforming in the form of the Nasdaq, with value underperforming in the form of the Dow, last night saw the complete opposite.

The investment ship sails slowly forward while the passengers continually run back and forth from side to side.

Investors would be left dazed and confused as the curtain fell on the June quarter and the first half if they had tried to back one or the other in the rotation game. Those left with smiles on their faces would be the investors who adopted what’s known as the “barbell” approach – investing in both growth and value.

If anyone needs convincing, the score card for the first half was Dow up 12.7%, Nasdaq up 12.5%, and S&P up 14.4%. Had you’d simply invested in an S&P500 ETF and gone on holiday for six months you’d be laughing.

June-end aside, Wall Street focused on jobs last night. The ADP private sector report showed an addition of 692,000 jobs in June when 550,000 were forecast.

The US ten-year yield nonetheless fell -4 basis points to 1.44%, despite the inflationary implications of strong jobs growth. But as I noted yesterday, this may simply reflect a need to top up fixed income allocations in 60:40 balanced funds.

Anyway, the ADP report is never seen as an accurate indicator for the non-farm payrolls number, which is due on Friday night.

One Fed board member, Christopher Waller, did suggest last night that the “unemployment rate would have to drop fairly substantially, or inflation would have to really continue at a very high rate, before we would take seriously a rate hike in 2022”, in reference to the seven FOMC members predicting a 2022 rate rise in their “dot plots”.

He also suggested tapering should not be ruled out, and should definitely be talked about.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1770.20	+ 9.10	0.52%
Silver (oz)	26.11	+ 0.38	1.48%
Copper (lb)	4.24	+ 0.02	0.41%
Aluminium (lb)	1.14	+ 0.00	0.37%
Lead (lb)	1.04	– 0.00	– 0.09%
Nickel (lb)	8.28	+ 0.04	0.53%
Zinc (lb)	1.34	+ 0.04	2.72%
West Texas Crude	73.47	+ 0.49	0.67%
Brent Crude	75.12	+ 0.07	0.09%
Iron Ore (t)	218.40	+ 4.30	2.01%

The June quarter saw a cooling off for previously surging base metal prices but most closed solidly on the LME last night, noting that commodity funds, too, rebalance.

Iron ore had also come off its highs, and it’s been a bad month for gold.

The WTI price was stronger last night, ahead of tonight’s OPEC-Plus meeting, on the weekly US inventory lottery.

Another gain for the US dollar has the Aussie slipping under 75 – down -0.3% at US$0.7497.

Today

Happy New Year. The SPI Overnight closed down -6 points.

The first of the month brings manufacturing PMI numbers from across the globe.

Locally we’ll see June house prices and final numbers for the May trade balance.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ASG	Autosports	Downgrade to Neutral from Outperform	Macquarie
BLD	Boral	Downgrade to Equal-weight from Overweight	Morgan Stanley
CKF	Collins Foods	Downgrade to Hold from Add	Morgans
EVN	Evolution Mining	Downgrade to Underweight from Equal-weight	Morgan Stanley
ING	Inghams	Downgrade to Neutral from Outperform	Macquarie
MGH	MAAS	Downgrade to Hold from Add	Morgans
REH	Reece	Downgrade to Underperform from Neutral	Macquarie
RWC	Reliance Worldwide	Downgrade to Neutral from Outperform	Macquarie

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

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