The Overnight Report: On The Defensive

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By Greg Peel

Resource Rout

The news from overnight is that base metal prices have again fallen -1-2%, WTI crude is down close to -3%, and iron ore has crashed -15%.

With Wall Street recovering from early falls last night, before closing slightly higher, our futures are up 34 points this morning. Go figure.

A choppy session on the ASX yesterday featured a big opening drop on Wall Street’s late sell-off overnight, positive and negative earnings results, a meaningless jobs report and BHP Group ((BHP)), again.

BHP shares fell another -6.4%, basically from the open. Given they then held steady for the rest of the session we can only assume it was another round of premium-crunch arising from the announced collapse of the dual UK listing. No isolated impact from the plunging iron ore price, which had Rio Tinto ((RIO)) down -5.7% and Fortescue Metals ((FMG)) down -6.2%.

BHP’s fall was worth another -28 index points, implying an otherwise 9 point gain in the wake of Wall Street’s minor taper tantrum.

The materials sector fell -3.7% to again be the runaway loser, steamrolling Western Areas’ ((WSA)) 13.0% pop after confirming an approach from IGO Ltd ((IGO)).

Energy wasn’t that far behind (-2.7%), blurred by merger upheaval but hit by falling oil prices. The Big Three gas producers were all down around -3%.

Utilities (-1.7%) copped the spill-over, while property picked up where it left off on Wednesday (-1.0%).

Healthcare was the saviour on the day (+2.0%), as investors reassessed their views post CSL’s ((CSL)) result.

In terms of the day’s reporters, either analysts got it very wrong or investors (including the digital variety) over-reacted.

Most remarkable was Redbubble ((RBL)), which swung an opening -11% fall into a 19% gain on the day. NRW Holdings ((NRW)) jumped 17.5%, Chorus ((CNU)) 14.2%, and Star Entertainment ((SGR)) 6.8%. Netwealth ((NWL)) reported on Wednesday but positive analyst assessments had that stock up 8.0% yesterday.

On the other side of the ledger, Codan ((CDA)) fell -8.3%. Sims ((SGM)), which reported on Wednesday, fell -7.7% on analyst assessments. Next came BHP, then Fortescue, then IGO to round out the top five.

Outside the index, HT&E’s ((HT1)) result was well received (+6.8%), and so too Beacon Lighting's ((BLX)), up 4.0%.

Late morning we learned the unemployment rate plunged to 4.6% in July from 4.9%. Even Josh dismissed the result.

If this morning’s 0.5% gain in the futures reflects last night’s turnaround on Wall Street, it seems ambitious in the face of commodity price moves, and amid the risk of earnings season, unless someone is setting up for a buy order.

The Aussie, by the way, is down another -1.2%.

Defensive Fightback

A very choppy session on Wall Street saw the Dow fall -270 points from the open before crossing back above the flatline in the last half hour, only to dip again at the close. While it was a fightback in general, under the surface was fierce rotation.

Not growth versus value per se, rather defensives versus cyclicals.

The S&P500 was led by staples, REITs, utilities and healthcare, countered by falls in energy, materials, industrials, banks and consumer discretionary – the latter featuring big falls in all things travel.

Note that Florida, which has a population just a little short of Australia’s, has hit 150,000 daily cases. NSW is locked down on 600-odd and Victoria 50-odd, and New Zealand one. The Republican governor of Florida refuses to mandate mask-wearing, let alone a lockdown.

Based on the delta impact, Goldman Sachs last night lowered its September quarter US GDP growth forecast to 5.5% from 9% previously.

A months-long study conducted by Oxford Uni found that after two doses of Pfizer, the protection against delta diminishes over time into the 65% efficacious range equivalent to AZ, from the high 90% level originally.

There was some good news: weekly US jobless claims fell to 348,000 last week – a covid low – when economists had forecast 365,000. But again we must note that the number of claims is not falling, just growing at a slowing pace.

Delta fears continue to destabilise a market now also fearful of Fed tapering. In a week’s time, Jackson Hole is expected to not provide an answer, so uncertainty will likely reign until the late September Fed meeting.

Commodities

Base metal prices continue to reflect increasing fears for global growth.

Pick anything to explain iron ore, from slowing growth to China’s plan to tighten property policy, weighing on the construction industry.

The oils have now fallen six consecutive sessions.

The Aussie is down -1.2% at US$0.7149. Are we headed back to the swinging sixties?

Today

The SPI Overnight closed up 34 points or 0.5%.

Today’s list of reporting stocks is not unsubstantial, but not as long as the prior two days.

A reporting calendar and summaries of analyst responses to the day’s results are available on the FNArena Corporate Results Monitor.

(https://www.fnarena.com/index.php/reporting_season/)

The Australian share market over the past thirty days…

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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