The Overnight Report: On The Job

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World Overnight
SPI Overnight (Jun)	7454.00	– 17.00	– 0.23%
S&P ASX 200	7527.10	– 7.80	– 0.10%
S&P500	4524.09	+ 1.41	0.03%
Nasdaq Comp	15309.38	+ 50.15	0.33%
DJIA	35312.53	– 48.20	– 0.14%
S&P500 VIX	16.11	– 0.37	– 2.25%
US 10-year yield	1.30	– 0.00	– 0.15%
USD Index	92.50	– 0.17	– 0.18%
FTSE100	7149.84	+ 30.14	0.42%
DAX30	15824.29	– 10.80	– 0.07%

By Greg Peel

Cheers for the Economy

Yesterday morning the futures suggested a -33 fall for the ASX200, wiping out the window-dressing of the last day of August and resetting for the new month. But twenty minutes from the opening bell, the index was down -72.

Likely momentum algos, but when the selling did stop, buyers didn’t rush in. Not until the 11.30am GDP release.

The Australian economy grew by 0.7% in the June quarter from the March quarter, smashing expectations of 0.4%. Year on year GDP grew a whopping 9.6%, but was cycling last year’s equally whopping -7.0% plunge in the covid darkness.

Economists point out there was a little bit of distortion in a segment called public inventories, growth in which can be at least partially attributed to a warehouse full of unwanted AZ vaccines, but the bulk of the beat can be put down to better than expected growth in income and production.

Household expenditure rose 1.1%, including an increase of 1.3% in spending on services and a 0.9% increase in goods spending. Business investment increased by 2.3% including a solid 2.4% increase in spending on machinery and equipment. The household savings rate fell to 9.7% from 11.6%.

Enjoy it while you can, because the June quarter saw few days of lockdowns anywhere and Sydney only went into lockdown right at the end of June. Economists are currently pencilling in around a -2.6% contraction in the locked down September quarter, and unless the national plan works, and the economy reopens on vaccination goals achieved, the December quarter could be at risk of marking a "technical recession".

On the strength of the result, no matter how long ago now, the Aussie is up 0.7% at US$0.7369 and the Aussie ten-year yield leapt 9 basis points to 1.24% yesterday.

That had the banks up 0.9%, to mostly save what might have been a weak session otherwise. The banks were aided by energy (1.3%), looking to the other side of Ida, and telcos (+0.8%). Utilities are property scraped into the green but all other sectors closed in the red.

Consumer staples stood out (-1.5%) but Wesfarmers ((WES)) went ex-dividend. Healthcare (-0.8%) had to deal with the surging Aussie and materials (-0.8%) gave up gains from Tuesday, with possible switching into banks now that they are next on the dividend list.

Consumer discretionary was the other big loser (-1.2%), possibly on concerns the big spending in the June quarter reflected a pull-forward of sales.

The index winners’ and losers’ boards featured a hotch-potch of stocks mostly being readjusted post results. Alumina Ltd ((AWC)) nevertheless rose 4.5% on ongoing strength in the aluminium price.

After another largely nothing session on Wall Street, our futures are down -17 points this morning. But it’s a very big day for ex-divs, amounting to a -34 point index handicap from the open.

Playing De-Fence

Wall Street wobbled early last night on the release of the August ADP private sector jobs report. It showed 374,000 jobs added when 600,000 were forecast.

Commentators were quick to point out that covid disruptions have in recent times played havoc with ADP’s surveys, such that some big revisions to initial figures have been made in the subsequent month. Thus while some economists were last night reeling back their forecasts for tomorrow night’s non-farm payrolls number, others were not.

Friday is the main game (even though this number, too, can often be significantly revised).

Hence Friday, and the following Labor Day long weekend, have Wall Street largely stalled at the S&P500 level but in quiet rotation to a defensive stance. One reason September is historically the weakest month is Labor Day ends the summer break and sets off the back-to-work period, in which investors often return to look at the market and say “why is it so high?”

Consumer staples, utilities, property and Big Tech led the buying last night, at the expense of cyclicals. Hence the familiar Nasdaq to Dow spread. The banks, industrials, materials and energy were the biggest losers.

With tapering now firmly in the frame, this particular non-farm payrolls number will be critical. But the Fed will need to take on board the fact the last of covid-related government unemployment hand-outs end in September, which is expected to result in a surge of new hirings. The demand is clearly out there, and now that lower paid workers will no longer receive more money per week for not working, they will have little choice.

The October jobs report will be the tell.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1814.60	+ 0.50	0.03%
Silver (oz)	24.12	+ 0.24	1.01%
Copper (lb)	4.19	– 0.10	– 2.31%
Aluminium (lb)	1.22	– 0.00	– 0.29%
Lead (lb)	1.10	+ 0.01	0.75%
Nickel (lb)	8.76	– 0.11	– 1.21%
Zinc (lb)	1.35	– 0.01	– 0.60%
West Texas Crude	68.59	+ 0.09	0.13%
Brent Crude	71.30	– 0.33	– 0.46%
Iron Ore (t)	143.55	– 9.05	– 5.93%

Last night’s global manufacturing PMI numbers showed expansion in the US but slowing in Europe and Asia, including in China (reported Tuesday).

This has been attributed to ending copper’s recent run.

I also put the kiss of death on the iron price yesterday in suggesting it was consolidating in the US$150-160/t range. China’s fall into manufacturing contraction, reflecting Beijing’s environmentally driven clamp-downs, was bad enough, but the government is now expected to come down even harder in the December quarter.

The president wants clear skis for the February Winter Olympics.

The Aussie, as noted, is up 0.7% at US$0.7369.

Today

The SPI Overnight closed down -17 points or -0.2%.

Today we’ll see numbers for July housing finance and a final read on the trade numbers.

Those -34 points of ex-divs noted above represent a long list that includes BHP Group ((BHP)), CSL ((CSL)), nib Holdings ((NHF)), Perpetual ((PPT)) and Woolworths ((WOW)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABC	AdBri	Upgrade to Add from Hold	Morgans
ALU	Altium	Upgrade to Buy from Neutral	Citi
		Downgrade to Neutral from Outperform	Credit Suisse
		Downgrade to Underperform from Neutral	Macquarie
ANZ	ANZ Bank	Downgrade to Hold from Accumulate	Ord Minnett
ASG	Autosports Group	Upgrade to Outperform from Neutral	Macquarie
BUB	Bubs Australia	Upgrade to Neutral from Sell	Citi
BWX	BWX	Downgrade to Neutral from Buy	Citi
EOS	Electro Optic Systems	Downgrade to Neutral from Buy	Citi
JHC	Japara Healthcare	Downgrade to Hold from Accumulate	Ord Minnett
LOV	Lovisa Holdings	Downgrade to Neutral from Outperform	Macquarie
MCR	Mincor Resources	Downgrade to Neutral from Outperform	Macquarie
MYX	Mayne Pharma	Upgrade to Buy from Neutral	Citi
NAB	National Australia Bank	Upgrade to Accumulate from Hold	Ord Minnett
NXT	NextDC	Downgrade to Accumulate from Buy	Ord Minnett
PAN	Panoramic Resources	Downgrade to Neutral from Outperform	Macquarie
PAR	Paradigm Biopharmaceuticals	Upgrade to Hold from Reduce	Morgans
RHP	Rhipe	Downgrade to Hold from Accumulate	Ord Minnett
SFR	Sandfire Resources	Upgrade to Add from Hold	Morgans
SKI	Spark Infrastructure	Downgrade to Neutral from Outperform	Credit Suisse
SSG	Shaver Shop	Downgrade to Hold from Buy	Ord Minnett
WES	Wesfarmers	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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