The Monday Report – 02 November 2020

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This story features AMP LIMITED, and other companies.
For more info SHARE ANALYSIS: AMP
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Amped Up

The ASX200 began the session uncertainly on Friday and did very little until late morning. Then it dropped -50 points to early afternoon, rallied back 30 points into the last hour, and then fell back down to the low again in the last twenty minutes.

The initial drop came around the time September private sector credit data were released, but they seemed a bit too benign to trigger any sort of newfound fear.

Total credit rose a mere 0.1% in a month, as forecast. Owner-occupier mortgage growth was the star, rising 0.5% on historically low interest rates and increased affordability in some parts of the country, certainly not all, while investors remained unexcited (+0.1%).

Personal loans were the main laggard, down -0.8%, with Australia in debt-reduction mode, while business credit (-0.3%) is understandably weak when we don’t know what tomorrow might bring.

Speaking of tomorrow, the underlying reason for Friday’s volatility were low volumes, with many an investor not prepared to commit until the election plays out. But still it appears that very late sell-off was not something traders deemed necessary, as the futures were up a full 52 points on Saturday morning despite a soft Wall Street.

The story of Friday, stock-wise, was that of AMP ((AMP)), which jumped 19.5% after the company announced some private equity fools were possibly interested. Talks are at a “very preliminary stage”. The financials sector rose 0.4%.

AMP hogged the limelight from non-index stock iCar Asia ((ICQ)), which is a Carsales lookalike. It jumped 32% after receiving an acquisition proposal.

Behind AMP on the index winners’ board was ResMed ((RMD)) which gained 9.5% on its September quarter earnings result.

Biggest loser of the day was nickel miner Western Areas ((WSA)), which plunged -17.7% after reducing production guidance and increasing cost guidance. Would have caught a few EV-theme players out.

EML Payments ((EML)) was next worst in falling -5.6% on no news, but Afterpay’s ((APT)) -2.9% and a standout -2.0% drop for the IT sector suggests a simple follow-the-Nasdaq after US Big Tech companies reported after the bell on Thursday night.

PS, it worked. More on that below.

Since the close of the futures on Saturday morning there’s been some news.

The UK is now going into full lockdown. As is Belgium, if anyone’s interested. The US hit almost 100,000 cases on Sunday. Stanford University modelling estimates 30,000 infections and 700 deaths came as a result of crowded, no-mask Trump rallies between June and September. The governor of New York announced anyone entering New York State from elsewhere must be tested. The mayor of El Paso, Texas, has shut down the county.

Australia celebrated “doughnut day” yesterday – no local cases across the country. And the Wicked Witch of the North is back.

Sell the Fact

Wall Street posted a choppy session on the Thursday which ended in a modest increase by the close, which at the time I suggested was unconvincing. On Friday the Dow was down -500 points before another choppy, back-and-forth session ensued, ahead of a blistering rally literally in the final couple of minutes to leave the Dow down only -157.

The trigger for the selling had been earnings reports posted after the bell on Thursday night from Facebook, Amazon, Apple, Google and Twitter. All five smashed earnings expectations. Of the five, only Google saw buying in the aftermarket, having been the slower mover within FAAMG’s 2020 surge.

On Friday, Facebook, Amazon and Apple all saw selling of -5-6%. One cannot under-appreciate the sheer size of these companies and the impact such moves have on both index points and sentiment. Google was the only stock not to cop sell-the-fact, but closed up only 3.8% having been up 8% initially in the aftermarket. Twitter fell -21%.

Negative sentiment had the Nasdaq down -3% and the S&P500 down over -2% to take the broad index back to its September low – the first Big Tech swoon – which was also the high in June after the initial bounce out of March cooled off a bit. Technically significant, this was the point buyers stepped in, most likely algos.

The last minute surge was a different story, rather out of the blue, but mostly in non-tech stocks.

That Big Tech should take a tumble seems at odds with the success it has achieved in virus-hit 2020, now that the US's second, or third, or whichever wave you want to call it has led to record case-counts. But the problem for most is that too much success was already priced in. FAAMG could not keep going up forever, and ditto Zoom (-6%) and others.

What did go up on Friday? Colgate Palmolive. Smiles all round. But all up, Wall Street posted its worst week since March.

There was a lot of anticipatory buying of Big Tech heading into their earnings results. Turns out not to have been the best move. Friday’s split of -0.6% for the Dow to -2.5% for the Nasdaq tells the tale.

Two more sleeps.

Commodities

The virus is apparently having an impact on aluminium scrap regeneration, reducing supply as demand increases.

Gold made a slight comeback on Friday but is battling against the forces of a still-rising US dollar and still-rising US bond yields.

Typically when stocks fall, bonds are bought, but the US appear to be eyeing a big stimulus program at some stage post-election, and thus a flood of government supply.

The Aussie is down slightly at US$0.7026.

The SPI Overnight closed up 52 points or 0.9%.

The Week Ahead

Strap in. Tomorrow brings mandatory masks at Cup lunches (holiday in Victoria) and an edge of the seat RBA meeting, at which both a rate cut and QE are expected.

And the US election that night, although more than half of the 2016 turnout has already voted, including postals. Wednesday is unlikely to bring a clear result.

Today is manufacturing PMI day across the globe followed by services PMIs on Wednesday.

Australia will see numbers for job ads, building approvals, housing finance and house prices today, followed by retail sales (revision) and trade on Thursday.

The RBA meeting will take centre stage but there’s also a Fed policy statement due on Wednesday night. Surely the Fed is unable to do anything until the election outcome, and thus fiscal stimulus, is known.

The US will see private sector jobs numbers for October on Wednesday night and non-farm payrolls on Friday.

In the local market, the week is chock-o-block with AGMs, earnings results and quarterly updates.

Leading out today are earnings results from Westpac ((WBC)), CSR ((CSR)) and UR Westfield ((URW)).

The Australian share market over the past thirty days…

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