The Overnight Report: All In

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This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Follow the Leader

Either the Australian market likes the thought of a Biden presidency and Republican senate or it likes the fact Wall Street likes the idea. It wasn’t all smooth sailing for the ASX200 yesterday but the trend remained clearly up, with the index jumping 60-odd points in the first twenty minutes and adding to that by the close.

Yet, as was the case on Tuesday, domestic issues were still influential.

National Bank’s ((NAB)) earnings result was well received, worth 3.3% and lifting the sector to a 1.5% gain.

A surprisingly positive update from Inghams Group ((ING)) was worth a chart-topping 16.1% and helped staples up 1.2%, offsetting a chart-topping -8.2% drop for Treasury Wine Estates ((TWE)) as China tightens the screw.

Ongoing strength in Flight Centre ((FLT)) and Webjet ((WEB)) on domestic border openings (6.9% and 5.3%), bearing in mind both are heavily shorted, helped consumer discretionary up 1.8%.

Easing restrictions are good for REITs, which gained 2.3%.

The greatest US influence, beyond simple sentiment, was felt among the highly US-exposed healthcare stocks CSL ((CSL)), which gained 3.4% and ResMed ((RMD)), which gained 3.5% to drive the sector to a winning 2.8% gain.

Surprising reserved was IT, which rose only 1.8% despite the Nasdaq gaining close to 4% overnight.

With not a lot happening in commodity land, the resources sectors both closed slightly lower. That may change today with gold up 50 bucks overnight.

So we have twin themes running for Australia at the moment: Trump out of the White House and borders reopening left, right and centre, backed up by ultra-easy RBA monetary policy. What could possibly go wrong?

Given what’s going on in the US and Europe on the health front, a vaccine would be handy. And with Biden potentially set to take all of the five states still in the balance when Pennsylvania alone would do it, Trump’s call of “illegal votes” is not going to be dismissed without incident.

It is possible we will have a result by later today, but nothing is certain.

The futures are up 42 this morning.

Damn the Torpedoes

The warning had gone out weeks earlier of a likely “Red Mirage”, implying that Trump would appear to be ahead on election day as Republican voters scoffed at virus concerns, while a historically high number of postal votes would bring Biden back at the death given the greater reluctance of Democrats to risk crowds. And so it has come to pass.

The Republicans knew this too, but now in desperation (at least Trump’s desperation) are trying to debunk the concept and have the vote count stopped. While one might assume this implies the potential of uncertainty and thus market volatility, it is not the case.

Wall Street has decided that not only had Biden won, with the Republicans taking the Senate, Trump has no legal leg to stand on. Even Fox News is admitting this fact.

I noted yesterday that day-after-election-day trade had featured, in American football terms, the defensive team (value) being switched out for the offensive team (growth). The defensive team had shot up on election day when a Blue Wave was still being tipped. The assurance of a Republican Senate had the offensive team taking over in the next session.

Last night it was all in. Growth and value together drove the indices, on a much tighter spread of Dow and S&P both up 2.0% and Nasdaq up 2.6%.

More telling is the Russell small cap index. On Wednesday night it was completely left behind. Last night it rallied 2.8%.

Fed chair Jerome Powell this morning did nothing to upset positive sentiment. It was never expected the Fed would announce anything new from its policy meeting, given the simple proximity to election day, let alone a still unknown result, and it didn’t, but Powell was reassuring as usual.

He did warn, nevertheless, that the economic recovery of the September quarter is now faltering to an extent in the December quarter as the case-count continues to rise. The Fed, as always, stands ready to do what it has to. The implication, given the chair must remain apolitical, is we’ll see what happens on the fiscal front.

Having posted its big plunge on Wednesday night on a Republican Senate strangling hopes for a substantial stimulus package, the US ten-year yield was steady last night.

The US dollar, on the other hand, dived, by 0.9%. In times of uncertainty the reserve currency is bought, but now as an election outcome is clearer that safe haven is no longer needed.

Time to switch safe havens. Gold wasn’t sure what to do on Wednesday night but was a lot more definitive last night in rising US$51/oz. Better to be safe than surprised.

But with margins very slim in five states, Biden is winning the postal votes on a trend of 75%. As noted, there may even be a result later today our time.

Commodities

Beyond gold, zinc stood out last night, with its 3.4% jump attributed to “rising spot demand”. Or as we used to say in the old days, more buyers than sellers.

The weaker US dollar otherwise supported most base metals but not so the oils, which had had a good run, while iron ore has gone very quiet.

Alas, the Aussie is up a full 1.4% at US$0.7275. Yesterday’s September trade data showed a surplus of $5.6bn, up from $2.6bn in August, reflecting a potential bottoming out for coal and LNG export prices. And then there’s the greenback.

The surplus is expected to ease back in coming months as big-ticket imports like autos climb back from covid-hit levels.

Today

The SPI Overnight closed up 42 points or 0.7%.

The RBA will issue a quarterly Statement on Monetary Policy today, but there can’t be much more to add.

The US jobs number for October is out tonight, which might just have a few traders sitting up and taking notice.

Macquarie Group ((MQG)) reports first half earnings today while News Corp ((NWS)), REA Group ((REA)) and Amcor ((AMC)) provide quarterlies.

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.

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