The Overnight Report: The Beat Goes On

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This story features CORPORATE TRAVEL MANAGEMENT LIMITED, and other companies.
For more info SHARE ANALYSIS: CTD

By Greg Peel

Playing to the script

Yesterday the ASX200 opened up 140 points in the first fifteen minutes and closed up 41. Overnight the Dow had opened up 1600 points and closed up 800. Not only was a similar path traced during the session, the rotation trade that had dominated Wall Street was mimicked downunder.

Who wins if there’s a vaccine?

Energy up 8.5% (matching the oil price move), financials up 3.9% and industrials up 3.8%.

Who loses?

Technology down -6.1%, consumer staples down -3.3% and materials down -1.8%.

Of course, these sectors don’t actually “lose” per se. In the case of high-flying tech stocks and stay-at-home staples they simply no longer carry their lockdown premiums. For materials it was all about the big drop in the gold price.

The rotation split is most evident in a -1.9% fall for consumer discretionary. Surely, one might assume, a vaccine is good for retail, travel, hospitality and so forth. Indeed, Corporate Travel Management ((CTD)) leapt 15.8% yesterday (not even making the podium), but the standout moves were ARB Corp ((ARB)), down -12.8%, and Eagers Automotive ((APE)), down -11.8%.

These two auto stocks had been unlikely winners in the days of covid.

A likely winner had been Fisher & Paykel Healthcare ((FPH)). It fell -12.1%. Who needs a ventilator anymore? But the healthcare sector fell only -0.9%. A vaccine means ResMed’s ((RMD)) sleep apnoea products and Cochlear’s ((COH)) hearing implants can return to normal business, and CSL ((CSL)) can start collecting blood again.

Moves on the winners’ board were quite frankly astonishing, and I’d argue far more extensive than if only humans were allowed in the market.

UR Westfield ((URW)) ticked up 43.6%. Admittedly the shareholders picked a good day to vote down management’s plans to raise new capital, but otherwise it is the Unibail-Rodamco part that benefits from a vaccine, given most of Europe/UK is back in lockdown.

Oil Search ((OSH)) took equal silver with perennial underperformer Fletcher Building ((FBU)), both on 16.5%, while another UK-exposed business, Virgin Money ((VUK)), came in fourth. Fletcher Building provided a business update on the day.

The biggest loser was NextDC ((NXT)), down -13.9%. Why anyone would think that a vaccine means we’re no longer going to all end up in the cloud I don’t know, so I’d suggest NextDC just became a funding vehicle on the day for rotation purposes.

Ramelius Resources ((RMS)) waved the flag for gold miners, down -13.2%.

Of course, there were plenty of other big moves one could highlight, and even bigger moves outside the ASX200. I’ll pick two as emblematic: In-store seller of cheap jewellery, Lovisa Holdings ((LOV)), jumped 24.7%. Home meal delivery service Marley Spoon ((MMM)), fell -23.0%.

You get the picture.

Yesterday’s trade on the ASX matched that of Wall Street’s overnight. Last night the same theme continued on Wall Street, and this morning our futures are up 49.

This period of disruptive rotation may persist a bit longer, but then what? Widespread vaccine distribution remains a long way off. Covid ain’t going away in the meantime.

Me Too

I noted yesterday that no one (bar HFT computers) could get on the rotation trade on Wall Street on Monday morning because the adjustment was made from the opening bell. The first blush did wear off during the session, but the close remained substantial.

Last night those who couldn’t get on had their chance. The song remained the same, other than this time it was a little more orderly, if not a bit choppy. The split of Dow up 0.8%, Nasdaq down -1.4% and S&P500 in between with -0.3%, and Russell small cap up 1.7%, was a repeat of Monday night’s moves, except perhaps the Nasdaq’s relative fall this time was a bit sharper.

That’s despite Apple again being little affected while its Big Tech peers saw further selling. Last night Apple unveiled its latest Macs, complete, for the first time, with an in-house chip rather than an Intel chip.

Selling continued in the virus winners but there’s was a bit of give-back among the virus losers, such as airlines/cruise lines, that had soared 30-40% on Monday night.

Wall Street is trying to settle the dust on new valuations.

Meanwhile, Trump has retreated to Florida to communicate only with his thumb, watching Biden deliver a speech with a PRESIDENT ELECT sign possibly making a point behind him. It was hoped Senate leader Mitch McConnell would be adult enough to tell Trump it’s over, but no, he’s backing the challenge.

Many a respected investor has come out to suggest a split Congress is the best Congress, and history confirms Wall Street performs best with a split Congress irrespective of which side’s in the White House. But the two run-off votes in Georgia in January remain the determinant.

If the Democrats win both, the Senate is 50-50, with the Veep having the casting vote. We recall that Wall Street rallied two days before the election on expectation of a Biden win, and again one day out in expectation of a Blue Wave (implying massive stimulus). On election day it waited, and then the next day rallied yet again on the prospect of a Biden win with a Republican Senate.

So come January, if the two run-offs do go to the Democrats, does Wall Street tank?

Bring on Christmas.

Commodities

Gold regained some of its lost ground last night, but the oils happily kicked on.

Behind the scenes, iron ore is quietly moving back up again.

The Aussie has also eased off, down -0.3% to US$0.7279 with the dollar index flat.

Today

The SPI Overnight closed up 49 points or 0.8%, having been up 69 points half an hour before the close.

Yesterday’s NAB survey showed business conditions improved in October to the highest level so far in 2020, but only because Victoria’s bounce offset weakness in other states. Similarly, business confidence hit a 17-month high. We’ll see what happens this month.

Westpac’s consumer confidence survey due today is branded “November”, but will have been completed before yesterday’s vaccine news.

The RBNZ meets this morning.

Tonight in the US is the Veterans Day public holiday but markets remain open.

AusNet Services ((AST)) and EclipX Group ((ECX)) report earnings today and Commonwealth Bank ((CBA)) provides a quarterly update.

Woodside Petroleum ((WPL)) hosts an investor day and Fortescue Metals ((FMG)) and Newcrest Mining ((NCM)) are among today’s AGMs.

Westpac ((WBC)) and ResMed go ex.

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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