The Monday Report – 23 November 2020

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

By Greg Peel

News from Abroad

The ASX200 opened lower in the first half hour but quickly shot up to what would largely prove to be the high for the day. The index then did very little and was looking very “Friday” when news hit from the US and the Dow futures headed south.

The US Treasury has instructed the Fed to allow corporate lending facilities to expire at the end of the year. The Fed is not happy, and the timing has been questioned. A ploy by the Trump administration to make life harder for Biden?

The Treasury directed funds to the Fed when everything was being thrown at the US economy in the early stages of the virus. Congress agreed to provide the Treasury with said funds. Treasury Secretary Mnuchin’s argument is that corporate facilities have been under-utilised as the market is having no trouble absorbing corporate debt issuance on its own.

The money should therefore be redirected towards other programs. Read: fiscal stimulus.

Which seems perfectly sensible. But is now the right time, given the virus is running even more rampant than it did the first time around? I’d say that’s a toss-up. If the money is sitting there unused by corporates, why not redirect it towards much needed fiscal stimulus? The fear, nevertheless, is that removing the Fed facilities removes a level of comfort that the Fed has corporate America’s back.

It’s a sentiment thing.

Friday night’s trade suggested Wall Street is not actually that fussed. The Australian market was nevertheless not prepared to take the risk on a Friday afternoon, as US futures were falling, and hence the ASX200 sold off to leave only a modest gain at the close.

The news that didn’t affect the local market one way or the other on Friday was ABS’ preliminary October retail sales numbers. They showed a gain of 1.6%, offsetting a fall of -1.5% in September. Basically Victoria in lockdown followed by Victoria coming out of lockdown.

With Victoria fully out of lockdown, South Australia’s three unnecessary days of lockdown now over and the NSW-Victoria border now open, November is looking a lot more positive.

The standout mover among sectors on Friday was energy, down -1.5%, with Oil Search ((OSH)) leading the way with a -5.1% fall. The stock copped no less than four ratings downgrades from FNArena database brokers post the company’s strategy day, one (Credit Suisse) to Sell.

Quite simply, Oil Search ran up way too far, way too fast on the vaccine news, without justification.

The big movements on the day were among individual non-index stocks.

Regis Healthcare ((REG)) rejected a takeover offer from a private consortium including listed Washington H. Soul Pattinson ((SOL)) and jumped 23.4%. Peer Estia Health ((EHE)) rose 21.2% in sympathy, plus it received an upgrade on the day from JPMorgan/Ord Minnett.

Mesoblast ((MSB)) has entered into a licencing deal with Novartis for its remestemcel-L drug, which was worth 11.3%.

Online shoe-seller Accent Group ((AX1)) announced sales growth of 15.7% in FY21 to date, and gained 6.5%.

Wall Street did close lower on Friday night, but did not suggest any panic about the Fed news. More likely traders were simply looking to square up on the Friday before what is called a “holiday week” in the US, even though strictly it’s just one day.

Given Wall Street did not tank, our futures are up 34 points.

Lockdown Loggerheads

The Fed news was one point of controversy on Wall Street on Friday night. The question of lockdowns was another, ongoing, subject of debate.

California has introduced a 10pm curfew. The question here what difference does that really make? There remains much anger over the closure of New York City schools, but not bars and restaurants.

We know Trump was never going to lock anything down, and Biden has said lockdowns “don’t work”. Well Mr President Elect, I give you Victoria. But the real debate is whether the economic impact of lockdowns is worse than the health impact of the virus.

I suggest that’s a question that can never be answered.

Pfizer’s vaccine should be approved within days. Each day, the US continues to break the previous day’s record case-count.

After opening lower, Wall Street ultimately meandered its way to a weaker, but not a panicked, close. All three major indices closed lower, but the stay-at-home theme remained evident on the Dow -0.8%, S&P -0.7% and Nasdaq -0.4% split.

When it comes to the crunch, staying at home is for many a sensible option that does not require a government directive. What remains to be seen is as to how many Americans heed the warning not to travel and hold large gatherings this Thanksgiving.

Already the airports are crowded.

Commodities

It was a solid session across the board for commodities on Friday night, with the US dollar largely steady. Commentators put the gains down to momentum from a combination of a vaccine, China’s recently announced infrastructure spending plans, and the agenda laid out by Biden.

Copper hit its highest price since 2014.

The Aussie is up 0.2% at US$0.7304.

The SPI Overnight closed up 34 points or 0.5% on Saturday morning.

The Week Ahead

Thanksgiving is on the Thursday, Wall Street will begin emptying on Wednesday afternoon, and then Friday is a half-session on the NYSE, ending at 1pm.

Friday is traditionally known as Black Friday, but these days that runs for at least a week.

In the first three days the US will cram in numbers for consumer confidence, house prices, new home sales, durable goods orders, personal income & spending and PCE inflation, along with the minutes of the last Fed meeting.

Today sees flash estimates of November manufacturing PMIs across the globe.

In Australia we’ll see lead-in numbers for the September GDP result, in the form of construction work done and private sector capex.

It’s the last week of November and thus the last week of AGM season locally, but for a few stragglers next month.

Earnings results are due from TechnologyOne ((TNE)) tomorrow and Fisher & Paykel Healthcare ((FPH)) on Wednesday, along with quarterly earnings from Mesoblast.

Bubs Australia ((BUB)) holds its AGM today, Ampol ((ALD)) hosts a strategy day and Amcor ((AMC)) goes ex-dividend.

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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