The Overnight Report: Lock That In

This story features TREASURY WINE ESTATES LIMITED, and other companies. For more info SHARE ANALYSIS: TWE

By Greg Peel

Profit-Taking I

The clue is in the uniformity of sector falls yesterday. The ASX200 closed down -1.2% and aside from technology (+0.3%) and telcos (-0.7%), every sector fell by around about the index amount. This was simple market selling to lock in profits at month-end after the ASX200 had posted its best month ever.

Or best month for the All Ords since 1988. That’s calendar month of course. One can pick plenty of random four-week periods when the indices have performed better – in 2020 in particular.

The sellers were ready in the gates at the open, waiting to see which way the algos would jump in the first ten minutes. They jumped 40 points to the upside, and then the gates opened. The day’s ASX200 graph looks just like a water slide – steep at the top before easing to the slow-down pool at ground level.

The other clue that this was simple profit-taking is in this morning’s futures. They closed down all of -11 points despite the S&P500 dropping -0.5% last night. Wall Street, too, locked in profits. We don’t need to lock ours in again.

Aside from end-of-month selling, there remains a pall over the local market given developments vis a vis China. Treasury Wine Estates ((TWE)) came back on the boards yesterday and fell another -6.9% on top of the -11.3% it fell pre trading halt. China represents 30% of the wine distributor’s earnings.

It was not the worst performance on the day nonetheless. That was reserved for Whitehaven Coal ((WHC)), down -9.6%.

Don’t start me.

The technology sector was led by gains in EML Payments ((EML)), up 4.5%, and WiseTech Global ((WTC)), up 3.2%. Tech stocks had been in the background this month as cyclicals and value took over.

Best performer was Fisher & Paykel Healthcare ((FPH)), up 5.1% as the debate continues as to whether the company will ever sell a ventilator again once a vaccine is distributed. The conclusion appears to be to the positive.

Speaking of China, November PMI data out yesterday showed the ninth month of gains for both manufacturing and services. The manufacturing PMI rose to a three-year high 52.1, up from 51.4 in October, while services rose to 56.4 from 56.2.

Australian September quarter data showed company profits rose 3.2%, down from 15.8% growth in the June quarter (off a virus-low base) and still very much supported by government stimulus. The market was forecasting 4.0%.

Private sector credit grew by all of 0% in October. Housing credit slowed to 0.3% growth, surprising economists who expected strong numbers in recent months to continue. Josh will not be pleased. Business credit growth offset by being les negative than September at -0.3%.

Economic data were not going to have any effect on the market yesterday. It’s a new month today, and as we head into the Silly Season (probably not quite as silly this year) it is unlikely we will see a repeat of November’s 10% gain given any new vaccine news will not be all that new.

Maybe Santa can take this year off, and self-isolate.

Profit-Taking II

See above.

Despite last night’s selling, the Dow has still posted its best month since 1987 (+12.5%). The Russell small cap index has posted its best month ever (+20%). These two indices represent the big-end multinational industrials and small, mostly domestic-facing businesses that were hardest hit by the pandemic, and most relieved by vaccine progress.

Herein lie the “value” and “cyclical” names. Fitting, thus, that end-of-month selling should be concentrated in the Dow (-1.2%) compared to the Nasdaq (-0.1%). The Russell fell -1.9%.

Good news was of no consequence last night. Moderna announced its final trial showed efficacy of 94.1% and the FDA will now consider approval for emergency use on December 17, which will likely be perfunctory. Pfizer’s vaccine could receive UK approval within the next few days.

Trump has now largely conceded he has nothing to take to the Supreme Court, having lost all his state cases. So much for stacking it. Were his team to try, three out of nine Supreme Court judges would have to agree there is a case to answer before the full court would examine it.

Rumour has it Trump plans to launch his 2024 campaign on inauguration day.

There was also negative news, but again not consequential in the sell-off.

The White House has added China’s largest chip maker, SMIC, and oil giant CNOOC to its export blacklist on claims they are run by the Chinese military.

Dr Fauci has warned of a “surge upon surge” of covid in the weeks following Thanksgiving.

It’s that sort of warning, and the record November rally in value/cyclicals, that has attention turning back to the stay-at-home theme. All S&P500 sectors closed down last night except technology and healthcare.

Commodities

The copper market liked the Chinese PMI numbers.

OPEC met last night to discuss whether to extend or end its production cuts from January. No conclusion was reached. OPEC meets again tonight, bringing in Plus as well (Russia). If no decision can be made they might meet twice on the day.

Analysts warn that if there is still no agreement, oil will tank.

The US dollar bounced back a little last night which did not help gold’s plight, but it did offer a relief valve to the Aussie. It’s down -0.6% at US$0.7346, suggesting there might have been a few foreigners among the sellers yesterday.

Today

The SPI Overnight closed down -11 points or -0.2%.

Today brings the September current account numbers, including all important trade, ahead of tomorrow’s GDP result.

We’ll also see numbers for October building approvals and November house prices, and as it’s the first of the month it’s global manufacturing PMI day.

The RBA meets to bemoan the currency.

Collins Foods ((CKF)) reports earnings today, Incitec Pivot ((IPL)) holds an investor day, Santos ((STO)) hosts a strategy day and Aristocrat Leisure ((ALL)) goes ex.

The Australian share market over the past thirty days…

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