The Monday Report – 14 December 2020

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

By Greg Peel

Disappointment

The real shame about the University of Queensland vaccine is there’s nothing actually wrong with it as a covid vaccine. The fact it returns false positives for HIV – emphasis on false, and zero chance of catching HIV – is the public would just not go for it. And there are others to choose from.

The news was worth -3.2% for UQ partner CSL ((CSL)) on Friday and a standout -2.6% for the healthcare sector. CSL’s fall amounted to -14 index points. The company has noted, nonetheless, that the abandonment of the vaccine does not lead to a change in existing earnings guidance. CSL was not in it for the money.

The resource sectors did their bit to offset the fall in healthcare but not by enough. Energy rose 1.5% as Brent regained US$50/bbl, while the surging iron ore price could only produce 0.7% for materials.

That includes a 25.3% leap for nickel miner IGO ((IGO)) after a trading halt. IGO has successfully raised funds for an acquisition. Stablemate Western Areas ((WSA)) chimed in with 5.7%.

Technology was the best performing sector (+1.6%) on deals aplenty in the BNPL space. Zip Co ((Z1P)) has signed a deal with Facebook and Afterpay ((APT)) with a range of Canadian retailers. The latter was better received, with Zip Co up 1.9% and Afterpay up 5.0%.

Financials joined healthcare in dragging on the index, down -0.9%. Westpac’s ((WBC)) pledge at its AGM to return to normal dividend policy in 2021 failed to excite the punters.

Industrials (-1.5%) and consumer discretionary (-1.0%) added to the weakness, even as more and more restrictions are eased across states ahead of Christmas. These sectors had a good run in the initial Pfizer/Moderna vaccine excitement.

Australia’s outstanding success in controlling covid is not generating a carry-through in the stock market. The ASX200 peaked last Wednesday at 6745, which is still a long way from the near-7200 pre-covid high, albeit a 42% rally from the March low.

It is being reflected in the Aussie, now well over 75, although the iron ore price has been a major driver more recently.

As Christmas is looking a lot closer to normal this year downunder than it might have been, France has extended the lockdowns that were set to expire last week and Germany has now gone into hard lockdown for Christmas.

Stay-at-home directives are being issued across US states and the death toll there continues at 3000 per day.

The S&P500 is up 13% year to date.

Are we there yet?

A lot of that has to do with the perennial hope of a new stimulus package being passed. Friday was the deadline for a budget bill to be passed lest the government shut down, and that bill was supposed to include a stimulus package of some sort.

No package was included, and a budget was passed only to keep the government running for another week, providing another week for stimulus agreement to be reached.

Good luck. The latest bipartisan push is to simply hand out cheques in the interim to every man, woman and child, which was one element of the original CARES package. Trump has been pushing for this, but handouts are not included in the US$908bn bipartisan package on the table.

That package includes support for state and local governments but not for business liability protection, which are the two factors the Republicans will not budge on. So what difference a week will make is anyone’s guess.

Still overhanging Wall Street is the disputed election result. Friday saw a lawsuit put to the Supreme Court in Texas, supported by 17 other Republican-held states, in an attempt to overturn the result.

Like all suits before it, it failed. Who is funding this stuff?

Given this deep and disturbing Congressional division, it’s is assumed by most there will be no stimulus package agreed upon at least until the results of the Georgia Senate run-offs are known. Then it could be a whole new ball game, or not.

Meanwhile, Wall Street is also becoming more anxious that a “no deal” Brexit is inevitable. Discussions are continuing, but Boris has the UK in the brace position.

Wall Street ended the week on a sour note. The rally in the Dow is misleading as it included a 14% leap for Disney after the company revealed its streaming service was now up to 86 million subscribers. Disney also announced it was planning ten new Star Wars and ten new Marvel films over the next decade. They’re also going to prop up Harrison Ford for one last Indiana.

Disney used to be the home of imagination.

Commodities

Zinc’s been on a bit of a run so it pulled back on Friday night.

Iron ore is now at a nine-year high.

Despite the US dollar rising 0.2%, the Aussie is also up 0.2% at US$0.7558.

Looks like we’re in for a rollercoaster of a day today. The SPI Overnight closed down one point on Saturday morning.

The Week Ahead

The Fed meets this week to allow a despairing Jerome Powell to once again vent his frustration over the fiscal stalemate.

The US will see industrial production and the Empire State activity index tomorrow, retail sales and housing market sentiment on Wednesday, and housing starts and the Philly Fed index on Thursday.

China will report industrial production, retail sales and fixed asset investment numbers tomorrow.

The Bank of Japan meets on Friday.

New Zealand posts its September quarter GDP result on Thursday.

Locally we’ll see the November jobs numbers on Thursday.

Thursday also brings the expiry of all December quarter ASX derivatives – futures and options – which can lead to non-fundamental volatility on the day.

On Friday the S&P/ASX index rebalances announced last Friday come into effect. But today the rebalancing will begin for fund managers.

Into the ASX200 will go Kogan ((KGN)) and Reece ((REH)). Given the Iluka Resources ((ILU)) spin-off of Deterra Resources ((DRR)) left the index with 201 stocks, all of Avita Therapeutics ((AVH)), Cooper Energy ((COE)) and Western Areas ((WSA)) get the boot.

Afterpay moves into the ASX20 at the expense of Insurance Australia Group ((IAG)).

ANZ Bank ((ANZ)) will hold its AGM on Wednesday and National Bank ((NAB)) on Friday. Elders’ ((ELD)) AGM is on Thursday and Incitec Pivot ((IPL)) and Nufarm ((NUF)) on Friday.

The Australian share market over the past thirty days…

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