The Overnight Report: Rock Solid

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The company is included in ASX200, ASX300 and ALL-ORDS

By Greg Peel

Hitting Home

Wall Street may have been down overnight but it was pretty clear yesterday’s action on the ASX was all about Sydney. With the lockdown extended not one, not two, but four more weeks, memories are evoked of last year’s three-and-a-half month run in Melbourne.

And that was the less contagious Wuhan strain.

Ceteris paribus, the market should have been chuffed with the June quarter CPI numbers. Yes, headline inflation surged 3.8% but unlike in the US, where headline numbers well exceeded forecasts, economists here expected 3.7%.

And unlike the US, where core inflation numbers equally surged, our core inflation remained barely moved at 1.6% year on year, and still well below the RBA’s target of 2%. The headline number, up from 1.1% in the March quarter, was elevated by the oil price rally and cycling last year’s free child care – factors that will ease in coming quarters.

The bottom line is the RBA will be in no rush to speed up tapering, and indeed given the strain from delta, may hold off altogether for now. That should be stock market positive, particularly for growth stocks, such as tech.

But tech fell -2.1% to be the worst performing sector. Never mind that the Aussie ten-year fell -5 basis points on the CPI to 1.15%, the Nasdaq was weak overnight.

Elsewhere, sector falls were very uniform, suggesting a “sell everything” mentality that fed on itself through the morning, no doubt aided by momentum algos. Energy was next worst with -1.4%, but all other sectors fell -0.5-1%.

Except one. Property actually rose 1.0%, which seems incongruous if retail is shut down again in Sydney and offices vacated. But REITs are seen as a hedge against inflation, which on the headline CPI may have been the one sector to shift your money into from selling all other sectors.

Among individual stocks, Spark Infrastructure ((SKI)) jumped 5.4% on a higher bid from its suitors.

Nickel Mines ((NIC)) came back to earth on its production report (-11.1%). The miner had previously shot up on the BHP-Tesla tie-up, based on assumed global demand growth for nickel.

Rio Tinto’s ((RIO)) earnings result was the most anticipated event of the day. Not in terms of earnings – they were always going to be blow-away – but in terms of just how much of it shareholders would enjoy. Well, 75% as it turns out, for a dividend of 561c versus a 530c forecast, plus a bonus payout which takes the interim cash payout to $7.60.

Rio fell -0.2%. It just wasn’t the day.

Did momentum stretch the rubber band a bit far yesterday? The futures are up 19 points this morning.

Mixed earnings

After falling sharply on Tuesday night, the Nasdaq managed to bounce somewhat last night, with the usual dip-buyers always at the ready. The standout was nonetheless Google, up 3.2% on its Tuesday aftermarket result.

The bounce was not aided by Apple, which also having reported in the prior aftermarket fell -1.2%. Fellow aftermarket reporter Microsoft closed little moved. Reporting on the day, chip-maker Advanced Micro Devices jumped 7.6%.

The surprise results in the Dow came from Boeing and Ford – surprising, because they both posted unexpected profits. Boeing’s travails are well known but Ford had been forced to halve its production due to the chip shortage. Boeing rose 4.2% in the session and Ford is up 3.8% in the aftermarket.

Take out Boeing and the Dow’s fall would have been more substantial. McDonalds reported huge numbers and fell -1.9%.

The Fed interrupted proceedings in the afternoon and Jay Powell was declared to be “dovish”. Which actually means no change. I don’t think you can be “dovish” all year when not changing your policy at all – so maybe more appropriately “not hawkish”.

While maintaining its “transitory” mantra on inflation, the Fed remains staunchly focused on unemployment, which it believes could take two years to normalise. Tapering to be announced at Jackson Hole next month? No chance.

Which is good news for the Nasdaq, ie growth stocks.

Earnings focus continued in last night’s aftermarket, particularly on Facebook. It’s down -3.3% as I write. The issue was not June quarter results – they were beats as usual – but on a warning June cycled the lockdown period of no advertising last year and then ads came back like a rocket in the second half of 2020, so the comparables will get tougher and tougher from here.

Hardly a shock, and Facebook had rallied 20% in the quarter.

PayPal reported after the bell, and posted a miss on revenues. In this climate, you can’t miss. It’s down -5.8%. The main issue is eBay dropped Paypal as its payment service in May, instead creating its own.

In 2002 eBay acquired PayPal. In 2015, it spun PayPal off again.

With the Fed out of the way we approach the biggest week in the US earnings season next week, by number of stocks. Before that, Amazon reports tonight.

Commodities

Base metals appear to be consolidating after a strong run up to earlier this week.

Gold enjoyed a bit of of a boost from the “dovish” Fed.

The jump in WTI crude is all about low weekly crude inventories meeting strong summer gasoline demand.

The Aussie has shrugged at the CPI, little moved at US$0.7369.

Today

The SPI Overnight closed up 19 points or 0.3%.

The US reports a first estimate of June quarter GDP tonight.

Locally, production reports are due from Fortescue Metals ((FMG)), OceanaGold ((OGC)), Pilbara Minerals ((PLS)) and Regis Resources ((RRL)).

IOOF Holdings ((IFL)) provides a quarterly update, Macquarie Group ((MQG)) holds its AGM, and UR Westfield ((URW)) and Janus Henderson ((JHG)) report earnings.

The Australian share market over the past thirty days…

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