Overnight: Fiscal Follies

By Greg Peel

Day Sixteen

The futures said up 26 yesterday morning after Big Tech had revived itself overnight on Wall Street. The ASX200 did indeed open higher, but very enthusiastically. The index was up 50 points in the first ten minutes and 70 points by 11.30am. It all seemed a bit over-exuberant.

It was at that time the ABS issued some interim data showing Australian payroll jobs fell by -1.4% in the three weeks ending July 11, to be down -5.6% since March 8. Victoria saw a fall of -2.7% in the three weeks to July 11, despite re-lockdowns in Melbourne commencing only on July 8.

“The latest data…suggest that industries that were less affected earlier in the pandemic may now be suffering lagged impacts,” said ANZ Bank’s economists. “Employment in the construction and professional services industries has deteriorated to new lows. These industries tend to rely on a pipeline of work. Although that may have supported activity over the first few months of the pandemic, without enough new projects coming through, layoffs appear to be rising”.

It was also around this time the USD gold price rolled over after its parabolic run. The burst of profit-taking didn’t ultimately play out overnight, and indeed gold is higher again this morning. But it was enough to have investors bailing during our session.

From 11.30am the ASX200 tracked an orderly 45 degree angle straight down to the close; down -23 on the day and -90 from the intra-day high. That marked day sixteen of failing to put two consecutive sessions together in the same direction. Net move over that period: up 8 points.

It was also the first session in a long time in which the index closed in the opposite direction to which it opened – a feature notable a month or so ago when the No Idea trade became most apparent, when the rally from the virus bottom was about half way back. The index is higher now, but No Idea is still with us.

Despite the turnaround in gold, the materials sector still managed a 0.9% gain on the day to be the only sector to close in the green, other than a slight tick up for telcos. Iron ore miners drove the gains, and after a 3.2% move, Fortescue Metals ((FMG)) is now bigger than ANZ Bank ((ANZ)).

IT was the worst performer (-1.5%) by day’s end having set off the early rally in following up the Nasdaq. The trigger was a quarterly update from personal loan company Wisr ((WZR)) that saw that stock down -2.0% and sparked selling in the high-flying BNPL names in the index.

Investors continue to exit the energy sector (-1.4%) despite oil prices remaining stagnant of late. Possibly concern around dividends heading into result season, or is it an ESG matter?

The Aussie dollar continues to weigh on healthcare (-0.9%) and despite the US dollar index finally not falling last night, is up again anyway.

Perpetual ((PPT)) was the worst index performer in falling -5.1% after returning from its capital raising. Financials fell -0.7%. Consumer discretionary fell -1.0%, likely spooked by the ABS payroll numbers.

Among other individual stocks, Resolute Mining ((RSG)) saw profit-taking worth -4.9%, while Waypoint REIT ((WPR)), the artist formerly known as Viva Energy REIT, fell -4.8% after Charter Hall Long WALE REIT ((CLW)) ditched its 5% stake.

On the upside, Credit Corp’s ((CCP)) earnings result was worth 8.8% while broker upgrades (and rain) had Nufarm ((NUF)) up 8.1%.

The futures are down -26 points this morning. Could it be?

Congress Liable

Speaking on CNBC this morning, Republican Senate leader Mitch McConnell insisted that any round two fiscal package agreed upon with the Democrats will contain a virus liability protection clause or there’s no deal.

We can consider this demand in two ways.

In the litigation-crazed world that is America, is it fair that businesses, hospitals, schools and everything in between could be sued by those contracting the virus and those who lost a family member at these establishments early in the piece when no one knew what the hell was going on?

I’d say no. And imagine the backlog of cases.

But on the other hand, liability protection would remove the obligation of those establishments to provide costly work-place safety measures at this stage when we know a lot more about what’s going on. That’s the stumbling block for the Democrats.

Either way, McConnell’s interview has driven home just how long it might take for an agreement to be reached in Congress, and it was at that point that a Wall Street doing nothing much for most of last night’s session turned south rapidly in the last hour.

The Nasdaq had gone back to underperforming ahead of the interview, and selling there accelerated. Investors are no doubt concerned that a group of the Big Tech names report earnings tonight and tomorrow night, and tomorrow night the CEOs of FAAG face a Congressional committee over anti-trust allegations.

In last night’s earnings news, global fast-food (and coffee) heavyweights McDonalds (Dow) and Starbucks both reported a decline in June quarter sales of around -40%, but differing earnings results saw McDonalds down -2.5% and Starbucks up 6% (in the aftermarket this morning).

Industrial multi-national 3M (Dow) fell -4.8% on its report. Pfizer (Dow) rose 3.9% on its report but also started its phase 2/3 vaccine trials yesterday.

In virus news, the US case-count has climbed to over 4 million and the death toll to 150,000. The good news is the weekly trend in new cases is declining in Florida and California. The bad news is it’s climbing in four other states outside the “sun belt” hotspots.

Monthly consumer confidence has fallen to 92.6 in July from 98.2 in June when economists had forecast 96.0.

The S&P500 remains roughly square for the year.

Commodities

As noted, yesterday’s burst of profit-taking in gold did not last long.

Not much to see elsewhere, other than to note that while the US dollar index ticked up 0.1% last night, the Aussie still rose another 0.2% to US$0.7161.

Today

The SPI Overnight closed down -26 points or -0.4%.

Australia’s June quarter CPI numbers are out today.

Wall Street will be tuned in to the Fed’s policy statement and press conference.

Rio Tinto ((RIO)) and Janus Henderson ((JHG)) report earnings today, while IGO ((IGO)) posts a production report.

ALS Ltd ((ALQ)) and AP Eagers ((APE)) hold AGMs.

The Australian share market over the past thirty days…