Overnight: Normal Service Resumed

By Greg Peel

Just the Banks

The ASX200 shot up 70 points in the first fifteen minutes yesterday on some sort of algorithm blowout that decided all vaccine news is good news, so get on. At least that’s what I presume. The futures were only up 36.

By mid-afternoon the index was back to square. After the initial spike, the day’s earnings results once again dominated focus, and they pretty much cancelled out. A late rally had the index closing up 31, and given the financials sector closed up 2.5%, the day was effectively all about the banks and nothing else.

All the majors rallied on no news, other than US banks had posted a rare positive session on Wall Street overnight on the vaccine news (which the FDA has since thrown water on) and a tick-up in US bond rates. Why Australian banks blindly follow US banks at every turn is anyone’s guess, but in this instance Australian banks had been sinking in recent sessions post results/updates so they were possibly due for a bounce.

Speaking of banks, Afterpay ((APT)) was up again yesterday (+11.8%), a day after its European acquisition announcement, after Morgan Stanley lifted its price target to $106 from $101 ($92.50 close). UBS also lifted its price target – to $27 from $25. Afterpay reports tomorrow.

Result winner on the day was waste collector Bingo Industries ((BIN)), up 13.5% on a beat.

The remainder of the top five winners had all previously reported, with G8 Education ((GEM)) bouncing back 10.3% having fallen -4.6% on Monday on its report. Someone upgraded the stock but not from the FNArena database. Reliance Worldwide ((RWC)) kicked on another 7.1% after reporting on Monday, while Sims ((SGM)) also rose 7.1% and I’m not sure why.

On the losers’ board, Nanosonics ((NAN)) “won” with -9.6% on its report followed by Blackmores ((BKL)), also reporting, down -5.6%. Austal ((ASB)) fell -5.6% after shooting up on Monday.

Sector-wise, IT led the charge with 3.6% thanks to Afterpay, but financials’ 2.5% was the biggest points influence. Healthcare (-1.5%) was the biggest counter.

In economic news, the ABS offered some preliminary July trade data yesterday in the form of goods exports/imports (not services). Exports fell -6% by dollar value and imports rose 11%. While the export number reflects lower iron ore and coal exports in the month by volume, the imports number is distorted by a catch-up in auto and aircraft.

The materials sector fell -0.7% yesterday.

One Day Wonder

On Monday night, trading volumes on the NYSE showed advancers well ahead of decliners in a rare session of market breadth. Last night it was 50:50. Often in this rally, decliners have exceeded advancers even as the S&P500 rose, because the NYSE is not the Nasdaq.

To that point, Dow Jones has decided, in light of Apple’s pending stock split, to do a rejig of its Industrial Average. Back in ancient times the Dow was simply a price average of America’s biggest companies. In recent times that concept has well gone out the window.

For example, the Dow does not include Amazon, and that’s just one example, simply because its nominal share price is so high the Dow would simply become an Amazon proxy if the stock were included. So in what might seem a desperate attempt to remain somehow relevant rather than just totemic, Dow Jones has decided to go for a reflection of the wider US economy rather than just “bigness”, in choosing more diversified names that are nevertheless still on the large side.

In go biotech Amgen, multi-industrial Honeywell and cloud-based customer relations management software company Salesforce.

Out go Pfizer – it will be interesting if Pfizer is first to a vaccine – defence company Raytheon, which has only been in there for five minutes, and, by contrast, Exxon Mobil. After the departure of original Dow member General Electric two years ago, Exxon was the oldest remaining stock in the average.

Coincidentally, Salesforce is up 14% in the aftermarket this morning having reported earnings.

But on to the wider market.

Last night, despite Trump supposedly taking his bat and ball and going home, the US and Chinese trade delegations spoke on the phone for the first time in months. Discussions were described as “constructive”, which is code for “going nowhere”.

While this did provide Wall Street with a bit of comfort in last night’s trade, realistically the market returned to the normal service of Big Tech outperforming and the rest bungling around. Momo and FOMO continue to dominate, with the Fed providing the free put. It will keep on going, until it stops.

US new home sales rose 14% in July – the fastest pace since 2006. And we know what happened after 2006.

Conversely, the Confidence Board’s monthly measure of consumer confidence fell to a six-year low 84.2 from 95.9 in July (100 neutral).

There’s Wall Street and there’s Main Street. There’s surging asset prices (stocks and property) and there’s double-digit unemployment and widespread bankruptcies.

Commodities

The US dollar continues to slide, providing support for commodity prices, other than iron ore. Iron ore does have these regular pullbacks but recent experience suggest they don’t last long.

Oil prices have now started to move as Hurricane Laura bears down. Evacuations have begun on the Gulf Coast.

Alas the Aussie is up 0.4% at US$0.7193.

Today

The SPI Overnight closed down -34 points or -0.6%, which would square us off against yesterday.

Anything could happen today, the second biggest day on the results season calendar. Tomorrow is the biggest.

Today’s local data release is June quarter construction work done.

The US sees durable goods orders.

Note Telstra ((TLS)) goes ex today, as do Suncorp ((SUN)) and AGL Energy ((AGL)).

The Australian share market over the past thirty days…