Overnight: No Fans Of Dan’s Plan

By Greg Peel

Had the ASX200 not mindlessly plunged -180 points on Friday, following a modest sell-off for a handful of US tech leviathans, we would have expected Sunday’s news of an extended Victorian lockdown would have had the index dropping yesterday. The only reason it didn’t is because Friday was a joke.

On Friday night, Wall Street fell again, fully recovered, and then dropped at the close on selling ahead of a long weekend. The ASX200 plunged another -50 points on the open. Someone should really have a closer look at those algorithms. But twenty minutes later, sanity prevailed.

At midday the index was up 30, before drifting to the close. In the wash-up, sector moves were mixed, with the banks (+0.9%) and materials (+1.6%) key to the net positive close.

Sectors falling on the day included all those impacted by extended lockdowns. Consumer discretionary fell -0.7% and staples fell -0.5%. Property and utilities each fell -0.6%.

Industrials fell -1.7% on an extension of no cars on the road and no planes in the sky, and energy fell -0.9% for the same reason. Viva Energy ((VEA)) is now contemplating shutting its Geelong refinery.

IT fell -0.6%, but that’s just a Nasdaq thing.

But surely the banks are lockdown victims? Yes, but they had absolutely no reason to be trashed on Friday. Ditto materials.

Telcos (+0.4%) are arguably lockdown winners and healthcare (+0.4%) was boosted by a vaccine supply deal signed with the government to trial and hopefully then produce the Uni of Queensland’s vaccine candidate, which will probably never make it past the border.

A notable aspect of the last week of the earnings result season back in February was companies electing not to provide earnings guidance due to the uncertainty caused by the first lockdowns. Companies reporting before the lockdown was announced subsequently withdrew guidance.

A notable aspect on the August season just passed was the number of companies again not offering guidance, due to the uncertainty of the duration of the Victorian lockdown, or at least including a caveat in their guidance of “dependent on the duration” of the lockdown. The extended lockdown is no small matter.

The Ai Group yesterday released its take on Australia’s service sector PMI. It fell to 43.5 in August from 44.0 in July to mark the ninth consecutive month of contraction. That represents very rapid contraction, and if not for Victoria, should by now have been heading in the other direction.

ANZ Bank’s job ad series showed new ads rising 1.6% in August, but that’s effectively a screaming halt compared to July’s 19.1% growth, as the country began coming out of lockdowns. Victoria went back into lockdown in August, and prior to the pandemic represented 26% of Australia’s workforce.

ANZ Bank economists now expect August and September to register a fall in national employment, dragged down by Victoria, but the December quarter is also of concern given scheduled wind-back of stimulus packages across the country.

The true market impact of Victoria’s extension has nonetheless been blurred by the big sell-off on Friday. To that end we note the futures are up 25 points this morning, with Wall Street closed.

Commodities

China’s exports rose 9.5% year on year in August, up from 7.2% in July and confounding forecasts of 7.1%. Imports fell -2.1% having fallen -1.4% in July, confounding forecasts of a 0.1% gain.

Pass the salt.

Base metal traders saw an increase in Chinese exports as an indication of more countries being in recovery mode. This, apparently, is good for copper but not for anything else. Lower imports should be concerning as it implies China is buying less. So not sure what the thought is there.

While the US was holidaying, the rest of the world snuck in a 0.4% gain for the dollar index, which would also have impacted, and surely lower imports suggest China is buying less oil.

The Aussie is down -0.1% at US$0.7282. But for the relativities, it should be down more. What will the RBA do to support Victoria? Unfortunately for the central bank, it’s a one in, all in situation.

Today

The SPI Overnight closed up 25 points or 0.4%.

NAB releases its business confidence survey for August today.

More ex-divs today, including Origin Energy ((ORG)).

The Australian share market over the past thirty days…