Overnight: Role Reversal

By Greg Peel

Buy the Lot

On Tuesday the local market followed the Wall Street script on the back of the vaccine news in frantically switching out of virus winners and back into virus losers, or from growth into value. Wall Street followed up with a similar session on Tuesday night, but yesterday the ASX200 played a different tune.

Buying continued in the prior laggards but investors reassessed the sharp selling that had transpired in other sectors. Indeed, every sector closed in the green yesterday, albeit by varying degrees.

Having leapt 8% to win the day by a margin on Tuesday, yesterday the energy sector won again in definitive fashion with another 5.0% gain. There was some help from a well-received Woodside Petroleum ((WPL)) investor day that was worth 6.3%, but having leapt 15% on Tuesday Oil Search ((OSH)) added another 7.6% yesterday in saying nothing.

The banks were the second biggest winner on Tuesday (3.9%) and rose another 2.3% yesterday, helped by Commonwealth Bank’s ((CBA)) quarterly result that was worth 2.8%.

Industrials kicked on with another 2.3% and suddenly telcos, which had watched from the sidelines on Tuesday, also jumped 2.3%.

The biggest loser on Tuesday was technology (-6.1%) but yesterday the sector bounced back 2.9%. While no doubt some saw the knew-jerk sell-off as a chance to pick up growth stocks cheaply there was some individual stock news.

Planned new BNPL regulations have been delayed for another two months, sending Afterpay ((APT)) up 3.1%. Comptershare ((CPU)), which once upon a time dominated the IT sector, gained 3.3% on its AGM update. I’ll also note that I questioned yesterday why NextDC ((NXT)) deserved to be clobbered in the rush – it rebounded 4.4%.

Xero ((XRO)) rallied 6.7% ahead of its earnings result today.

Consumer staples were whacked -3.3% on Tuesday, as if we’re never going near a supermarket again now there’s a vaccine. It rebounded 1.4%.

Utilities had also sat it out on Tuesday but despite the Oz ten-year yield now almost back at 1.0%, rose 1.3% thanks to AusNet Services’ ((AST)) 5.1% gain on its earnings result.

That bond yield was blamed for a -4.4% fall in JB Hi-Fi ((JBH)), on the basis a higher yield reduces discounted cash flow forecasts in latter years, which is actually the case for all stocks. Gold miners otherwise dominated the losers’ board.

On the winners’ board, the madness that is Virgin Money UK ((VUK)) jumped another 14.3% on top of its big move on Tuesday. Equally volatile on a day-to-day basis recently is Whitehaven Coal ((WHC)), which gained 8.9%. Then came the oil & gas names.

It was interesting that we didn’t blindly follow Wall Street to the letter yesterday, but what is more interesting is last night Wall Street completely reversed the growth/value theme. So what do we do today?

The futures are up 32 points.

And on the third day…

On Monday morning NY time the vaccine news was delivered. Woohoo!

Last night the governor of New York re-imposed restrictions in light of the still out-of-control second wave. Bars, restaurants and gyms will close at 10pm. Social gatherings of any sort will be limited to ten people.

If that doesn’t work, warned the governor, restrictions will be further tightened – all the way back to lockdown if necessary.

Reality bites.

This was not the news that prompted the complete reversal of Wall Street’s growth/value rotation last night. That began pretty much from the opening bell. For two days Wall Street shouted “happy days are here again!” but are they? Traders may have simply considered that the rotation trade had been, in isolation, overdone, but they may have also focused on the grim truth.

The US case-count continues to accelerate. Hospitalisations are now running at a higher pace than in April, thus once again the prospect of beds running out is in focus. The threat of re-lockdowns, or at the very least re-tightening of restrictions, is playing on investors’ minds.

Is New York the canary in the coal mine? And with the US government now plunged into dysfunction, and the covid, covid, covid, covid president still in charge (typically an outgoing president would confer with a president elect on any policy decisions required during the “lame duck” period, but this is Trump), it is unlikely anything will happen at the federal level to stymie the death toll.

There may well be half a dozen vaccines ready to roll by January. But they won’t be reaching the masses by at least the northern spring, if not the summer, and winter has not yet begun.

So for now, it’s back to normal 2020 programming, or at least it was last night. Dow down -0.1%, Nasdaq up 2.0%, S&P in the middle rising 0.8%.

Commodities

Very much a case last night of “nothing to see here”, other than to note iron ore is getting closer to its previous high.

The Aussie had traded above US73c during our session yesterday but Guy Debelle managed to drag Philip Lowe away from the edge of the building. With the US dollar reversing to be up 0.3% last night, the Aussie is down a tad at US$0.7275 over 24 hours.

Today

The SPI Overnight closed up 32 points or 0.5%.

The US will see October inflation numbers tonight.

Locally it’s the busiest day this week on the corporate calendar.

Earnings results are due from Graincorp ((GNC)) and Xero.

Telstra ((TLS)) hosts an investor day, CSR ((CSR)) a strategy briefing and Ampol ((ALD)) a capital markets day.

A long list of AGMs today includes those of Wesfarmers ((WES)) and Woolworths ((WOW)), Nine Entertainment ((NEC)) and Seven West Media ((SWM)).

The Australian share market over the past thirty days…