Overnight: Easing Back

By Greg Peel

Rotation Ramp-Up

The ASX200 opened on the day’s high yesterday morning on Dow 30k enthusiasm and traded sideways all session until a small dip at the close. It was a session in which the local market tried hard to catch up to the rotation theme on Wall Street.

The energy sector, yet again, topped the charts with a 2.8% gain. And it was not all about oil & gas. Whitehaven Coal ((WHC)) topped the index board with a 10.7% jump. Utilities rose 0.5%.

Strength in iron ore names as well as coal managed to offset losses for gold miners, with the sector netting a 1.5% gain. The banks had another strong and influential session in rising 1.9%.

They were the sectors rotated into.

Rotated out of were healthcare (-2.2%) and technology (-3.6%).

It was not a good session for the “new world”, with all of Megaport ((MP1)), Zip Co ((Z1P)), Netwealth ((NWL)) and NextDC ((NXT)) featuring in the top five losers with the likes of Afterpay ((APT)) and Xero ((XRO)) not far behind.

Biggest loser was biotech Mesoblast ((MSB)) on its quarterly result (-7.2%).

The “old world” saw Flight Centre ((FLT)) rise 8.9% and Webjet ((WEB)) 7.1% but the consumer discretionary sector includes both virus winners and virus losers – old world and new – so it netted out to a mere 0.3% gain, while staples closed 0.00% changed.

Shopping malls themselves fared well nonetheless, with UR Westfield up 7.2%.

Given the market traded sideways all session it was not actually a busy day, just one big step adjustment. Trading is unlikely to get much busier for the rest of the week with the US closed tonight, barring anything from left field.

In economic news, Australian construction work done declined -2.6% in the September quarter against -2.0% expectation. We can again blame Victoria.

The public sector is doing its best (+3.2%) with accelerated infrastructure projects across the states, but not enough to offset weakness in the private sector (-4.4%). And it’s not all just Victoria.

Our futures are down -4 points this morning.

Predictable

Two factors affecting last night’s trade on Wall Street were relatively predictable. Firstly that the Dow would likely pull back a bit from the milestone 30,000 mark and secondly that it would be a quiet session as everyone headed home for Thanksgiving.

Of course, it’s a little different this year, as most in the markets are already at home, but not necessarily the family home for a Thanksgiving gathering. The Dow nevertheless fell back from the opening bell and then not much else happened thereafter.

The minutes of the last Fed meeting were released last night and they, too, were somewhat predictable. The US economy is at risk from the rampant virus and lack of fiscal stimulus. To that end, the FOMC discussed what more it might need to do in the form of asset purchases (corporate, municipal bonds etc).

The suggestion was to extend the facility beyond its December deadline, but last week Treasury Secretary Mnuchin told the Fed that given that facility has been under-utilised, it will expire at the deadline and the funds will be directed elsewhere. Jerome Powell is not happy.

US new jobless claims rose for a second week in a row last week – the first two-week gain since the virus swept through the Sunbelt in July. If you add up all the people on various forms of unemployment support, they now number 20.5 million after last week, which saw the first uptick since September. That number has never fallen below 20 million since March.

US consumer spending rose by 0.6% in October to mark six straight months of gains, but the pace is slowing. September saw a 1.2% gain. Personal incomes fell -0.7% compared to a 0.7% rise in September. The numbers are now reflecting the roll-off of the original fiscal stimulus package, combined with a return to restrictions across states and the subsequent second round of job losses.

The US JobKeeper paid businesses to keep workers on. Now that has expired, if businesses are not back to normal then those workers are now being laid off. The re-banning of outdoor dining in LA is just one example of another source of worker layoffs.

Wall Street is not panicking of course, because we have a vaccine. Indeed, three and counting. But aside from the Dow pulling back a bit last night as expected, the Nasdaq piped up again and gained 0.5% to the S&P500’s -0.2%.

It remains a battle between the short term economic impact of the virus and the speed at which a vaccine can be distributed, as well as the speed at which Biden can get a second fiscal stimulus package happening.

It’s still a long way to January 20, and the Georgia Senate run-off elections won’t be held until January 5, after which the Democrats may end up with the casting vote, or not, Trump will still be president, and will the Republicans accept a negative result graciously?

Commodities

In stark contrast to Tuesday night, nothing much to see here, other than to note those oil prices just keep going up.

As does the Aussie, up 0.2% to US$0.7373 to match a fall in the US dollar index.

Today

The SPI Overnight closed down -4 points.

Yesterday’s quarterly data will be followed up today with September quarter private sector capex numbers.

Origin Energy ((ORG)) hosts a strategy day.

No big-hitters in today’s handful of AGMs.

The US is closed tonight.

The Australian share market over the past thirty days…