Overnight: Shutdown Fears

By Greg Peel

Ironed Out

The ASX200 shot out of the blocks yesterday to be up 80 points in the first half hour, driven by strength on Wall Street and a surge in the iron ore price. But we recall that Thursday saw the market suddenly wake up to iron ore’s break-out, sending the materials sector up 3.8% on the day.

Thus despite a 5% iron ore price increase overnight, the profit-takers swiftly moved in yesterday after the algos had done their bit. By lunchtime the index was only up 19 points, before a rally to the close. Materials closed up 1.5% and while winning the day, the sector was by no means a standout.

China’s imports of iron ore in the year to November were up 10.9% from the same period last year. Total imports rose 4.5% year on year in November, down from 4.7% in October and missing forecasts of 7.0%.

Exports rose 21.1% year on year – a three-year high pace – smashing forecasts of 12.0%. China’s manufacturing sector is taking advantage of lockdowns across the West. But this is not what Beijing wants see. It wants China to be a consumer-driven economy, like the US, not a factory to the world.

China’s imports of US goods were up 31.5%, but the US trade deficit is up 52% year on year. The whole point of Trump’s trade war was to put the US into trade surplus, and MAGA. Since his election, the trade deficit is up 74.8%.

Speaking of trade wars, China’s imports from Australia were up 8.3%, but clearly most of that was iron ore.

The banks had also started solidly yesterday but they, too, faded through the session, closing up only 0.3%. NSW and Victoria have lost their AAA credit ratings.

Consumer staples (+1.4%) enjoyed a bit of a rev-up after the poor cousin of supermarkets and hardware posted a forecast-smashing earnings result. Metcash ((MTS)) jumped 10.2%, and floated all boats in the space.

Energy also managed another 1.4%, and industrials 0.8%, but healthcare remains on the outer (-0.1%).

The RBA governor said yesterday the BNPL sector would only be regulated if it were deemed to be in the public interest. Technology rose 1.5%.

The so-called information technology sector is becoming a bit “old world” in the sense every new company operating in cyberspace in the past couple of decades has been tossed in there as a matter of course, with only a few exceptions. Companies like Afterpay ((APT)) and Zip Co ((Z1P)) might be net-based but they are financials by any other name. The same could be said for other SaaS and similar companies that really should be in other sectors and not just lumped into IT.

But financials is already far and away the biggest sector by market cap, and Afterpay is a candidate for the ASX20. Makes it difficult for S&P.

Reality Bites, Again

Having surged on vaccine news, Wall Street has most recently continued to run up on stimulus hopes – the same stimulus hopes the market has held vainly since July. The exponential US case-count has been ignored along the way, but every now and again it isn’t.

Last night was one such case. The case-count and hospitalisation numbers are becoming frightening and a feared Thanksgiving peak will only become clear by next week. Lockdowns are being reinstated in some areas. There has been no progress on stimulus.

On Saturday, the government runs out of money. A budget bill must be passed, and the intention is to include a new stimulus package within that one bill. What are the chances?

The US government could be shut down next week. There’s a certain irony there.

On Friday night Wall Street was all excited that a weak jobs number would jolt Congress into action. Last night Wall Street was worried perhaps it wouldn’t. Such sentiment has been all throughout 2020 evident in the spread of moves of the major indices. Last night the Dow fell -0.5%, the S&P fell -0.2% and the Nasdaq rose 0.5%.

It’s the classic stay-at-home trade. Until there is a budget passed, a stimulus bill in place and a vaccine ready for the masses, the value-over-growth trade that has featured aver since Pfizer’s announcement may have to take to the bench.

And we still have to wait to see which way the Georgia run-offs will go, to determine which party holds the Senate.

Donald Trump has been in Georgia campaigning on behalf of the two Republicans. Not sure how thrilled they are. But one has to admire Trump for being unwavering in his determination to Make America Grate Again.

Commodities

A bit of a pullback all round as for once the US dollar index actually rose slightly, but not, of course, for iron ore.

That slight gain has the Aussie down -0.1% at US$0.7425.

Today

The SPI Overnight closed down -10 points.

NAB will release its business confidence survey for November today.

Data will be out for September quarter house prices.

Bank of Queensland ((BOQ)) holds its AGM.

The Australian share market over the past thirty days…