The Overnight Report: Are We There Yet?

By Greg Peel

Stimulated

After tracking lower for the past four sessions, yesterday the ASX200 rebounded to zero out the net losses since last Thursday. Collect $200.

The previously sombre mood was brightened by the possibility of US stimulus, as it so often has been this year despite consistent disappointment. More on that below.

Financials were not the biggest mover (+0.8%) but waved the flag for stimulus. There’s not a lot of correlation between Us and Them really, except through bond yields.

Technology (+2.6%) topped the day as the BNPL sector grows yet another leg. Afterpay ((APT)) rose 4.2% to be close to pipping Telstra for market cap. Zip Co ((Z1P)) jumped on board with 6.7% while outside the index, Sezzle ((SZL)) gained 11.5% and a trading update had Openpay ((OPY)) up 27.3%.

Only two sectors closed lower on the day, being energy (-0.3%) and healthcare (-0.6%). The market has suddenly fallen out of love with energy while healthcare seems these days to be the contrarian play, while also battling the currency.

Materials came roaring back (+1.8%) as the one-day blip in the iron ore price rally proved just that and gold came back into favour. Resolute Mining ((RSG)) topped the winners’ board with 10.3%, having also announced the sale of a mine in Ghana. Perseus Mining ((PRU)) took the silver with 7.0%.

In between was our old mate Whitehaven Coal ((WHC)), up 7.9% because that’s what it does, and because it upgraded reserves at a coking coal mine.

Worst performer on the day was Service Stream ((SSM)), which had popped recently when the NBN announced it would outsource its networking. Service Stream seemed an obvious candidate, and indeed has won the contract for Queensland, SA, WA and NT but not yet for NSW and Victoria, which the NBN is still considering. The stock fell -12.1%.

Outside the index, Rex Regional Airways ((REX)) got the green light to start running the Sydney-Melbourne route from March, and ascended 8.0%. Illuminating guidance from Beacon Lighting ((BLX)) had that stock up 12.7%.

The ASX200 was up 88 points at its peak around 2pm yesterday before sellers moved in to trim those gains. It looks like the buyers might try to fight back again today, with the futures up 27 points, supported by a 0.3% gain for the S&P500.

At least we’ve got the Fed

With no progress on stimulus after meetings ran to 10pm the night before, the Dow was down -100 points into the afternoon, ahead of the Fed statement release and press conference. While there were no actual changes, Uncle Jay has a way of raising the spirits.

Rates are unlikely to move off zero before 2023 and until inflation and unemployment return to pre-covid levels, QE purchases will be maintained. Jerome Powell’s statement and Q&A session were described as “soothing”.

The Dow rebounded to be flat, ahead of some late selling.

It was another round of stay-at-home investing nonetheless, with the Nasdaq closing up 0.6% and the S&P netting out with 0.3%. Hospitals around the country are becoming critically close being overrun. ICU beds and ventilators are running out. Still the US is posting 200,000 new cases a day, 3000 deaths a day.

Hopes rest solely on fiscal stimulus, as not only the health situation but the economic situation deteriorates. After a slight decline on October, US retail sales fell -1.1% in November – the biggest consumer spending month of the year. Economists had forecast -0.4%. Year on year online sales growth of 29% was not enough to make an impact. Despite Black Friday and Cyber Monday, online sales rose a mere 0.2% from October.

A flash estimate of December PMIs showed manufacturing dipping to 56.5 from 56.7 but services dropping sharply to 55.3 from 58.4. The service sector is more impacted by lockdowns.

There was some relief in New York. The mayor will not place the city into hard lockdowns until after Christmas. Thanksgiving gatherings have been blamed for the most recent surge in cases, and here we go again.

Senate majority leader Mitch McConnell said last night the group of negotiators, being the leaders of each party in each house, had agreed lawmakers should not leave Washington for the holiday break without a deal on coronavirus aid and a fiscal 2021 government funding. He also said “We’re going to get an agreement as soon as we can agree.”

Better order the turkey then.

Government funding runs out on Friday, having last Friday been extended for a week on the assumption a stimulus deal would be reached. Presumably it will be extended again, unless something remarkable happens.

McConnell has at least agreed to split out the two contentious elements of state & local funding and liability protection to be discussed next year, leaving the way open for the latest bipartisan proposal of $748bn to be agreed upon.

But it could not be agreed upon on Tuesday night. Nor has there been any news since.

Dow Jones reports Senator. John Cornyn of Texas (R), said on Monday time was growing short. “I would be shocked if we didn’t see something pretty concrete by at least Wednesday. Because we’ve got to vote on this thing by Friday and get out of here.”

Should see the look on his face now.

Commodities

Copper up, iron ore up, gold up – back to normal.

The US dollar is helping with another -0.3% fall, while the Aussie is only up a tad at US$0.7569.

Today

The SPI Overnight closed up 27 points or 0.4%.

Australia’s November jobs numbers are out today.

All December quarter ASX derivatives expire today – SPI futures and options, index options and stock options. Could get bumpy.

Elders ((ELD)) holds its AGM, as droughts turn to floods.

The Australian share market over the past thirty days…