The Overnight Report: Under Strain

By Greg Peel

T’was just days before Christmas

The bad news is the Northern Beaches cluster has now popped up in other parts of Sydney. The good news that after 30 new cases were reported on Saturday, only 15 were reported on Sunday. That’s not the trajectory of exponential spread.

Having been hit on Friday, yesterday travel and energy stocks and others impacted by the potential for a Sydney-wide lockdown for Christmas were sold down again. It was a choppy session, with traders unsure where to run. Mid-session the ASX200 was down -40 points.

But when “15” hit the headlines there was some relief, and more relief when it was announced a stimulus agreement had been reached in the US. The index almost closed flat.

What the local market was not paying much attention to yesterday, caught in its own nervous world, was news the the sudden new spike in cases in the UK, following an easing of restrictions, is due to a new and more contagious strain. This had Wall Street running scared last night.

And in the meantime, Australian states that were a little more empathetic initially with regard their borders have moved to slam them shut completely.

Today’s case-count number will be critical, but already the futures are down -61 points this morning. And that’s despite an 8% jump in the iron ore price overnight.

Materials (+1.4%) was the only sector to meaningfully close in the green yesterday, with staples the only other positive sector (+0.1%). Fortescue Metals ((FMG)) topped the index leaders’ board with a 4.9%, followed by iron ore peers Mineral Resources ((MIN)) with 4.7% and Deterra Royalties ((DRR)) with 4.2%.

Fourth and fifth spots were taken by gold miners.

Having played defensive on Friday, utilities was the worst performer with a -2.2% fall, but that’s because AGL Energy ((AGL)) dominates the sector by market cap. AGL fell -5.1% after downgrading guidance due to a fire at its Liddell power station.

Healthcare had the biggest impact in falling -0.8%, with signs not good for its offshore earning heavyweights as the virus continues to run amok. Energy fell -1.1% and industrials (roads and airports) -0.6%. Other sector moves were more negligible, other than volatile technology (-1.0%).

Individual stocks moves to the downside were led by Virgin Money UK ((VUK)), which fell -6.7% because it has UK in its name, while WiseTech Global ((WTC)) has come under yet another short-seller attack and fell -6.6%.

Outside of the index, City Chic Collective ((CCX)) jumped 11.0% after announcing the acquisition of a plus-size brand in the UK. Pilbara Minerals ((PLS)) gained 8.0% as lithium begins to come back into fashion.

It will be another nervous session today, and no doubt there will be much disappointment that Sydney Christmas parties and lunches are off.

Betwixt and Between

I had pondered whether Wall Street would pop yet again on long-awaited news of a stimulus agreement, or would sell-the-fact be the response given all-time highs had been hit on the assumption a deal would be forthcoming?

It’s hard to tell.

The Dow futures were down as much as -800 points last night on virus concerns, but when Wall Street opened that manifested only into a -400 point drop before a steady graft back through the session.

It would be easy to suggest US markets fell on the virus news but this was countered by the stimulus news, but there were other factors.

The only S&P500 sector to provide any upside influence last night was financials, with a 1.3% gain. That’s simply because the Fed has permitted the restart of share buybacks now the banks have passed their stress tests.

The Dow’s end result is distorted by a positive earnings report from Nike, which sent the stock up by as much as 8% before it closed up 5%.

We thus saw the rather unusual situation of the S&P500 faring worst among the three major indices, when typically it splits the difference between the Dow and the Nasdaq. The implications, re stimulus, are not clear.

That stimulus deal may have been agreed upon by the House and Senate leaders on each side, but it still has to be passed by Congress by midnight (4pm Sydney) or the government shuts down. There is still a possibility some grandstanding senator will try to hold up proceedings to push for an amendment or two, which will force Congress to pass an interim funding bill.

Then it’s back to negotiations.

Stimulus is one thing, but vaccines are another. Last night the Moderna vaccine began rolling out.

The UK’s second wave had been successfully turned around by the locking down of London and other parts of the UK, but as soon as Boris eased off on the reins, case numbers shot right back up again. It was initially assumed this was due to young idiots immediately going out and partying hard.

But then this new strain was discovered, providing the explanation. It is more contagious, but apparently not more virulent, which presumably means you’re more likely to catch but not more likely to die. Eli Lilly and Regeneron, makers of the antibody cocktails used successfully to treat the virus, believe a new strain is not an issue for these treatments.

However it is not yet known whether the vaccines will also be equally effective.

London is back in lockdown for Christmas. Europe has stopped all planes from the UK, including freight, leading to fears there may be a Christmas shortage of fruit & veg.

The New Year is not now shaping up as new after all.

Commodities

Metal and oil markets were equally spooked by the virus news, but I don’t know what they’re on in Singapore. Iron ore up US$12.75?

Both the dollar and the Aussie are little changed, with the latter at US$0.7589.

Today

The SPI Overnight closed down -61 points or -0.9%.

The ABS will deliver preliminary numbers on November retail sales today, recalling that we, too, are now Black Friday mad.

The US will see a consumer confidence reading and again revise September quarter GDP.

Orica ((ORI)) holds its AGM today and Metcash ((MTS)) goes ex.

The Australian share market over the past thirty days…