The Overnight Report: Rock And Hard Place

By Greg Peel

Fear & Loathing

At 11am this morning we will find out whether Sydney goes into lockdown for Christmas. On a case-count progression of 30-15-8 over three days the signs are positive, although we’re yet to learn yesterday’s number. The issue nonetheless is also one of just how many other sites in Sydney beyond Avalon the virus is popping up in.

A shout out to those at the Rose of Australia in Erskineville which, a couple of decades ago, was my local.

It is this fear that appears to have driven another sharp sell-off in the market yesterday, although one wonders just how much of it is end of year profit-taking and book-squaring before the holidays. Volumes drop to a minimum next week, so best to get out now.

Only healthcare managed to close in the green yesterday (+0.3%) as investors stopped selling CSL ((CSL)), which may be as a result of the Aussie trending down all day. It’s down -0.9% over 24 hours.

Aside from the US dollar rallying by a similar amount, there may be an element of iron ore impact in the Aussie’s drop. Yesterday Chinese authorities tightened the rules on iron ore futures trading at the Dalian exchange, limiting the size of open positions permitted.

Spot is down around ten dollars this morning, but that’s still less than Monday’s rally.

It was this news, and falls in all base metals on the UK virus news overnight, that had the materials sector down -2.1%, only to be pipped by energy (-2.7%) and backed up by utilities (-2.0%). The new covid strain is countering the vaccine rollout in sentiment terms.

Elsewhere, the sell-off was general and indiscriminate, with the banks dropping -1.1% to lead the pack.

Australian retail sales jumped 7.0% in November according to preliminary ABS data, when 2.0% was forecast. The news did nothing to appease the market given (a) November was like, sooo long ago, (b) sales in Victoria jumped 21% after coming out of lockdown and (c) Sydney may yet go into lockdown.

There’s also the element that with all this Black Friday rubbish retailers go on with now, November is now the new December in terms of the annual Christmas shopping splurge.

There was nothing much of note among individual stock movers yesterday. A 5.0% gain for a2 Milk ((A2M)) bucked the trend, but that’s after its -23% fall the day before.

Network company Service Stream ((SSM)) copped another -5.8% as it waits to see whether it will win the NSW/Vic NBN contracts, while AGL Energy ((AGL)) dropped another -4.6% following Monday’s guidance downgrade.

If anyone downunder was going to get excited over news US Congress finally passed a stimulus bill yesterday, it didn’t show. The news came late anyway, and not even Wall Street could get excited last night.

But did someone simply throw one big sell order at the local market yesterday? The S&P500 closed down -0.2% and our futures are up 45 points this morning.

Oh Those Russians

At the eleventh hour, Congress passed a US$900bn fiscal relief package as well as a lazy US$1.4trn to keep the government running to next September. Wall Street didn’t blink. Since July, investors have been convinced a package would be passed and so it has. Could have been a bit sooner, but we’ll take it.

The relief is countered by the fear of this new strain of covid running rampant in the UK. London is shut down, French trucks are stranded in Dover and there’ll be no brussel sprout deliveries for Christmas. Trade is at a standstill.

A little ironic, given Brexit trade talks are also at a standstill.

New strain notwithstanding, things aren’t getting any better in the US with regard the old one. Biden has this morning warned they will get a lot worse yet before they get better. He also launched a scathing attack on Trump in relation to last week’s massive cyber attack.

It’s been a week, but it is still unclear just how much information has been stolen from over 50 US corporations and government agencies in an attack the Secretary of State is blaming on the Russians. Trump played it down of course – probably just a virus – but Biden did not hold back in criticising the president (yes, he still is, for another month yet) for ignoring calls to beef up cybersecurity.

We recall Trump sacked his head of cybersecurity recently for finding nothing untoward about the election result.

Consumer confidence is unsurprisingly on a downward trajectory in the US ahead of Christmas, with the Conference Board’s latest survey taking the index down to 88.6 from 92.9 a month ago, recalling that 100 is the line between optimism and pessimism.

With all that’s going on, and with US markets having run hard since March to post extraordinary gains, Wall Street is not sure which way to look right now. The stay-at-home theme was back in evidence last night with the Dow down -0.7% and the Nasdaq up 0.5%, but the S&P500 wobbled around the flatline for most of the session.

There is no obvious sign of what might now spark some movement in either direction, and there’s only one more session before a half-day, half-hearted session on Christmas Eve.

Santa’s got his feet up this year.

Commodities

More of the same, regarding virus-related selling in base metals and oil, with iron ore this time doing an about-face.

It looks like a buy-the-fact reaction in the US dollar (up 0.7%) – the fact being another (net) US$2.3trn of government debt. That has weighed on gold.

And on the Aussie, which is down -0.9% at US$0.7522.

Today

The SPI Overnight closed up 45 points or 0.7%.

The ABS will follow up yesterday’s retail sales numbers with preliminary data on November trade today.

The US will see November personal income & spending and PCE inflation.

The Australian share market over the past thirty days…