Overnight: Value Play

By Greg Peel

Waiting Game

The ASX200 fell from the open yesterday but soon recovered to be up around 20 points by lunchtime, before activity stalled. It was an understandably lacklustre session ahead of the election, and ahead of Victoria’s holiday today.

If anything the focus was more domestic than international. The better performing sectors on the day were utilities (+2.0%), property (+1.8%), telcos (+0.9%) and staples (+0.7%). Very old-fashioned defensive, very dividend-focused, and reflective of something more important to Australia right now ahead of tonight.

It is presumed a given that the RBA will cut the cash rate to 0.10% from 0.25%. It is also presumed the RBA will announce a QE program (buying longer-dated government bonds), but the question is to what extent? Place your bets, but Westpac economists, for one, believe the program should be open-ended.

An easing of monetary policy is a positive for dividend stocks on the comparison of dividend versus fixed income yield.

Other sectors closing in the green yesterday did so by modest amounts. Energy (-1.1%) was the worst performer, still following oil prices around (they were up last night), while healthcare (-0.2%) was the only other sector in the red.

The day’s economic news was interesting. Forget zero immigration, forget high unemployment, building approvals rose 15.4% in September when economists had forecast 1.5%, reflecting the easing of lockdowns. On the money side of the equation, total housing finance grew by 5.9% with investors (5.2%) beginning to catch back up to owner-occupiers (6.0%).

ANZ Bank’s series showed job ads up 9.4% in September, again reflecting the easing of restrictions, but they’re still down -13.5% from February.

Given the building data, it was a good day for CSR ((CSR)) to report a solid earnings result, leading to a 5.7% gain. Boral ((BLD)) was swept along in the wake with 5.5%. Cromwell Property ((CMW)) led a good day for the REITs with 5.1%.

Individual best performance on the day was reserved for AMP ((AMP)), again, with the private equity bidder suggesting a possible price of $1.85. It’s a nice bounce from $1.20 in March, but the mutual fund went public at over $16.00 in 1998.

Investors are keeping their powder dry, pushing AMP up another 9.8% but only to $1.68 while Ares has a look under the bonnet.

Westpac ((WBC)) reported what looked like a shocker yesterday, but well anticipated, and worth only a -0.6% drop. The result made ANZ Bank ((ANZ)) look better, so having risen last week on its own result release, ANZ Bank rose another 2.4% yesterday.

The telco sector got a little boost after Optus announced it was acquiring Amaysim’s ((AYS)) mobile business. Not in the index, Amaysim jumped 11.2%.

It will most likely be another quiet session today ahead of the election, and the fact there will be an afternoon distraction. But given the RBA announcement is at 2.30pm, with the other thing at 3pm, there could still be some champagne-fuelled action later in the day.

With Wall Street closing up 0.9% this morning (S&P), our futures are up only 5 points.

Blue Swell

Higher corporate and capital gains taxes are bad for growth stocks, particularly Big Tech and stay-at-home winners that have been up anywhere from fifty to hundreds of percent this year.

A sizeable stimulus package is good for cyclicals and “value” stocks, which remain on average down -35% this year.

Given the Dow, laden with traditional industrials, closed up 1.6% to the Nasdaq’s 0.4% last night, while the FAAMG and Zoom were flat to slightly weak and Twitter fell another -5%, suggests Wall Street is factoring in a Biden victory.

Most polls show Biden in front. Given the latest NBC/WSJ poll has Biden 10% in front, one wonders what spin has to be put on any poll showing Trump in front.

The Democrats are expected to sweep the House, so assuming a Biden victory, the swing factor remains the Senate. That, at this stage, still looks like a coin toss. If the Democrats take all three houses, Wall Street will be relieved in terms of reduced uncertainty, even the Republicans within. If the only house to flip is the White House, then we’re back where we were in terms of a stimulus stand-off and general policy inertia.

Wall Street may not be relieved, even if it does mean no tax hikes.

Wall Street will not be at all relieved if the result looks like being disputed. The Senate may come down to just one seat. It’ll be hanging chads all over again.

Case-counts rose in 42 states yesterday. Trump has hinted at his rallies he may fire Dr Fauci if he wins. That’ll fix it.

Commodities

OPEC-Plus had yet to decide whether to lift their production curtailments come January or keep them in place, dependent on global oil demand. With re-lockdowns rolling across Europe, not to mention surging case-counts elsewhere, the assumption is OPEC will stay the course.

Hence the jump in oil prices.

With both the US dollar and ten-year bond yield relatively steady, gold is looking a bit more like a safe haven amidst uncertainty.

The Aussie is 0.4% higher at US$0.7055, suggesting some squaring up ahead of today’s RBA decision.

Today

The SPI Overnight closed up 5 points.

The RBA meeting is the only event on the local calendar today – no data, no AGMs, results or updates – because of that other thing.

The Australian share market over the past thirty days…