The Overnight Report: If You Can Keep Your Head

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Take Your Pick

Delta? Afghanistan? Chinese economy? Earnings results? Other news? What caused the ASX200 to drop -0.6% yesterday?

Well, despite the weekend’s developments – lockdowns widened and extended across the country — we can dismiss delta. The market has done nothing but rally ever since Sydney first went into lockdown, and after an initial plunge yesterday morning, attempted to bounce after the 11am update noting a new record case count for NSW.

As for Afghanistan, in isolation it would unlikely be market-moving news. Not great for sentiment on a Cold War basis (China and Russia have wasted no time in embracing the Taliban), but too far removed to impact on the Australian economy.

After having tried to bounce from 11am, the ASX200 then fell again on the 11.30am release of Chinese data for July.

Retails sales rose 8.5% year on year when 13.5% was forecast. Online sales rose 4.4% compared to a five-year average of 21%. Industrial production rose 6.4% when 7.8% was forecast, and fixed asset investment rose 10.3% year to date when 11.3% was expected.

The reason cited? Delta. And what’s bad for the Chinese economy is bad for the Australian economy.

Unless you’re a2 Milk ((A2M)). Takeover rumours had that stock jumping 12.1% against the run of play yesterday to top the index by a significant margin.

Elsewhere amongst the index winners on the day, and more specifically, the losers, were the day’s reporting stocks.

On the plus-side, Carsales ((CAR)) gained 3.9%, GPT Group ((GPT)) gained 3.0% and JB Hi-Fi ((JBH)) gained 2.5%. GWA Holdings ((GWA)) rose 9.5%, but is not in the index.

On the opposite side, Bendigo & Adelaide Bank ((BEN)) plunged -9.9%, as did Beach Energy (-9.9%), and Lendlease ((LLC)) fell -7.5%.

The two biggest sector moves on the day were energy (-3.4%) and the banks (-1.3%). For energy we can point to Beach, and to a -4.6% fall for Woodside Petroleum ((WPL)) on talks of a merger with BHP Group’s ((BHP)) petroleum division, and the hit to oil prices from China’s slowdown.

For the banks there was Bendalaide, but also a -7 basis point slump in the Aussie ten-year yield to 1.14% which puts it below the US equivalent. You can pick your reason there too: falling US rates, China, geopolitics, ongoing lockdowns…

Materials fell -1.0%, with the Chinese slowdown a standout there.

While six sectors closed in the green, the only one to provide any real support was consumer staples (+1.1%), with a little help from a2 Milk, as well as a 2.2% gain for Metcash ((MTS)) on completion of its buyback.

So when you break it down I’d pick China, and the day’s earnings results. There are an awful lot more earnings results to come.

Meanwhile, Wall Street dropped initially last night on the Chinese data, but swiftly turned to resume its rally mode. Our futures are up 9 points this morning.

Stick with it

While Afghanistan is dominating the headlines in the US, and Biden is copping harsh criticism for a botched withdrawal (despite the Afghan army, and government, running away), this was not the focus for Wall Street last night. More impactful were the Chinese data.

That has been blamed for an initial -300 point fall in the Dow from the open.

The US ten-year yield fell another -4 basis points to 1.26%, and both the US dollar and the USD gold price rallied, which does have a sniff of geopolitics about it.

In the foreground, however, is delta. On Sunday the US seven-day average case-count hit 130,808, up 64% from two weeks ago. And we think we have problems.

It was not, thus, a good session for travel/leisure stocks in particular last night. Consumer discretionary was one of the weak sectors, not to forget Friday night’s surprising plunge in consumer sentiment, along with the banks (yields) and more so energy and materials (China).

Yet still the Dow and S&P managed to post record highs, again, after spending the bulk of the day rallying back. Positive moves were concentrated in defensives, particularly healthcare but also utilities, and while the Nasdaq closed lower on the day, some of the (defensive) Mega-Techs were also supported.

Records continue to be set despite all the headwinds, including the assumption the Fed will shortly announce it is ready to taper. The general opinion is even if it doesn’t, it damn well should.

If there were to be any taper tantrum, it would not be because no one saw it coming.

Commodities

If there is a reflection of the Chinese slowdown in last night’s commodity price movements, only copper and oil suggest so.

But then prices have been coming off the boil recently anyway, not only because of China’s growing delta problem, but because of Beijing’s attempts at price manipulation.

As noted, what’s bad for China is bad for Australia. Aussie down -0.5% at US$0.7335, but still in the recent range.

Today

The SPI Overnight closed up 9 points.

The US will report its July industrial production and retail sales numbers tonight, and the Fed chair will speak.

The minutes of the August RBA meeting are out today.

Today marks the first “big” day in the local results season, although by no means the biggest.

Today’s releases include those of BHP Group, Brambles ((BXB)), Scentre Group ((SCP)), Santos ((STO)) and Woodside, among many others.

Westpac ((WBC)) will provide a quarterly update.

Don’t be alarmed at the open by the financials sector. Commonwealth Bank ((CBA)) and Insurance Australia Group ((IAG)) both go ex.

A reporting calendar and summaries of analyst responses to the day’s results are available on the FNArena Corporate Results Monitor.

https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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