The Overnight Report: Plodding On

This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Consistent Pattern

Yesterday the ASX200 again performed much the same as it has for the past week or so, shooting up from the open, falling off a cliff at 11am, and then recovering somewhat to the close. Yesterday the index was up 39 points at 11am, up 6 at lunchtime, and up 29 at the close.

It seems a case-count over 900 in NSW had its impact, but we also saw some weak economic data.

Construction work done rose 0.8% in the June quarter, compared to forecasts of 2.8%. Private work done on houses rose only 0.1% after having risen 12.3% in the March quarter – at odds with building approvals numbers, and perplexing economists.

I think I can help them there – you can’t get a builder for love nor money. Builders in bushfire/flood impacted areas are booked out for up to three years. Demand has exceeded supply. Approvals are not immediately converting to work.

Among the sectors, there were again signs of rotation out of defensives and into cyclicals. Materials rose 1.4% thanks to the iron ore price, energy rose 0.4% thanks to the oil price, and the banks rose 0.5% because they’re cyclical.

Throw in a 1.5% gain for technology, helped again by the Nasdaq but also earnings results, and these were the only sectors to gain on the day.

Before we get to yet another session of wild results-based swings, we can note that a fall of -1.5% for telcos included Telstra ((TLS)) going ex, a fall of -0.9% for utilities included AGL Energy ((AGL)) going ex, and a fall of -0.4% for industrials included Downer EDI ((DOW)) going ex.

This rather clouded the rotation theme, but property and staples both fell -0.6% as well.

Within the technology sector, WiseTech Global ((WTC)) reported rather well and ticked up 28.4%. Appen ((APX)) followed with 8.7%. Taking bronze on the index leaders board was Hub24 ((HUB)), a financial, which rose 8.5% on analyst responses to Tuesday’s result.

Flight Centre ((FLT)), which will report today, shot up yet another 7.4%, in what can only be a short squeeze.

And now the bad news. Reece ((REH)) fell -10.8% on its report, Nine Entertainment ((NEC)) -9.7% and Adbri ((ABC)) -5.2%.

Outside the index, Seven Group ((SVW)) fell -7.6% and Bravura Solutions ((BVS)) -16.0%.

If you think the last couple of sessions have been wild on the earnings result front, today is the biggest day on result calendar.

Futures traders are nervous. Another modest gain for the S&P500 and the SPI is down -11 points this morning.

We’re going to Jackson

The US ten-year bond yield jumped up 5 basis points last night to 1.34%, somewhat out of the blue. Commentators put this down to Jackson Hole.

Jackson Hole is a ski resort in Wyoming at which each year the Dallas Fed hosts a central bankers’ symposium. It is not, as a certain ABC business editor would have you believe, a Fed meeting. The Fed chair him/herself is not even obliged to attend, and hasn’t in the past, and if attending, has no obligation to speak to monetary policy.

Jerome Powell will not be attending, in person. On Friday night he will zoom in a speech that most believe will not move any monetary mountains. The subject may not even come up.

Or maybe it will. No one knows. Hence it appears investors chose last night to sell a few bonds just in case.

Which was good for the US banks, which led the S&P500 higher. It was another day of the same theme of this week – some rotation into cyclicals but not to the extent of upsetting gains for all three major indices. The initial boost came from the FDA’s official approval of Pfizer.

The unfortunately named Delta Airlines last night joined the list of companies now requiring employees to be double-dosed, or, in Delta’s case, pay a surcharge of US$200 a month to cover the airline’s cost of paying the hospital bills of a sick employee, via the company’s health scheme.

Apparently it costs Delta US$50,000 per patient (no doubt insured).

Vaccinations are equally as important for the FOMC – not their own, but everyone else’s. The race between vaccinations and the delta spread is critical to determining whether stronger than expected US economic growth has indeed now peaked, and may go back the other way.

The US itself is not as much of an issue as the rest of the world. Ongoing supply chain disruptions mean economic disruptions, and most specifically, inflation. Soaring freight charges alone are sending wholesale prices through the roof.

Is this inflation transitory? Well yes, if delta goes away, and there’s no epsilon in the wings. But for how long can transitory be called transitory?

On the assumption we hear nothing from Powell about this conundrum on Friday night, the next actual Fed meeting is on September 22. Another month’s worth of inflation and jobs data will be available by then, after another month of delta.

Meanwhile, last night the S&P and Nasdaq again hit new highs.

Commodities

Base metal prices continue their comeback, with iron ore and oil again joining in.

A jump in US yields is bad for gold.

The Aussie is up another 0.2% at US$0.7277.

Today

The SPI Overnight closed down -11 points.

We’ll see more June quarter segmental GDP data today in the form of private sector capex.

Today eclipses all days before and after in the result season calendar by number of stocks.

Also keep an eye out for those ex-divs – today’s list includes Coles ((COL)), Newcrest Mining ((NCM)) and REA Group ((REA)).

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.

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