The Overnight Report: Bombs And Bombshells

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

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

By Greg Peel

Missed it by that much

In the early days of the August result season, earnings beats were out-pacing misses but misses were more soundly dealt with than beats rewarded. While this is standard fare, it was still quite pronounced.

Moving in to this, the biggest week of the season by far, there have been some very wild swings both up and down –a little more balanced – but with beats still solidly outpacing misses.

That changed yesterday.

The session began with some big ex-dividends, which, while zero-sum, don’t help to set a positive tone. Despite a modestly positive session on Wall Street, our futures were also slightly lower overnight.

Among the bigger ex-divs were Coles ((COL)), JB Hi-Fi ((JBH)), Newcrest Mining ((NCM)) and REA Group ((REA)).

But as the bell rang, there was immediately a queue of stocks lined up to get onto the top five index loser’s board.

Appen ((APX)), down -21.4%, Link Administration ((LNK)) -12.6%, a2 Milk ((A2M)) -11.8%, IOOF Holdings ((IFL)) -10.4% and Platinum Management ((PTM)), down -9.6%.

Blackmores ((BKL)) did its best on the other side of the ledger (+15.4%), but for next best we go all the way down to Whitehaven Coal ((WHC)), which managed 5.0%, then Iluka Resources ((ILU)) 4.0%, Flight Centre 4.0% and Qantas ((QAN)) 3.5%.

The balance of those two tables, plus the ex-divs, provides an idea of why the index closed down -40 points yesterday.

The damage was done before 11am, and then from that point a rebound was attempted. The fact this occurred after NSW announced cases now into the four digits only goes to underscore the market’s lack of real concern about delta directly (company guidance tells a different tale).

Economically there was good news. Following on from Wednesday’s weak June quarter construction data, private sector capex came in at 4.4% growth for the quarter, against expectations of 2.6%, largely driven by non-mining sectors (+6.0%).

From being down -54 points, the index rallied back to be down only -17 points, but couldn’t hold it, finally closing below the 7500 level.

We have now passed the peak in earnings season. Analyst reviews today will tell us whether the result wipe-out we saw yesterday reflected actual significant misses, or just overinflated market expectations.

Meanwhile, Wall Street last night ended its five-day winning streak, and our futures are down -10 points this morning.

Today’s calendar contains neither any major ex-divs, other than perhaps Alumina Ltd ((AWC)), nor big name stocks other than Wesfarmers ((WES)), and is much shorter than yesterday’s list.

Pressuring the Boss

Terrorist attacks are not good for sentiment, but if not on local soil, do not typically alter macro themes. Hence while there was likely some element of safety trade on Wall Street last night, the situation in Afghanistan, however tragic, is not expected to impact on markets in any notable way.

What is more important to Wall Street right now is tapering.

“The US economy has hit the necessary benchmark of ‘substantial’ progress needed to start to slow down its asset purchases,” said Kansas City Fed President Esther George last night.

The Kansas City Fed is hosting this year’s Jackson Hole symposium. (Sorry, yesterday I mistakenly said Dallas Fed.)

“I would be ready to talk about tapering sooner rather than later.

“When you look at the jobs gains that we saw last month, the month before and you look at the level of inflation right now, I think it would suggest that the level of accommodation we’re providing right now is probably not needed in this scenario.”

But what about delta?

“I don’t expect at this point that it will derail the economy,” George said.

In a separate interviews, St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan reiterated calls to begin tapering asset purchases.

None are FOMC members, although George and Bullard are “alternate members”; alternates don't vote very often, but they still participate in the deliberations.

The funny thing about this year’s Jackson Hole is that you can’t find anyone who believes Jerome Powell will actually make a major policy announcement in his speech tonight, and you’re also very hard pressed to find anyone, other than Powell, who does not think maintaining the current level of QE is ridiculous.

Yet the slightest hint of such is enough for Wall Street to throw a tanty.

Powell’s speech is entitled “Macroeconomic Policy in an Uneven Economy”. Gripping stuff I’m sure, but sounding a little more academic than prescient.

One thing we might safely assume is that were Powell to surprise the world and actually announce a tapering timetable tonight, the number of investors believing “it’s about time” will be ready with dry powder in the case of any true tantrum.

Commodities

In times of trouble the usual strategy is to move into the safety of the US dollar and US bonds. The dollar did rise last night, modestly, but the US ten-year yield remained static.

Metals and oil prices nonetheless pulled back after solid gains this week, likely as a precaution.

Iron ore always does its own thing, and is now up around US$20/t from its low.

A slight tick-up in gold does not reflect any major fears.

The Aussie has played to script in falling back -0.5% to US$0.7240.

Today

The SPI Overnight closed down -10 points.

Powell will speak at midnight Sydney time if you’re dead keen.

The US will also so see numbers tonight for PCE inflation – rather the core of the matter – and consumer sentiment.

Here we’ll see a revision of previously reported July retail sales numbers. Since the ABS started issuing these preliminary numbers during the Days of Covid, there’s been no change in sales of any note from initial to final.

A much smaller list of reporting stocks today.

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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