Daily Market Reports | Oct 01 2021
| World Overnight | |||
| SPI Overnight | 7179.00 | – 114.00 | – 1.56% |
| S&P ASX 200 | 7332.20 | + 135.50 | 1.88% |
| S&P500 | 4307.54 | – 51.92 | – 1.19% |
| Nasdaq Comp | 14448.58 | – 63.86 | – 0.44% |
| DJIA | 33843.92 | – 546.80 | – 1.59% |
| S&P500 VIX | 23.14 | + 0.58 | 2.57% |
| US 10-year yield | 1.53 | – 0.01 | – 0.78% |
| USD Index | 94.25 | – 0.12 | – 0.13% |
| FTSE100 | 7086.42 | – 21.74 | – 0.31% |
| DAX30 | 15260.69 | – 104.58 | – 0.68% |
By Grep Peel
Nice Mannequins
One can never read too much into an end-of-quarter session from a fundamental perspective and yesterday was no exception. We need only note that the ASX200 closed up 135 points yesterday and this morning the futures closed down -114.
Admittedly, Wall Street went the other way last night so that does somewhat distort the picture, but I’d wager October would not have begun with a kick-start today either way.
Up to yesterday the index was down -4.5% for the month and -1.4% for the quarter, providing reason enough for funds to window-dress their returns for investors and then have another three months to worry about it.
As of yesterday’s close the index is up 10.0% in 2021, but was up 14.2% at the August high.
Buying yesterday was concentrated in the big cap sectors of banks, materials, energy, healthcare and staples, all rising 2% or more, while the smaller sectors also closed in the green but by lesser amounts. Defensives such as telcos (+0.7%) and utilities (+0.3%) had not been as hard hit on the way down, while technology (+0.6%) faced a weak Nasdaq.
There was some fundamental support on the day – higher iron ore price, lower ten-year bond yield (by one point), a rebound in building approvals in August, and an explosive 14.5% jump for Orica after brokers positively assessed Wednesday’s trading update.
But ignored was China’s official September manufacturing PMI falling into to contraction territory at 49.6 from 50.1 in August.
Also being ignored is the startling jump in Victorian case numbers, along with a new outbreak in Queensland which threatens, heaven forbid, to postpone the NRL grand final.
But no point in trying to pull it apart any further – we start October with Wall Street looking nervous, and base metals hammered overnight, with iron ore and gold posting gains.
There’s your -5%
On a flurry of late selling, the S&P500 closed down at the intraday low of Evergrande Monday last week, and as such finally marked a -5% pullback from the high for the first time this year.
The index fell -4.8% for the month, breaking a seven-month winning streak and marking the worst month since March 2020. So why no window-dressing on Wall Street last night?
Despite the weak month, the S&P closed flat for the quarter and, more importantly, up 15% year to date. With all that’s going on at present, investors decided to play it safe and lock in year-to-date profits ahead of scary October.
Congress managed to pass a bill last night to extend stop-gap government funding through to early December, avoiding a shutdown from midnight tonight (Washington time). Wall Street was not at all excited, for two reasons.
One is that Congress inevitably reaches agreement at the eleventh hour on such budget matters. So no surprises, but the other reason is the still looming issue of the debt ceiling, and of the Democrats’ infrastructure bill.
It is assumed the debt ceiling will be similarly resolved at the eleventh hour later this month but there is a yawning gap with regard infrastructure, and it’s not just a partisan matter. Biden’s bill is for US$3.5trn in spending over several years but renegade Democrat senator Joe Manchin said last night he will not pass anything in excess of US$1.5trn, and he has the support of a second senator.
The Democrats need their own 100% majority to pass anything in the Senate. But there are plenty of levers that can be pulled, as they say, so the game’s not over yet. More concerning is the matter of inflation.
Tonight brings August PCE inflation numbers. The Fed watches the core rate but this omits the more than doubling of the domestic natural gas price in 2021, heading into the winter.
On a side note, Beijing has ordered state-owned enterprises to start hoovering up all energy supplies they can, at any price, ahead of winter. We know where they can purchase some thermal coal if they want it.
In the US, gas is only one element in the supply-side shortage saga. Hardest hit are retailers, which one by one have been reporting weak earnings results over the past couple of weeks and one by one analysts have been downgrading various names to Sell, based entirely on the supply-side issue.
There is nothing wrong with the demand-side, retailers note. Major retailers downgraded include Nike (Dow) and, last night, department chain Kohl’s, which fell -12%. Bed, Bath & Beyond reported earnings last night and dropped -22%, reinforcing the issue.
Which raises the question of whether September quarter earnings forecasts are simply too high. The big names begin reporting in a couple of weeks. Last night the US June quarter GDP result was revised up to 6.7% growth, and clearly the September quarter has seen a slowing.
With inflation elevated, Wall Street is calling that stagflation, albeit the pace of economic growth is only slowing from lofty heights, not contracting, which would be a true stagflationary scenario.
Commodities
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1757.20 | + 31.10 | 1.80% |
| Silver (oz) | 22.16 | + 0.64 | 2.97% |
| Copper (lb) | 4.06 | – 0.11 | – 2.58% |
| Aluminium (lb) | 1.29 | – 0.03 | – 1.91% |
| Lead (lb) | 0.95 | – 0.03 | – 3.34% |
| Nickel (lb) | 8.19 | – 0.15 | – 1.76% |
| Zinc (lb) | 1.36 | – 0.03 | – 2.29% |
| West Texas Crude | 75.03 | + 0.20 | 0.27% |
| Brent Crude | 78.52 | + 0.02 | 0.03% |
| Iron Ore (t) | 118.25 | + 3.45 | 3.01% |
China’s PMI contraction did little to help base metals.
But the iron ore rebound continues.
The US dollar dipped last night, and the US ten-year yield fell one basis point to 1.53%, which was enough to spark what smacks as a short-covering rally in gold.
The Aussie’s tumble into the 71s the night before was brief, with the rate back up 0.7% last night to US$0.7229.
Today
The SPI Overnight closed down -114 points or -1.6%.
The rest of the world will report September manufacturing PMIs today.
Australia will see house prices and housing finance.
The US will see PCE inflation and consumer sentiment.
Note that summer time begins on Sunday in relevant states, thus come Tuesday morning the NYSE will close at 7am Sydney time.
Note also that while it’s a public holiday on Monday in NSW, it is not nationally, hence the ASX is open as usual.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| CKF | Collins Foods | Upgrade to Outperform from Neutral | Macquarie |
| EVN | Evolution Mining | Upgrade to Equal-weight from Underweight | Morgan Stanley |
| IAG | Insurance Australia | Upgrade to Outperform from Neutral | Macquarie |
| JBH | JB Hi-Fi | Upgrade to Buy from Neutral | Citi |
| ORI | Orica | Upgrade to Add from Hold | Morgans |
| SIQ | Smartgroup Corp | Downgrade to Neutral from Outperform | Credit Suisse |
| Downgrade to Hold from Add | Morgans | ||
| Downgrade to Accumulate from Buy | Ord Minnett | ||
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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