The Overnight Report: Small World

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

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

World Overnight
SPI Overnight	7360.00	+ 13.00	0.18%
S&P ASX 200	7370.80	+ 47.10	0.64%
S&P500	4613.67	+ 8.29	0.18%
Nasdaq Comp	15595.92	+ 97.53	0.63%
DJIA	35913.84	+ 94.28	0.26%
S&P500 VIX	16.41	+ 0.15	0.92%
US 10-year yield	1.58	+ 0.02	1.16%
USD Index	93.88	– 0.24	– 0.25%
FTSE100	7288.62	+ 51.05	0.71%
DAX30	15806.29	+ 117.52	0.75%

By Greg Peel

Bank of New South Wails

A look across sector moves in the ASX200 yesterday confirms to a great extent that Friday’s tumble was as much an end-of-month profit-taking session as anything else, albeit clouded by the fact bond yields surged on Friday and pulled back yesterday.

But there was one small glitch. All sectors fell on Friday and all sectors rose yesterday except one. A disappointing earnings result from Westpac ((WBC)), including a lower than expected buyback, had that stock down -7.4% to be the worst index performer.

I think the last time Westpac fell by that much in a day, Kerry Packer stepped in.

Some investors switched into Commonwealth Bank ((CBA)) it would appear, as it rose 1.5%. Despite analyst objections, CBA still remains the shortest price favourite since Phar Lap. ANZ Bank ((ANZ)), which has already reported, stood still, while National Bank ((NAB)), yet to report, fell -0.9%. The sector fell -0.5%.

Hence rather than recovering all or most of Friday’s fall, the ASX200 managed only about a half.

Friday’s big surge in bond yields likely involved a bit of a short-covering scramble (via the futures), as yesterday the two-year yield fell back -10 points, the five-year -18 points and the ten-year -17 points, ahead of today’s RBA meeting, implying a bit of a safety trade.

This reversal helped to fuel reversals in the yield-paying sectors yesterday, with telcos up 2.3%, utilities 1.7%, property 0.7% and staples 0.6%. Energy reversed with a 1.2% gain, and even materials managed 0.3% despite falls in base metal, gold and iron ore prices.

Healthcare posted only a small fall on Friday due to a solid response to ResMed’s ((RMD)) earnings, but yesterday jumped 1.5% despite ResMed falling -4.9% on a rethink. It took a 2.0% gain for CSL ((CSL)) to overcome.

Fun fact of the day: you know those ads bombarding the tele featuring beefy blokes bouncing around in bamboo undies? Step One IPO’d yesterday and jumped 80%.

In other news, Australian house prices rose an average 1.5% in October to be up 21.6% year on year – the fastest rate in 32 years. But that 1.5% is the slowest rate of growth in nine months. Tighter lending restrictions, rising fixed mortgage rates and unaffordability suggest the writing’s on the wall.

For the stock market, we could net out Friday and yesterday and consider, ex-Westpac, that November begins today from square. However, Victoria is closed, and the Big Event occurs half an hour before the other one. That Big Event could have a material impact.

Triple Threat

Speaking of central bank meetings, we’ll know by early Thursday morning our time just what the Fed’s tapering plans will be. While it makes sense for Wall Street to go quiet in the run-up, it’s not often the case.

It was hardly explosive, but last night all of the S&P500, Nasdaq and Dow posted new all-time highs.

More remarkable was a 2.7% leap for the Russell 2000 small cap index. The Russell has underperformed the major indices all year throughout the delta surge and is still far from its highs, but loaded with small banks, small energy stocks and a raft of other small cyclical businesses, it’s making a comeback.

Historically, Wall Street stages a run-up to new year after a soggy September, and historically, the Russell outperforms. It’s hard to find any commentator who doesn’t think history will repeat this year (it doesn’t always work) and a lot of that is to do with the belief Fed tapering is happily priced in.

So we can only wait and see.

Meanwhile, fuelling the rally are ongoing earnings results. The stats have 83% of S&P500 companies reporting to date beating estimates by an average 7%. There are 167 companies reporting this week.

In other corporate news, meme stock favourite AMC Entertainment, which after exploding in January thanks to Robinhood’s merry men and women, was expected to come back to earth but didn’t, rose 4.8% after declaring its best month of cinema revenues since the pandemic began. The stock is up 1600% year to date.

A G20 agreement to drop the EU’s planned 56% tariffs on steel and aluminium in response to Trump’s tariff attacks had Harley Davidson up 9%.

Tesla rose 8.5% on no news, other than EV sales expectations apparently increasing from prior forecasts. The stock is up 50% in a month, to US$1208, recalling that last year Tesla did a 5:1 stock split, and before that Elon threatened to take the stock private at US$400.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1793.70	+ 9.40	0.53%
Silver (oz)	24.02	+ 0.13	0.54%
Copper (lb)	4.46	+ 0.00	0.00%
Aluminium (lb)	1.23	– 0.01	– 0.86%
Lead (lb)	1.10	+ 0.00	0.05%
Nickel (lb)	8.85	+ 0.03	0.32%
Zinc (lb)	1.56	+ 0.00	0.26%
West Texas Crude	83.95	+ 0.38	0.45%
Brent Crude	84.54	+ 0.82	0.98%
Iron Ore (t)	103.30	– 3.45	– 3.23%

Iron ore is again threatening to fall through US$100/t. Australia’s Big Miners are not seeing major share price falls because (a) we’ve been here once already and (b) their cost of production is so low compared to smaller players that they still back up the truck to the bank at US$100/t when others become non-commercial.

The dividends won’t be quite so spectacular, but still pretty solid, analysts insist.

Gold has recovered somewhat from Friday’s US dollar-driven fall, with the greenback dropping back a bit last night.

The Aussie is steady at US$0.7520 as traders look forward to their RBA Day lunches.

Today

The SPI Overnight closed up 13 points.

Nothing else on the calendar today funnily enough, other than an earnings report from Exclipx Group ((ECX)), while Brickworks ((BKW)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
A2M	a2 Milk Co	Upgrade to Neutral from Underperform	Credit Suisse
ANZ	ANZ Bank	Upgrade to Neutral from Sell	Citi
CHL	Camplify	Upgrade to Add from Hold	Morgans
COE	Cooper Energy	Downgrade to Accumulate from Buy	Ord Minnett
DEL	Delorean Corp	Upgrade to Speculative Buy from Hold	Morgans
FMG	Fortescue Metals	Upgrade to Hold from Reduce	Morgans
JBH	JB Hi-Fi	Upgrade to Outperform from Neutral	Macquarie
MQG	Macquarie Group	Upgrade to Buy from Neutral	Citi
PBH	PointsBet	Downgrade to Hold from Buy	Ord Minnett
REH	Reece	Upgrade to Neutral from Underperform	Macquarie
		Upgrade to Hold from Reduce	Morgans
		Upgrade to Buy from Lighten	Ord Minnett
RWC	Reliance Worldwide	Upgrade to Buy from Neutral	UBS
WAF	West African Resources	Upgrade to Outperform from Neutral	Macquarie
WOW	Woolworths Group	Downgrade to Sell from Neutral	UBS

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

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