The Overnight Report: Surprise From Abroad

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	7419.00	+ 20.00	0.27%
S&P ASX 200	7428.00	+ 35.30	0.48%
S&P500	4680.06	+ 19.49	0.42%
Nasdaq Comp	15940.31	+ 128.72	0.81%
DJIA	36124.23	– 33.35	– 0.09%
S&P500 VIX	15.44	+ 0.34	2.25%
US 10-year yield	1.52	– 0.06	– 3.48%
USD Index	94.33	+ 0.45	0.48%
FTSE100	7279.91	+ 31.02	0.43%
DAX30	16029.65	+ 69.67	0.44%

By Greg Peel

Soggy Crust

The local market was not quite sure what to do yesterday with the outcome of the Fed meeting overnight, which was as expected on the tapering side but still leaning to dovish on the rate hike side. The ASX200 chopped around in a 36 point range and was up only 8 points at lunchtime.

There was also the issue of the big jump up on Wednesday which lacked foundation.

But there must have been something in the claret as the afternoon brought in buyers, including a 4pm pop on market-on-close orders.

The buying on Wednesday included a recovery for financials after Westpac ((WBC)) led the sector down earlier in the week, and yesterday it was financials driving the net gains (+1.0%). It might be different today, as US banks were all hit last night. More on that below.

Worst performing sector was energy (-2.0%) following an overnight drop in oil prices as traders squared up ahead of last night’s OPEC-Plus meeting. The cartel decided not to lift production quotas, but an immediate relief rally soon gave way to weaker prices later in the session last night.

Technology scored the best percentage gain (+1.1%) following the approval of Afterpay’s ((APT)) takeover by Square, to be settled early next year. Afterpay rose 2.3% but Square reported earnings after the bell on Wall Street last night and is currently down -3%, noting Afterpay follows Square on the scrip offer element of the takeover.

Materials managed to close flat and the iron ore price is unchanged overnight. Analysts are pointing at Singapore's public holiday.

Lithium stocks took a breather yesterday but uranium stocks stepped up, despite last week’s dip in the uranium price, after Paladin Energy ((PDN)) talked up the reopening of its Namibian mine. It jumped 12.8% and floated all boats.

Utilities followed down energy (-0.4%) but the only other sector not to close in the green was consumer discretionary (-0.5%), thanks to an -18.4% plunge for Domino’s Pizza ((DMP)) after AGM warnings of rising cost pressures and disappointing sales in Japan.

Inghams Group ((ING)), which is a consumer staple, fell -5.0% citing similar cost pressures with regard feed. It’s been a tough several years for the chooks, with the three-year drought leading to surging feed costs, followed by 2020 lockdowns killing off restaurant sales, and now delta driving up feed costs again.

Perhaps ironically, Nufarm ((NUF)) rose 5.8% to be the best index performer on the day.

A mixed session on Wall Street last night had the S&P500 closing up 0.3% so our futures are dutifully up 0.3% as well, but as I suggested, watch out for the banks today.

Blimey

All the US banks fell last night, including a -2.4% drop for Goldman Sachs, which is the highest-priced stock in the Dow and hence most influential (since Boeing ran into turbulence). Dow co-member JPMorgan fell -1.3%, and together the two led to Dow underperformance in an otherwise positive session on Wall Street.

The banks fell because the US ten-year bond yield fell -6 basis points to 1.52%, having jumped up by the same amount the night before on Fed policy.

Falls in bond yields were more pronounced in Europe and particularly the UK, all because the Bank of England did not hike its cash rate as was widely anticipated. Not only did it not hike from 0.10%, it decided not to taper its QE program, which seemed at odds with the rhetoric coming out of Threadneedle Street in the lead-up.

The problem is the BoE is having to juggle rising inflation with a slowing economy and a “high degree of uncertainty” with regard the labour market. The BoE is not alone on that front, as labour supply shortages meet persistently high underlying unemployment rates across major economies.

The BoE is still expected to hike before year end, but for now, it’s a wait and see approach.

That fall in yields was also fodder for growth stocks, leading the Nasdaq to outperformance last night.

Otherwise, earnings results continue to dominate and while mostly positive, there are still some shockers being posted every day.

This time last year Moderna was the world’s hero (ticker code MRNA by the way) but last night the stock fell -17% after reporting it had not screwed the world for as much vaccine revenue as hoped. Bovvered? From January 2020 to the beginning of September 2021, Moderna had rallied 1820%.

Peloton was a 2020 lockdown winner but its star faded in 2021 as lockdowns (in the US at least) were lifted, and had already lost around half its peak value before last night falling -27% on its result.

On the flipside, chip-maker Qualcomm posted a sign-of-the-times result in jumping 13% on its numbers while it only took one broker’s target upgrade to lift chip sector champion Nvidia another 12% on the day. That stock’s up around 50% in a month.

In economic news, government data showed US unit labour costs rose 8.3% in the September quarter. Productivity plunged over the period as companies struggled to keep factories going given supply shortages.

But October data, released on Wednesday night, showed the hospitality sector was mostly responsible for 571,000 new private sector jobs being added in the month, noting that sector has been among the hardest hit in the Days of Covid. Economists had forecast 400,000.

It bodes well for tonight’s more influential non-farm payrolls result, although rarely do the two releases correlate.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1791.60	+ 19.10	1.08%
Silver (oz)	23.74	+ 0.22	0.94%
Copper (lb)	4.43	– 0.03	– 0.61%
Aluminium (lb)	1.17	– 0.03	– 2.47%
Lead (lb)	1.08	– 0.02	– 1.39%
Nickel (lb)	8.86	+ 0.05	0.53%
Zinc (lb)	1.50	– 0.02	– 1.47%
West Texas Crude	79.22	– 0.84	– 1.05%
Brent Crude	80.79	– 0.53	– 0.65%
Iron Ore (t)	99.70	0.00	0.00%

The pending production decision from OPEC-Plus had oil traders squaring up on Wednesday night despite expectations the cartel would not increase quotas due to members being unable to meet even current quotas.

Confirmation had prices popping up again initially but this soon faded. There is also an expectation oil prices at these levels are leading more marginal US shale producers to once again ramp up after a period of dormancy.

The BoE’s shock decision had the pound down -1.4% against the dollar, sending the dollar index up 0.5%, and thus the Aussie down -0.7% to US$0.7400.

Today

The SPI Overnight closed up 20 points or 0.3%.

US jobs tonight.

Today the RBA will release a quarterly Statement on Monetary Policy.

News Corp ((NWS)) and REA Group ((REA)) post quarterly earnings.

Qantas ((QAN)) holds its AGM.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
IAG	Insurance Australia	Upgrade to Buy from Accumulate	Ord Minnett
PAR	Paradigm Biopharmaceuticals	Downgrade to Reduce from Hold	Morgans
WBC	Westpac Banking	Downgrade to Neutral from Outperform	Credit Suisse
		Downgrade to Equal-weight from Overweight	Morgan Stanley

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

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