The Overnight Report: If You Can’t Beat ‘Em…

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

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

World Overnight
SPI Overnight	7350.00	+ 37.00	0.51%
S&P ASX 200	7327.10	– 51.30	– 0.70%
S&P500	4709.85	+ 75.76	1.63%
Nasdaq Comp	15565.58	+ 327.94	2.15%
DJIA	35927.43	+ 383.25	1.08%
S&P500 VIX	19.29	– 2.60	– 11.88%
US 10-year yield	1.46	+ 0.03	1.74%
USD Index	96.40	– 0.17	– 0.18%
FTSE100	7170.75	– 47.89	– 0.66%
DAX30	15476.35	+ 22.79	0.15%

By Greg Peel

We’re all on our own, together

We were all in it together in 2020 and as we head into 2022, it’s everyone for themselves. “Take responsibility for yourself,” said the NSW premier, as the case-count rises at a faster rate than ever before. On this week’s pace, NSW numbers will pass the delta peak possibly by today.

And it’s masks off in NSW.

No one has the stomach for another lockdown, either economically or psychologically, so we just have to grin and bear it. If omicron does indeed produce milder symptoms, then case numbers are no longer the main issue, but rather hospitalisations. However, this still won’t help an economy suffering from labour shortages.

As Woolworths ((WOW)) underscored on Tuesday, if staff are constantly having to be tested, or at home sick with covid, the wheels fall off.

The medicos are warning of 25,000 cases per day in NSW by January, notwithstanding other states.

This was likely on the minds of investors yesterday who in a very choppy session ultimately sold down the ASX200 in fairly uniform fashion across sectors. Only utilities (+0.3%) closed in the green.

The lead was already negative, as Wall Street squared up ahead of this morning’s Fed statement release in the wake of a record high wholesale inflation print.

Then there was CSL’s massive capital raising, which as I noted yesterday will force fund managers to sell other holdings to provide the funds to take up CSL’s placement. The healthcare sector fell -0.6%, but fund managers may not have only shuffled holdings in healthcare but spread portfolio reallocation across the index, given CSL’s size.

Technology was the worst performer (-2.6%) thanks to weakness in the Nasdaq and Block overnight.

Property had been the star of the last few sessions so it fell -1.6%.

The banks held up well (-0.2%) so the love had to be otherwise spread about, with telcos down -1.2%, discretionary -1.0% and materials -0.9%.

The index hit its low of the day after China released its November data.

Retail sales rose 3.9% year on year when 4.6% was forecast, while industrial production rose 3.8% when 3.6% was expected. The former is more significant for retail products exported to China, such as baby formula and vitamins/potions, while the latter is more telling for the export of Australian rocks, as is fixed asset investment, which rose 5.2% year to date when 5.4% was forecast.

After a brief afternoon bounce, the index closed back on its low.

We could say yesterday’s falls were all academic as Wall Street has shot up this morning post Fed, with the S&P up 1.6%, but our futures are only up 0.5% points this morning, which still leaves us in deficit.

Double Trouble

For most of 2021 Wall Street has been at odds with the Fed, calling out for QE tapering as the economy rebounding strongly and pricing in the first rate hike in 2022 when Powell stuck stoically to a 2024 prediction.

As inflation rose dramatically, the market priced in as many as three rate hikes next year and did not blink when at the last meeting the Fed announced a taper. Between meetings, Powell suddenly pivoted, buried the word “transitory", and proposed a speeding up of the taper.

Wall Street assumed a doubling in pace.

This morning the Fed announced tapering would be doubled in pace, which implies an end to QE in March. The FOMC dot-plots suggested a consensus of three rate hikes next year.

Followed by another three in 2023 and two more in 2024, to take the rate to the 2.00-2.25% range, currently considered the “neutral” rate.

The Fed has caught up.

It took a while for Wall Street to figure out the implications. A shift in policy in the face of persistently high inflation was expected, but this response was actually more hawkish than assumed. The Dow went up initially, then straight down into the negative, until someone said hang on, isn’t this what we’ve been wanting?

Buy the fact.

Stock indices took off in the last hour, led by the Nasdaq, while responses elsewhere were muted. The US ten-year yield rose 3 points to 1.46% and the US dollar index fell -0.2%.

Data earlier in the day showed retail sales rose only 0.3% in November – typically the the biggest month of the year given all the Black Friday hullaballoo – when economists had forecast 0.8%.

Economists clearly misread the entrails on this one. Given clear warnings from retailers to get in early with their Christmas shopping or risk missing out, given supply shortages and delays, typical November sales were pulled forward into October, as Wall Street was expecting. So no response there.

It is normal to see a burst of volatility in the brief period before the Fed release and the closing bell, as the headless chooks and computers run amok, so we’ll see tonight what the smart money really thinks about it all.

Oh and by the way, Congress has lifted the debt ceiling. The Fed’s out of the way, Christmas is approaching, and Santa may just now be ready to fire up the sleigh.

Hope he’s had a booster.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1778.30	+ 6.40	0.36%
Silver (oz)	22.04	+ 0.10	0.46%
Copper (lb)	4.20	– 0.09	– 1.98%
Aluminium (lb)	1.18	– 0.02	– 1.43%
Lead (lb)	1.06	+ 0.02	1.46%
Nickel (lb)	8.77	– 0.17	– 1.93%
Zinc (lb)	1.51	– 0.00	– 0.11%
West Texas Crude	71.42	+ 0.92	1.30%
Brent Crude	74.36	+ 0.86	1.17%
Iron Ore (t)	109.70	+ 1.45	1.34%

LME metals traders were underwhelmed by the Chinese data. The LME closes just as the Fed statement is released.

Couldn’t tell you why the Aussie has leapt up 0.9% to US$0.7167, other than they all got too short again.

Today

The SPI Overnight closed up 37 points or 0.5%.

The Bank of England and ECB both have their turn tonight.

New Zealand’s September quarter GDP result is out this morning, as the December quarter comes to a close.

The US will see industrial production numbers.

Locally it's November jobs.

Today is also expiry day for December quarter ASX derivatives (futures and options). It could get interesting if we push up toward 7400, as that is likely a crowded strike price. Expect some non-fundamental volatility.

ANZ Bank ((ANZ)) holds its AGM today, as do Elders ((ELD)) and Orica ((ORI)).

Qantas Airways ((QAN)) provides an update.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AWC	Alumina Ltd	Upgrade to Accumulate from Hold	Ord Minnett
CGC	Costa Group	Upgrade to Buy from Neutral	Citi
CSL	CSL	Upgrade to Buy from Neutral	Citi
IAG	Insurance Australia Group	Downgrade to Sell from Neutral	UBS
REG	Regis Healthcare	Downgrade to Hold from Add	Morgans
SGP	Stockland	Downgrade to Underperform from Neutral	Macquarie
STO	Santos	Upgrade to Outperform from Neutral	Macquarie

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

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