The Overnight Report: Nothing To Worry About

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World Overnight
SPI Overnight	7350.00	+ 1.00	0.01%
S&P ASX 200	7355.00	+ 62.80	0.86%
S&P500	4649.23	+ 81.21	1.78%
Nasdaq Comp	15341.09	+ 360.14	2.40%
DJIA	35492.70	+ 560.54	1.60%
S&P500 VIX	21.01	– 1.86	– 8.13%
US 10-year yield	1.49	+ 0.07	4.79%
USD Index	96.48	– 0.07	– 0.07%
FTSE100	7297.41	+ 99.38	1.38%
DAX30	15447.44	+ 207.77	1.36%

By Greg Peel

Healthy Response

It’s not every day the ASX200 rallies 60 points when the Dow falls -400 but that was the case yesterday after an uncertain start. The index fell all of -5 points from the open before picking up and rallying from late morning.

The minutes of the December RBA meeting provided a fillip, underscoring the board’s intention that there will be no rate rise until there is sufficient evidence of wages growth, which at the moment there isn’t. Until wages growth kicks in, any increase in inflation, which has been mild so far on a global comparison, will not trigger a rate rise.

As for QE, the RBA has until February to make a decision, and will know more about the omicron impact by that time. The board has three options it could choose: speed up tapering and review in May, speed up tapering and end in May, or just end in February.

The RBA’s lack of panic is a calming influence when the Fed has suddenly turned hawkish, bearing in mind the US is suffering rampant inflation and record wages growth.

The real star of the day was healthcare, and particularly CSL ((CSL)). With the dust now settled on the company’s capital raising and fund manager redistribution, CSL rallied 4.9% yesterday to contribute around 20 index points.

The healthcare sector rose a standout 3.9%, aided by rallies for covid test providers Sonic Healthcare ((SHL)) and Healius ((HLS)) as Australians queue up for hours to be tested before inflicting omicron on Granma on Saturday.

Omicron is also having an effect on travel plans, with holiday spots hit by another year of summer cancellations. The fear is not so much of catching omicron, it’s of being trapped in a snap lockdown.

Energy was the next best performer (+1.6%) after plunging on Monday, as oil prices swiftly rebounded in Asian trade. Materials benefitted from a strong rally in iron ore (+0.9%) as Beijing ensures support for the endangered Chinese property sector.

The bond market response to the RBA’s no rate rise assurance was perversely to steepen the yield curve in a show of faith for the Australian economy, with the ten-year rising 6 points. Financials gained 0.4%.

Defensives largely took a back seat, with staples and telcos up 0.2% and property the only sector to close in the red (-0.4%). Technology was supported (+0.9%) by a 5.1% bounce-back for Zip Co ((Z1P)) following the earlier US regulatory scare.

Again we saw evidence yesterday of Australia looking like a good investment option on a global basis, particularly with the exchange rate currently favourable for foreigners. Wall Street tumbled on omicron and the potential death of Build Back Better, and we shrugged.

Mind you, there’s not that many of us around to do the shrugging, with volumes now on the holiday slide.

Wall Street came roaring back last night, and again we have shrugged. Our futures are this morning up one point.

Not Dead Yet

24 hours is a long time on Wall Street. On Monday night investors were piling out of cyclicals and growth and hanging grimly on to defensives, as omicron rages and Biden’s fiscal stimulus plans appeared to be kyboshed, and last night they piled into cyclicals and growth and dumped defensives.

What changed?

Firstly Biden assured that despite omicron’s surge, there will be no return to March 2020-style lockdowns. Instead he urged Americans to get their boosters, and for God sake get vaccinated to begin with (only just over 60% of Americans double-dosed), and announced plans to rollout 500m at-home test kits across the country.

The Administration has also declared its intention to take Build Back Better bill to the Senate in January, implying hopes remain that the senator from West Virginia can provide deliverance. Biden later assured he was in talks with Joe Manchin and between them they will get it done.

In some form.

It is also expected by tomorrow the FDA will have authorised the use of Pfizer’s and Merck’s anti-viral pills, which ties into the test kit rollout, as their efficacy requires swift covid detection.

And then there’s the simple but persistent theme of 2021 – buy the dip. After three sessions of solid falls, the stock market was ripe for the buy-the-dippers to come out of the woodwork once more. No more is this as evident as in Big Tech, which was slammed on Monday night and led the charge last night.

The Dow was led by a 6.4% gain for Nike, which reported solid earnings despite weak sales in China.

The belief is Wall Street will bottom before omicron cases peak, just as was the case last year with the original Wuhan virus, and again this year when delta became the threat.

Don’t miss out.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1788.80	– 3.00	– 0.17%
Silver (oz)	22.48	+ 0.21	0.94%
Copper (lb)	4.33	+ 0.04	1.01%
Aluminium (lb)	1.22	+ 0.03	2.30%
Lead (lb)	1.05	+ 0.00	0.23%
Nickel (lb)	8.96	+ 0.10	1.11%
Zinc (lb)	1.57	+ 0.03	1.66%
West Texas Crude	71.40	+ 3.17	4.65%
Brent Crude	74.17	+ 2.30	3.20%
Iron Ore (t)	123.80	+ 0.60	0.49%

Thin trading is also now the state of play on the LME, exacerbating a similar base metal bounce last night on no US lockdowns and ongoing Chinese support.

No lockdowns had oil prices whipsawing.

The Aussie is up 0.6% at US$0.7153.

Today

The SPI Overnight closed up one point.

Australian economic data releases and corporate events have now pulled stumps for Christmas.

The US will see another revision of September quarter GDP tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
HLS	Healius	Upgrade to Add from Hold	Morgans
JBH	JB Hi-Fi	Upgrade to Buy from Hold	Ord Minnett
MFG	Magellan Financial	Downgrade to Neutral from Outperform	Macquarie
MYX	Mayne Pharma	Downgrade to Neutral from Buy	Citi
WES	Wesfarmers	Upgrade to Accumulate from Hold	Ord Minnett

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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