The Overnight Report: If You Build It

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

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

By Greg Peel

Not Feeling the Strain

The ASX200 traded sideways from late June when the lockdown was extended to greater Sydney and by late July it looked like delta might really be set to have its impact. Indeed it did, but not on the stock market. The index has since rallied over 4% into blue sky.

Yesterday’s trade began very much like the day before – with the index shooting up 38 points from the open before rapidly dropping from 11am. On Monday it was difficult to pin that turnaround on the day’s Sydney case-count announcement. The number was consistent, but not notably worse.

Yesterday’s number was significantly worse, suggesting the end of August reopening date now looks doubtful. At midday the index was back to square.

But the market has largely ignored delta all this time, so why start worrying now?

Those stocks most heavily impacted by lockdowns did indeed fall yesterday. Industrials dropped -1.1% to be the standout worst performer, led by Transurban ((TCL)), down -2.8%, along with falls in Qantas ((QAN)) and Sydney Airport ((SYD)).

Energy fell -0.8%, as delta impacts global demand expectations and oil prices fall. Healthcare was the only other sector to close down (-0.3%), but CSL ((CSL)) simply has good days and bad.

By rights the banks should be delta losers, but not when US banks rise on higher bond yields. They jumped (another) 0.8%, even as the Aussie ten-year was unmoved.

You’d expect consumer discretionary to be a delta-loser, but not when the online effect kicks in. Domino’s Pizza ((DMP)) is one beneficiary, but the stock du jour in discretionary is PointsBet Holdings ((PBH)), which has been surging on penetration into the US betting market, as gambling rules are eased. It rose another 9.9% yesterday.

Materials was set for a fall on lower base metal and particularly gold prices overnight. But while the top four index losers on the day were gold miners, news that US energy giant Phillips 66 has bought into lithium battery maker Novonix ((NVX)) via a fresh capital raising (subject to Novonix shareholder approval) was worth 15.6%.

And this lit a fire under all things lithium, again, with Pilbara Minerals ((PLS)) topping the index on an 11.0% jump and all the other little lithium mining ducks lining up in a row. It helped also that JPMorgan/Ord Minnett issued another bullish assessment of the sector's outlook.

Materials closed up 0.1%. Meanwhile, given the takeover bid for Afterpay ((APT)) is all-scrip, Afterpay now trades in line with movements in Square’s share price on Wall Street. Technology closed up 1.5%.

As far as today is shaping up, the S&P500 closed flat, oil prices have rebounded, but iron ore has tanked again.

And there’s always 11am.

On the Tools

The US Senate passed the bipartisan US$1trn infrastructure bill last night 69-30. Only a 60 vote majority was needed. The problem is the bill now has to go to the House.

Given the Democrats have the majority in the House, one would expect the bill to breeze through. But no, Nancy Pelosi will not pass this “hard”, if you like, infrastructure package (roads, bridges, communications etc) until the Democrats’ “human infrastructure” package (largely welfare) is passed. The Republicans will vote against this package unanimously.

But then it will be voted on as part of “budget reconciliation”, which implies only a 51 majority is needed in the Senate, which shouldn’t thus be an issue, except that there remains a couple of recalcitrant Democrats that could spoil the show.

Yes I know – America’s a funny place, but the point is it may yet be months before last night’s infrastructure bill makes it all the way.

Not that this bothered Wall Street last night.

Energy, materials and industrials led the S&P500 last night, and hence the Dow to a new high. Infrastructure building requires power, materials and equipment.

At the same time, the US ten-year bond yield continues to push higher, up another 3 basis points to 1.34% last night, and this is fuelling renewed value-versus-growth outperformance, and hence Nasdaq underperformance.

The US ten-year bottomed out at 1.15% last week but has shot up since last Friday night’s jobs report. The US dollar also continues to tick up.

While full passage of the infrastructure bill may yet be some ways off, another fiscal injection of such size only puts more pressure on the Fed to start backing off the monetary support which many believe, and have for a while, is no longer necessary.

Unless delta has something to say about it.

Commodities

The Beijing Winter Olympics are to be held in February, but steel output restrictions in place at China’s production hub Tangshan, in the name of emission controls, will now be extended through to March to ensure clear skies, just as Beijing enforced for the summer games of 2008.

Back then, young city children never knew the sky was blue.

Another knife in the coffin of iron ore demand, and another playground punch-up lost by wimpy little Australia. Analysts have long suspected iron ore prices would pull back from record highs around US$220/t, but none expected it to happen all in a blink.

Base metal prices, on the other hand, last night cheered the US infrastructure bill. As did the oils, although every time oil prices take a dip, the dip-buyers pop up.

Despite another iron ore plunge, and a slightly higher greenback, the Aussie is up 0.2% at US$0.7352.

Today

Once again undeterred, the SPI Overnight closed up 19 points or 0.3%.

Yesterday’s NAB business confidence survey results were unsurprisingly weak, with the conditions index falling -14 points to +11 and the confidence index falling -19 points to -8, implying pessimism. Today’s Westpac consumer confidence survey was conducted more recently, and both cover the lockdowns.

The US will see July CPI numbers tonight.

Commonwealth Bank ((CBA)) reports earnings today, as will Insurance Australia Group ((IAG)), Computershare ((CPU)) and Mineral Resources ((MIN)), among others.

The Australian share market over the past thirty days…

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