The Overnight Report: Delta Dawns, Again

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

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

World Overnight
SPI Overnight (Jun)	7411.00	– 34.00	– 0.46%
S&P ASX 200	7511.00	– 71.50	– 0.94%
S&P500	4448.08	– 31.63	– 0.71%
Nasdaq Comp	14656.18	– 137.58	– 0.93%
DJIA	35343.28	– 282.12	– 0.79%
S&P500 VIX	17.91	+ 1.79	11.10%
US 10-year yield	1.26	+ 0.00	0.08%
USD Index	93.14	+ 0.51	0.55%
FTSE100	7181.11	+ 27.13	0.38%
DAX30	15921.95	– 3.78	– 0.02%

By Greg Peel

We’re all on our own together

The first clue to yesterday’s big fall for the ASX200 came on Monday, when the index bounced off the 7600 level and rallied briefly mid-afternoon, only to close below. Technically, that was not a good sign.

The next problem was that despite the futures suggesting a 9 point gain on the open yesterday, the index was always going to open lower, assuming no major overnight development, as Commonwealth Bank ((CBA)) went massively ex-dividend. While it’s a zero-sum impact, sentiment would not have been buoyed by the fall.

Attention could then turn to the day’s earnings results. As was the case on Monday, there were beats and there were misses but the beats were only modestly rewarded and the misses were severely punished. Magellan Financial ((MFG)) down -10.2%, Breville Group ((BRG)) down -9.0%, and Lynas Rare Earths ((LYC)) down -7.6%, albeit impacted by Malaysian political uncertainty.

The biggest index winner on the day was Domain Group ((DHG)), but could only manage a 4.7% gain. Next was Reliance Worldwide ((RWC)) up 2.6%. In between these two on the leaders board were companies that had reported on Monday.

It’s still early days in the season on number of reports, but if the last couple of days are anything to go by there are two issues to consider. One is, don’t miss. The other is a “here we go again” issue of companies deciding not to offer forward guidance due to delta uncertainty.

And just when everything was looking bad, along came the minutes of the RBA meeting.

“The bond purchase program will continue to be reviewed in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target. The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery. [My emphasis]

Well that’s good isn’t it? The RBA will delay ongoing QE tapering if delta’s impact becomes too great. But we knew that. What we didn’t know, until yesterday, was any economic setback would have to be significant before the board changed tack.

The August meeting was two weeks ago. One would have to say the situation has become “significantly” worse since then. But how significant does significant have to be? No white knight riding in just yet.

At 2pm, the index finally bounced, this time off the 7500 level. A rally to the close began to wane when the Dow futures started to fall.

Consumer staples, healthcare and telcos were the only sectors to close in the green yesterday, just, saved by their defensiveness. The standout sector fall was for the banks (-1.7%), but that was mostly CBA. Otherwise, five other sectors fell around one percent.

BHP Group ((BHP)) reported after the bell yesterday, and numbers aside it was a report choc-o-block with strategic shifts. We’ll see how the market responds today.

Et tu, Frodo?

Wall Street was rather gobsmacked to learn last night that New Zealand had gone back into full national lockdown all because of one case. Not that US investors are going to be kept awake at night on fears of a New Zealand slowdown – China’s perhaps more important in this case – but it was enough to get commentators talking.

And enough to again sow a seed of doubt with regard delta, which is running at 130,000-odd cases a day nationally in the US, mostly in Republican states with no restrictions whatsoever.

The trigger for last night’s sell-off were nevertheless, specifically, July retail sales data.

Sales fell -1.1% in the month when economists had forecast -0.3%. The glass half full brigade points to autos representing the bulk of the fall, on supply rather than demand issues, and the month cycling last year’s Amazon Prime Day, which was shifted due to covid.

The glass half empty brigade cited delta. Retail sales remain up 16% year on year to above pre-pandemic levels, but in the wake of last week’s shock plunge in consumer sentiment, which was squarely blamed on delta, fears of peak economic recovery have again surfaced.

A gauge of housing market sentiment has fallen this month by -5 points to 75, to the lowest level in thirteen months. The issue here is the soaring cost of building materials, reflecting supply bottlenecks, and pushing the cost of a new home beyond reach.

The last time Wall Street swooned on delta fears was in mid-July. The swoon proved very temporary, and the S&P500 has since rallied 6% to ever new highs, including a five-day winning streak ahead of last night.

The question of Fed tapering still hangs in the air. Commentators suggest that given there’s been taper talk going on for months, a taper announcement is already priced into the stock market. It is not priced into bond yields, but that’s because the rest of the world continues to buy US bonds regardless.

Next week is the Jackson Hole central bankers’ meeting – once the forum for Ben Bernanke to announce his post-GFC QE programs. Subsequent Fed chairs have not used Jackson Hole as a policy platform, and the current assumption is this year will be the same.

But the September FOMC meeting, that’s when Wall Street expects an announcement.

The jury is out on whether another taper tantrum, a la 2013, will ensue. If we’ve been talking about it for so long, how could it? But while last night’s drop on Wall Street may not, yet again, turn into a long awaited pullback of the -5-7% variety, suddenly the economic data, and the case numbers, are evoking doubt.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1786.10	– 0.80	– 0.04%
Silver (oz)	23.63	– 0.20	– 0.84%
Copper (lb)	4.18	– 0.07	– 1.65%
Aluminium (lb)	1.20	+ 0.01	0.89%
Lead (lb)	1.09	– 0.00	– 0.32%
Nickel (lb)	8.80	– 0.05	– 0.61%
Zinc (lb)	1.37	+ 0.00	0.19%
West Texas Crude	66.59	– 0.70	– 1.04%
Brent Crude	69.10	– 0.56	– 0.80%
Iron Ore (t)	159.50	– 3.00	– 1.85%

Copper continues to cop the brunt of global slowdown fears. Perhaps US housing sentiment data didn’t help.

The oils, too, are continuing their slide, and iron ore has now fallen below US$160/t.

If the RBA is holding its ground on QE tapering, this should be positive for the Aussie dollar. But it’s the rest of the world, and further flight to safety into the greenback, that has the Aussie down -1.1% at US$0.7256.

Good for healthcare.

Today

The SPI Overnight closed down -34 points or -0.5%.

The RBNZ meets this morning to fret over the country’s health crisis.

Locally we’ll see the June quarter wage price index.

The minutes of the last Fed meeting are out tonight.

Today’s list of reporting companies is the longest yet, while a response to BHP will come today.

ResMed ((RMD)) goes ex.

A reporting calendar and summaries of analyst responses to the day’s results are available on the FNArena Corporate Results Monitor.

https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AGL	AGL Energy	Upgrade to Neutral from Underperform	Credit Suisse
ANZ	ANZ Bank	Downgrade to Sell from Neutral	Citi
BBN	Baby Bunting	Downgrade to Neutral from Buy	Citi
		Downgrade to Hold from Add	Morgans
BPT	Beach Energy	Upgrade to Buy from Neutral	Citi
		Downgrade to Neutral from Outperform	Macquarie
CAR	Carsales	Downgrade to Hold from Add	Morgans
DOW	Downer EDI	Upgrade to Hold from Lighten	Ord Minnett
GMG	Goodman Group	Downgrade to Accumulate from Buy	Ord Minnett
		Downgrade to Neutral from Buy	UBS
GWA	GWA Group	Upgrade to Add from Hold	Morgans
IMD	Imdex	Downgrade to Neutral from Outperform	Macquarie

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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