The Overnight Report: Underwater

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

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

By Greg Peel

Not as bad as it looked

Is this going to be the theme for September? With Wall Street as good as flat, the ASX200 plunged -90 points in the first hour yesterday. It would appear momentum algos kicked in and perhaps naïve traders ran scared as BHP Group ((BHP)) suddenly crashed -6.9%.

“BHP wipes out gains for the year!” screamed the mass media. This won’t, however, bother BHP shareholders who’ll soon being hearing the beep-beep of a truck reversing up their driveway to deliver their dividend.

Granted, BHP did fall further than the dividend quantum on another fall in iron ore prices, as did its peers, but the point is yesterday was a particularly big day all round for ex-dividends and this pattern is going to continue all month. The handicap on the open yesterday was -34 points. After rallying back 50 points over the rest of the session, the index closed down -40.

In other words, down -6.

The materials sector fell -2.5%, thanks to BHP, and also to Deterra Royalties ((DRR)), which also went ex. Healthcare fell -1.1%: CSL ((CSL)) went ex. Consumer staples fell -1.0%: Woolworths ((WOW)) went ex.

The financials sector closed flat, which was a pretty good performance considering all of nib Holdings ((NHF)), Perpetual ((PPT)) and Platinum Asset Management ((PTM)) went ex.

If we call telcos flat, every other sector closed in the green on the day except for utilities (-0.8%), thanks to a -3.0% fall in AGL Energy ((AGL)), as the last one out looks for the light switch.

Among individual index stocks, Altium ((ALU)) won the day with a 4.3% gain, after brokers expressed their longer term belief in the company despite its big post-result drop.

BHP topped the losers’ board, followed by United Malt ((UMG)) which fell -6.1% after admitting it was having trouble sourcing barley. This move also impacted the staples sector.

In other news, investors are clearly back in the housing market after an APRA-driven hiatus as banks ease, on Frydenberg’s command, what were tighter post Royal Commission lending standards. Total lending for housing fell -0.2% in July, on a spread of owner-occupier loans down -0.4% and investor loans up 1.8%.

If house prices continue to rise, APRA is expected to step in again sooner rather than later.

Australia posted a record trade balance in July, beating expectations. It was all about increased exports of iron ore, coal and LNG on one side, and falling imports of consumer goods (lockdowns) on the other. That picture may change a bit in August (iron ore).

After a sluggish start, Wall Street finished with a bit of strength last night, and our futures are up 18 points this morning, which should be enough to counter ex-dividends for Bendigo & Adelaide Bank ((BEN)) and Ampol ((ALD)), among some smaller names.

Infrastructure in the Spotlight

If the destruction in the US south wasn’t enough, the remnants of Ida now have New York City underwater. Funny that NYC’s aged water management system was already one of the targets high on the list of Biden’s infrastructure package priorities. House Democrats are still arguing, so don’t hold your breath.

Back in ancient times (2019), flooded subways would have all but shut down the action on Wall Street, with offices empty and no one on the trading floor. But in 2021, offices are still empty and life goes on, at home.

Ahead of tonight’s jobs report and the long weekend, Wall Street opened to the upside last night, fell into a hole, and then kicked back up again at the death.

Early impetus was the weekly new jobless claims number, which showed a drop of -14,000 to 340,000 last week to a new pandemic low. Pre-pandemic, the average week saw 220,000 new claims.

That result was encouraging in the lead up to the non-farm payrolls result, for which 720,000 new jobs are forecast, despite the surprisingly weak private sector number on Wednesday night.

But if August jobs do disappoint it doesn’t much matter, as it would only serve to keep the Fed off the taper trigger too early. So it’s win-win really: strong economy or weak.

The S&P500 and Nasdaq hit new all-time highs last night, again.

The Nasdaq rose despite a -0.5% fall for Amazon, which has advised customers on its Australian platform that from now on Visa card payments will be hit with a 0.5% surcharge. It’s all about trying to bring merchant fees down for customers via newer payment systems.

Shares in Visa fell -2.6%, and Mastercard similarly, as the world takes yet another step into the future.

Commodities

China’s Shandong Steel, one of the largest steel producers in the world, has been ordered by Beijing to cut down production by November. China’s total steel production rose by 8% in the first seven months of the year, which means producers are now going to have to cut back by -12% to meet government targets.

Those targets are dressed up as a move to reduce emissions, except that back in May Beijing vowed to bring down the cost of iron ore because Australia was “profiteering” from excessive prices.

Last month the independent Caixin manufacturing PMI showed China’s production contracting, down to 49.2 from 50.3 in July. Beijing is deliberately slowing its economy in petty fashion.

OPEC-Plus decided to maintain its prescribed production increase timeline at its meeting last night, despite highlighting demand increases. This was positive for oil prices, as is the situation in the US north east in the short term.

With the greenback slowly sliding, and a record trade surplus downunder, the Aussie is up another 0.5% to US$0.7404.

Today

The SPI Overnight closed up 18 points or 0.2%.

Global services PMIs for August are out today/night.

US jobs numbers tonight, ahead of a long weekend.

Today’s local ex-divs as noted above.

The Australian share market over the past thirty days…

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