The Monday Report – 04 September 2021

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

World Overnight
SPI Overnight (Jun)	7483.00	– 23.00	– 0.31%
S&P ASX 200	7522.90	+ 37.20	0.50%
S&P500	4535.43	– 1.52	– 0.03%
Nasdaq Comp	15363.52	+ 32.34	0.21%
DJIA	35369.09	– 74.73	– 0.21%
S&P500 VIX	16.41	0.00	0.00%
US 10-year yield	1.32	+ 0.03	2.16%
USD Index	92.04	– 0.19	– 0.21%
FTSE100	7138.35	– 25.55	– 0.36%
DAX30	15781.20	– 59.39	– 0.37%

By Greg Peel

Normal Programming

After the sideshow that was Thursday’s trade on the ASX, Friday saw a more sensible session, once again led by the resource sectors after Thursday’s BHP Group ((BHP)) ex-dividend tailspin.

The ASX200 opened up 27 points in the first ten minutes and closed up 37, with a little trip to up 54 around the time the port was being served. There was still an opening drag from some dividends but nothing like Thursday.

Despite Beijing’s efforts, the iron ore price jumped back 4% on the back of a 6% leap for Shanghai steel futures. Autumn in China is peak steel demand season, and that demand is meeting a lack of supply due to Beijing’s environment-based production curbs.

BHP bounced back 1.8% but there was action across the full metals/minerals spectrum. Lithium miner Orocobre ((ORE)) topped the index with a 7.0% jump, followed closely by Whitehaven Coal ((WHC)) on 6.8% and aluminium producer Alumina Ltd ((AWC)) on 6.7%.

Uranium has also sprung back to life. Spot prices are on the move thanks to speculative buying from purpose-listed funds and Friday saw locals Paladin Energy ((PDN)) gain 24.0% and Vimy Resources ((VMY)) up 23.1%.

The materials sector rose 1.2% to win the day. Energy rose 0.8% on higher oil prices driven by Ida’s legacy.

Coming back from a big ex-dividend knock-down on Thursday was healthcare (+0.7%) despite a seemingly runaway Aussie, as well as financials (+0.4%), which were also ex-div handicapped on Thursday.

The only weak sector of any note was technology (-0.8%) on a -2.8% fall for Afterpay ((APT)), signalling that sometimes it’s not so hip to be Square.

All up it was a generally positive session ahead of Friday night’s US jobs number and subsequent long weekend.

The index continues to consolidate around the 7500 mark, which proved rather staunch resistance on the way up to new highs in early August. Wall Street again did very little on Friday night, jobs notwithstanding, but our futures closed down -23 points on Saturday morning, which would put us right back on 7500.

Futures weakness may have something to do with the Aussie, which keeps rising back in leaps and bounds.

So What?

The US added 235,000 new jobs in August when economists had forecast 720,000. Back to the drawing board boys and girls. But did Wall Street run screaming into the hills?

No, and there are several reasons why.

August is renowned for being a “noisy” month statistically. Think January in Australia. A lot of businesses are closed, but also a lot of temporary summer jobs are created. Or at least they would be, if not for the impact this summer of the delta variant.

The biggest job losses were in hospitality/leisure, and also in education, with questions remaining over whether kids will or will not go back to school, face to face, this month.

There was also some comfort in (as I had flagged last week) revisions to both the July and June jobs numbers. Job gains in July were raised to 1.05 million from 943,000. June’s total was raised to 962,000 from 938,000.

But while the demand issue was a bit distorted in August, the supply issue remains the key stumbling block for hiring. The jobs are there – millions of them – but at the low-paid end there’s no incentive to earn less than the current government hand-out, which ends this week.

So the September numbers might tell a different story. Yet what many are concerned about is the wage inflation that stunted labour supply is causing. August saw average hourly pay up 4.3% year on year, which is well above pre-pandemic norms.

Fresh signs of inflation are also evident in an already highly inflated freight industry. Hurricane Ida has driven an urgent need for restocking of consumables, pushing trucking fees even higher, but a lot of truckers are eschewing the extra pay, preferring not to drive into floods (and fires, for that matter). It’s an upward spiral.

Yet despite all of the above, Wall Street was never going to respond sharply in either direction to a good/bad jobs number because the implications cancel each other out. Had the number been good, that means a still rebounding economy, so that’s good, but since the number was bad, that may keep the Fed at bay with its tapering pace, so that’s good.

In the end, Wall Street simply ran the same tape they’d been playing all week. Glacial ticks up to new highs for the S&P500 on a balance of growth preference over cyclicals.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1827.60	+ 18.00	0.99%
Silver (oz)	24.68	+ 0.79	3.31%
Copper (lb)	4.24	+ 0.03	0.66%
Aluminium (lb)	1.21	– 0.01	– 0.45%
Lead (lb)	1.08	– 0.02	– 1.74%
Nickel (lb)	8.80	– 0.01	– 0.09%
Zinc (lb)	1.36	+ 0.01	0.56%
West Texas Crude	69.29	– 0.70	– 1.00%
Brent Crude	72.61	– 0.30	– 0.41%
Iron Ore (t)	145.05	5.35	3.83%

The US dollar slipped on the jobs numbers as one would expect but strangely the US ten-year yield rose 3 basis points to 1.32%, which one would not expect, unless bond traders were just as indifferent about the result as stock traders.

Yields did not, however, stop gold having another bit of a rally.

Not a lot of excitement in base metals but iron ore saw a bounce-back.

The oils eased back a bit with the floodwaters.

Having scoffed at the US73c range, the Aussie is up yet another 0.8%, at US$0.7461.

The SPI Overnight closed down -23 points or -0.3%.

The Week Ahead

It’s the RBA’s turn this week to opine over the impact of delta. The minutes of the July meeting suggested the board was not looking to alter its tapering plans due to new lockdowns, but that was a month ago.

Given the focus has swung away from growing case numbers to vaccination targets now rapidly being approached, perhaps the RBA may stay its course, although apparently the “national plan” does not include the independent Kingdoms of Queensland and Western Australia, and lets’ face it, Captain Dan’s no pushover either.

ANZ Bank’s job ad series is the only other local economic data point of note this week.

Beijing has banned celebrities with “incorrect” politics. I’m sure they’re mightily disappointed. What about the ones who wouldn’t know what a politic was?

In other news, China will see August inflation and trade numbers this week. The independent Caixin services PMI for August, released on Friday, showed a plunge to 46.7 from 54.9 in July, when 52.0 was expected. That’s both the Caixin PMIs now in contraction. What exactly is Xi trying to achieve?

The ECB holds a policy meeting on Thursday.

US markets are closed tonight. The Fed Beige Book is out on Wednesday.

It’s a big, big week for ex-dividends this week, ensuring the ASX200 will start with a handicap each day.

Hold onto your hats today – it's Fortescue Metals' ((FMG)) turn.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALU	Altium	Upgrade to Buy from Neutral	Citi
		Downgrade to Underperform from Neutral	Macquarie
ANZ	ANZ Bank	Downgrade to Hold from Accumulate	Ord Minnett
BUB	Bubs Australia	Upgrade to Neutral from Sell	Citi
BWX	BWX	Downgrade to Neutral from Buy	Citi
EBO	Ebos Group	Downgrade to Hold from Add	Morgans
EOS	Electro Optic Systems	Downgrade to Neutral from Buy	Citi
JHC	Japara Healthcare	Downgrade to Hold from Accumulate	Ord Minnett
NAB	National Australia Bank	Upgrade to Accumulate from Hold	Ord Minnett
PAN	Panoramic Resources	Downgrade to Neutral from Outperform	Macquarie
RCW	RightCrowd	Upgrade to Add from Hold	Morgans
RHP	Rhipe	Downgrade to Hold from Accumulate	Ord Minnett
SFR	Sandfire Resources	Upgrade to Add from Hold	Morgans
SKI	Spark Infrastructure	Downgrade to Neutral from Outperform	Credit Suisse
SSG	Shaver Shop	Downgrade to Hold from Buy	Ord Minnett
UMG	United Malt	Upgrade to Add from Hold	Morgans
VVA	Viva Leisure	Upgrade to Buy from Neutral	Citi

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.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms