The Overnight Report: Jitters Set In

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World Overnight
SPI Overnight (Jun)	7503.00	– 29.00	– 0.39%
S&P ASX 200	7530.30	+ 1.80	0.02%
S&P500	4520.03	– 15.40	– 0.34%
Nasdaq Comp	15374.33	+ 10.81	0.07%
DJIA	35100.00	– 269.09	– 0.76%
S&P500 VIX	18.14	+ 1.73	10.54%
US 10-year yield	1.37	+ 0.05	3.63%
USD Index	92.52	+ 0.31	0.34%
FTSE100	7149.37	– 37.81	– 0.53%
DAX30	15843.09	– 89.03	– 0.56%

By Greg Peel

Rollercoaster

If you only noted the closing level after yesterday’s trade on the ASX you’d think it was a dull day. But rather the session was a rollercoaster ride that had traders feeling giddy by the time it returned to the start.

The futures had said up 13 points and the ASX200 opened up 8 points in the first half hour, or more in effect if you add back the day’s ex-dividends. At 10.30 on the dot the market turned and 45 minutes later was down -41 points. Thereafter it was up, down and up again to the close.

Not sure why the early sell-off, which came immediately after the opening rotation, but the late morning bounce coincided with data out of China.

China’s exports rose 25.6% in August and imports rose 33.1% — both record gains. These are year on year numbers, cycling last year’s covid hole, but still up on July and ahead of forecasts. China’s trade surplus is up 30% year to date in 2021.

The numbers surprised given both Chinese PMIs fell into contraction in August, freight costs are through the roof and one major Chinese port was shut down during the month.

The numbers drove a bounce in the index but that had mostly fizzled out by 2.30, when the RBA statement was released.

“This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay, but not derail, the recovery. As vaccination rates increase further and restrictions are eased, the economy should bounce back. There is, however, uncertainty about the timing and pace of this bounce-back and it is likely to be slower than that earlier in the year. Much will depend on the health situation and the easing of restrictions on activity. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”

To that end, the RBA has decided to stick with its tapering plan, reducing weekly bond purchases to $4bn a week rather than $5bn, but whereas the board was set to review, and most likely further taper, in November, now that review has been moved to February.

“The Board's decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak. The Board will continue to review the bond purchase program in light of economic conditions and the health situation, and their implications for the expected progress towards full employment and the inflation target.”

So it’s an each-way bet, but shows the RBA is on the market’s side.

By the close it was a bit of a mixed bag among sectors, with telcos (+0.9%) unusually leading the gains, and energy (+0.8%) bouncing back from Monday’s drop. Materials (-0.8%) was the standout loser but had to cope with a few ex-divs and a big fall in the iron ore price.

Staples was the only other sector to fall meaningfully, if -0.2% is meaningfully, which meant that with the banks flat, materials offset gains in all other sectors.

There are several ex-divs this morning buy nothing too major, but the futures are down -29 points on Wall Street weakness and there are no data releases of note today.

Back for the Fall

It was in theory back-to-work for Wall Street last night after the summer break but it was also a Jewish holiday, so volumes did not much pick up. There was no doubt some reflection on Friday’s weak jobs number nonetheless.

The US ten-year bond yield shot up 5 basis points to 1.37% last night – seemingly out of the blue – which rather belies a general feeling the US economic rebound has slowed thanks to delta – as does a stronger US dollar. If we were back in the first half of this year, a yield pop would have had investors bailing out of growth stocks.

But no, last night the Nasdaq again outperformed, while industrials again weakened. Apple hit a new high last night ahead of the launch of this year’s new iPhones, while Ryanair walked away from a big Boeing order, not liking the price, and thus exacerbated the fall in the Dow.

The jump in yields has been attributed simply to a matter of demand and supply, with a lot of fresh Treasury issuance ahead this week. And with the Fed set to soon taper, 1.37% is not exactly scary stuff.

Ongoing outperformance in the Nasdaq reflects a growing nervousness about September, and October, when the S&P500 has done nothing but run up all year. Big Tech is a good place to hide.

Goldman Sachs last night pulled its December quarter GDP growth forecast back to 5.5% (annual) from 6.5%, while Morgan Stanley moved to Underweight US equities and Equal-weight global stocks. Over the subsequent two months, said Morgan Stanley, there are outsized risks to growth, policy and the legislative agenda.

The investment bank did otherwise acknowledge the current cycle is a “normal” one, but was just running a bit hotter and faster than it should.

Meanwhile, Barclays lifted its end of year S&P500 forecast to 4600 from 4400 (last trade 4520), believing Wall Street will take Fed tapering in its stride.

So the general feeling is delta is slowing down, but not derailing, the economic recovery, and the trend remains upward to the end of the year, but there may need to be a a reset to less overblown valuations before then and what better months to do it in than September-October?

We’ll have to wait until the October earnings season to assess what damage delta has done, but in the meantime predictions of the US case-count reaching a peak by now have proven erroneous. The predictions were based on the UK experience, but the difference between the UK and US is the number of people happy to be vaccinated.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1794.10	– 28.90	– 1.59%
Silver (oz)	24.31	– 0.35	– 1.42%
Copper (lb)	4.21	– 0.04	– 0.83%
Aluminium (lb)	1.24	– 0.01	– 0.85%
Lead (lb)	1.07	– 0.01	– 0.48%
Nickel (lb)	8.78	– 0.04	– 0.49%
Zinc (lb)	1.37	+ 0.01	0.52%
West Texas Crude	68.35	– 0.54	– 0.78%
Brent Crude	71.60	– 0.62	– 0.86%
Iron Ore (t)	137.85	+ 6.35	4.83%

A bit of a lift in the US dollar largely weighed on commodity prices, accept for what is now a very volatile iron ore price.

Alongside its Underweight US equities call Morgan Stanley also advised selling gold, which appears to have been heeded.

Mind you bitcoin fell -11% last night as well, even as El Salvador makes bitcoin legal tender.

The Aussie fell -0.6% to US$0.7388 on greenback strength but also the RBA’s tapering review delay.

Today

The SPI Overnight closed down -29 points or -0.4%.

There are a lot of ex-divs today but mostly from smaller companies. Blackmores ((BKL)), Brambles ((BXB)) and Seek ((SEK)) are the bigger among them.

The Fed’s Beige Book is out tonight.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
APA	APA Group	Upgrade to Buy from Accumulate	Ord Minnett
CTD	Corporate Travel Management	Downgrade to Neutral from Outperform	Credit Suisse
DXS	Dexus	Upgrade to Outperform from Neutral	Macquarie
EBO	Ebos Group	Downgrade to Hold from Add	Morgans
FLT	Flight Centre Travel	Upgrade to Outperform from Neutral	Credit Suisse
GUD	G.U.D. Holdings	Upgrade to Buy from Neutral	Citi
HSN	Hansen Technologies	Upgrade to Buy from Hold	Ord Minnett
LLC	Lendlease Group	Downgrade to Underweight from Equal-weight	Morgan Stanley
MIN	Mineral Resources	Upgrade to Buy from Neutral	Citi
UMG	United Malt	Upgrade to Add from Hold	Morgans
VVA	Viva Leisure	Upgrade to Buy from Neutral	Citi
WEB	Webjet	Downgrade to Neutral from Outperform	Credit Suisse

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

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