The Overnight Report: The Power Of One

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL

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

World Overnight
SPI Overnight	7438.00	+ 14.00	0.19%
S&P ASX 200	7441.00	+ 25.50	0.34%
S&P500	4566.48	+ 21.58	0.47%
Nasdaq Comp	15226.71	+ 136.51	0.90%
DJIA	35741.15	+ 64.13	0.18%
S&P500 VIX	15.24	– 0.19	– 1.23%
US 10-year yield	1.64	– 0.02	– 1.21%
USD Index	93.83	+ 0.19	0.20%
FTSE100	7222.82	+ 18.27	0.25%
DAX30	15599.23	+ 56.25	0.36%

By Greg Peel

Energized

After a very volatile morning the ASX200 yesterday hit a peak of up over 50 points at midday before settling back, again, into a steady afternoon. On Monday the resource sectors were the biggest drag on the index, and yesterday they were the biggest drivers.

Evergrande’s avoidance of default, for now, last Friday reversed falls in commodity prices and commodity producers yesterday, sending the energy sector up 2.6% and materials up 1.1%. Utilities rose 1.3% on the back of AGL Energy ((AGL)).

Base metal prices were up strongly last night so it was a good call, and oil (Brent) hit a new 14-year high. But there was other news to drive the sectors.

Origin Energy ((ORG)) announced it was selling 10% of APLNG to secure some funds for investment in the new energy world. That was worth 3.9%. Mineral Resources ((MIN)) announced it will restart its Wodgina lithium mine, and rose 9.1%.

Outside of resources, Telstra ((TLS)) announced it would join with the federal government in acquiring Digicel’s South Pacific mobile network. The deal will be mostly taxpayer funded, but is in response to the Chinese sniffing around. Telstra rose 2.1%.

Technology was the biggest loser on the day in falling -0.7%. Clearly there is a read-through from Snap’s big plunge on Friday night to all of Australia’s large social media companies.

Industrials was the only other sector to close in the red (-0.5%). Investors are clearly not enamoured with Aurizon Holding’s ((AZJ)) One Rail takeover bid, as yesterday the stock dropped -3.6% having fallen -6.2% on Friday.

The banks were once again the rabbits in the headlights (+0.1%), likely biding their time ahead of Thursday’s full-year result from ANZ Bank ((ANZ)).

Watch out for the technology sector today. The Nasdaq was up 0.9% last night thanks to Tesla, which should put a rocket under all of Australia’s big EV companies today.

The market as a whole is more circumspect. The S&P500 closed up 0.5% and our futures are up only 14 points this morning.

It’s Electrifying

Rental car company Hertz, which went bankrupt last year due the impact of lockdowns, last night announced it had ordered 100,000 Tesla EVs. The deal is estimated to be worth US$4-5bn for Tesla. Last night the stock rose 13%, increasing Tesla’s market cap by US$100bn.

Tesla thus became the sixth US company to have achieved the US$1rn dollar value mark. The response from Musk? “Wild $T1mes”.

Wild indeed. Tesla’s market cap is around 2% of the S&P500. Last night’s share price jump was, in market cap terms, six times that of the next best performing stock. And it provided for half of the S&P’s total 0.5% gain.

Not to mention the Nasdaq. Tesla is not in the Dow, for the same reason Amazon is not in the Dow, because its share price is north of US$1000 and thus would swamp the price average. America’s biggest company by market cap – Microsoft – trades at around US$300 a share. The biggest Dow component by price – Goldman Sachs – trades at around US$400.

Facebook trades at US$330 but is not in the Dow either (components are at Dow Jones’ discretion). It reported earnings after the bell last night which featured a miss on September quarter revenue and a miss on December quarter revenue guidance. The stock is up 3% in the aftermarket.

The reasons for the positive response are that the stock fell -5% on Friday night on the advertising scare generated by Snap, and was down -15% year to date given all the scrutiny around privacy issues, misinformation and so forth. And Facebook actually flagged the issues around Apple’s new operating system and data tracking months ago that had Snap down -27% on Friday night.

And the company announced a US$50bn buyback.

As of this quarter, Facebook will separate the reporting of the core business from its Facebook Reality Labs business into which it intends to pour US$10bn in investment. In order to address its waning popularity among the young, Facebook wants to instead dominate the “metaverse”.

No, I didn’t know either, but it refers to the world of augmented and virtual reality.

Back in the real world, the number of earnings beats continues to run around 87% for S&P500 stocks reporting so far and there are more Big Tech names to come this week. Tesla aside, the S&P and Dow continue to grind higher, last night again hitting new all-time highs.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1806.70	+ 14.70	0.82%
Silver (oz)	24.54	+ 0.24	0.99%
Copper (lb)	4.53	+ 0.09	2.12%
Aluminium (lb)	1.34	+ 0.06	4.38%
Lead (lb)	1.12	+ 0.02	2.26%
Nickel (lb)	9.34	+ 0.37	4.14%
Zinc (lb)	1.60	+ 0.03	1.78%
West Texas Crude	83.54	– 0.22	– 0.26%
Brent Crude	85.82	+ 0.29	0.34%
Iron Ore (t)	119.75	– 0.60	– 0.50%

The LME’s response to Evergande not defaulting was fairly muted on Friday night, after big falls on Thursday night, but last night the ship was righted.

Driving the big gains in metals were data showing low inventories in Shanghai, and for aluminium in particular, more power rationing from China’s grid operator.

OPEC has decided not to cash in on multi-year high oil prices by further rolling back their earlier production quota cuts, at least until the covid situation has passed. Despite the increased quotas, some members are struggling to produce what they can given virus impacts.

The US ten-year bond yield fell -2 points last night to 1.63%, allowing gold to play inflation hedge and retain US$1800/oz, again. Bitcoin continues to press on to new highs.

Commodity price strength has the Aussie up 0.3% at US$0.7495. Let’s see what tomorrow CPI number will bring.

Today

The SPI Overnight closed up 14 points or 0.2%.

The US will report consumer confidence tonight.

Locally we’ll see another round of AGMs and quarterly reports, with aforementioned Mineral Resources among that number along with Oil Search ((OSH)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BSL	BlueScope Steel	Upgrade to Outperform from Neutral	Credit Suisse
CHL	Camplify	Downgrade to Hold from Add	Morgans
CRW	Cashrewards	Downgrade to Accumulate from Buy	Ord Minnett
DMP	Domino's Pizza Enterprises	Upgrade to Neutral from Underperform	Macquarie
MQG	Macquarie Group	Upgrade to Neutral from Sell	Citi
NAN	Nanosonics	Upgrade to Add from Hold	Morgans
ORA	Orora	Upgrade to Outperform from Neutral	Macquarie
OZL	OZ Minerals	Downgrade to Neutral from Buy	Citi
		Equal-weight	Morgan Stanley
PAN	Panoramic Resources	Upgrade to Outperform from Neutral	Macquarie
SLA	Silk Laser Australia	Downgrade to Accumulate from Buy	Ord Minnett
SUL	Super Retail	Downgrade to Hold from Accumulate	Ord Minnett
WEB	Webjet	Downgrade to Neutral from Outperform	Macquarie

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

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