The Overnight Report: Earnings In Focus

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

By Greg Peel

Not with a Bang

After a -50 points drop for the ASX200 on Wednesday that was all about Commonwealth Bank ((CBA)), a decent session on Wall Street helped the index to bounce back by 30 to late morning yesterday. But sentiment waned in the afternoon and market-on-close orders were all “sell”.

By the end of the day it was the queue at the bank exit door (-0.6%) that mostly countered decent gains in other sectors, except energy (-1.5%).

Regarding energy, the talk is that Biden and Xi will get together for a coordinated release from Strategic Petroleum Reserves to cap petrol prices. At the same time, Biden is considering a boycott of the Beijing Winter Olympics lest US skiers strangely disappear.

Most notable in the banking sector was that despite CBA plunging a whopping -8.3% on Wednesday, not one of the five FNArena database brokers with Sell ratings saw any reason to upgrade. Things will likely get worse, they say, before they get better later next year, and a lot hinges on the RBA.

CBA fell another -1.5%. The one saving grace is that the bank margin crunch should not impact on dividends and buybacks.

Speaking of dividends, the theme yesterday appeared to be one of steering away from cyclicals and into defensives. Property topped the boards (+1.3%), followed by healthcare (+1.1%), telcos (+1.1%) and staples (+1.0%).

When you consider that Goodman Group ((GMG)), CSL ((CSL)), Telstra ((TLS)) and the supermarkets are all top-20 stocks, it’s clear just how skewed the ASX200 is to the banking sector. The Big Four are all in there and so is Macquarie Group ((MQG)).

Topping the individual index stocks yesterday was Evolution Mining ((EVN)), after it bought the remaining 70% of the Ernest Henry gold mine.

Nufarm ((NUF)) fell -8.6% on its earnings result on Wednesday because the market had gotten way ahead of itself. The result actually smashed broker expectations so yesterday Nufarm bounced back 5.2%, while United Malt ((UMG)), which also reported on Wednesday but rallied, added another 3.2%.

ALS Ltd ((ALQ)), which reported on Wednesday fell -4.1% yesterday, while the only stock actually reporting yesterday, Aristocrat Leisure ((ALL)), left the bowlo with an empty wallet (-3.6%).

Investors remain a bit shell-shocked heading into today, with the S&P500 up 0.3% but our futures up only 3 points this morning. Could be a Friday kind of Friday.

Marginal Success

I noted yesterday Target US had fallen -5% on its earnings result, declaring it was either unable or unwilling to raise retail prices in the face of wholesale inflation, hence copping the margin crunch. This had department stores Kohl’s and Macy’s falling by the same amount in sympathy.

Last night both reported earnings and Kohl’s jumped 10% and Macy’s 21%. They were not unwilling to raise prices, and pent-up US consumer demand and record-high household budgets ensured whatever the price, consumers will pay it.

The S&P500 consumer discretionary sector was the standout performer last night in rising 1.5%.

Next was technology (+1.1%), on a 2.5% gain for Apple. Reports suggest Apple will have its autonomous car ready by 2025. Executives of actual automakers all fell about laughing but anything EV and future-tech gets investors excited. Apple is big enough to move a mountain with a 2.5% gain and is in all three major indices.

This was not reflected in the Dow, however, which was hit by an -8% drop for Cisco on disappointing guidance.

Every other sector in the S&P500 closed either flat or down.

Another one of the Big Tech names that does not get included in FAAMG but probably now should is chip-maker Nvidia. Considered the chip-maker most leveraged to the metaverse, Nvidia had risen 140% year to date and 50% since the beginning of October and at a 70x forward PE was considered an absolute no-go zone for the sensible.

Nvidia reported a 50% increase in revenues last night and rose 8%.

Meanwhile, the bond market is treading water around the 1.60% as traders nervously await Biden’s decision on who will be Fed chair next year – the incumbent Jay Powell or the only other contender, Fed governor Lael Brainard. A decision is expected any time in the next few days.

Powell is considered the more likely choice as it would seem foolish to change horses mid-pandemic. For those who do not support Powell because of his excessive dovishness, there’s not much to look forward to as Brainard is seen to be equally dovish.

The swing factor is Brainard is known to be an strong advocate for more banking regulation, which would be right up Elizabeth Warren’s street. So does Biden stick to the centre or turn left?

Commodities

Still little joy for base metal or iron ore prices and gold gave some back again last night.

Like the bond market, the oil market is also treading water around the US$80/bbl mark as it awaits a decision on the aforementioned Reserve releases. Analysts suggest any release would provide only a couple of months of relief and wipe a whole “nickel” off the “gas” price, which is averaging around US$3.40/gal in the US, up from US$2.20/gal one year ago.

The Aussie is up 0.2% at US$0.7276.

Today

The SPI Overnight closed up 8 points.

Another solid list of local AGMs today, including that of ResMed ((RMD)).

Sydney Airport ((SYD)) releases October traffic numbers.

Orica ((ORI)) and Soul Pattinson ((SOL)) go ex.

The Australian share market over the past thirty days…

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

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