The Overnight Report: Sentiment Turns

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

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

World Overnight
SPI Overnight	7160.00	– 79.00	– 1.09%
S&P ASX 200	7235.90	– 20.10	– 0.28%
S&P500	4513.04	– 53.96	– 1.18%
Nasdaq Comp	15254.05	– 283.64	– 1.83%
DJIA	34022.04	– 461.68	– 1.34%
S&P500 VIX	31.12	+ 3.93	14.45%
US 10-year yield	1.43	– 0.01	– 0.62%
USD Index	96.08	+ 0.13	0.14%
FTSE100	7168.68	+ 109.23	1.55%
DAX30	15472.67	+ 372.54	2.47%

By Greg Peel

Pleasant Surprise

The ASX200 wasn’t initially quite sure what to do with the news overnight of the Fed’s sudden admittance inflation may not be transitory and consideration it may have to speed up the taper. Wall Street had fallen heavily again but in the first hour, the index was only down slightly.

Then suddenly it was down -73 points at midday, just in time for the GDP release.

Australia’s September quarter economic contraction of -1.9% was not nearly as bad as the -2.5% economists had forecast given NSW and Victorian lockdowns in the period. Consumer spending did not suffer as much as assumed. Annual growth is running at 3.9%, -0.2% below the rate of 2019.

Suffice to say the index wound back over 50 points.

It was an interesting response, given sentiment could realistically gone either way. Good news can often be good, but a lesser hit to GDP than feared may also put the RBA back on the tapering path it was on before the lockdowns interrupted, which given Wall Street’s reaction to tapering, could have been seen as bad.

But of course it’s all back up in the air again with omicron, even if Jay Powell seems unperturbed. And with Wall Street down again last night, and our futures down -79 this morning, so it’s all academic.

The other interesting element in yesterday’s market was it took a 0.6% gain for materials, a 0.2% gain for healthcare and for banks to stay flat to close the index at only -20 points, when every other sector took a hit, and the hardest hit were defensives.

The banks closed flat despite a 4 basis point rebound in the ten-year yield.

Despite the possibility of more lockdowns, consumer staples was the worst performer on -1.9%, with no one-off driver. Woolworths ((WOW)) copped -2.4%.

Utilities fell -1.4%, property -1.1%, industrials -1.0% and telcos -0.8%. This is the opposite of how Wall Street has been responding to omicron.

Looking at individual stock movers on the day there was no clear pattern, rather quite the mixed bag on both sides. GUD Holdings ((GUD)) topped the losers in falling -7.6% but that’s likely a response to an announced acquisition.

South32 ((S32)) topped the winners with 4.0% on bounces in metal prices.

One reason cited for the ASX200’s rally to the close yesterday was futures on the US indices were pointing up, suggesting a solid Wall Street session.

It did start that way, but then…

It’s Here

Indeed the Dow was up 500 points early in the session and the S&P500 was outperforming both the Dow and Nasdaq. But then the market began to roll over.

At the S&P’s morning peak, it had recovered 50% of the net fall that began last Friday. That technical level is often seen as resistance. That was one reason.

Another was Jay Powell wrapping up his second day of testimony to Congress without any walk-back or further clarification of his bombshell declarations the day before, which implied inflation was perhaps not transitory and the pace of tapering may need to be accelerated, just as new a variant emerges.

He stuck to his guns. He did however say: “the taper need not be a disruptive event in markets, I don’t expect that it will be. It hasn’t been so far — we telegraphed it.”

Not the sudden change of heart he didn’t.

Hence Wall Street was already heading south when the first case of omicron in the US was announced.

No one ever expected that a variant which popped up in 20 countries in less than a week would manage to avoid America, but by then sentiment had turned and it was just more salt in the wound.

As the afternoon wore on, selling begat selling. The Dow didn’t quite close down -500 but was not far off.

No one paid much attention to a November private sector jobs increase of 534,000 when 506,000 was forecast, but if Friday’s non-farm payrolls come in “hot” that would likely only steel the Fed and scare the market.

With delta case numbers already growing alarmingly in the Great Lakes states, omicron’s threat to the economy is not being shrugged off.

But inflation remains the issue of greatest concern at this point. Last night’s Fed Beige Book noted “Prices rose at a moderate to robust pace, with price hikes widespread across sectors of the economy,”

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1780.80	+ 7.10	0.40%
Silver (oz)	22.22	– 0.63	– 2.76%
Copper (lb)	4.32	– 0.02	– 0.41%
Aluminium (lb)	1.20	+ 0.00	0.25%
Lead (lb)	1.06	+ 0.00	0.43%
Nickel (lb)	9.17	+ 0.02	0.17%
Zinc (lb)	1.52	+ 0.02	1.00%
West Texas Crude	65.13	– 1.65	– 2.47%
Brent Crude	68.40	– 2.17	– 3.07%
Iron Ore (t)	101.40	+ 1.30	1.30%

Nothing particularly robust about metal price increases but at least they were increases.

The same can’t be said for the oils, which really have the omicron jitters ahead of tonight’s OPEC-Plus meeting. Up for discussion is whether the cartel should push on with plans to increase production from January, or under the new circumstances, not.

Despite the surprise GDP result, the Aussie is down another -0.4% at US$0.7102.

Today

The SPI Overnight closed down -79 points or -1.1%.

Locally we’ll see housing finance data today and a final revision of October trade numbers.

Premier Investments ((PMV)) holds its AGM.

All of ALS Ltd ((ALQ)), Fisher & Paykel Healthcare ((FPH)), Pendal Group ((PDL)) and TechnologyOne ((TNE)) go ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
FMG	Fortescue Metals	Downgrade to Neutral from Buy	Citi
PGH	Pact Group	Downgrade to Neutral from Outperform	Macquarie
SLC	Superloop	Upgrade to Overweight from Equal-weight	Morgan Stanley
TRJ	Trajan Group	Upgrade to Accumulate from Hold	Ord Minnett

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

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