The Monday Report – 06 December 2021

This story features TPG TELECOM LIMITED, and other companies. For more info SHARE ANALYSIS: TPG

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

World Overnight
SPI Overnight	7260.00	+ 11.00	0.15%
S&P ASX 200	7241.20	+ 16.00	0.22%
S&P500	4538.43	– 38.67	– 0.84%
Nasdaq Comp	15085.47	– 295.85	– 1.92%
DJIA	34580.08	– 59.71	– 0.17%
S&P500 VIX	30.67	+ 2.72	9.73%
US 10-year yield	1.34	– 0.11	– 7.25%
USD Index	96.11	– 0.01	– 0.01%
FTSE100	7122.32	– 6.89	– 0.10%
DAX30	15169.98	– 93.13	– 0.61%

By Greg Peel

Omicronia

Following a 1.4% bounce for the S&P500 overnight, the ASX200 opened up 63 points on Friday and immediately fell back, to be down -14 at lunchtime. An afternoon rally saw the index end the day up 16.

Indecision currently reigns on the ASX, and things are not much different on Wall Street. Omicron is causing angst, for the simple reason it’s on the one hand yet another new strain that might lead to fresh lockdowns, and on the other, possibly a stronger strain with weaker powers of causing illness.

What to do? No one knows as yet, and Fridays aren’t the best days to take a punt.

The indecision is also clearly evident in sector moves, which on Friday continued on from Thursday’s mixed bag.

Financials continued their comeback (+1.0%) despite Aussie yields once again falling. The ten-year fell -7 points to 1.60%. As is the case in the US, the local yield curve is flattening, as evidenced by a one month gain of the two-year by 2 points, the five-year falling -3 points, the ten-year -20 and the fifteen-year -26.

A flattening yield curve implies tighter policy at the short end (RBA tapering) and a weaker economic growth outlook.

Energy was the best performer on 1.6%, with oil prices bouncing. Materials managed 0.5%.

Healthcare was again hit hard, down -1.7%, and staples copped -1.0%, despite the threat of toilet paper hoarding. Industrials gained 0.5%, despite the threat of lockdowns.

Other sector moves were minimal, and you know it’s an indecisive day when technology doesn’t move.

The most notable move since Friday has been the Aussie dollar, which is down a whopping -1.3% to be hanging on the brink of the sixties. This is despite no move in the US dollar index, and no major commodity price falls, leaving only that yield curve as incentive (and forex traders who love to play the Aussie short).

Also notable was an -8.61% fall on the day for TPG Telecom ((TPG)) after the CEO and founder announced he was cashing in 53m shares.

Wall Street is not helping the indecisive situation either. Thursday night saw investors rush back into cyclical trades and tech and Friday night saw them rush back out again.

Friday night’s sell-off was concentrated in tech, big and small. It appears Australian investors have finally come to realise this is a world sufficiently removed from our own market. With the S&P500 closing down -0.8% on Friday night, our futures closed up 11 points on Saturday morning.

Big Selling in Big Tech

The US non-farm payrolls report for November showed 210,000 jobs being added when 573,000 was forecast. But economists weren’t too fussed, given another report showed 1.1m jobs were added.

Say what?

The former surveys businesses and the public service and is considered far more accurate than the latter, which surveys households and is seen to have much greater margin of error. But what is not in question is the near 600,000 people, as shown in the non-farm payrolls report, who re-entered the market last month looking for work.

Notwithstanding the supposedly more accurate NFP report is constantly revised even two months later, and weak numbers have typically been revised significantly upward this year.

So the bottom line is Wall Street either wasn’t too upset about the supposed miss, or just didn’t believe it. Consensus is the result won’t upset the Fed’s taper speed-up plans. A doubling of the pace is expected to be announced at this month’s meeting. Employment is largely reaching the central bank’s target, but inflation is a long way off.

So we cannot put the big sell-off on Friday night down to jobs. We could perhaps identify the trigger being an earnings report and guidance from a recent tech growth darling called Docusign, which fell -43%.

Suddenly tech investments were reassessed. At its nadir, the Nasdaq was down almost -3%. All of the FAAMGs were down around -2%, chip making rock star Nvidia was down -5%, and Tesla was down -7% after Elon announced more tax-selling. These are all the biggest market cap companies, and hence their influence is substantial.

The falls came despite another -11 point fall in the US ten-year yield to 1.34%, which probably was more about the jobs number.

There was no clear rotation out of growth and into value. The Nasdaq underperformed but all three indices closed lower. There was nevertheless clear evidence of rotation in defensives, with consumer staples and utilities the leading S&P sectors.

The buyers did move in late in the session – the Dow was down over -350 at its low – but caution was still evident ahead of a weekend that may or may not bring ominous news on omicron.

If 2021 history is any guide, and there is no great surge in omicron hospitalisations, investors should swiftly pile back into Big Tech this week.

Latest data have omicron cases now in 16 US states, with cases including the fully vaccinated, but symptoms have been mild.

Again, a weekend is not the time to take the punt.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1782.60	+ 15.00	0.85%
Silver (oz)	22.52	+ 0.15	0.67%
Copper (lb)	4.33	– 0.01	– 0.34%
Aluminium (lb)	1.19	– 0.00	– 0.34%
Lead (lb)	1.02	– 0.03	– 2.42%
Nickel (lb)	9.24	+ 0.05	0.50%
Zinc (lb)	1.50	+ 0.00	0.26%
West Texas Crude	66.26	– 0.92	– 1.37%
Brent Crude	69.88	– 0.46	– 0.65%
Iron Ore (t)	98.50	+ 0.15	0.15%

Not much to see here, beyond a bit of a comeback for gold and renewed weakness in the oils.

The -1.3% fall for the Aussie to US$0.7004 rather stands out.

The SPI Overnight closed up 11 points on Saturday morning.

The Week Ahead

It’s a quieter week in the US this week data-wise, up until Friday’s November CPI release.

China will release November trade numbers tomorrow and inflation data on Thursday.

Locally we’ll see November job ads, and the RBA meets tomorrow.

On Friday S&P/ASX will announce quarterly index component changes, which become effective Friday week.

Metcash ((MTS)) reports earnings today.

Bank of Queensland ((BOQ)) holds its AGM tomorrow.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
DHG	Domain Australia	Upgrade to Buy from Neutral	UBS
FMG	Fortescue Metals	Downgrade to Neutral from Buy	Citi
OTW	Over The Wire	Downgrade to Accumulate from Buy	Ord Minnett
REA	REA Group	Upgrade to Neutral from Sell	UBS
WOR	Worley	Upgrade to Overweight from Equal-weight	Morgan Stanley

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