The Overnight Report: Stalled

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

World Overnight
SPI Overnight	7368.00	– 10.00	– 0.14%
S&P ASX 200	7384.50	– 20.90	– 0.28%
S&P500	4667.45	– 33.76	– 0.72%
Nasdaq Comp	15517.37	– 269.62	– 1.71%
DJIA	35754.69	– 0.06	– 0.00%
S&P500 VIX	21.58	+ 1.68	8.44%
US 10-year yield	1.49	– 0.02	– 1.46%
USD Index	96.22	+ 0.28	0.29%
FTSE100	7321.26	– 15.79	– 0.22%
DAX30	15639.26	– 47.83	– 0.30%

By Greg Peel

Now What?

I had noted last month that the local market had reached a point of indecision and really was unsure what to do, with sectors moving up and down on different days while the ASX200 went nowhere. Yesterday it seemed that’s where we’re back to, post the omicron crash and bounce.

I noted yesterday that 7400 has proven a pivot point over recent months and sure enough yesterday the index swung back and forth around that number – down -28 late morning and up 13 at 2.30pm.

Chinese data released at midday appeared to be the catalyst for the mid-session turnaround. China’s CPI rose to 2.3% year on year in November, up from 1.5%, and the PPI rose 12.9%, down from 13.4%.

For the headline CPI, it’s all about food in China. Fresh vegetable prices were up 30% year on year in November but pork prices were down -36%. The core CPI rose a mere 1.2%. For the rest of the world, it’s all about producer prices, and while 12.9% is still ridiculously high, it’s lower than 13.4%, and Beijing has now eased off on restrictions that had factories shut down.

Omicron remains a threat, given Beijing locks down at the slightest sign of trouble.

Healthcare was only one of three sectors to close in the green yesterday (+0.15%), with property just falling over the line (+0.04%) and utilities up 0.4%. In the latter case, the sector as a whole effectively closed down on the day given AGL Energy ((AGL)) rose 4.7% to top the index.

AGL and Twiggy have joined forces to investigate the possibility of building a hydrogen plant in the coal mine dotted Hunter Valley. Fortescue Metals ((FMG)) rose 1.5%.

The banks largely held up (-0.06%) as the yield curve continues to become less flat now we think omicron is less of a threat. The two-year yield fell -5 points to 0.61% and the ten-year rose 6 points to 1.67%. It’s what bankers dream about.

Elsewhere, some of the biggest sector movers of Wednesday were the biggest again yesterday, but in the opposite direction. Energy fell -1.1%, discretionary -0.9%, technology -0.9% and materials -0.5%.

In corporate news, the ACCC has cleared the way for Sydney Airport ((SYD)) to be taken over by a private airport consortium, which may have surprised some. It rose 2.9%. And cleared the way for Seven West Media ((SWM)) to take over Prime Media ((PRT)), so there goes your local television in relevant regions. Seven fell -3.9% and Prime rose 1.2%.

The futures are down -10 points this morning after a bit of a pullback from the highs on Wall Street. Having now priced in a shrugging off of omicron, it’s not clear right now what the next catalyst will be.

We may just stumble our way to Christmas.

Not Surprising

Given a 3% bounce from the omicron bottom in a couple of days, it’s not surprising the S&P500 cooled off last night having reached within mere points of its all-time high, which also happens to mark a 25% year to date gain. The Nasdaq jumped 4%, so it were the tech names that took the brunt.

Not so much your biggies – Apple ticked up yet again to get closer to US$3trn – but your lockdown winners like Zoom and Peloton et al, that had enjoyed a brief turnaround from 2021 falls form their peaks of up to -50% when omicron first appeared, assuming they’d be back in favour again.

Wall Street has now shrugged off omicron, so you can put the exercise bike away again.

Also being hit was anything EV, including Tesla (-6.1%), after a recent surge of buying following the Rivian IPO (bigger than Ford on day one, nothing produced yet) which whipped up excitement amongst the meme generation. Some cooling off was required.

Ditto the travel stocks.

The US ten-year yield pulled back -2 points to 1.49% and oil prices dropped -2.5% following their similar bounce.

The Dow held up because investors moved back into defensives and out of growth/cyclicals that had led the big rebound.

So Wall Street, too, is in a bit of a “now what?” position, ahead of tonight’s November CPI result and the Fed meeting next week.

Surely by November US inflation should be cycling the CPI rebound from 2020 lockdown lows and begin to ease back? We’ll see.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1776.10	– 10.80	– 0.60%
Silver (oz)	21.97	– 0.50	– 2.23%
Copper (lb)	4.33	– 0.05	– 1.06%
Aluminium (lb)	1.19	+ 0.00	0.11%
Lead (lb)	1.04	+ 0.02	1.99%
Nickel (lb)	9.05	– 0.19	– 2.05%
Zinc (lb)	1.52	+ 0.03	2.04%
West Texas Crude	70.46	– 2.04	– 2.81%
Brent Crude	73.98	– 1.97	– 2.59%
Iron Ore (t)	106.70	– 0.30	– 0.28%

Ratings agency Fitch yesterday cut credit ratings on Evergrande and rival Kaisa to “restricted default”, with both now having defaulted on offshore bond payments. Trading in Kaisa shares is suspended.

Chinese property market fears had eased a bit from the earlier scares, as Beijing reversed some restrictions and the PBoC pumped in liquidity to try and halt China’s economic slide. But nothing has changed with regard the levels of debt among developers.

After a solid run back the oils were due a breather too, and last night these downgrades were used as the excuse.

Individual base metal prices are currently bouncing back and forth, without achieving much.

The rampant Aussie rebound has come to an end, down -0.4% to US$0.7146. Perhaps the shorts are now cleaned out.

Today

The SPI Overnight closed down -10 points.

The local market may also hold its breath ahead of the US CPI tonight.

US consumer sentiment numbers are also due.

Pendal Group ((PDL)) and Soul Pattinson ((SOL)) hold AGMs today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
EVN	Evolution Mining	Upgrade to Neutral from Sell	UBS
IGO	IGO	Upgrade to Buy from Neutral	Citi
MTS	Metcash	Upgrade to Outperform from Neutral	Macquarie
NST	Northern Star Resources	Upgrade to Buy from Neutral	UBS
S32	South32	Upgrade to Add from Hold	Morgans
SIG	Sigma Healthcare	Downgrade to Neutral from Outperform	Credit Suisse
WHC	Whitehaven Coal	Upgrade to Buy from Neutral	Citi
Z1P	Zip Co	Upgrade to Neutral from Sell	UBS

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

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