The Monday Report – 13 December 2021

This story features ILUKA RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: ILU

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

World Overnight
SPI Overnight	7366.00	+ 13.00	0.18%
S&P ASX 200	7353.50	– 31.00	– 0.42%
S&P500	4712.02	+ 44.57	0.95%
Nasdaq Comp	15630.60	+ 113.23	0.73%
DJIA	35970.99	+ 216.30	0.60%
S&P500 VIX	18.69	– 2.89	– 13.39%
US 10-year yield	1.49	+ 0.00	0.13%
USD Index	96.10	– 0.12	– 0.12%
FTSE100	7291.78	– 29.48	– 0.40%
DAX30	15623.31	– 15.95	– 0.10%

By Greg Peel

Squaring Up

The ASX200 followed Wall Street’s lead on Friday in squaring up ahead of Friday night’s US CPI release. The index opened down -30 points and aside from a brief foray to down -48 mid-afternoon, closed down -30 points.

Profit-taking was apparent in healthcare (-1.8%) following a strong week for the sector.

Energy continues to follow oil prices around so it was down -1.5%. Technology follows Block (yes, another damned change of name in US tech world, formerly Square) so it was down -0.9%.

Afterpay’s ((APT)) -4.4% fall was the biggest for the index.

The negatives were less dramatic thereafter with the banks and materials both down -0.3%.

Utilities, telcos and staples all closed modestly higher which suggests a defensive bent, but property fell -0.4% and discretionary outpaced staples (+0.3%).

This had nothing to do with meme stock Redbubble’s 10.1% chart-topping gain (having fallen -8% the day before to top the opposite chart) as despite being a consumer discretionary business, it’s online only hence in the technology sector.

Standard & Poor’s in the US has now recognised that in today’s world, it’s not very informative to simply throw every online or software stock into technology and is moving to address the situation, with a rejigging of sector components in the S&P500 pending.

Iluka Resources ((ILU)) was second best performer (+7.9%) after Macquarie made significant earnings forecast upgrades and sang Iluka’s praises as it moves into rare earths to supplement its mineral sands business.

Not much need to dig deeper as despite the US inflation number again coming in “hot”, it was nothing Wall Street did not expect. The S&P hit a new all-time high and our futures were up 13 points on Saturday morning.

The devastating tornadoes that have hit the US occurred over the weekend, hence after Wall Street’s close and our futures close.

In recent years Wall Street has tended to not much react to disasters, as destruction events are always followed by a rebuilding boost that tends to offset. It can be different if, for example, major energy infrastructure is involved but as far as I know that is not the case.

The exception would be Amazon, which lost a distribution centre at a rather critical time. We’ll have to wait and see what the response is tonight.

It’s a Record

US consumer prices rose 0.8% in November against expectations of 0.7%, to reach 6.8% year on year when 6.7% was forecast, up from 6.2% in October. So not too much of a shock, despite being the fastest pace since 1982.

Fuel and used car prices contributed the bulk of the gains rising over 30% each, but everything was up including food and clothing.

Soaring house prices have led to soaring rents, while the fastest increase in wages in decades is adding to the spiral. In real terms (net of inflation), wages fell -1.9% in the month, which emphasises the tough environment for the average US consumer, and why the Biden Administration is under a lot of pressure.

The core CPI (ex food & energy) rose to 4.9% annual from 4.6%.

Wall Street took the result in its stride. Another “hot” number was anticipated, and Wall Street is already expecting the Fed to announce a doubling of the pace of tapering after it meets this week, and is pricing in up to three rate hikes next year despite this being a long way off Powell’s thinking.

And bearing in mind the S&P500 had already risen to almost a new high before pulling back ahead of the CPI release, it was a green light to follow through on Friday night.

The S&P is up almost 4% from its last low. Wall Street has officially dismissed omicron.

Evidence suggests used car prices have since begun to fall back in the US. The next print will also take in the big omicron-led fall in fuel prices, which have nonetheless come back up again since, and a big drop from the peak in natural gas prices, since a mild US winter was forecast.

One might expect that with inflation soaring ahead of wage growth, US consumers would be worried heading into Christmas, but no, the Michigan Uni bi-monthly consumer sentiment index rose to 70.4 from 67.4 at the end of November.

This is a 100-neutral index, so the figures are still well into the pessimistic region.

Outperformance of the S&P over the Nasdaq suggests this was not a Big Tech-led rally, although Apple hit yet another high and is in all three indices. Are we there yet? No, Apple closed at US$2.944trn.

There were also a couple of big moves among Not-Quite-As-Big Tech.

Chip-maker Broadcom and cloud software company Oracle both reported earnings and rose 8.3% and 15.6% respectively.

Wall Street will now await the outcome of the Fed meeting on Wednesday night.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1782.90	+ 6.80	0.38%
Silver (oz)	22.18	+ 0.21	0.96%
Copper (lb)	4.29	– 0.04	– 0.97%
Aluminium (lb)	1.18	– 0.01	– 0.80%
Lead (lb)	1.04	+ 0.00	0.05%
Nickel (lb)	9.05	+ 0.00	0.03%
Zinc (lb)	1.52	– 0.00	– 0.07%
West Texas Crude	71.67	+ 1.21	1.72%
Brent Crude	75.15	+ 1.17	1.58%
Iron Ore (t)	102.60	– 4.10	– 3.84%

Aluminium and copper stand out but nickel and zinc seem to have settled down for now.

A -3.8% drop for iron ore looks biggish but much the norm these days and it’s still above US$100/t.

The oils continue their recovery.

The Aussie is up 0.2% at US$0.7163.

The SPI Overnight closed up 13 points on Saturday morning.

The Week Ahead

The Fed statement and press conference are due early Thursday morning our time.

Before that comes the US November PPI tomorrow night. Wednesday is retail sales and Thursday industrial production so it’s all happening.

China will report retail sales, industrial production and fixed asset investment on Wednesday.

The Bank of England and the ECB both meet on Thursday night.

New Zealand reports September quarter GDP on Thursday.

Locally we’ll see the NAB business confidence survey tomorrow and Westpac consumer confidence survey on Wednesday, followed by November jobs numbers on Thursday.

Thursday brings the expiry of December quarter ASX derivatives which can lead to volatility on the day.

Previously announced changes to the S&P/ASX indices will become effective on Friday.

Hub24 ((HUB)) holds its AGM tomorrow and Elders ((ELD)) and Orica ((ORI)) hold theirs on Thursday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
EBO	Ebos Group	Upgrade to Outperform from Neutral	Credit Suisse
EVN	Evolution Mining	Upgrade to Neutral from Sell	UBS
IGO	IGO	Upgrade to Buy from Neutral	Citi
PPT	Perpetual	Upgrade to Buy from Neutral	Citi
RIO	Rio Tinto	Upgrade to Overweight from Equal-weight	Morgan Stanley
S32	South32	Upgrade to Add from Hold	Morgans
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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