The Overnight Report: Boris Sends A Warning

This story features ST. BARBARA LIMITED, and other companies. For more info SHARE ANALYSIS: SBM

The company is included in ALL-ORDS

By Greg Peel

Hitting Resistance

The futures had suggested only a mere 13 point gain for the ASX200 following a new record high for the S&P500 but by early afternoon yesterday the index was up over 60 points, having pierced resistance at 7400. But it was all too much. In less than an hour the index was up 40.

It remained around that level until the close, until market-on-close orders trimmed off -15 points. That won’t be reversed today with the futures down -41 this morning.

The energy sector was dutifully up 1.7% on further higher oil prices while resources rose 1.6% despite any notable moves in metals prices. If anything they were net lower. St Barbara ((SBM)), Champion Iron ((CIA)) and Iluka Resources ((ILU)) all made it into the top five index winners.

Iluka has been on one hell of a run since Macquarie sang its praises last week.

Note that post Santos ((STO)) merger completion, Oil Search is now lost. Senex Energy ((SXY)) will also depart now Posco’s offer has been accepted.

The rule of thumb is one buys hard assets in a high inflation environment and in the case of commodities, they are a source of inflation. Real estate is also a hard asset and yesterday the property sector was an unlikely index winner in rising 1.8%.

Yet another earnings upgrade from Charter Hall ((CHC)) was worth 5.6%, sector heavyweight Goodman Group ((GMG)) rose 1.2% and Goodman wannabe, GPT Group ((GPT)), rose 2.9%. There is a logistical theme here (with funds management in the lead role).

All other sector moves were relatively benign in a total of six up and five down. Financials provided the biggest counter (-0.3%) not led by the banks but by the insurers, with all of Insurance Australia Group ((IAG)), nib Holdings ((NHF)) and QBE Insurance ((QBE)) making the top five index losers.

UBS’s downgrade of IAG to Sell on Friday has reverberated. It’s notable that Morgan Stanley also has an equivalent Sell on IAG (Underweight) while the other five FNArena database brokers all have Buy equivalents.

The positive start to the week will come to an end today with Wall Street turning tail on omicron fears.

Tidal Wave

Just because the S&P500 hit a new record high on Friday night does not mean Wall Street has to pull back, as often it just keeps on going for a while, but last night it was a good enough excuse to run a bit scared again.

The total of confirmed covid cases in the US is close to 50m and deaths have tallied 800,000. Masks are back on in New York City. The first US omicron case was reported recently but to date the numbers have not been substantial, but if the UK is anything to go by it’s only a matter of time.

On Sunday night man-of-the-hour Boris Johnson warned of a “tidal wave” of omicron infections and announced a speeding up of booster shots.

Omicron is still showing only milder symptoms but that doesn’t mean you’d be allowed on a plane. On BoJo’s warning, it was back to selling US travel stocks and energy stocks and cyclicals in general, but technology also copped it on perceived overvaluation even as the US ten-year yield fell back -7 points.

Even Apple fell -2%.

The flipside was more buying in defensives, particularly staples and healthcare.

It was never going to be a week in which Wall Street would push blindly higher anyway, with the Fed meeting coming up on Wednesday. Will the pace of tapering be doubled, as has been expected, in the face of an omicron tidal wave?

The Bank of England and ECB also hold policy meetings on Thursday.

On a side note, Harley Davidson is planning to spin-off its electric motorcycle division. Can you picture a gang of Hells Angels coming up behind you on the highway silently?

Commodities

Traders have attributed jumps in aluminium and iron ore to a conference held last week by CCP officials, after which they were upbeat about the Chinese economy. Apart from two, but they haven’t been seen since.

It didn’t seem to work for other metals.

OPEC is also upbeat, this time on 2022 oil demand, and unlike Boris believes the impact of omicron will only be mild. This should be a positive for oil prices, except that it implies there could be more OPEC production increases ahead.

A 7% jump in iron ore was not enough to stop the Aussie falling -0.4% to US$0.7134.

Today

The SPI Overnight closed down -41 points or -0.6%.

The US reports its November PPI tonight.

Locally we’ll see the NAB business confidence survey for November.

Hub24 ((HUB)) holds its AGM.

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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