The Overnight Report: Any Good News?

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	7351.00	– 29.00	– 0.39%
S&P ASX 200	7378.40	– 0.90	– 0.01%
S&P500	4634.09	– 34.88	– 0.75%
Nasdaq Comp	15237.64	– 175.64	– 1.14%
DJIA	35544.18	– 106.77	– 0.30%
S&P500 VIX	21.89	+ 1.58	7.78%
US 10-year yield	1.44	+ 0.01	0.98%
USD Index	96.57	+ 0.24	0.25%
FTSE100	7218.64	– 12.80	– 0.18%
DAX30	15453.56	– 168.16	– 1.08%

By Greg Peel

Down, Down

I could have seen this coming, recalling an occasion in the delta lockdown I was stuck at the Woolworths ((WOW)) checkout for much longer than usual, noting how few staff were in attendance. “We have so many off being tested,” I was told. They had to test every three days and then wait for the result.

I also noted that in any given week, a particular grocery item was all but missing on the shelf – even milk on one trip. So really Woolworths’ profit warning yesterday was not so surprising. Maybe a full -7.7% shellacking on the market was, for a Top 20 stock and a defensive. Although perhaps not as defensive as the market had blindly assumed.

Woolies’ profit warning sunk all boats, with Coles ((COL)) falling -2.7% and Endeavour -3.4%, spilling over into the discretionary sector as well, which fell -1.8% to staples’ -4.0%. The one shining light was Metcash ((MTS)), which rose 0.7% as it is now predominantly a hardware retailer.

Given the Woolies’ drag, and the fact Wall Street fell heavily on Monday night on omicron fears, the ASX200 put in a sterling effort yesterday in gradually recovering all session from an initial -38 point fall.

Energy was also down -1.0% so it took a collective effort from the remaining sectors to square up the day.

Property was again the star (+1.2%), despite a particular significant tenant, with Goodman Group ((GMG)) again waving the logistics flag (+2.0%). Materials did the heavy lifting (+0.7%) on an iron ore price bounce, and telcos chimed in (+0.7%).

This despite business confidence dropping on NAB’s index to +12 from +20 last month, although 12 is still pretty positive. Conditions rose to +12 from +10, reflecting re-openings.

If you can’t trust a supermarket to be a safe haven in a pandemic, what can you trust? The Aussie ten-year bond yield fell -6 points to 1.53%.

The banks were lower yesterday on that basis, but a rebound for insurers, which were trashed on Monday, had the financials sector up 0.2%.

There was some to-ing and fro-ing in healthcare, with Polynovo ((PNV)) jumping 15.4% after revealing a doubling in US sales and Mesoblast ((MSB)) falling -17.4% after Novartis pulled out of a deal.

But the big news was CSL’s ((CSL)) takeover of Swiss company Vifor Pharma, requiring a (fully underwritten) institutional placement of no less than US$4.5bn, with an SPP in excess of US$500m. If instos all take this up, they’ll have to sell elsewhere in the market, healthcare sector or otherwise, given CSL’s significant weighting.

Alas, the sterling effort yesterday to return to square may well be scuppered today, with Wall Street down again and our futures down -29 points this morning. Unless we can do it all again.

Record Breakers

The US November producer price index came in at 9.6% year on year – a record level for the current model rejigged in 2009. Otherwise, the highest rate in 40 years.

WHO has confirmed omicron is spreading faster than any of other prior variants.

Put the two together, and the inflation scenario looks a lot worse than even the transitory doubters had assumed months ago. Omicron is yet to make its mark in the US, where delta is still rampant, and China has now announced its first case.

The good news remains, so far, that omicron leads to milder symptoms, but mild or not, it will still keep people away from work, and potentially shut down factories and ports.

In other good news, Pfizer has found its anti-viral drug to be 89% effective against omicron, if taken within three days of symptoms.

The PPI rose 0.8% in the month when 0.5% was forecast to rise to 9.6% from October’s 8.8%. The core rate, ex food and energy – both big headline inflation contributors – rose to 6.9% from 6.3%.

Notably, it was not just goods inflation that drove the result but also services inflation, including prices for the likes of investment advice, airfares, hotel rooms and transportation, suggesting the scope is widening.

It is still assumed inflation will ease in 2022 as the numbers begin to lap 2021’s initial surge earlier in the year, but expectations now are that high numbers will linger longer than previously assumed.

So it’s over to the Fed, which will conclude its meeting tonight and reveal its tapering acceleration plans thereafter. There might have to be some mea culpa in Powell’s statement, given he had already dropped “transitory”.

The tech sell-off is back on, with no respite from US bonds (ten-year up 2 points to 1.44%), but has shown this year it could just as easily be back off again in a heartbeat. Both Apple and Microsoft enjoyed positive outlook upgrades from two separate major brokers last night, despite their elevated valuations.

Santa will probably Zoom in to Powell’s press conference.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1771.90	– 16.30	– 0.91%
Silver (oz)	21.94	– 0.38	– 1.70%
Copper (lb)	4.29	– 0.01	– 0.29%
Aluminium (lb)	1.20	– 0.01	– 0.60%
Lead (lb)	1.05	– 0.01	– 0.70%
Nickel (lb)	8.94	– 0.06	– 0.71%
Zinc (lb)	1.51	– 0.01	– 0.75%
West Texas Crude	70.50	– 0.86	– 1.21%
Brent Crude	73.50	– 1.02	– 1.37%
Iron Ore (t)	108.25	– 1.95	– 1.77%

While it’s a sea of red, falls in commodity prices were nonetheless benign except perhaps for oil, which always falls when the covid news is worrying.

The Aussie’s retreat continues, down another -0.4% to US$0.7105, as the US dollar claws its way back on inflation numbers.

Today

The SPI Overnight closed down -29 points or -0.4%.

Westpac’s consumer confidence survey for December is out today.

China will report November industrial production, retail sales and fixed asset investment numbers.

The US will report retail sales. All hinges on the Fed meeting.

Westpac ((WBC)) holds its AGM today.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
CGC	Costa Group	Upgrade to Buy from Neutral	Citi
EBO	Ebos Group	Upgrade to Outperform from Neutral	Credit Suisse
IAG	Insurance Australia Group	Downgrade to Sell from Neutral	UBS
PPT	Perpetual	Upgrade to Buy from Neutral	Citi
REG	Regis Healthcare	Downgrade to Hold from Add	Morgans
RIO	Rio Tinto	Upgrade to Overweight from Equal-weight	Morgan Stanley

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

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