The Overnight Report: On The Other Hand…

This story features BHP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BHP

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

World Overnight
SPI Overnight	7206.00	+ 10.00	0.14%
S&P ASX 200	7295.70	– 31.40	– 0.43%
S&P500	4668.67	– 41.18	– 0.87%
Nasdaq Comp	15180.44	– 385.15	– 2.47%
DJIA	35897.64	– 29.79	– 0.08%
S&P500 VIX	20.57	+ 1.28	6.64%
US 10-year yield	1.42	– 0.04	– 2.80%
USD Index	96.02	– 0.38	– 0.39%
FTSE100	7260.61	+ 89.86	1.25%
DAX30	15636.40	+ 160.05	1.03%

By Greg Peel

Still Healthy

It looks like the ASX200 fell -31 points yesterday but the reality is CSL’s capital raising was worth -34 points alone. CSL came back on the boards after a trading halt post the announcement of a $6.3bn institutional placement on a book-build basis (instos make their bids) which settled at $273 per share.

That’s exactly where the shares closed, down -8.2%. CSL will use the funds to acquire Swiss company Vifor Pharma; it's biggest acquisition to date.

The healthcare sector fell -5.1%. It was an interesting day to choose to come back on the boards, being derivatives expiry day, but in the end there was very little volatility. The bulk of positions were likely at higher strike prices.

Indeed, only two other sectors much troubled the scorer by the close yesterday.

The ACCC cleared the way for the BHP Petroleum ((BHP)) Woodside Petroleum ((WPL)) merger, which had Woodside down -1.3%, despite higher oil prices, and rival Santos ((STO)), which has now absorbed Oil Search, down -1.5%. Energy fell -1.2%.

Technology shot up 2.1% on the Nasdaq’s response to Fed tapering and rate hike forecasts, which seemed the wrong response for growth stocks unless the expectation was already priced in.

Apparently it wasn’t. Our technology sector will probably lose all of that today.

The only other sector to much move the needle was property, up 0.8% after seeing some profit-taking on Wednesday.

The headaches for the S&P/ASX index-keepers continued with IGO ((IGO)) going all-cash with its bid for Western Areas ((WSA)), which has been approved by the board. IGO has offered $3.36ps but Western Areas closed at $3.42 yesterday, implying expectations of a rival bid.

The changes made to the indices announced by S&P/ASX a couple of weeks ago come into effect today.

In other news, Australia added 366,000 jobs in November after lockdowns ended to mark a record month by a margin. Economists had forecast 200,000. The gain wipes out all the job losses of the previous four months.

The unemployment rate plunged to 4.6% from 5.2% and underemployment to 7.5% from 9.5%, despite participation rising to 66.1% from 64.6%.

Couldn’t keep the smile off Josh’s face as he released an optimistic MYEFO. The Aussie ten-year yield rose 5 points.

Commodities prices across the board have had a solid overnight session so despite weakness on Wall Street, our futures, now the March quarter contract, are up 10.

Hang on a minute…

I have noted time and time again that seasoned investors stay right out of the market in the two hours of volatility that typically follows a Fed statement release, leaving it to traders, human or not, to play silly-buggers. They have a think about it overnight and then respond on the following day.

On Wednesday night the Nasdaq responded to a doubling of the pace of tapering and FOMC forecasts of three rate hikes next year by rallying 2.1%. Last night it fell over -3% at its low, before closing down -2.5%, in a wild session that had the Dow up 260 in the morning and down -150 in the afternoon.

Despite the Dow’s rollercoaster it was really all about tech, which makes up the bulk of the Nasdaq, around 25% of the S&P500 and impacts the Dow via components Apple and Microsoft.

We might argue the reason tech rallied on the Fed news was because all it did was bring the Fed in line with market expectations that were months old – buy the fact. But given the likes of Apple had already pressed on to ever new highs, one could also argue the market had not priced in the impact of rate hikes on growth stocks at all.

The FAAMGs, or if you prefer, MAAMGs, were all sold off last night by -2-4%. But there were other extenuating circumstances.

Last night the Bank of England hiked its rate for the first time, to 0.25% from 0.10%. It had been threatening to do so for a while, but was held back by covid, which is why last night’s move came as s shock. The ECB announced a tapering of its pandemic emergency QE, but also a counter QE increase elsewhere, which was a bit of an offset.

Adobe released a strong earnings report but disappointing guidance, and fell -10%. This rather set the tone for the tech sector, irrespective of monetary policy.

Apple announced that given the ongoing chip shortage, it would look at moving chip manufacturing in-house. It was goodnight for the high-flying chip makers, including sector-leader Nvidia.

The end result was quite a dichotomy between banks, energy and materials, which all closed in the green, and technology, communications services and discretionary, which all closed well into the red.

There was a certain irony that the US ten-year yield rose 4 basis points on Wednesday night, yet the Nasdaq rallied, and fell -4 basis points last night, and the Nasdaq was slammed.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1797.10	+ 18.80	1.06%
Silver (oz)	22.41	+ 0.37	1.68%
Copper (lb)	4.33	+ 0.13	3.01%
Aluminium (lb)	1.20	+ 0.02	1.53%
Lead (lb)	1.06	– 0.00	– 0.03%
Nickel (lb)	8.95	+ 0.19	2.15%
Zinc (lb)	1.57	+ 0.06	3.74%
West Texas Crude	71.98	+ 0.56	0.78%
Brent Crude	74.69	+ 0.33	0.44%
Iron Ore (t)	114.70	+ 5.00	4.56%

If the Fed’s policy pivot is not good news for new-fangled technology, it is good news for old-fashioned rocks. Commodities are inflation-proof, because they’re a source of inflation rather than a victim.

LME traders also suggest dip-buying last night after prior weakness set off short-covering.

The Aussie’s 0.2% rise to US$0.7179 seems relatively muted on the jobs numbers and MYEFO, but short-covering had already driven it up from 70 to near 72 in rapid fashion.

Today

The SPI Overnight closed up 10 points.

National Bank ((NAB)), Nufarm ((NUF)) and Incitec Pivot ((IPL)) hold their AGMs today.

As noted, index changes come into effect.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
AWC	Alumina Ltd	Upgrade to Accumulate from Hold	Ord Minnett
CGC	Costa Group	Upgrade to Buy from Neutral	Citi
CSL	CSL	Upgrade to Buy from Neutral	Citi
CTD	Corporate Travel Management	Upgrade to Outperform from Neutral	Macquarie
PDN	Paladin Energy	Outperform	Macquarie
REG	Regis Healthcare	Downgrade to Hold from Add	Morgans
SGP	Stockland	Downgrade to Underperform from Neutral	Macquarie
STO	Santos	Upgrade to Outperform from Neutral	Macquarie

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

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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