The report overnight: good value for money

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World overnight
SPI Night 7311.00 – 42.00 – 0.57%
S&P ASX 200 7384.20 + 41.60 0.57%
S & P500 4443.11 – 12.37 – 0.28%
Nasdaq Comp 14969.97 – 77.73 – 0.52%
DJIA 34869.37 + 71.37 0.21%
S & P500 VIX 18.76 + 1.01 5.69%
10-year US yield 1.48 + 0.02 1.64%
USD Index 93.41 + 0.08 0.09%
FTSE100 7063.40 + 11.92 0.17%
DAX30 15573.88 + 42.13 0.27%

By Greg Peel

Bet on it

Futures had suggested a slight rise of 2 points yesterday morning, but by noon the ASX200 was up 72. The index opened solidly and continued before Gladys announced her “roadmap” “(Have these people never heard of SatNav?) suddenly.

The enthusiasm faded in the afternoon for a gain of 41 points. But beware, with the S & P500 down just -0.3% overnight, our futures are down -42 points or -0.6% this morning, suggesting that a big sell order could be coming. on the market today.

Rising US bond yields are currently boosting US banks as energy continues to gain on reopening trade and this is being emulated from below. Local banks led the charge yesterday, up 1.5%, to provide the largest contribution in index points as energy (+ 1.8%) gained on percentages.

Banks and energy once again dominated Wall Street last night.

In the United States and in Europe, the upsurge in energy demand is meeting with a slowdown in supply, particularly of natural gas. The domestic price of natgas in the United States more than doubled in 2021 while in Europe, imported natgas (mainly from Russia) hit a low of around five euros per megawatt hour in March 2020 and are now around sixty -ten.

There is no direct link with LNG export prices, as these are indexed to crude oil prices, but indirectly the demand / supply equation is in favor before the northern winter.

The prospect of an upcoming reopening of Australia’s largest state economy is positive for banks, which is reflected in rising bond yields but also easing bad debt risk. That’s good news for travel too, with Flight Center ((FLT)) and Webjet ((WEB)) severely shorted, jumping 7.5% and 5.2% yesterday.

Consumer discretionary rose 0.9%. Real estate, where you go to buy stuff, rose 0.6%. Industrials, which you drive on and also where you get on and off planes, recovered 0.5% after Friday’s drop due to yields.

Sigma Healthcare ((SIG)) switched to gazump Wesfarmers ((WES)) yesterday increasing the bid for Australian Pharmaceuticals ((API)) with a cash bid / scenario, but neither action is in the ASX200. The healthcare sector was the worst performer yesterday (-1.0%) thanks to CSL ((CSL)).

Tech came in with -0.7% on the underperformance of the Nasdaq and we note that Square – the engine of the Australian tech index – was down -1.7% last night.

As the rebound in the price of iron ore continues, materials only managed to + 0.2%, with other metals not playing the game.

But as stated, this morning’s futures sell seems a bit over the top, probably for a reason.

Coming reopening

By now, Republican senators will have rejected out of hand the bill to increase the debt ceiling for House Democrats. Democrats have more than one fallback plan, but in such a complicated American parliamentary system, it all comes down to what can be passed by simple majority and what requires 60%, like this morning’s bill.

At the end of the day, Democrats are banking on the assumption that even Republicans aren’t stupid enough to allow the United States to default on their debt, but these days it’s a big call.

The yield on ten-year US bonds hit 1.50% last night before closing at 1.48%, up a few more basis points. That’s not quite reminiscent of the sudden surge in yields seen earlier in the year, to as high as 1.75%, when the United States initially reopened. Maybe the delta made bond traders more cautious. But the trend is now clearly on the rise.

The upcoming reopening of the US international border in November is emblematic of a renewed enthusiasm for reopening trade, or should we say reopening trade, and that means another rotation from growth stocks to values ​​and cyclicals.

The S & P500’s winning sectors last night were Energy (+ 3.4%), Financials (+ 1.3%) and Materials (+ 0.8%) while the losers were Health (-1.4 %), real estate (-1.2%) and technology (- 1.0%

Healthcare is non-cyclical and technology owes higher returns, but real estate is interesting. The simple equation is that higher bond yields undermine the value of paying regular returns, but REITs have also often been set up as a hedge against inflation (rents rise with inflation) and expectations of higher inflation for longer is the topic of the day.

Inflation is most evident in energy prices (see above) which around the world (with one exception) reflect the shift from fossil fuels to renewables at a time when the latter are no longer available. not yet ready to meet demand.

Power shortages in China have led to forced cuts in production at factories, while a lack of available truck drivers has led to a ’70s-style race at UK gas stations to the point where they are all dry, despite the abundance of fuel in the refineries.

This is fodder for the right, but the bottom line is that the great global energy transition will not be smooth.

The current inflationary pressure is only on supply shortages and constraints and in another flashback, Costco in the United States has been forced to limit sales of toilet paper and bottled water.

We are awaiting the August reading for US PCE inflation due Friday.


Metal prices are somewhat caught between supply shortages and demand reduction (eg cuts in Chinese factories).

Iron ore continues to bounce back, but it’s probably more technical than fundamental.

With oil and iron ore rising, the Aussie is up 0.4% to US $ 0.7285.


SPI Overnight closed down -42 points or -0.6%.

Today we will see a revised reading of August retail sales.

China will release industrial profit figures for August.

The United States is seeing consumer confidence and housing prices (which, like ours, are falling).

Spot metals, minerals and energy futures
Gold (oz) 1749.70 – 0.50 – 0.03%
Silver (oz) 22.61 + 0.23 1.03%
Copper (lb) 4.23 – 0.00 – 0.03%
Aluminum (lb) 1.31 – 0.01 – 0.89%
Lead (lb) 0.98 + 0.00 0.11%
Nickel (lb) 8.55 – 0.12 – 1.34%
Zinc (lb) 1.40 + 0.00 0.32%
west texas crude 75.45 + 1.47 1.99%
Brent raw 79.33 + 1.24 1.59%
Iron ore 118.65 + 8.50 7.72%


SPI Overnight closed down -42 points or -0.6%.

Today we will see a revised reading of August retail sales.

China will release industrial profit figures for August.

The United States is seeing consumer confidence and housing prices (which, like ours, are falling).

The Australian equity market over the past 30 days …

AGL AGL Energy Upgrade to purchase pending Ord minnett
AUB AUB Group Downgrade to accumulate from Buy Ord minnett
AX1 Accent group Neutral Citi
BAP Bapcor Upgrade to buy from neutral Citi
FSF Fonterra shareholders’ fund Upgrade to outperform from underperform Macquarie
SFR Sandfire Resources Downgrade to Neutral from Outperform Swiss credit
VTG Vita Group Downgrade to Suspend from Buy Ord minnett

For more details, check out FNArena’s Australian Broker Calls Report, which is updated every morning, Monday through Friday.

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

(Readers should note that all comments, observations, names and calculations are provided for informational and educational purposes only. Investors should always consult their licensed investment advisor before making any decisions. All opinions expressed are those of the author and not those of the FNArena association – see disclaimer on the site)

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