The Monday Report – 11 November 2019

Daily Market Reports | Nov 11 2019

By Greg Peel

In the Grip of Yield

The scorecard for the ASX200 over the last three sessions of last week reads down -37 points on Wednesday, up 66 on Thursday and down -2 on Friday. The scorecard for the US ten-year bond yield in the nights preceding reads up 9 basis points, down -5 and up 11.

The index fell on Wednesday mostly due to a sell-off of bond-proxy stocks and other high-yield payers. The rally on Thursday largely reflected some better than expected earnings results, and National Bank ((NAB)) not raising new capital, as well as all those sold-down bond proxies being bought back again.

On Friday the index gained 16 points to late morning on Wall Street strength but fell back over the rest of the session to close flat. If it were not for a 1.8% gain in the energy sector on higher oil prices, and more bargain-hunting in the already knocked-down banks (+0.3%), the fall would have been a lot steeper. Once again it was all about selling yield-payers.

Utilities fell -1.7%, telcos -0.4%, industrials -0.4% and staples -0.8%.

It was also about selling gold miners. Gold does not pay a yield, therefore in a world of negative interest rates, 0% is attractive. As US bond yields rallied across last week, the US dollar gold price was a clear victim.

On Friday, all of the top five ASX200 losers were gold miners, sending materials down -0.3%. An offset was provided by lithium miners as protesters continue to block access to mines in Chile. Galaxy Resources ((GXY)) topped the winners’ board with an 8.4% gain, while Orocobre ((ORE)) chimed in with 6.1%. These are two of the most shorted stocks on the market.

Of course, behind the moves in US bond yields was progress on US-China trade negotiations.

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