Daily Market Reports | Mar 25 2020
|SPI Overnight (Jun)||4992.00||+ 278.00||5.90%|
|S&P ASX 200||4735.70||+ 189.70||4.17%|
|Nasdaq Comp||7417.86||+ 557.18||8.12%|
|S&P500 VIX||61.67||+ 0.08||0.13%|
|US 10-year yield||0.82||+ 0.05||6.81%|
|USD Index||101.94||– 0.61||– 0.59%|
By Greg Peel
The signs were there on Monday when the ASX200 closed down only -5% having hit -8% on the open. Given the last couple of sessions of weakness have been driven primarily by the failure of US Congress to agree on a stimulus package, it had become abundantly clear that news of an agreement would set off a fierce snap-back rally.
It was just a matter of whether it was worth taking the risk ahead of the announcement. But while the fiscal hung in the balance, the monetary was solved by the Fed simply firing up the printing press. Weakness in equity markets in the more recent stage of this correction has been as much about fear of a credit market freeze as it has been about a global economic lockdown.
As it stands, Congress is yet to pass the bill, but when Nancy Pelosi suggested a deal was “close”, the S&P500 overnight futures went limit-up. US traders were clearly not going to reminisce about a trade deal with China that was “close” for two years.
Hence the Dow closed up 11% last night. There are no circuit breakers on the upside. Our futures are up 5.9% this morning.
As for yesterday’s action, the ASX200 was up 180 points at lunchtime after tracking steadily upward all morning, but then it peaked and fell back to be up only 60 with an hour to go. I’m not sure of the timing, but I presume the loss of excitement was due to the government announcing even stricter lockdown measures – stay at home or you’ll be shot, or something to that effect.
Which means the index put on 130 points in the last half hour. Market on close orders? Or the Future Fund? It won’t matter today.
Today you won’t be able to get on it if you haven’t already, but for the longer term investor, there are a few points to note. (1) Every crash has its relief rally, which typically does not signal the end. The last time the Dow was up 10% in a session was in October 2008. The market bottomed in March 2009. (2) Having fallen -30%, it takes a 43% rally to get back to the starting point. There will be opportunities.
Today will be the first day in March the ASX200 will achieve two consecutive up-days.
Sector action yesterday was spread across the curve from cyclical to defensive, with the most beaten down sectors rising the most and the least the least. Energy won with 7.6%, aided by an oil price bounce, IT jumped 6.6%, materials 4.9%, aided by gold, and the banks 4.7%, having been slaughtered on Monday.
At the other end, staples rose 1.1%, utilities 1.3%, healthcare 2.0% and telcos 2.8%.
Individual stock movements were no less than bizarre. Having been trashed on Monday, Fed money printing had Credit Corp ((CCP)) up 46%. Corporate Travel Management ((CTD)) rose 31%, after falling -80% from February. Santos rose 21%, would you believe.
There were still some big losers as well. We can ignore Graincorp’s ((GNC)) -55% plunge, because that simply represents yesterday’s spin-off of the United Malt ((UMG)) business. But we note Virgin Money UK ((VUK)) was down -16% on the more extensive UK lockdown amidst everything else, the fund managers IOOF Holdings ((IFL)) and Perpetual ((PPT)) fell -10% and -8% respectively, when the market they track rose 4%, probably in anticipation of redemptions and loss of performance fees, and InvoCare ((IVC)) fell -9% as while there may soon be more funerals to go to, only ten people can attend.
So strap in and enjoy today’s action, even if you can’t get on, but do bear in mind no one has yet reported a sighting of the Fat Lady.
The Moral Dilemma
The Fed going all-in on Monday night was still not enough to turn Wall Street around, as the critical complementary element of fiscal support was still being argued over. It’s still being argued over now, but on suggestions on both sides a deal was “close”, Wall Street didn’t wait for “the fact”. Presumably it will come, and it’s now worth US$2trn.
The other driver of strength on Wall Street last night – biggest Dow up-day since 1933 – was Trump’s declaration America will reopen for business by Easter. And no, this time it isn’t just Trump being an idiot.
The Administration has decided that the economic impact on America’s poor from an extended lockdown would be greater than the health impact of the virus. The virus does not discriminate. The economy does. Thus, in defiance of all health expert recommendations, Trump is determined the US economy will reopen in less than three weeks come what may.
No doubt it’s a case of fingers crossed the case-count will have peaked by then, but last night WHO warned the US it was set to become the new global epicentre given the slow pace of testing.
One can only assume the situation will remain fluid, and irrespective of the president’s power, he does not have the power to force state governors to lift their individual lockdowns. The states were locking down long before the Administration was formulating a strategy.
Suffice to say, Wall Street liked the news.
Unsurprisingly, the hardest bounces were reserved for the most beaten down sectors of energy and financials, while the least beaten down – staples – lagged, if you can call +5% a lag. Energy rose 16% and financials 13%.
For the record, a flash estimate of the March US manufacturing PMI suggested a fall to 49.2 to 50.7, which smacks of not yet capturing factory shutdowns, while the services PMI fell to 39.1 from 49.9 to mark its lowest level since the series began in 2009.
These are just a sniff of what is to come. Get ready for data-shock ahead.
|Spot Metals,Minerals & Energy Futures|
|Gold (oz)||1630.50||+ 78.00||5.02%|
|Silver (oz)||14.39||+ 1.14||8.60%|
|Copper (lb)||2.18||+ 0.10||4.87%|
|Aluminium (lb)||0.69||– 0.01||– 0.97%|
|Lead (lb)||0.72||– 0.01||– 1.43%|
|Nickel (lb)||5.12||+ 0.12||2.37%|
|Zinc (lb)||0.83||+ 0.00||0.56%|
|West Texas Crude||24.17||+ 0.56||2.37%|
|Brent Crude||27.36||+ 0.09||0.33%|
|Iron Ore (t) futures||84.3||+4.10||5.11%|
What a difference a day makes in metal land. Also helping is the fact the US dollar has stopped its surge and is now drifting back on the Fed’s open book.
Which is why gold has resumed normal service.
And the Aussie? Up no less than 2.4% at US$0.5945.
The SPI Overnight closed up 278 points or 5.9%.
Once again there will be a slew of meaningless data releases across the globe today, including US durable goods orders for February.
Also rather old news will be earnings reports from Clover Corp ((CLV)), Hub24 ((HUB)), Nufarm ((NUF)) and Sigma Healthcare ((SIG)). More meaningful would be guidance, but don’t hold your breath. Yesterday was yet another on the ASX in which companies lined up to withdraw their full-year guidance.
The Australian share market over the past thirty days…
|BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS|
|ADH||ADAIRS||Downgrade to Hold from Add||Morgans|
|AIZ||AIR NEW ZEALAND||Downgrade to Sell from Neutral||UBS|
|ANZ||ANZ BANKING GROUP||Upgrade to Buy from Neutral||Citi|
|Upgrade to Outperform from Neutral||Credit Suisse|
|APT||AFTERPAY||Upgrade to Neutral from Sell||UBS|
|AWC||ALUMINA||Upgrade to Outperform from Neutral||Macquarie|
|AZJ||AURIZON HOLDINGS||Upgrade to Outperform from Underperform||Macquarie|
|BEN||BENDIGO AND ADELAIDE BANK||Upgrade to Buy from Sell||Citi|
|BLD||BORAL||Upgrade to Buy from Neutral||Citi|
|BOQ||BANK OF QUEENSLAND||Upgrade to Buy from Neutral||Citi|
|BPT||BEACH ENERGY||Upgrade to Buy from Neutral||Citi|
|CAR||CARSALES.COM||Upgrade to Add from Reduce||Morgans|
|CBA||COMMBANK||Upgrade to Buy from Sell||Citi|
|Upgrade to Hold from Reduce||Morgans|
|EVT||EVENT HOSPITALITY||Upgrade to Buy from Neutral||Citi|
|FXL||FLEXIGROUP||Downgrade to Hold from Add||Morgans|
|GPT||GPT||Upgrade to Outperform from Neutral||Macquarie|
|GUD||G.U.D. HOLDINGS||Downgrade to Hold from Accumulate||Ord Minnett|
|JBH||JB HI-FI||Upgrade to Neutral from Underperform||Credit Suisse|
|LLC||LENDLEASE||Downgrade to Neutral from Outperform||Macquarie|
|MPL||MEDIBANK PRIVATE||Upgrade to Outperform from Underperform||Credit Suisse|
|Upgrade to Neutral from Underperform||Macquarie|
|MVF||MONASH IVF||Downgrade to Hold from Add||Morgans|
|NAB||NATIONAL AUSTRALIA BANK||Upgrade to Outperform from Underperform||Credit Suisse|
|Upgrade to Outperform from Neutral||Macquarie|
|SEK||SEEK||Upgrade to Add from Reduce||Morgans|
|SGP||STOCKLAND||Upgrade to Neutral from Underperform||Macquarie|
|TCL||TRANSURBAN GROUP||Upgrade to Outperform from Neutral||Macquarie|
|WBC||WESTPAC BANKING||Upgrade to Buy from Neutral||Citi|
|Upgrade to Accumulate from Hold||Ord Minnett|
|WES||WESFARMERS||Upgrade to Neutral from Underperform||Credit Suisse|
|WPL||WOODSIDE PETROLEUM||Upgrade to Buy from Neutral||Citi|
For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.
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