The Monday Report – 15 June 2020

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

By Greg Peel

After the Blow-Off

The ASX200 dropped -200 points in the first hour on Friday, following an -1800 point plunge in the Dow overnight. But when the Dow futures opened they began to rally strongly, hence so did we, largely halving the opening loss by lunchtime. And that’s about where the index closed.

We had already had our big plunge on the Thursday, which also followed the Dow futures, so we didn't need to replicate Wall Street fully on Friday. But the current theme is clear: we’re being led around by the nose by a market in very different circumstances to ours.

The two obvious circumstances are Big Tech and the case-count.

While our own “Ausdaq” has been delivering the goods in this period, the reality is Wall Street is led by other-worldly sectors while we’re still stuck with good ‘ol banks, rocks and healthcare. That’s the main reason why the ASX200 did not make it back to square for the year, as was the case with the S&P500, yet still we have to follow along blindly to the downside.

While our case-count has ticked up a tad since the reopenings began, it’s nothing compared to the US.

We had clearly run too far for now, and more so Wall Street, so we are now entering a period of renewed volatility in some attempt to consolidate at reality, whatever that is.

Energy (-4.0%) and the banks (-2.6%) were again the hardest hit on Friday. Consumer discretionary fell -1.9% to staples’ -0.7%, while healthcare also “outperformed” with -0.8%, but that’s about as defensive as it got. Telcos fell -2.1%, industrials -1.9% and utilities -1.2%.

Materials (-1.7%) continues to play the iron ore versus gold game.

Individual stock gains on the day were scarce, and unremarkable. Seven Group ((SVW)) was the best performer in the index with a mere 2.0%. TPG Telecom ((TPM)) announced it would deliver a special dividend if the Vodafone Australia merger went ahead, but only scored 1.9%.

The downside looked a little different, and was again very much a case of everything that had run up too hard on the reopening rally being slapped down again.

A fund manager is the obvious place to start if the market’s going to head south once more. Platinum Asset Management ((PTM)) fell -11.8%. Advertisers oOh!media ((OML)) and Southern Cross Media ((SXL)) fell -9.8% and -9.1%, iron ore and energy service company Monadelphous ((MND)) fell -8.9% and retail landlord UR Westfield ((URW)) fell -8.8%.

There’ll be some Johnny-come-latelies smarting on those trades.

For the week, the ASX200 closed down around -100 points, which is nothing too surprising in the current climate. But that was in a trading range of 425 points.

Volatility is back, suggesting the reopening theme has once again given way to the No Idea theme. Wall Street was all over the shop on Friday night, just to cement the point.

Our futures closed up 24 points on Saturday morning, so it could be a cautious start to the new week, as EOFY approaches.

Vomitron

The Dow opened up around 840 points on Friday night, confirming the futures move during our own session on Friday that had the ASX200 paring back its losses. By late morning it was up 130. Half an hour later it was up 530, at 2pm it was square for the day, and it closed up 477.

No Idea.

The buy-the-dippers had moved into the futures, probably taking note of the fact Thursday night’s plunge in excess of -5% was the fifth for the year – the other four all being in March – when previously there had been 28 one-day falls in excess of -5% in the past 70 years.

Mind you, computers have a lot to answer for.

The tip-over in the morning was driven again by the virus itself. One local government area in Oregon has called a “pause” to its reopening plans due to a rising case-count. This sparked fears of other new hot-spot states being forced to also pause, or worse still, to begin a re-lockdown.  

But every dip is being met by buyers.

Those seeing the glass as half full point to case-counts falling in previous hot-spot states, such that on a net basis, the overall picture is not so disturbing. They also suggest increased testing and tracing is behind the latest increase in infections.

So take your pick. We do know that any impact from the protests, which only grew angrier over the weekend, is yet to manifest.

Energy, banks and REITs again led the buying. Industrials were not far behind, which is why the Dow outperformed the Nasdaq. This was the state of play before last week’s tip-over.

In around another month, US June quarter earnings will start to roll in.

Commodities

All up, commodity prices are also sticking to the reopening theme.

Gold is on a pause.

The US dollar index had a strong session (+0.6%) so the Aussie is down -0.2% at US$0.6840.

The SPI Overnight closed up 24 points on Saturday morning.

The Week Ahead

No doubt the ASX200 will still be led around by Wall Street this week, but we do have some home-grown issues that may provide scope for further volatility.

The minutes of the June RBA meeting are out tomorrow, we’ll see May jobs numbers on Thursday and a first estimate of May retail sales on Friday. Thursday is the expiry of the June quarter SPI futures and ASX index options, which could be influential but non-fundamental on the day.

The S&P/ASX index rebalances announced last week come into effect on Friday. Aristocrat Leisure ((ALL)) will join the Top 20 in a sad indictment of society today, replacing Amcor ((AMC)).

China will report May industrial production, retail sales and fixed asset investment today.

The US will follow with production and sales numbers on Wednesday.

New Zealand will report March quarter GDP on Thursday and the Bank of England will hold a policy meeting, after learning the UK economy plunged -20% in April.

Orora ((ORA)) holds its AGM tomorrow and G8 Education ((GEM)) on Wednesday, while Sydney Airport ((SYD)) will provide a traffic update on Friday.

The Australian share market over the past thirty days…

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