Daily Market Reports | Aug 31 2020
This story features COSTA GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: CGC
| World Overnight | |||
| SPI Overnight (Sep) | 6004.00 | – 40.00 | – 0.66% |
| S&P ASX 200 | 6073.80 | – 52.40 | – 0.86% |
| S&P500 | 3508.01 | + 23.46 | 0.67% |
| Nasdaq Comp | 11695.63 | + 70.30 | 0.60% |
| DJIA | 28653.87 | + 161.60 | 0.57% |
| S&P500 VIX | 22.96 | – 1.51 | – 6.17% |
| US 10-year yield | 0.73 | – 0.02 | – 2.28% |
| USD Index | 92.37 | – 0.64 | – 0.69% |
| FTSE100 | 5963.57 | – 36.42 | – 0.61% |
| DAX30 | 13033.20 | – 63.16 | – 0.48% |
By Greg Peel
Currency Crisis
In falling -52 points on Friday, the ASX200 broke the trend that had been running all month. That trend was one of an earnings season playing out before a benign macro backdrop – one of little new happening during the month beyond that already known – which allowed the month’s earnings result releases to dominate each day’s trade.
While results did play a part on Friday, a fall for all sectors bar financials belied Wall Street and represented a disconnect from the theme. One could argue that Australia’s case-count has become worrisome, or one could argue that a number just over 100 for Victoria suggests a positive downward trend. One can’t argue about the fact the Aussie has jumped 1.4%.
The Aussie has been somewhat of a headwind during the month, and that headwind began to blow a bit harder last week when two of the major components of GDP – construction work and private sector capex – came in much better (less worse) than economists had forecast. This had already provided positive impetus for the Aussie, but on Thursday night the Fed upped the ante.
In shifting its long-held policy stance of an inflation goal of 2%, the Fed announced it would now target an average of 2%.
So? So it means inflation can run over 2% for some time before the Fed needs to rein it in. The Fed’s other mandate is full employment, thus one assumes the central bank will let inflation run amok for a while to promote employment growth post-virus, which means zero rates for longer. And longer.
Hence the greenback was sold down (-0.6%) and the Aussie went the other way, but because forex traders almost always play the Aussie to the short side, it ran further (+1.4%).
Suddenly Australia’s export industries which have been propping up a virus-hit economy all year are under pressure from a runaway currency.
We must also acknowledge an impact from the sudden resignation of Shinzo Abe. China gets all the glory but Japan remains a major trading partner, and Abe is a close ally and friend.
Materials fell -1.8% on Friday and energy -1.2%. Commodity price moves aside (iron ore and gold prices down), this is where all the money comes in. In US dollars.
Consumer discretionary fell -1.6%. This is where all the money goes out, in US dollars, to buy goods. Staples fell -1.4% on the rising cost of Italian tinned tomatoes and Vietnamese fish.
Healthcare is very currency exposed. It fell -1.1%.
And so the list goes on. The only sector to close in the green was financials (+0.2%), as their businesses are mostly domestic-facing, and the currency impact on offshore borrowing is adjusted through interest rates.
The day’s earnings result winner was Costa Group ((CGC)), up 11.8%. It was beaten by Polynovo ((PNV)) after a lodgement disclosing the chairman had been buying. It rose 12.9%. A trading update from Avita Medical ((AVH)) had that stock up 10.8%.
On the downside, the standout was Appen ((APX)), which tumbled another -10.3% after its disappointing result on Thursday.
The Dow finally made it back to square for the year on Friday, while the S&P and Nasdaq surged on. Out futures were down -40 points on Saturday morning.
Nothing better to do
Inflation in the US has been impacted in recent months by rising food prices, due to supply chain and domestic processing disruptions, countered by low oil prices. Food & energy are omitted from the Fed’s preferred measure of inflation, being the core PCE. Numbers released on Friday night show it is running at 1.3% annualised.
What’s all the fuss about 2%?
The Dow finally made it back to square for the year last night. Most of the rally from the bottom can be contributed to Apple, with some help from Microsoft and also Home Depot, which is America’s Bunnings. The S&P500 is now up 8.5% for the year and the Nasdaq 30%. The Dow has been mostly held back by Boeing.
The S&P on Friday night posted another new high, making five days in a row of gains, and five weeks in a row of gains.
The Nasdaq also hit a new high, of course, but what was notable was all three major indices rose by roughly the same percentage. Investors were not rotating from one area to another, just buying everything.
Why not? The Fed’s on zero forever, and despite Nancy Pelosi again failing last week to shift the White House on stimulus, Wall Street remains adamant a second stimulus support package will be agreed upon.
Coca-Cola (Dow) rose 3.3% on Friday night after announcing the layoff of 4000 workers.
Wall Street is also convinced a vaccine will be found shortly, and given the recent history of polls, not everyone is prepared to write Trump off just yet. Like him or loathe him, he’s Wall Street positive and Biden is not.
And that pretty much sums up Friday night. Nothing else of note happened. We might note however, that a falling US dollar is great for US multi-nationals, of which there are many.
| Spot Metals,Minerals & Energy Futures | |||
| Gold (oz) | 1964.30 | + 35.70 | 1.85% |
| Silver (oz) | 27.47 | + 0.51 | 1.89% |
| Copper (lb) | 3.03 | + 0.03 | 0.90% |
| Aluminium (lb) | 0.80 | + 0.00 | 0.14% |
| Lead (lb) | 0.89 | – 0.00 | – 0.12% |
| Nickel (lb) | 6.96 | + 0.11 | 1.66% |
| Zinc (lb) | 1.15 | + 0.04 | 3.30% |
| West Texas Crude | 42.97 | – 0.05 | – 0.12% |
| Brent Crude | 45.81 | + 0.71 | 1.57% |
| Iron Ore (t) | 123.25 | + 2.05 | 1.69% |
The Fed policy shift sparked up gold on Friday night. The shift is positive for all commodities in US dollar terms, although iron ore never seems to pay much attention. It’s up nonetheless.
Not sure what happened in zinc.
The Aussie is at US$0.7364.
The SPI Overnight closed down -40 points or -0.7% on Saturday morning.
The Week Ahead
Today is the last day of earnings result season.
The RBA meets tomorrow, probably waving a white flag.
Today’s data for June quarter corporate profits and inventories, and tomorrow’s current account, lead us into Wednesday’s GDP result.
Today we’ll also see July private sector credit, with building approvals and house prices tomorrow.
Tomorrow is the first of the month, thus manufacturing PMIs are due from across the globe and services PMIs on Wednesday. China’s PMIs are out today.
The latest Fed Beige Book is due on Wednesday along with US private sector jobs, and non-farm payrolls on Friday.
The Australian share market over the past thirty days…
| BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS | |||
| ABC | AdBri | Upgrade to Neutral from Sell | UBS |
| ALX | Atlas Arteria | Upgrade to Outperform from Neutral | Credit Suisse |
| APA | APA | Upgrade to Outperform from Neutral | Macquarie |
| APX | Appen | Downgrade to Underperform from Neutral | Credit Suisse |
| Downgrade to Hold from Accumulate | Ord Minnett | ||
| BIN | Bingo Industries | Downgrade to Neutral from Outperform | Credit Suisse |
| CAJ | Capitol Health | Upgrade to Accumulate from Hold | Ord Minnett |
| FLT | Flight Centre | Downgrade to Hold from Add | Morgans |
| HMC | Home Consortium Ltd | Downgrade to Neutral from Outperform | Credit Suisse |
| IDX | Integral Diagnostics | Upgrade to Outperform from Neutral | Credit Suisse |
| IGO | IGO Co | Downgrade to Neutral from Outperform | Credit Suisse |
| OSH | Oil Search | Upgrade to Buy from Neutral | Citi |
| Upgrade to Add from Hold | Morgans | ||
| RFF | Rural Funds Group | Downgrade to Neutral from Buy | UBS |
| SGP | Stockland | Downgrade to Neutral from Outperform | Credit Suisse |
| WGN | Wagners Holding | Upgrade to Neutral from Underperform | Macquarie |
| Downgrade to Neutral from Outperform | Credit Suisse | ||
| WSA | Western Areas | Upgrade to Outperform from Neutral | Credit Suisse |
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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CHARTS
For more info SHARE ANALYSIS: APX - APPEN LIMITED
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For more info SHARE ANALYSIS: PNV - POLYNOVO LIMITED