The Monday Report – 21 September 2020

This story features CSR LIMITED, and other companies. For more info SHARE ANALYSIS: CSR

By Greg Peel

Fiddling About

It seemed slightly incongruous under the current circumstances that while the Nasdaq again tested the -10% correction level on Thursday night, the local futures closed up 17 points on Friday morning. And then the ASX200 jumped almost 40 points in the first ten minutes.

Normality was soon restored and the index was down -20 points late morning, and then did not do much through to the close. The return of volatility on Wall Street was good reason not to carry positions over the weekend.

Sure enough the futures closed down -63 points on Saturday morning.

There was not much of a pattern to sector moves on Friday, other than all bar two sectors closed in the red. Two sectors that had had a hard time of it over the week were IT, on Nasdaq weakness and BNPL shenanigans, and materials, on a falling iron ore price. They drew buyers to the extent of +1.3% and +1.1%.

All five of the top five index winners on the day were materials stocks – CSR ((CSR)) and four miners.

Industrials (-1.8%) was the standout worst performer. Sydney Airport ((SYD)) fell -1.1% after reporting August traffic down -96.5%, which somehow was a surprise, and seemed to flow on to Transurban ((TCL)), which now has investors worried about debt levels. It fell -3.1%.

Property was next worst with -1.1%. UR Westfield ((URW)) fell -7.3% to be the worst index performer on the day, following on from its announced debt raising.

All other sectors fell -0.5% to -1% except energy (-0.2%), which tentatively hung in given hurricane-boosted oil prices.

Such widespread selling would have reflected the Friday effect meeting a very tenuous looking Wall Street, which on the strength of Thursday night’s trade could have either rebounded from the Nasdaq’s -10% correction level as it had done recently, or crashed on through.

It was also “quadruple witching” on Friday night, which is the expiry of quarterly derivatives such as Australia had seen on Thursday, and can similarly create undue volatility.

Getting Frustrated

Aside from the standoff between Democrats and Republicans over a second fiscal package, Congress needs to pass a bill sooner rather than later that will ensure the government doesn’t shut down. While the Republicans were set to put up such a bill on Friday night, the Democrats won’t budge unless a full second package sufficient to their demands is included.

Another side issue has been that of the Republicans wanting to put through a second rescue package for airlines, which would ensure thousands of layoffs can be avoided at the end of this month. At the time of the first airline handout, the question was raised as to why the airlines, albeit important to the economy, were being singled out while other industries also suffered.

Pelosi in particular wants to help both the airlines and restaurants, but still this has to be included in a full second package, no less than US$2.2trn.

So stalemate lingers.

The rally that led up to the correction this month had in part been supported by the assumption Congress would reach a compromise, as there was no alternative, but as the days tick by this is becoming less certain.

This may well explain why Wall Street fell again on Friday night, taking the Nasdaq further into correction, but matched in percentage terms on the day by the S&P500. While the usual tech suspects had another down-day, the worst performing sectors were those that had been drawing buyers earlier in the week – materials, utilities, industrials and property.

All sectors closed in the red.

To add to concerns, US-China tensions continue to simmer. The US has sent an envoy to Taiwan so China has stepped up its military exercises in the Taiwan Strait, and the US Department of Commerce is now prohibiting transactions involving WeChat (Tencent) and TikTok (Bytedance).

The Trump administration has asked gaming companies to provide information about their data-security protocols involving Chinese technology giants including Tencent. No word from the president yet, as Oracle and Wal-Mart race to finalise their bid for a stake in TikTok US which may now lead to an IPO. Trump’s approval is still needed.

Add in aforementioned triple-witching and it was a session that always had downside as the point of least resistance, and the Friday factor of not wanting to carry positions across a weekend.

Commodities

While it was not a big session for base metals, copper hit its highest level in more than two years to be up 55% since March.

Metal prices are being largely driven at present by Chinese speculators, commentators suggest.

Against the recent trend, the US dollar was steady but the Aussie has fallen -0.3% to US$0.7294.

The SPI Overnight closed down -63 points or -1.1% on Saturday morning.

The Week Ahead

On the local economic calendar, the highlight next week will be a preliminary estimate on Wednesday from the ABS of August retail sales, which will include at least some element of the Victorian re-lockdown. We’ll also so see a number for Australia’s March quarter population on Thursday, which in the context will be interesting in regards to the border closure that followed.

Wednesday is flash estimate day for September manufacturing PMI’s across the globe, including here, but not China.

US data releases next week include existing home sales tomorrow, house prices on Wednesday, new home sales on Thursday and durable goods orders on Friday.

The RBNZ meets on Wednesday.

Earnings results are due next week from Brickworks ((BKW)) and Premier Investments ((PMV)) today, Kathmandu ((KMD)) and Nufarm ((NUF)) on Wednesday, LiveTiles ((LVT)) on Thursday and Karoon Gas ((KAR)) on Friday.

AGMs will be held by Nearmap ((NEA)) on Tuesday and Suncorp ((SUN)) on Thursday.

There are still some ex-divs to work through, but only a couple of biggies next week.

The Australian share market over the past thirty days…

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