The Monday Report – 28 September 2020

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

World Overnight
SPI Overnight (Dec)	5951.00	+ 21.00	0.35%
S&P ASX 200	5964.90	+ 89.00	1.51%
S&P500	3298.46	+ 51.87	1.60%
Nasdaq Comp	10913.56	+ 241.29	2.26%
DJIA	27173.96	+ 358.52	1.34%
S&P500 VIX	26.38	– 2.13	– 7.47%
US 10-year yield	0.66	– 0.01	– 1.05%
USD Index	94.64	+ 0.32	0.34%
FTSE100	5842.67	+ 19.89	0.34%
DAX30	12469.20	– 137.37	– 1.09%

By Greg Peel

How much ya want?

Australia’s banks didn’t quite recover on Friday what they lost in the dark days of the Royal Commission but they gave it a red hot go. I doubt anyone can remember the last time four banks appeared on the ASX200 top five winners’ board.

Not the ones you’re thinking though – Westpac ((WBC)) led the charge, up 7.4% but Bendigo & Adelaide ((BEN)) took a surprise fourth with 4.8%. Commonwealth Bank ((CBA)) pulled a hammy and stumbled in with 3.0%. CBA has, nevertheless, outperformed the others post March.

Had it not been for another rise in coal prices, sending Whitehaven Coal ((WHC)) up another 8.0%, we might have seen all financials in the top five.

The financials sector rose 3.7% on the day after the Treasurer decided to toss his copy of the Royal Commission recommendations out the window and loosen lending restrictions on banks. Don’t know whether he told APRA first. I can now imagine a queue of near-death businesses desperately putting their hands out.

So it will be up to the banks to apply their own levels of prudence, and they do currently have large provisions put aside for virus-related losses on existing loans, but never in the history of mankind have banks ever chosen prudence over profit.

If Friday was a race amongst sectors, the banks had finished, showered and were at the bar when energy crossed the line (+1.8%), followed by materials (+1.4%). Beside better iron ore, coal and oil prices, preliminary data from the ABS showed exports bounced back in August having dipped in July.

Healthcare missed the start (-0.15%), while other sectors simply made up the numbers.

Friday’s was very much a micro-focussed rally with macro themes, other than stronger commodity prices, taking a back seat. Wall Street had looked very uncertain on Thursday night and our futures closed up only 7 points before open. Fortunately for local investors, Wall Street did not bottle on Friday night.

I’ve lost count of how many times this year the local market has had a strong session kyboshed the next day by weakness on Wall Street, or a weak session reversed by strength. But Friday’s rally has been backed up by a strong session on Friday night for Wall Street, and our futures closed up 21 points on Saturday morning.

If this comes to pass the ASX200 will be knocking on the door of 6000 once more, last seen in early September before Wall Street’s Big Tech correction.

The S&P500 again bounced off its 2020 breakeven level on Friday night to climb back to the prior February high. Breakeven for the ASX200 is still almost 800 points away, while the February high is almost 1200 points away.

Glad that’s over

France recorded its highest ever daily case-count last week. Madrid is going back into lockdown, and Boris has come up with a scheme to supercharge testing rates that most consider hare-brained.

In the US, the weekly average case-count rose 9% last week from the week before. Leading the count by number of cases are California, Texas and Florida, which were the three states that earlier led the initial US “second wave”. Bad news comes in threes.

In response to the renewed spike, the Republican governor of Florida has announced a further easing of restrictions, including bars and restaurants being allowed to return to full capacity and counties banned from issuing fines to those not wearing masks.

?

None of which bothers Wall Street. Talk now is of the correction having played itself out, as Friday saw a return to normal programming. All major indices surged, led by you know who.

The S&P500 again bounced off its 2020 breakeven line on Friday night, which is also roughly the -10% correction mark. The S&P has held this level twice now. We recall that the Big Tech correction looked over the week before when the Nasdaq bounced off its own -10% correction level, but it was not to be the case.

After three weeks of net losses, the S&P posted a net positive week last week.

President Trump has chosen his Supreme Court replacement – an ultra-conservative devout Christian who is very young in relative terms and if approved by a majority Republican Senate, or should we say rubber-stamped, will be there for the rest of her life.

US durable goods orders rose 0.4% in August, compared with 7.7% in June and 11.7% in July. Economists had forecast 1.5%.

Cruise line stocks surged on Friday night after analysts at Barclays turned bullish.

Count me out.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1861.20	– 7.40	– 0.40%
Silver (oz)	22.88	– 0.25	– 1.08%
Copper (lb)	2.98	– 0.03	– 0.93%
Aluminium (lb)	0.77	+ 0.00	0.08%
Lead (lb)	0.83	– 0.01	– 1.46%
Nickel (lb)	6.49	+ 0.00	0.05%
Zinc (lb)	1.08	– 0.01	– 0.87%
West Texas Crude	40.25	+ 0.06	0.15%
Brent Crude	41.92	+ 0.15	0.36%
Iron Ore (t)	116.05	+ 0.15	0.13%

The US dollar continues its recovery and base metals continue to be weak. Copper has now slipped back under US$3/lb.

Iron ore has bucked the trend, quietly creeping back a bit from its recent sharp plunge.

Gold’s pullback continues on dollar strength.

The Aussie is down another -0.1% at US$0.7036.

The SPI Overnight closed up 21 points or 0.4% on Saturday morning – a bit shy of the S&P’s 1.6%, but following on from Friday’s big jump.

The Week Ahead

September ends this week and October begins, celebrated in NSW and elsewhere by a long weekend. Nothing bad ever happens in October.

China will report its September manufacturing and services PMIs on Wednesday while everyone else will report manufacturing PMIs on Thursday.

It’s a big week for US economic data. Releases include the ADP private sector jobs number on Wednesday and non-farm payrolls on Friday. Tuesday sees consumer confidence, Wednesday pending home sales, Thursday construction spending and PCE inflation, and Friday factory orders.

It’s conversely quiet on the Australian data front this week. Other than the manufacturing PMI, which these days surveys the four people left in the sector, we’ll see retail sales on Friday but they’ve already been pre-released.

In the local market, tomorrow is the traditional REIT/infra fund ex-dividend day, which sees the bulk of that sector trimmed from the open. The run of ex-divs continues into October, but at a slower pace.

We’re now seeing the early trickle of AGMs, which will gradually build as the month progresses. This week brings AGMs for ASX ((ASX)) tomorrow, along with an EGM for Viva Energy ((VEA)), and Perenti Global ((PRN)) on Friday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BKW	Brickworks	Upgrade to Add from Hold	Morgans
FMG	Fortescue	Upgrade to Buy from Neutral	Citi
GOR	Gold Road Resources	Upgrade to Outperform from Underperform	Macquarie
MFG	Magellan Financial Group	Upgrade to Add from Hold	Morgans
NCM	Newcrest Mining	Upgrade to Neutral from Underperform	Macquarie
NST	Northern Star	Upgrade to Outperform from Underperform	Macquarie
PAN	Panoramic Resources	Downgrade to Underperform from Neutral	Macquarie
PRU	Perseus Mining	Upgrade to Outperform from Underperform	Macquarie
QUB	Qube Holdings	Upgrade to Buy from Accumulate	Ord Minnett
SAR	Saracen Mineral	Upgrade to Outperform from Underperform	Macquarie
TWE	Treasury Wine Estates	Upgrade to Outperform from Neutral	Credit Suisse
WAF	West African Resources	Downgrade to Neutral from Outperform	Macquarie

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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