The Monday Report – 22 February 2021

Daily Market Reports | Feb 22 2021

By Greg Peel

Currency Crisis

The Aussie dollar suddenly took off on Friday. Having spent the week trading in a relatively stable range in the highs 77s, the Aussie rose sharply on Friday and having breached 78 (USc), just kept going, to be up 1.4% at US$0.7877 this morning.

The Australian ten-year yield jumped another 7 basis points on Friday to 1.43%. We had been pretty neck and neck with the US equivalent this month, but now we’ve shot above. The US ten-year rose on Friday by 6bps to 1.35%.

The futures had suggested on Friday morning the ASX200 would open lower, which it did, but it, too, just kept going. At 2pm the index bottomed out down -116 before some afternoon buying made a slight dent.

Friday’s fall wiped out all ASX200 gains for the week and took us back to late January, to just before the GameStop plunge-and-recovery. Friday is often a good day to take profits, and the index had been strong all week on solid earnings results.

The impact of the currency on the profit-taking decision is evident in the fact the market was led down by all the big US dollar earners, which themselves are the Australian mega-caps. Energy fell -3.6%, materials -2.4%, healthcare -2.6% and financials -1.0%.

Selling in energy and materials belied overnight commodity price movements, which were the primary driver of the currency. The big oil & gas names and the big miners were all sold, led by a -5.3% fall for Woodside Petroleum ((WPL)), although Woodside does have its own issues.

Cochlear ((COH)) reported on the day, and jumped 8.4% to top the index. It took a full -5.0% fall for CSL ((CSL)) to drive down the healthcare sector.

The banks are not US dollar earners – they are US dollar borrowers – except for Macquarie Group ((MQG)), which has a large US-based business. It fell -2.3%.

Consumer staples are all-Aussie. They gained 0.2%, and ditto property for the most part (+0.1%). Technology has plenty of US exposure, especially in BNPL, but this sector bucked the trend to close flat. Zip Co ((Z1P)) rose 5.6%.

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