The Monday Report – 22 February 2021

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

World Overnight
SPI Overnight (Mar)	6721.00	– 11.00	– 0.16%
S&P ASX 200	6793.80	– 92.10	– 1.34%
S&P500	3906.71	– 7.26	– 0.19%
Nasdaq Comp	13874.46	+ 9.11	0.07%
DJIA	31494.32	+ 0.98	0.00%
S&P500 VIX	22.05	– 0.44	– 1.96%
US 10-year yield	1.35	+ 0.06	4.51%
USD Index	90.36	– 0.21	– 0.23%
FTSE100	6624.02	+ 6.87	0.10%
DAX30	13993.23	+ 106.30	0.77%

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%.

The consumer discretionary sector is a net beneficiary of a strong dollar, being a major importer, but it fell -1.3%. This was due to a preliminary look at local January retail sales. They rose only 0.6% when 2.0% was expected.

ANZ Bank economists still called the result “solid”, pointing to the three-day lockdown in Brisbane in the period. Queensland retail sales fell -1.5%. Victoria and WA were hit with similar lockdowns this month, so we should expect similar results for February.

With Wall Street back to flat again, our futures were still pointing down on Saturday morning (-11 points). Iron ore and oil prices pulled back a little on Friday night but copper surged, up 3.3% to cross the US$4/lb mark.

Can the RBA do something? Well, there’s not much more it can do than it’s already doing. The stronger Australia’s commodity-driven economic recovery, the higher the Aussie will go.

As a Tack

The S&P500 spent Friday night meandering around the flatline. The recently familiar theme of the Dow outperforming and the Nasdaq underperforming was holding right up to the death, when everything squared up again.

The S&P fell over four straight sessions to mark the longest losing streak in two months. But not by much.

Wall Street continues to focus on rising US bond yields, which are driving profit-taking in the Big Tech growth names, and buying in the likes of banks and industrials, as well as energy on the stronger oil price.

Thursday night’s weak jobless claims number was a bit of a wake-up call when economic data had appeared to be on the improve, but the counter is the vaccine rollout and the upcoming fiscal stimulus package.

Wall Street thus remains in limbo.

Treasury Secretary Janet Yellen told CNBC after the close on Thursday night that America needed more rather than less and said that the risks of doing too little outweighed those for doing too much.

The former Fed chair, and the current Fed chair, and the current New York Fed president, were all working together in Fed roles back in the GFC, and with hindsight it was decided the central bank moved too slowly to drive a swift economic recovery. It is that experience which is underscoring today’s monetary and fiscal bonanza.

“We think it’s very important,” said Yellen, “to have a big package that addresses the pain this has caused 15 million Americans to be behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing…”

Wall Street waits.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1784.60	+ 10.00	0.56%
Silver (oz)	27.26	+ 0.28	1.04%
Copper (lb)	4.04	+ 0.13	3.30%
Aluminium (lb)	0.96	+ 0.00	0.39%
Lead (lb)	0.97	+ 0.00	0.46%
Nickel (lb)	8.62	+ 0.15	1.75%
Zinc (lb)	1.29	+ 0.02	1.79%
West Texas Crude	59.24	– 0.85	– 1.41%
Brent Crude	62.91	– 0.61	– 0.96%
Iron Ore (t)	172.20	– 2.25	– 1.29%

“Demand optimism” has been credited with driving the copper price to a nine-year high on Friday night, led by the Chinese returning from their break. “Massive” volumes were reported, sending copper up over US$4/lb to be almost double where it was at the nadir of the covid scare last March.

Elsewhere, iron ore had also seen a post Lunar New Year catch-up but slipped back a bit on Friday night, while oil prices reflect growing concern the Saudis are going to end production cuts.

Gold made a bit of a comeback despite another jump in US bond yields, after a couple of sessions of strong falls.

And oh, that Aussie. As noted it is up 1.4% since Friday morning at US$0.7877.

The SPI Overnight closed down -11 points on Saturday morning.

The Week Ahead

As of Friday last, half of all companies covered by FNArena database brokers had reported earnings. By the end of this Friday, the other half will have reported.

Australia’s December quarter GDP comes into the frame this week, with constituent results due for construction work done on Wednesday and private sector capex on Thursday. The quarterly wage price index is also out on Wednesday.

Tomorrow sees a preliminary read on January trade and Friday brings private sector credit data.

The US will see consumer confidence tomorrow, durable goods orders on Wednesday, and consumer income & spending on Friday along with PCE inflation. House price and home sales data releases are scattered across the week.

China will report February PMIs on Friday.

Be aware that aside from an avalanche of earnings reports this week, there is also a pick-up in the number of stocks going ex-dividend.

FNArena's Corporate Results Monitor is updated daily throughout the month: https://www.fnarena.com/index.php/reporting_season/

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ALU	Altium	Upgrade to Buy from Neutral	Citi
ANN	Ansell	Upgrade to Add from Hold	Morgans
APX	Appen	Downgrade to Underperform from Outperform	Macquarie
ARB	ARB Corp	Upgrade to Hold from Lighten	Ord Minnett
BAP	Bapcor Limited	Downgrade to Hold from Add	Morgans
CAR	Carsales.Com	Upgrade to Buy from Neutral	UBS
COL	Coles Group	Downgrade to Neutral from Buy	Citi
		Downgrade to Neutral from Outperform	Credit Suisse
CSL	CSL	Downgrade to Neutral from Buy	Citi
		Downgrade to Neutral from Outperform	Credit Suisse
CTD	Corporate Travel	Downgrade to Neutral from Outperform	Macquarie
CWN	Crown Resorts	Upgrade to Outperform from Neutral	Credit Suisse
DHG	Domain Holdings	Downgrade to Neutral from Outperform	Credit Suisse
MOC	Mortgage Choice	Downgrade to Neutral from Buy	Citi
NWL	Netwealth Group	Upgrade to Hold from Sell	Ord Minnett
ORA	Orora	Upgrade to Buy from Neutral	Citi
ORE	Orocobre	Upgrade to Buy from Neutral	Citi
PGH	Pact Group	Upgrade to Buy from Hold	Ord Minnett
PLS	Pilbara Minerals	Upgrade to Neutral from Sell	Citi
PME	PRO Medicus	Downgrade to Hold from Add	Morgans
STO	Santos	Downgrade to Accumulate from Buy	Ord Minnett
SVW	Seven Group	Upgrade to Accumulate from Hold	Ord Minnett
TAH	Tabcorp Holdings	Upgrade to Buy from Neutral	Citi
		Upgrade to Hold from Lighten	Ord Minnett
TWE	Treasury Wine Estates	Upgrade to Accumulate from Lighten	Ord Minnett
UMG	United Malt Group	Upgrade to Outperform from Neutral	Credit Suisse
VCX	Vicinity Centres	Downgrade to Neutral from Outperform	Credit Suisse
WSP	Whispir	Upgrade to Buy from Hold	Ord Minnett

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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