The Monday Report – 08 March 2021

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World Overnight
SPI Overnight (Mar)	6800.00	+ 107.00	1.60%
S&P ASX 200	6710.80	– 49.90	– 0.74%
S&P500	3841.94	+ 73.47	1.95%
Nasdaq Comp	12920.15	+ 196.68	1.55%
DJIA	31496.30	+ 572.16	1.85%
S&P500 VIX	24.66	– 3.91	– 13.69%
US 10-year yield	1.55	+ 0.00	0.26%
USD Index	91.98	+ 0.34	0.37%
FTSE100	6630.52	– 20.36	– 0.31%
DAX30	13920.69	– 135.65	– 0.97%

By Greg Peel

What Goes Down

Well, I could bang on for hours about why the ASX200 fell -50 points on Friday but there seems little point given the futures closed up 107 points on Saturday morning, following a positive Wall Street response to a strong US jobs number.

Yes, the rollercoaster is still running.

Suffice to say, it was a session of contrasts on Friday, and somewhat confusing.

Not confusing was a 2.8% jump for the energy sector after OPEC-Plus decided not to wind back production cuts. Were it not for energy’s standout performance, things would have looked very grim indeed, index-wise.

The Australian ten-year yield jumped 15 basis points on Friday to 1.82%, which must have frustrated the RBA given its QE intervention on Monday. A jump in the bond yield would typically be positive for banks and negative for bond-proxy stocks.

But the banks stood still on Friday, and the better performers were industrials (-0.6%), telcos (-0.5%), property (-0.8%) and utilities (+0.9%). The latter was helped by AGL Energy ((AGL)) on the stronger oil price but the others stood out against healthcare (-2.3%) and materials (-2.0%), which drove the bulk of the weakness.

Ongoing selling in CSL ((CSL)) of -2.8% is belying the fact the Aussie has come off its highs and was down on Friday despite the bond yield jump.

The fall in materials was not about iron ore but copper, which fell overnight and dragged down BHP Group ((BHP)) and Rio Tinto ((RIO)). Copper was down again on Friday night as was iron ore, so that might be interesting today. Oil is up again nonetheless.

Otherwise, market reports of Friday’s trade are now fish’n’chip wrappers as we begin the week with a noted 107 point futures gain post Wall Street’s positive session, and bear in mind that was before the weekend’s passage of Biden’s stimulus bill.

Good news, bad news, good news…

“A ‘beat’ of forecast jobs additions would likely enhance inflation fears and lead to further gains in bond yields, and thus falls in stock indices, even though rising employment is a positive sign of economic recovery, which is good for stock markets.”

I said that in Friday’s Next Week At A Glance and as it turned out, Wall Street agreed on both counts.

The February jobs report, which is released before the open, came in at 349,000 jobs added compared to 210,000 forecast. The Dow opened up 300 points. Seems strong jobs growth is indeed good for stock markets.

Then someone pointed out the US ten-year bond yield, which had jumped 11 basis points to 1.62%, bearing in mind the prior spike-high had been 1.61%. After two hours the Dow was down -160 and the Nasdaq was down yet another -2.5%.

But yields then began to ease back, and the relief was palpable. By the close, the ten-year yield was up only 4bps to 1.55%, the Dow was up 570, representing a 730 point rally from the low, and the Nasdaq was up 1.6%.

I think the computers probably popped the odd valve during the session.

So the verdict is yes, strong jobs growth is good for the economy, and what’s good for the economy is good for the stock market. And all three major indices posted roughly the same gains, so it was not a rotation session.

The question now is, will Wall Street kick on again tonight, in lieu of the weekend’s passage of the stimulus bill? Given the Democrats could have always used the VP’s casting vote to ensure a 51-50 vote, one might assume it was a given anyway. But it wasn’t.

Firstly, the US$15 minimum wage proposal had to be removed, given it is not a budget issue and this is a budget bill. It does not impact on the US$1.9trn total given it would not be a government handout but an obligation on the private sector. And several Democrat senators were against it, particularly at this time when US small businesses are still struggling to stay afloat.

This should have then assured passage, but no. One Democrat senator remained opposed, and it would only need one for the bill to fail. But when the US JobSeeker equivalent in the package was dropped to US$300 a week for US$400, but then extended for a month, that senator came on board.

And after an all-night session to get to the point of a vote, the irony was one Republican had to leave to attend a funeral and the bill was passed 50-49, with Kamala’s services not required.

Wall Street was fully aware there was dissent in the ranks ahead of the weekend, which may possibly have derailed the US$1.9trn package, or at least forced a trimming to a lower figure. So the fact the bill has now passed should be positive for Wall Street tonight.

But for the fact Wall Street rallied hard on Friday night. Is there still room?

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1700.10	+ 5.20	0.31%
Silver (oz)	25.22	– 0.07	– 0.28%
Copper (lb)	4.01	– 0.08	– 1.86%
Aluminium (lb)	0.98	+ 0.02	1.62%
Lead (lb)	0.91	+ 0.01	0.63%
Nickel (lb)	7.65	+ 0.09	1.14%
Zinc (lb)	1.23	+ 0.00	0.29%
West Texas Crude	66.09	+ 1.96	3.06%
Brent Crude	69.36	+ 2.31	3.45%
Iron Ore (t)	174.65	– 3.80	– 2.13%

Oil traders were still excited on Friday night over Thursday night’s OPEC-Plus decision, which had been good for 4% on the day before Friday added another 3%.

The fall in the copper price stands out amidst rallies in the other metals.

Iron ore continues to play a two steps forward, one step back game.

The US dollar index rose 0.4% on the jobs number and with yields up as well, gold should have been toast, but it looks like the US$1600s are not where gold traders wish to tread.

If the RBA is frustrated with local bond yields, it will at least be appeased by a -0.6% fall in the Aussie to US$0.7685.

The SPI Overnight closed up 107 points or 1.6%.

The Week Ahead

With bond yields still creating a fear factor, the US CPI numbers for February will be interesting on Wednesday night, followed by the PPI on Friday night.

The ECB holds a policy meeting on Thursday night.

Chinese inflation numbers are also out on Wednesday.

Locally we’ll see the monthly NAB business confidence survey tomorrow and the Westpac consumer confidence survey on Wednesday.

S&P/ASX will announce the quarterly changes to indices on Friday, ahead of them becoming effective a week later.

It’s another big week for ex-divs. Ramsay Health Care ((RHC)) and REA Group ((REA)) are among those leading us off this morning.

Centuria Industrial REIT ((CIP)) holds an EGM on Wednesday.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ARB	ARB Corp	Upgrade to Accumulate from Hold	Ord Minnett
PAN	Panoramic Resources	Upgrade to Add from Hold	Morgans
SM1	Synlait Milk	Downgrade to Reduce from Hold	Morgans

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

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