The Monday Report (On Tuesday) – 06 April 2021

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World Overnight
SPI Overnight (Jun)	6826.00	+ 23.00	0.34%
S&P ASX 200	6828.70	+ 38.00	0.56%
S&P500	4077.91	+ 58.04	1.44%
Nasdaq Comp	13705.59	+ 225.49	1.67%
DJIA	33527.19	+ 373.98	1.13%
S&P500 VIX	17.91	+ 0.58	3.35%
US 10-year yield	1.72	+ 0.04	2.44%
USD Index	92.59	– 0.64	– 0.69%
FTSE100	6737.30	+ 23.67	0.35%
DAX30	15107.17	+ 98.83	0.66%

By Greg Peel

Thursday

The ASX200 wobbled and wavered from the opening on Thursday, toying with the 6800 level, before finally setting upon an upward trend. Failure then looked inevitable in the early afternoon before a late kicker had the index closing on its highs.

The standout percentage move was posted by technology (+2.5%) which, after having ignored the Nasdaq in recent sessions, hitched its wagon firmly back on.

Materials was next best (+1.5%) in the wake of the official announcement of Biden’s infrastructure package, which came after the bell on Wall Street, albeit some details were already known. Mention the words “infrastructure spending” and by rights it should be good news for commodity producers.

While the big miners were positive on the day, it were the lithium miners that stole the show outside the index, thanks to Biden’s big EV push.

And a 6.7% jump for Boral ((BLD)) on the day also drove the sector higher. Boral announced the sale of its 50% stake in a German multinational.

Utilities performed well (+0.8%) and despite brokers querying whether a spun-off legacy coal-fired generation business out of AGL Energy ((AGL)) will draw any buyers, that stock still managed to close up 0.7%.

Consumer discretionary (+0.5%) responded to the news Easter is on in Queensland, despite more falls in travel related stocks. Aside from it no doubt being too late for many holiday plans, Webjet ((WB)) spoiled the party by announcing another capital raising, in the form of a convertible note. It fell -5.4% to be the worst index performer on the day.

The sector brushed off the weak February retail sales number (-0.8%) given (a) it had been pre-released a couple of weeks ago and (b) it reflected snap lockdowns in the period.

The banks also enjoyed the news from the north, up 0.4% despite Macquarie Group ((MQG)) getting a smack on the hand from APRA for breaching liquidity reporting standards. The punishment is an extra $500m of liquidity required to be held, but the stock only fell -0.5%.

There was not much going on in other sectors.

So the June quarter is off and running, straight into Easter and school holidays.

On Friday morning the futures were up 23 points.

Thursday Night

Wall Street looked at Biden’s wide-ranging infrastructure plan and saw that it was good, despite the corporate tax hike that comes with it. Increases in other taxes are expected down the track, but only for the wealthy (+US$400k incomes).

Even when Biden was campaigning last year, pushing his infrastructure/tax plans, Wall Street had decided that as long as the balance is reasonable between stimulus impact and tax cost, it would be net positive for markets. Thursday night’s response appears to have been a seal of approval.

Few on Wall Street argued with Trump four years ago that the prevailing 35% corporate tax rate was too high, particularly in relative global terms, but when he cut to 21% there were a few raised eyebrows, given he was simultaneously increasing spending and reducing income. The stock market loved it, of course, and has made the most of it.

Now it’s going back to 28%, still a cut from 35%, to pay for what is definitively a “stimulus” package rather than economic relief, as Biden's first package can be defined as. First save the economy, then make it grow.

While a chunk of the money will be spent on reviving crumbling roads and bridges and the like, and ancient electricity and grids and water systems, plenty will be spent on technology, and not just EVs. Brokers had decided before Thursday night that Big Tech had by now been brought sufficiently back to earth in valuation terms, and Big Tech will be as much of a beneficiary of Biden’s package as legacy construction and materials companies.

To that end, the Nasdaq again led the way on Thursday night but all major indices closed to the upside. The S&P500 posted yet another record, breaching 4000 for the first time. Despite all the swings and roundabouts of the rotation trade this year, the S&P, which largely nets those moves out, has done little but track a steady, arguably boring path gradually upwards.

In stock markets, boring is good.

Also providing further wind in Wall Street’s sails on Thursday night was the release of the March manufacturing PMI, which jumped to 64.7 from 60.8 in February to mark the highest reading since 1983. As a second derivative measure, that’s rocket ship stuff.

It should be noted that the sector is still recovering from one year ago, when it collapsed, and PMIs measure the pace of growth and not nominal growth so the result still means manufacturing is simply recovering, but recovering very quickly.

Thursday night saw copper down -0.8% and zinc -1.0% while aluminium rose 0.7% and nickel 0.2%. Gold jumped by US$21.80/oz.

The oils were higher – WTI by 3.5%, while the Aussie rose 0.3% to US$0.7617 to match a fall in the greenback.

Monday Night

News on Friday night was that the US added 916,000 jobs in March – 50% more than forecast. The unemployment rate fell to 6.0% from 6.2%, albeit 8.5m Americans remain unemployed.

It was a result that could have sent Wall Street in either direction. On the one hand, such jobs growth smacks of an economy recovering faster than anyone anticipated, which is great news. On the other, such jobs growth will surely feed into inflation, forcing the Fed to consider tapering/hiking sooner than intended, which is negative.

It all hinged on how the bond market responded.

The US ten-year yield actually dipped a point to 1.70%. That was all Wall Street needed to decide good news is good.

The cherry on top was the March services PMI, which soared to 63.7 from 55.3 in February to mark the fastest pace of expansion since 1997.

But as both results were released before the market open, all three major indices simply spiked from the bell and didn’t close much higher. While the Nasdaq outperformed, rotation was not the standout trade on the day. It was more a case of buy everything.

The Dow and S&P hit new record highs, again, while the Nasdaq remains a few percentage points shy.

Tesla was a star on the day, rising 4.4% after beating vehicle delivery forecasts for the quarter.

Cinema chain AMC Entertainment, which we recall was caught up in the GameStop frenzy back in January, jumped 13.4% after a strong opening weekend at the box office (still 50% capacity) for Godzilla vs Kong.

I suppose after you’ve been in lockdown for a while you’d watch anything.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1728.50	+ 20.00	1.17%
Silver (oz)	24.84	+ 0.44	1.80%
Copper (lb)	3.98	0.00	0.00%
Aluminium (lb)	1.01	0.00	0.00%
Lead (lb)	0.88	0.00	0.00%
Nickel (lb)	7.36	0.00	0.00%
Zinc (lb)	1.26	0.00	0.00%
West Texas Crude	58.65	– 0.68	– 1.15%
Brent Crude	62.25	– 1.29	– 2.03%
Iron Ore (t)	167.70	+ 2.95	1.79%

Note that the iron ore price movement above represents two sessions.

The London Metals Exchange was closed last night.

Gold was up another US$20/oz, recovering the ground lost due to the Archegos scare. That story is far from over nevertheless.

The last of the 400 ships backed up at the Suez Canal passed through over the weekend which, along with production cut easing announced by OPEC-Plus last week, had oil prices lower.

You’d be forgiven for thinking the US jobs number would be positive for the US dollar, but given the reserve currency acts as a safe haven, “risk-on” is typically negative for the dollar index.

The Aussie is up 0.8% on top of the 0.3% on Thursday night, at US$0.7658.

The SPI Overnight closed up 23 points on Thursday night but was closed last night, thus has not taken last night’s Wall Street surge into account.

The Week Ahead

Today is service PMI day for Western economies, including Australia, and we’ll also see ANZ Bank job ads and housing finance data.

The RBA holds a policy meeting.

The US will see trade numbers tomorrow and the minutes of the last Fed meeting will be released, which pre-date the jobs number.

China posts inflation data on Friday.

Only a trickle of ex-divs this week, while Scentre Group ((SCG)) holds its AGM on Thursday.

A reminder that now clocks have gone back, the NYSE closes at 6am Sydney time.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BHP	BHP	Downgrade to Neutral from Buy	UBS
CSR	CSR	Downgrade to Neutral from Buy	UBS
FMG	Fortescue	Downgrade to Neutral from Buy	UBS
SUN	Suncorp	Upgrade to Buy from Neutral	Citi

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

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