The Monday Report – 12 April 2021

This story features COLES GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: COL

World Overnight
SPI Overnight (Jun)	6980.00	+ 6.00	0.09%
S&P ASX 200	6995.20	– 3.60	– 0.05%
S&P500	4128.80	+ 31.63	0.77%
Nasdaq Comp	13900.19	+ 70.88	0.51%
DJIA	33800.60	+ 297.03	0.89%
S&P500 VIX	16.69	– 0.26	– 1.53%
US 10-year yield	1.67	+ 0.03	2.08%
USD Index	92.16	+ 0.10	0.11%
FTSE100	6915.75	– 26.47	– 0.38%
DAX30	15234.16	+ 31.48	0.21%

By Greg Peel

Down, Down, and Up

Friday began in predictable fashion as the ASX200 pulled back from the 7000 level following a strong week of rallies. The index was down over -30 points in the first hour. But there followed a choppy session of fightbacks and pullbacks before the index closed basically where it had begun.

Volume was low, as might be expected on a Friday amidst school holidays. Sector moves were spread evenly among ups and downs.

The only standout was consumer staples, which fell -1.1% after Coles ((COL)) announced the Down, Down price war is back on – likely a response to the supermarket lagging behind its rivals post covid hoarding. Coles fell only -0.1% but Woolworths ((WOW)) slipped -0.7% and Metcash ((MTS)) -3.2%.

Rick Parfitt will be turning in his grave.

We can otherwise sum up the day’s activities by noting Metcash’s fall was the second biggest in the index on the day.

Healthcare fell -0.8% on the vaccine debacle, energy dropped -0.7% on lower oil prices while materials (-0.2%) squared off against another gold price rise. Three of the top five index winners were goldminers.

It was left to telcos (+0.7%), technology (+0.7%) and discretionary to provide some counter, with other sectors MIA.

In economic news, the RBA’s Financial Stability Review suggested we’ve all done very well in the face of covid but there are risks ahead, with the wind-back of government support set to send some borrowers into default, and financial stability at risk as low rates and lax lending standards send asset prices to beyond fundamental levels.

It’s not house prices the RBA is worried about per se, it’s the lending standards helping to pump the bubble. If you’re planning to refinance your mortgage, don’t muck about.

While the RBA has insisted it is not concerned about inflation, we might note China’s wholesale inflation rate (PPI) rose by 4.4% (annual) in March having risen 1.7% in February. Consumer inflation (CPI) rose 0.4% after two months of losses.

We do tend to buy stuff from China.

Wholesale Shrug

The US PPI rose 1.0% (month on month) in March when economists had forecast 0.5%. The annual rate hit 4.2% — the highest since September 2011.

PPI inflation may or may not be passed on into CPI inflation depending on whether retailers choose to keep prices steady and ride out margin reductions or pass increased wholesale prices on to consumers. Either way the Fed, like the RBA, is not bovvered.

The Fed expects CPI inflation to rise above 2% this year before settling back. The expectation of this “transitory” spike lends a lot to current supply chain issues, with supply remaining hampered by covid across the globe. There is a global shortage of semiconductors in particular just as demand for chips is growing at a rapid pace.

Auto companies have already announced production wind-backs due to a lack of chips needed for all vehicles these days, not just EVs.

But supply chain issues should ultimately be resolved as vaccines roll out and business returns to normal.

It appears Wall Street has become more inclined to believe the Fed, given all major indices rallied yet again on Friday night, with a big kick in the last hour, to mark a third straight week of gains. The US ten-year yield did respond to the PPI number, but only to the tune of 3 basis points to 1.67%.

The response was simply one of the Dow outperforming the Nasdaq this time, having been the other way around for most of the week. The S&P500 hit yet another another all-time high.

Unbowed Wall Street strength is interesting at this time given this week brings the start of the quarterly earnings season. At this stage we might expect a replay of the past two seasons, ahead of which Wall Street rallied and mostly “sold the fact” of earnings beats rather than continuing to buy.

The White House began to outline some of the components of its infrastructure et al package on Friday night and assign some dollar values to each. It remains academic at this point, as Republicans have vowed to block all of it and some Democrats remain undecided.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1744.20	– 11.60	– 0.66%
Silver (oz)	25.25	– 0.20	– 0.79%
Copper (lb)	4.06	+ 0.01	0.18%
Aluminium (lb)	1.02	– 0.01	– 0.71%
Lead (lb)	0.88	– 0.01	– 0.71%
Nickel (lb)	7.55	+ 0.08	1.02%
Zinc (lb)	1.27	– 0.01	– 1.02%
West Texas Crude	59.32	– 0.28	– 0.47%
Brent Crude	62.95	– 0.36	– 0.57%
Iron Ore (t)	172.35	+ 0.20	0.12%

Nothing much exciting here other than to note gold pulled back a bit after a solid few sessions with the US dollar ticking up.

Oil prices continue to drift lower.

The Aussie is down -0.3% at US$0.7626.

The SPI Overnight closed up 6 points on Saturday morning. A concerted assault on 7000 does not look likely today on that basis, but the day ain’t over yet.

The Week Ahead

Australia will see the NAB business confidence survey tomorrow and the Westpac consumer equivalent on Wednesday. Thursday brings the March jobs numbers, with JobKeeper having ended mid-month.

The Fed Beige Book is out on Wednesday night ahead of US industrial production, retail sales and housing sentiment data on Thursday. Flash estimates of April manufacturing PMIs will also be provided across the globe.

China posts trade numbers tomorrow, and Friday brings monthly industrial production, retail sales and fixed asset investment numbers, along with March quarter GDP.

The RBNZ holds a policy meeting on Wednesday.

Cimic Group ((CIM)) and Hotel Property Investments ((HPI)) hold AGMs on Wednesday and Bank of Queensland ((BOQ)) reports earnings on Thursday, along with a quarterly update from Challenger ((CGF)).

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BSL	Bluescope Steel	Downgrade to Neutral from Buy	Citi
PPH	Pushpay Holdings	Upgrade to Hold from Lighten	Ord Minnett
RSG	Resolute Mining	Upgrade to Neutral from Underperform	Macquarie

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

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