The Overnight Report: Rotation Rotation

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World Overnight
SPI Overnight (Jun)	6955.00	– 38.00	– 0.54%
S&P ASX 200	7023.10	+ 46.20	0.66%
S&P500	4124.66	– 16.93	– 0.41%
Nasdaq Comp	13857.84	– 138.26	– 0.99%
DJIA	33730.89	+ 53.62	0.16%
S&P500 VIX	16.99	+ 0.34	2.04%
US 10-year yield	1.64	+ 0.02	0.92%
USD Index	91.63	– 0.21	– 0.23%
FTSE100	6939.58	+ 49.09	0.71%
DAX30	15209.15	– 25.21	– 0.17%

By Greg Peel

Are we there yet?

There was stumble on the open but the ASX200 did follow the futures’ lead by smashing through 7000 and running up to 7021 by lunchtime yesterday, only to be met by enemy forces coming hard the other way.

An hour later the index was back under 7000 but the troops regrouped, and by the close the enemy had been defeated. Or so it seemed. A weaker S&P500 overnight has our futures down -38 this morning – implying back under 7000.

Tech led sector gains once again (+2.0%) on Nasdaq strength and a rekindled interest in BNPL since Zip Co’s ((Z1P)) update on Tuesday. And wouldn’t you know, Zip is now in a trading halt pending a capital raising. Do I hear a “told you so” from UBS?

The real strength for the index yesterday nonetheless came from healthcare (+1.3%) and materials (+1.2%). Investors do not see vaccine issues as a problem for licensed manufacturer CSL ((CSL)), while in materials, Tuesday’s general rotation out of resource sectors reversed yesterday without a lot of movement in commodity prices.

Energy only clawed back 0.1% but wait for today – WTI is up 5% overnight.

Aside from a return to the big miners, the materials sector was buoyed by a rise in gold price and, in the case of Resolute Mining ((RSG)), a 14.9% gain on news the Ghanaian government has reversed the freezing of Resolute’s mining lease.

But lithium miners were in the spotlight yesterday after Macquarie raised its forecasts for lithium demand and prices and, subsequently, lithium miners. Mineral Resources ((MIN)) is the broker’s top pick in the space, and it rose 6.5%. Galaxy Resources ((GXY)) was nonetheless the standout in jumping 8.3%, albeit on an additional reserve increase, but is not in the index.

Consumer discretionary was the next best performer (+0.8%) along with REITs (+0.8%) on an April consumer confidence survey Westpac described as “an extraordinary result”.

The confidence index leapt 6.2% to 118.8, from 111.8 in March. Bear in mind anything over 100 implies optimism. Westpac chief economist Bill Evans noted “The Index is now at its highest level since August 2010 when Australia’s post-GFC rebound and mining boom were in full swing,” and “From my own perspective I considered that there was a reasonable case for the Index to pull back reflecting developments since the March survey,” noting JobKeeper ended mid-March and the vaccine rollout has been disappointing.

There was not a lot happening in other sectors, although all did close in the green. The Australian ten-year bond rate fell -6bps to 1.74% to provide an extra fillip for growth stocks.

But as noted, Wall Street flipped around last night in rotation terms and the S&P is down an overdue -0.4%, so today will be all about will 7000 hold?

About Face

On Tuesday night the Dow fell slightly as the Nasdaq rallied and the S&P split the difference with +0.3%. Last night the Dow rose slightly as the Nasdaq fell and the S&P split the difference with -0.4%. Rotation flips are becoming an almost daily affair as investors try to figure out where to go from these lofty valuations.

The day began with earnings beats from all of Goldman Sachs (Dow), JPMorgan (Dow) and Wells Fargo, firing up the financials sector.

The International Energy Agency has also raised its global oil demand forecast for 2021, now seeing a 5.7m barrels per day increase over 2020 to 96.7mbpd. This report was released around the same time data showed a third straight weekly drop in US inventories.

WTI crude has subsequently jumped almost 5%, and it was a good day for the energy sector.

These two cyclical sectors drove the day’s rotation out of growth.

The big event mid-session was nonetheless the listing of the world’s largest crypto currency exchange, Coinbase. The company was founded in 2012 and was last night briefly valued at over US$100bn, with one of the founders being the majority shareholder. Not bad for ten years’ work.

He also bought his first bitcoin for US$6.

Coinbase undertook a “direct listing” rather than an IPO, implying trading simply moves on-market from previously being traded in the private market. There was no offer price, just a “reference price” based on where the stock had been changing hands prior. The stock ultimately closed down -13% from its first traded price on listing, which makes it look like a fizzer, but 30% up on the reference price, so no worries there.

Coinbase sceptics point out the company makes its money from hefty crypto trading fees – let’s call it brokerage – which simply will not last once competition in the space heats up (See: BNPL). Comparisons have been drawn with the excitement of the first virtual stock broker to be listed back in the late nineties – Etrade – which began with a $20 per trade fee and watched as competitors finally pushed that to zero last year.

The acquisition by Morgan Stanley saved the day last October.

With Coinbase excitement out of the way, attention turns back to further US earnings results this week and then the avalanche that begins next week.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1736.40	– 9.40	– 0.54%
Silver (oz)	25.40	+ 0.07	0.28%
Copper (lb)	4.05	+ 0.01	0.30%
Aluminium (lb)	1.04	+ 0.01	1.34%
Lead (lb)	0.89	+ 0.01	0.63%
Nickel (lb)	7.40	+ 0.03	0.37%
Zinc (lb)	1.27	+ 0.03	2.11%
West Texas Crude	63.15	+ 2.97	4.94%
Brent Crude	66.28	+ 2.31	3.61%
Iron Ore (t)	172.65	+ 0.30	0.17%

The pop in the zinc price overnight is attributed to the drop in price earlier in the week sparking up demand on the LME.

The US ten-year bond yield only ticked up a point last night and the US dollar index fell -0.2%, but the gold price has come off again.

The Aussie ten-year yield fell -6 points and the greenback fell only -0.2% but the Aussie has bounced back a full 1% to US$0.7726, with only the oil price providing any sort of impetus.

Forex traders must have been short again.

Today

The SPI Overnight closed down -38 points or -0.5%. Futures traders have suddenly lost their optimism.

Australia’s March job numbers are out today which will tell some of, but not all of, the end of JobKeeper tale.

The US will see important industrial production and retail sales numbers and around the globe, April manufacturing PMI estimates will be flashed.

Bank of Queensland ((BOQ)) reports earnings today.

Transurban ((TCL)) provides quarterly traffic numbers while Whitehaven Coal ((WHC)) leads out the quarterly production report season for resource stocks.

Santos ((STO)) and Woodside Petroleum ((WPL)) hold their AGMs.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
BSL	Bluescope Steel	Upgrade to Buy from Accumulate	Ord Minnett
GXY	Galaxy Resources	Upgrade to Outperform from Underperform	Macquarie
HUB	HUB24	Upgrade to Outperform from Neutral	Macquarie
MAI	Mainstream Group Holdings	Downgrade to Hold from Add	Morgans
		Downgrade to Hold from Buy	Ord Minnett
NCM	Newcrest Mining	Upgrade to Buy from Accumulate	Ord Minnett
NWL	Netwealth Group	Upgrade to Outperform from Neutral	Macquarie
ORE	Orocobre	Upgrade to Outperform from Underperform	Macquarie
		Downgrade to Hold from Buy	Ord Minnett
PTM	Platinum Asset Management	Downgrade to Underperform from Neutral	Credit Suisse
SBM	St Barbara	Upgrade to Buy from Accumulate	Ord Minnett
TAH	Tabcorp Holdings	Upgrade to Outperform from Neutral	Credit Suisse
Z1P	Zip Co	Upgrade to Buy from Neutral	Citi

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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