The Overnight Report: 34,000

This story features WHITEHAVEN COAL LIMITED, and other companies. For more info SHARE ANALYSIS: WHC

World Overnight
SPI Overnight (Jun)	7051.00	+ 15.00	0.21%
S&P ASX 200	7058.60	+ 35.50	0.51%
S&P500	4170.42	+ 45.76	1.11%
Nasdaq Comp	14038.76	+ 180.92	1.31%
DJIA	34035.99	+ 305.10	0.90%
S&P500 VIX	16.57	– 0.42	– 2.47%
US 10-year yield	1.53	– 0.11	– 6.59%
USD Index	91.67	+ 0.04	0.04%
FTSE100	6983.50	+ 43.92	0.63%
DAX30	15255.33	+ 46.18	0.30%

By Greg Peel

Cracked It

The futures had suggested a pessimistic opening for the ASX200 yesterday and sure enough the index dropped back through 7000 in the first twenty minutes. Then the jobs report came out.

One might argue the March jobs numbers are not all that helpful given the survey was conducted in the first two weeks of the month and thereafter JobKeeper ended, implying we should wait for the April numbers to get the true picture. But economists were glowing in their assessments nonetheless.

A 71,000 increase in jobs took total jobs to a new record and back to pre-pandemic levels. The unemployment rate dropped to 5.6% from 5.8% even as the participation rate rose. More importantly, the underemployment rate dropped substantially, to 7.9% from 8.5%. That’s the first number under 8% since June 2014.

Such strength, combined with data from the ANZ Bank job ads series and the NAB business conditions survey, indicate labour demand remains very strong, suggesting that while there may be a small blip in the April jobs numbers, there should be enough jobs around for former JobKeeper recipients to find work fairly quickly.

Investors may have been primed to make another assault on 7000 yesterday anyway, and a 1.8% gain for the materials sector and 1.2% for energy really had little to do with jobs. The gain in materials came even as the coffin lid was shut on Whitehaven Coal ((WHC)), which fell -15.4% after reporting weak quarterly production and sales and downgrading guidance.

The Iron ore price has risen strongly from yesterday however, pushing up the big miners.

Gold miner Regis Resources ((RRL)) also took a tumble (-11.9%) but only after announcing a capital raise to acquire 30% of IGO’s ((IGO)) Tropicana gold project which analysts see as a positive move.

The jobs numbers were nevertheless good news for banks, which rose 0.4% after being a bit quiet lately.

The main losers on the day were utilities (-0.9%) and telcos (-0.8%). A -0.1% fall for healthcare as well suggests a rotation theme out of defensives except that consumer staples rose 0.6%. More money to spend at the supermarket presumably, if you have a job, although this was not reflected in discretionary (+0.1%).

Technology held on pretty well despite a fall in the Nasdaq overnight and a -6.9% fall for Zip Co ((Z1P)) after it came out of a trading halt, having placed $400m in new capital via convertible notes.

The winning index stock on the day was Ampol ((ALD)), which rose 5.4% on a solid quarterly update.

Strong US economic data overnight has led Wall Street on another (market-wide) surge but our futures are this morning up a rather tepid 15 points, underscoring a recent trend of not paying that much attention what’s going on over there.

Full Steam Ahead

US retail sales jumped a rather astonishing 9.8% in March (from February) as Biden’s US$1400 relief cheques went straight into tills. Economists had forecast 6.1%.

Weekly new jobless claims fell to 576,000 last week – a level not seen for over a year and down from 769,000 the week before.

Industrial production bounced back 1.4% after having fallen -2.6% in the Big Freeze the month before.

Housing market sentiment ticked up to 83 from 82, which seems immaterial until you acknowledge 50 is the neutral level between pessimism and optimism.

The Philadelphia Fed activity index jumped to 50.2 from 44.5 to mark the highest level in 50 years.

The Empire State (New York) activity index rose to 26.3 from 17.4 to the highest level in four years.

The US economy is surging. If these numbers had been released only a month ago, investors would have been bailing out of bonds as fast as they could screaming “inflation!”, “tapering!” , “rate rise!”, “get out!”.

But instead, the US ten-year yield plunged -11 basis points last night to 1.53%. Go figure that one.

The assumption is that having had it banged into them often enough, the Fed’s confidence that while there will be a spike in inflation it will only be temporary has finally got through to investors.

As for stock market investors, it doesn’t get much better than this. Strong data and falling bond yields, all backed up by another round of solid earnings reports on the day. The Nasdaq outperformed, but there wasn’t that much in the split across indices.

Bank of America and Citigroup last night followed peers in posting earnings beats, although the sector as a whole underperformed on lower yields.

By the way, if you bank with Citi here, you won’t be for much longer. Citi is pulling out of consumer banking here and elsewhere, so your nearest branch will be in Singapore. Institutional banking will remain.

The previously plodding Wall Street rally (in S&P500 terms) has now accelerated. The Dow has hit 34,000 for the first time.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz)	1763.60	+ 27.20	1.57%
Silver (oz)	25.82	+ 0.42	1.65%
Copper (lb)	4.18	+ 0.12	2.97%
Aluminium (lb)	1.06	+ 0.01	1.41%
Lead (lb)	0.91	+ 0.01	1.26%
Nickel (lb)	7.28	– 0.12	– 1.65%
Zinc (lb)	1.26	– 0.01	– 1.05%
West Texas Crude	63.46	+ 0.31	0.49%
Brent Crude	66.85	+ 0.57	0.86%
Iron Ore (t)	177.30	+ 4.65	2.69%

What’s good for America is good for commodities, although nickel and zinc still face supply issues.

A big drop in bond yields is manna for gold.

And of course what’s good for commodities is good for the Aussie, up 0.3% to US$0.7754.

Today

The SPI Overnight closed up 15 points or 0.2%.

In late breaking news, post Wall Street close, Pfizer has announced it is likely a third dose of its vaccine will be required in 6-12 months after the second dose to ensure vaccination. The news is a setback given the issues surrounding the AstraZeneca and J&J vaccines and in Australia, the snail’s-paced rollout.

At the current pace of rollout in the US, it should take three months to vaccinate 75% of the population. At Australia’s current pace, that would be 23 months.

The US is surging but China will be in the spotlight today, as it releases its March quarter GDP result and month of March retail sales, industrial production and fixed asset investment numbers.

Quarterly reports are due today from Alumina Ltd ((AWC)), Mineral Resources ((MIN)) and Auckland International Airport ((AIA)). Coca-Cola Amatil ((CCL)) goes ex-dividend.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
ABP	Abacus Property Group	Upgrade to Accumulate from Hold	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
NSR	National Storage	Downgrade to Hold from Accumulate	Ord Minnett
NWL	Netwealth Group	Upgrade to Outperform from Neutral	Macquarie
ORE	Orocobre	Upgrade to Outperform from Underperform	Macquarie
PTM	Platinum Asset Management	Downgrade to Underperform from Neutral	Credit Suisse
RRL	Regis Resources	Downgrade to Hold from Buy	Ord Minnett
WES	Wesfarmers	Upgrade to Hold from Lighten	Ord Minnett
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.

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