The Monday Report – 03 May 2021

This story features BEACH ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: BPT

By Greg Peel

End of Month I

It was the end of the month, and it was a Friday, and the ASX200 had posted a rally for the month so no great surprise in some profit-taking. The extent of loss on Friday was nevertheless exacerbated by a handful of weak quarterly updates from individual companies.

The index gained 3.5% over April, with all of that coming in the first two weeks. Friday’s close ensured that after a lot of ups and downs, the index did not ultimately move in the second two weeks.

The big loser on the day was Beach Energy ((BPT)), down -24.1% after the company’s quarterly update included a reserve downgrade. The energy sector fell -1.7% to be the worst performer.

General profit-taking was apparent in Technology (-1.4%), materials (-1.3%) and healthcare (-1.3%). In the latter case, ResMed’s ((RMD)) quarterly earnings result included a miss on revenues. It fell -4.2%.

ANZ Bank ((ANZ)) announced another -$817m in write-downs, worth -50 basis points of tier one capital, and fell -0.7%. Financials lost -0.7%.

All sectors closed in the red bar industrials (+0.2%) and utilities (+0.4%), suggesting a slight switch into defensives.

PointsBet Holdings (PBH)) topped the index on the day with a 7.4% gain on its quarterly update, showing a 236% increase in gambling turnover. It’s a beautiful world we live in.

Mesoblast ((MSB)) rose 6.8% on trial results for its covid respiratory distress drug.

But there was a lot more action outside the index.

Japara Healthcare ((JHC)) announced it had received a takeover offer and jumped 26.3%. Call recording and analysis company Dubber ((DUB)) rose 18.6% on its quarterly. BNPL player Sezzle ((SZL)) gained 8.5% after announcing it intends to list in the US. Electro-Optic Systems ((EOS)) fell -8.1% on its update.

In economic news, China’s manufacturing PMI fell to 51.1 in April from 51.9 in March, with supply bottlenecks and softer demand to blame. The services PMI fell to 54.9 from 56.3.

We now enter the infamous month of May. If Friday was mostly about profit-taking then we should see a rebound today, but Wall Street’s gone and done the same thing, so our futures were down -7 points on Saturday morning.

That is only -0.1% to the S&P500’s -0.7%.

End of Month II

The S&P500 gained 5.6% in April but again, all of the gain was booked in the first two weeks. The second two weeks featured the bulk of the March earnings season, with last week the busiest of all.

So again it’s no surprise Friday night saw selling, but the underlying theme of the past two weeks continued. A beat on earnings is only good enough to justify lofty PE multiples already being applied, hence earnings have caught up to prices, rather than the other way around.

The big energy companies in the Dow both reported on Friday night and both beat on earnings. Exxon fell -2.9% and Chevron -3.6%. Energy is still the best performing sector so far in 2021.

Twitter reported its earnings, and fell -15.1% on lower user numbers.

US personal income rose 21% in March, having fallen -7% in February. A combination of jobs growth and stimulus cheques would have helped. Spending rose 4.2%, considered quite a surge for one month. The number to watch was nevertheless the Fed’s preferred personal consumption & expenditure (PCE) measure of inflation.

The core rate rose 0.4% when 0.3% was expected. The annual rate jumped to 1.8% from 1.4% in February to mark the highest rate since February 2020.

So higher than expected, but still below 2%, and probably a stand-out month that won’t necessarily be repeated. The US ten-year yield fell -1 basis point to 1.63%, so clearly no inflation concern evident.

The month of May signals summer in approaching in the US and has a reputation of being a month to sell. This only happens on occasion, but history does suggest Wall Street eases off on average over the summer when everyone’s on vacation.

Commodities

The US dollar index jumped 0.7% on Friday night, which is a large one-day move. Copper seemed to bear the brunt, while the fall in iron ore more likely reflects the rapid run-up to over US$190/t last week, as iron ore never much responds to the greenback.

Oil markets have finally figured out there are a lot of people in India, and if they’re not going anywhere they’re not consuming much oil.

India’s prime minister is now contemplating a national lockdown. Only now? Perth just narrowly missed a snap lockdown of a new covid “outbreak” of three. Brazil’s president has of course refused to implement a lockdown at any point.

We can also join the dots from covid disruption in Brazil as a one factor of lack of Brazilian iron ore supply, through to elevated iron ore prices.

Gold held out pretty well against the greenback and the Aussie matched the gain on falling -0.7% to US$0.7724.

The SPI Overnight closed down -7 points on Saturday morning.

The Week Ahead

It was May Day on the weekend, so comrades in the UK and China will enjoy a holiday today. China actually has a three-day holiday. Japan has a two-day holiday from today for its own reasons.

Hence the usual first-business-day-of-the-month manufacturing PMI releases and third-day services PMIs around the globe are spread out across this week.

Locally we’ll see manufacturing today along with job ads and house prices. On Wednesday it’s building approvals.

The RBA meets on Tuesday and given last week’s CPI result, is allowed to gloat.

The US will see April private sector jobs numbers on Wednesday and the official (non-farm payroll) jobs numbers on Friday, recalling that March saw close to a million Americans find work.

Westpac ((WBC)) reports half-year earnings today, followed by ANZ Bank on Wednesday and National Bank ((NAB)) on Thursday. Macquarie Group ((MQG)) reports its full-year on Friday.

Amcor ((AMC)) reports quarterly earnings on Wednesday, followed by REA Group ((REA)) and News Corp ((NWS)) on Friday, along with a quarterly update from Goodman Group ((GMG)).

There are several AGMs this week which I’ll highlight on the day.

The Australian share market over the past thirty days…

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