The Overnight Report: What Goes Up

Daily Market Reports | May 05 2021

This story features AUSTRALIA & NEW ZEALAND BANKING GROUP, and other companies. For more info SHARE ANALYSIS: ANZ

World Overnight
SPI Overnight (Jun) 7009.00 – 26.00 – 0.37%
S&P ASX 200 7067.90 + 39.10 0.56%
S&P500 4164.66 – 28.00 – 0.67%
Nasdaq Comp 13633.50 – 261.62 – 1.88%
DJIA 34133.03 + 19.80 0.06%
S&P500 VIX 19.48 + 1.17 6.39%
US 10-year yield 1.59 – 0.02 – 0.93%
USD Index 91.30 + 0.33 0.36%
FTSE100 6923.17 – 46.64 – 0.67%
DAX30 14856.48 – 379.99 – 2.49%

By Greg Peel

Material Move

After a rocky start yesterday the ASX200 made a strong run through lunchtime to be up over 40 points before settling back slightly to the close. Strength was mostly seen in the resource sectors.

With the gold price having jumped over US$20/oz overnight, all of the top five index winners on the day were gold miners, with gains ranging from 4-8%. Gold is down -US14/oz this morning.

The materials sector gained a standout 2.2%, not just thanks to gold but with help from the big miners. Unusually, the iron ore price has jumped over three dollars which is pretty much unheard of with China on holiday. The energy sector chimed in with a 1.7% gain on a stronger oil price. Oil was up again overnight.

Consumer staples (+0.9%) rebounded after a weak period post quarterly sales results, but the banks went missing on the day after Monday’s sharp gains.

The biggest loser was technology (-2.0%), which followed down the Nasdaq, and will no doubt do so again today.

While the RBA left its cash rate at 0.1% yesterday as expected, there was a lot more in this month’s statement than was anticipated.

The board has upgraded its 2021 GDP growth forecast to 4.75% and 2022 to 3.5%, with employment expected to decline to 5% in 2021 and 4.5% in 2022, despite unemployment being above those numbers pre-pandemic. Importantly, inflation expectations have increased to 2% by mid-2023 from 1.75% previously.

This leads to uncertainty over whether the current QE program of three-year bond buying will be rolled from April 2024 bonds to November 2024 bonds, and if so, by what quantum. Upgraded forecasts would suggest a roll-forward is unlikely, but because “the board places a high priority on a return to full employment” it probably is likely.

The statement also suggested the cash rate will not be increased until inflation is sustainably within the 2-3% range, which is “unlikely to be until 2024 at the earliest”. Last month the board did “not expect these conditions to be met until 2024 at the earliest”. A subtle shift.

So what does it all mean? The ten-year yield fell one basis point. The stock market hovered around. No real clue.

In other economic news, total lending for housing rose 5.5% in March having fallen -0.3% in February. Owner occupier loans rose 3.3% and investor loans rose 12.7%. Owner-occupiers had been driving the latest house price bubble but now the investors are back. Annual investor loan growth has hit 54.3% to owner-occupier growth of 55.6%.

APRA will be sharpening its knife.

Yellen Louder

It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.

These words last night from Treasury Secretary and former Fed chair Janet Yellen have been blamed for last night’s tech sell-off. They follow a similar suggestion from the Dallas Fed president earlier in the week. However, while Yellen would not have served to quell fears of a Fed tightening, the Nasdaq was being well sold before she opened her mouth at 11am New York time.

And the US ten-year bond yield fell one basis point to 1.59%.

Yellen was specifically referring to Biden’s infrastructure plans, and within the same speech suggested inflation should not be an issue.

The reality is the Nasdaq fell heavily last night because it could no longer go up.

The mega-tech companies have now reported earnings and while mostly blowing away forecasts, they had mostly not seen positive share price responses given already stiff valuations. Amazon and Apple had actually been largely flat since September. Wall Street in general was flat all through the last two weeks of April. If a market won’t go up…

The Dow was actually down over -300 points early in the session before grafting all the way back up. Buyers took the opportunity to jump into “old world” industrials and cyclicals in the ongoing rotation. They funded purchases by selling out of tech names that had seen enormous gains post the covid low.

Apple and Microsoft still dragged on the Dow and the -0.7% fall for the S&P500 split the difference between tech and not-tech, or value and growth.

With most of Big Tech and friends having reported earnings, there’s an element of what now? What can justify driving valuations ever higher? The “reopening” is more beneficial for cyclicals that have so far not seen as stellar year on year gains.

But is the “reopening trade” also now priced in? As usual, there is much talk of a correction pending. Since the covid low, and indeed all through the Trump period, pullbacks have proven mild and swift. With the Fed fixated on zero rates, and bond prices expected to only go down (yields up), the stock market is one of the only games in town.

And crypto.

Bitcoin? That’s old hat. Far more useful as crypto currency, the pundits suggest, is ether, which is the currency of the Ethereum blockchain. It’s up 60% in a month.

Commodities

Spot Metals,Minerals & Energy Futures
Gold (oz) 1779.00 – 13.90 – 0.78%
Silver (oz) 26.49 – 0.41 – 1.52%
Copper (lb) 4.54 + 0.07 1.48%
Aluminium (lb) 1.11 + 0.01 0.58%
Lead (lb) 0.98 + 0.02 1.65%
Nickel (lb) 7.99 + 0.17 2.21%
Zinc (lb) 1.33 + 0.02 1.75%
West Texas Crude 65.69 + 1.20 1.86%
Brent Crude 69.45 + 1.82 2.69%
Iron Ore (t) 189.65 + 3.20 1.72%

No surprise that one of the “old world” industrial sectors being bought up on Wall Street last night was materials.

Bear in mind, however, that markets are pretty thin with both China and Japan absent.

The notable move is in gold, which has lost over half of Monday night’s strong gain.

The RBA has upped its GDP forecast and commodity prices are running riot. The Aussie is down -0.6% at US$0.7716. Go figure.

Today

The SPI Overnight closed down -26 points or -0.4% in anticipation of all our local mega-tech names being slammed today. Can’t be any other reason.

Locally we’ll see March building approvals numbers today and the US will see private sector jobs numbers tonight.

ANZ Bank ((ANZ)) reports half-year earnings and Amcor ((AMC)) quarterly earnings, as does Virgin Money UK ((VUK)).

QBE Insurance ((QBE)) holds its AGM.

Bank of Queensland ((BOQ)) goes ex.

The Australian share market over the past thirty days…

BROKER RECOMMENDATION CHANGES PAST THREE TRADING DAYS
COF Centuria Office Reit Downgrade to Neutral from Outperform Credit Suisse
EOS ELECTRO OPTIC SYSTEMS Downgrade to Neutral from Buy Citi
GOZ Growthpoint Prop Downgrade to Neutral from Outperform Credit Suisse
JHC Japara Healthcare Downgrade to Hold from Accumulate Ord Minnett
MTO Motorcycle Holdings Upgrade to Add from Hold Morgans
OGC Oceanagold Downgrade to Underperform from Neutral Macquarie
PAN Panoramic Resources Downgrade to Hold from Add Morgans
PBH Pointsbet Holdings Upgrade to Outperform from Neutral Credit Suisse
Upgrade to Buy from Hold Ord Minnett
RMD ResMed Upgrade to Hold from Lighten Ord Minnett
Downgrade to Neutral from Buy Citi
RSG Resolute Mining Upgrade to Buy from Neutral Citi
Upgrade to Outperform from Neutral Macquarie
SKI Spark Infrastructure Upgrade to Add from Hold Morgans

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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CHARTS

AMC ANZ BOQ QBE VUK

For more info SHARE ANALYSIS: AMC - AMCOR LIMITED

For more info SHARE ANALYSIS: ANZ - AUSTRALIA & NEW ZEALAND BANKING GROUP

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: QBE - QBE INSURANCE GROUP LIMITED

For more info SHARE ANALYSIS: VUK - VIRGIN MONEY UK PLC